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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the
fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the
transition period from to
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Commission file number: 0-29634
FUNDTECH LTD.
(Exact Name of Registrant as Specified in its Charter)
ISRAEL
(State or Other Jurisdiction of Incorporation or Organization)
12 HA'HILAZON STREET, 5TH FLOOR, RAMAT GAN 52522, ISRAEL
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Ordinary Shares, NIS 0.01 par value
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value of the voting common equity held by non-affiliates
was $252,919,603 as at March 23, 2000. The number of Ordinary Shares outstanding
at March 23, 2000 was 14,054,007.
DOCUMENTS INCORPORATED BY REFERENCE:
None
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
PART II
Item 5. Market for Registrants' Common Equity and Related
Stockholder Matters Price Range of Ordinary Shares.......... 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 25
Item 8. Financial Statements and Supplementary Data................. 25
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 50
Item 10. Directors and Executive Officers of the Registrants......... 50
Item 11. Executive Compensation...................................... 56
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 60
Item 13. Certain Relationships and Related Transactions.............. 61
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 62
Signatures.............................................................. 65
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PART I
ITEM 1. BUSINESS
Fundtech is a leading provider of software solutions which enables
businesses and their banks to process payments electronically, transfer funds
and manage cash positions. Our client/server web enabled software products
automate the process of transferring funds among corporations, banks and
clearance systems and enable businesses to manage global cash positions
efficiently and in real-time. Fundtech's products and related services are
designed to integrate all elements of the electronic payments cycle, including
electronic funds transfer, cash management and treasury management.
INDUSTRY BACKGROUND
The increasing integration of global economies has led to a dramatic
increase in the number of financial transactions initiated and settled each day
through electronic payments and funds transfers. National and multinational
financial institutions and businesses must facilitate this ever-increasing
volume of electronic payments and funds transfers. In 1997, 90 million funds
transfers having an approximate aggregate value of $288 trillion took place in
the United States over the Federal Reserve's FedWire system. The Clearing House
Inter-bank Payments System (CHIPS) handled 59 million transactions at a total
aggregate dollar amount exceeding $360 trillion. More than three times as many
transactions occurred internationally with SWIFT payments message transfer
volume at 540 million.
National and multinational financial institutions and businesses must
facilitate this ever-increasing volume of electronic payments and funds
transfers. The transfer and settlement of funds has traditionally been
error-prone, inefficient and costly due to a significant manual back-office
component on both sides of the transfer. In addition, the integration of global
economies has increased both the complexity and the importance of managing the
flow of a corporation's funds on a daily basis. Finally, the rapid growth of
business-to-business e-Commerce is changing the way that corporate payments are
made. Consequently, businesses are demanding from their financial institutions
web based cash management solutions that permit real-time management of funds
across multiple accounts, currencies and international borders, and payment
solutions that support the real-time initiation, authorization and settlement of
electronic payments.
To service the emerging needs of their business clients, financial
institutions are seeking a more cost-efficient method of offering funds transfer
and cash management services and are increasingly migrating to electronic
intranet/internet and client/server based platforms.
Electronic payments enable businesses to transfer funds in a rapid and
secure manner, and permit the financial institutions which implement such
transfers to do so accurately, rapidly and cost-effectively. Electronic payments
and funds transfers are made through: (1) a financial institution at which the
transferring party has an account; (2) a financial institution at which the
receiving party has an account; and (3) a clearing bank at which the financial
institutions of both parties have their own accounts. Linking all these parties
is a network comprised of financial institutions which serve as intermediaries,
receiving payment instructions and transmitting them to the next appropriate
institution along the payment route. In the United States, the primary funds
transfer network is the FedWire, which connects more than 10,000 financial
institutions. Internationally, the primary funds transfer network is SWIFT,
which connects approximately 6,000 financial institutions and related
enterprises in more than 178 countries.
Electronic banking provides a link between banks and their business
clients, enabling such clients to manage their cash, debt and other accounts in
a real-time comprehensive and secure manner, and permitting the financial
institutions with which such businesses have accounts to implement, record and
report the financial transactions conducted by such businesses rapidly and
cost-effectively. Some of the features that comprise an electronic banking
solution include: facilitating the transfer of cash within an organization;
enabling control of cash movement through interfacing with financial
institutions; and providing the capability to report on the status of all types
of accounts, including lines of credit, and on the availability of funds.
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PRODUCTS AND SERVICES
Fundtech's products and related services are designed to integrate all
elements of the electronic payments cycle, including: electronic funds transfer;
cash management; and treasury management. Fundtech believes that its products
are among the most technologically advanced and cost-effective solutions in the
electronic payments and banking industry. Fundtech's products facilitate all
aspects of the electronic payments and banking cycle including payment
initiation, electronic balance reporting, account reconciliation, real-time
account balance verification, and other sophisticated auditing and reporting
functionality. Fundtech's products offer exceptional graphical user interfaces,
enabling its customers to easily receive accurate and focused information
concerning the status of electronic payment transactions and other cash
management data.
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PRODUCT NAME DESCRIPTION RELEASE DATE
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ELECTRONIC FUNDS TRANSFERS SOLUTIONS
FEDplu$(TM).................... Supports payment processing, risk management May 1995
and regulatory compliance for U.S. financial
institutions that utilize the Federal Reserve
Bank's FedWire system for high value payments.
PAY$tar(TM).................... Supports payment processing, risk management January 1997
and regulatory compliance for international
multi-currency payments of international banks
operating in the U.S., including Fedwire,
SWIFT and CHIP payments.
PAYplus RTGS(TM)............... Supports payment processing, risk management December 1997
and regulatory compliance for international
banks that utilize payments systems of
countries other than the U.S.
Interbank Gateway Services..... A service bureau solution providing technology February 1995
infrastructure for banks' e-payments and
e-commerce activities.
PAYplus CLS(TM)................ A comprehensive CLS Settlement Member and Under development
Third Party Solution designed to manage
foreign exchange risk and facilitate
electronic payment for the world's largest
banks.
Global PAYplus(TM)............. A solution for managing the global payments September 1999
activity for large banks and financial
institutions supporting payment processing,
risk management and regulatory compliance.
WireUP(TM)..................... Contingency recovery products and services for December 1997
Fundtech's clients.
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PRODUCT NAME DESCRIPTION RELEASE DATE
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CASH MANAGEMENT SOLUTIONS
ACCESS Banking Products
ACCESS Banking(TM)............. ACCESS Banking allows financial institutions March 1995
to deliver a comprehensive set of cash
management services to their corporate clients
through a full range of delivery channels,
including the Internet.
InfoVue(TM).................... A delivery channel for ACCESS that is based on October 1995
the Microsoft Windows standard that delivers
cash management functionality to the corporate
end user's desktop.
WebAccess(TM).................. A browser-based delivery channel for ACCESS September 1998
that delivers cash management functionality to
the corporate end user via the web.
Access.pro(TM)................. The next generation Internet-based cash Under development
management across global accounts in multiple
currencies designed for large financial
institutions.
Fundtech Banker Products
Fundtech Banker(TM)............ A fully integrated, cost effective corporate March 1991
cash management system designed primarily for
the community bank market.
Fundtech Banker for the
Internet(TM)................. A Web-based cash management system that runs November 1998
with the Fundtech Banker cash management
system.
TREASURY MANAGEMENT SOLUTIONS
RECON$tar(TM).................. An automated reconciliation system for February 1996
payments and other electronic transactions.
Global CASHstar(TM)............ A multi-currency treasury management system Under development
for large financial institutions and large
business enterprises.
NOSTROplus(TM)................. A reconciliation solution for the management September 1999
of correspondent bank accounts.
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ELECTRONIC FUNDS TRANSFER SOLUTIONS
FEDPLU$
Fundtech's FEDplu$ product is a client/server funds transfer solution used
to connect a financial institution's funds transfer room to the Federal
Reserve's FedWire system. FEDplu$ enhances and improves productivity and
customer service for financial service institutions in what has long been an
area of manually intensive back-office operations. FEDplu$, which can interface
with many different bank accounting packages while automating the wire transfer
process, made an immediate impact on the targeted market of midsized financial
institutions.
FEDplu$ interconnects with branches and customers using LAN/WAN
architecture and relational databases. FEDplu$ provides financial institutions
with complete funds transfer capacity at substantially lower cost than other
technologies. At the same time, FEDplu$ both reduces payments risk (through
real-time updates of account balances by means of an on-line interface with the
host computer) and improves customer service (through its
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comprehensive database containing all the information about a transfer -- from
its creation to accounting and memo posting).
PAY$TAR
Fundtech's PAY$tar product is a fully integrated domestic and international
multi-currency payments solution that enables the handling of transactions
through Fedwire, SWIFT, and CHIPS and interconnects to internal bank back-office
systems and remote customer/branch workstations.
PAY$tar supports high-value payments with initiation from customers and
branches via LAN/WAN, telephone or fax. Based on Windows NT client/server
technology, PAY$tar provides comprehensive funds transfer automation, regulatory
compliance and management of non-payment, fraud, credit and foreign exchange
risks. In addition, PAY$tar reduces payment risk for the financial institution
initiating the transfer through on-line verification of customer balances.
PAY$tar enhances customer service by providing immediate confirmation and
advising of payments; a comprehensive electronic audit trail on each payment
from its creation through account posting; and on-line access to a database for
historical research and investigations. PAY$tar supports multi-banking,
anticipated-funds monitoring, Nostro account management, and regulatory
reporting.
PAYPLUS RTGS
Fundtech's PAYplus RTGS solution is a client/server electronic funds
transfer software product that is used by financial institutions outside the
United States to process payment transactions and to settle with central bank
real-time gross settlement system. PAYplus RTGS functionality includes: (1)
management of a financial institution's cash reserves at a central bank; (2)
forecasting of end-of-day funds availability; (3) reconciliation of transactions
performed by customers of the financial institution directly with the central
bank; and (4) management of non-payment, fraud, foreign exchange and credit
risks.
PAYPLUS CLS
PAYplus CLS is an integrated solution to help large foreign exchange
trading banks address the requirements of the Continuous Linked Settlement
system (CLS). PAYplus CLS provides Payments, Treasury, Reconciliation, Interface
and Systems Management controls to insure that the bank meets necessary
requirements and will also provide full control and functionality for its FX
trading relationships.
GLOBAL PAYPLUS(TM)
Fundtech's Global PAYplus provides institutions with a global view of their
payments activity. This multi-tiered system addresses the needs of both local
and global payment processes. At the local level, Global PAYplus employs
Fundtech's PAYplus RTGS solution, a client/server funds transfer payment system
that supports the local payment processing, risk management and regulatory
compliance for the local clearing systems. At the global level, Global PAYplus
aggregates worldwide payment activity. Global PAYplus is a multi-platform system
supporting both UNIX and NT that employs open technology standards. The system
features end-to-end security and multi-currency capabilities.
WIREUP -- CONTINGENCY PROCESSING CENTERS
Fundtech's WireUp -- Contingency Processing Centers were developed to
respond to the need expressed by many of Fundtech's customers for a contingency
back-up system for wire transfer operations (in accordance with government
regulations), and to realize Fundtech's objective of entering a niche market
within the client base of Fundtech and its partners. Fundtech's WireUp offering
supports all of Fundtech's US-based product groups and has centers in Jersey
City, New Jersey, San Leandro, California and Atlanta, Georgia.
INTERBANK GATEWAY SERVICES
Fundtech Biveroni's Interbank Gateway Services is a set of electronic
payments and securities application services provided by our service bureau in
Switzerland. The Interbank Gateway Services provides a secure and
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reliable technology infrastructure which enables financial institutions to
initiate, process and support electronic payment transactions across a wide
range of settlement systems. The service bureau's customers are currently
predominantly Swiss banks, but Fundtech intends to expand this offering into
other areas of the world. In addition, Fundtech intends to continue expanding
the application services offered by the service bureau in an effort to continue
offering its bank customers the most complete set of electronic payment and
e-commerce solutions available in the market.
Interbank Gateway Services provides the following application
functionality:
SICigt allows banks and other financial institutions to connect to the
Central Bank of Switzerland for the processing and settlement of bank to
bank e-payments.
EuroSICigt allows banks and other financial institutions to connect to
the Central Bank of Switzerland for the processing and settlement of bank
to bank Euro-denominated e-payments.
SECOMigt allows banks and other financial institutions to engage in
the electronic trading and settlement of securities transactions through
online-access to SECOM, Switzerland's securities trading and settlement
system.
SWIFTigt allows banks and other financial institutions to connect to
the SWIFT network for the processing and settlement of international bank
to bank e-payments.
CASH MANAGEMENT SOLUTIONS
ACCESS BANKING
Fundtech's Access Banking solution is a client/server product that enables
banks and other financial institutions to provide cash management services to
their corporate clients. ACCESS banking is targeted at the mid to large size
financial institutions. Through Access Banking, clients can obtain balance
history and intra-day reporting, manage check transactions, originate ACH
transactions and initiate wire transfer payments. Access Banking consists of a
server located in the back-office of a bank and a remote access module located
at the premises of the bank's corporate client. Clients can interact with the
bank's Access Banking server remotely via the web, touch-tone telephone with
voice response, teletype terminal emulation, or facsimile transmission.
INFOVUE
Fundtech's InfoVue product is a Windows-based cash management software
suite for interfacing with Access Banking. The InfoVue suite includes balance
reporting of current and previous-day balances, ACH origination, wire
initiation, book transfers and check management.
WEBACCESS
webACCESS is a browser-based cash management interface to the Access
Banking server at the bank. Financial institutions can use webACCESS to provide
low-cost, branded banking services to their corporate clients via Internet,
intranet or extranet.
ACCESS.PRO
Fundtech's Access.pro product, an Internet-based product currently under
development, will enable corporations to perform sophisticated cash management
functions across accounts at multiple branches, in multiple currencies, and in
multiple countries and regulatory environments. Access.pro is Internet-based.
Access.pro will reduce the cost of delivering remote banking services through
universal access and simplified maintenance and distribution of remote software.
FUNDTECH BANKER
Fundtech Banker is a Windows NT based suite of cash-management products for
the delivery of comprehensive electronic banking to the commercial and corporate
markets. The Fundtech Banker suite provides
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bank's commercial customers with timely notification of fraudulent or
miss-posted transactions, expedited funds transfer services, reduced
reconcilement costs, and more timely information flow and data delivery.
Fundtech Banker allows small and mid-tier banks to offer corporate and
commercial business customers products and services that previously were only
available to large corporations, helping them to retain valuable customers.
FUNDTECH BANKER FOR THE INTERNET
A Web-based product line that addresses the unique electronic banking
service needs of the small business and middle market. Fundtech Banker for the
Internet, a Web-based payments product, is run with Fundtech Banker, Fundtech's
PC-based cash management suite of products.
TREASURY MANAGEMENT SOLUTIONS
RECON$TAR
Fundtech's RECON$tar solution is a client/server system based on Windows NT
and SQL Server software that enables financial institutions to automatically
reconcile various types of transactions, such as incoming/outgoing wire transfer
transactions. Flexibility was incorporated into the product to cover a wide
range of reconciliation requirements and to permit tailoring of the product to
meet specific processing, accounting and reporting needs.
GLOBAL CASHSTAR
Global CASHstar, is a treasury management system for large financial
institutions and industrial companies. Global CASHstar facilitates the transfer
of cash to and from an institution's branches worldwide through intelligent
global workflows. This system functionality includes cash movement control,
auditability, accounting, and reconciliation for the related activities; report
on funds availability, cash balance management and risk management.
NOSTROPLUS
NOSTROplus is designed to facilitate the management of correspondent
account relationships worldwide by enabling banks to meet target balances at the
account and currency level while minimizing the costs of account ownership.
NOSTROplus is a client/server software application that combines account
balance management, automated funding, and account/transaction matching
features. NOSTROplus supports processing for all currencies and includes special
features for the management of Euro accounts and sweep relationships.
CUSTOMERS AND MARKETS
Fundtech's scaleable products are sold to a wide array of financial
institutions and large business enterprises.
The markets for Fundtech's products consist of the following end-users:
U.S. Banks -- This group of customers may be divided into three tiers. The
top tier consists of over 100 banks each with more than $5 billion in assets.
The second tier consists of approximately 3,000 banks with over $100 million in
assets. The third tier consists of approximately 7,000 small banks with less
than $100 million in assets.
Agency Banks and Branches of Foreign Banks Located in the United
States -- These banks are located mainly in financial centers such as New York
City, San Francisco, Los Angeles and Dallas.
Banks Located Outside of the U.S.
Large Business Enterprises -- These enterprises consist of: (1) financial
institutions which provide regular treasury management services to large
corporations; (2) large non-bank financial institutions, primarily brokerage
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houses, bond dealers, and insurance firms, which need to conduct their own
internal treasury management and risk management activities; and (3) Fortune 500
companies with significant multinational operations which require a real-time
view of their cash position.
SALES AND MARKETING
Fundtech sells its products through its direct sales force and through
distributors including EDS Japan, Fiserv, and Compaq. Because the sale of
electronic payments and banking products is highly technical, the sales cycle
varies by product and customer.
Fundtech's distributors serve as an integral part of Fundtech's marketing
and service network worldwide. They have contributed significantly to Fundtech's
growth through cross-selling Fundtech products to their current client/product
bases and extensive marketing and promotion of Fundtech's name and products.
Compaq is a manufacturer of computer hardware used for on-line transaction
processing worldwide, and has assembled a consortium of companies (the "NPF
Consortium") whose combined offering, The Non-Stop Payments Factory ("NPF"),
which is based on the Windows NT platform, is designed to comprehensively
address the wholesale banking needs of major international financial
institutions.
EDS Japan, a subsidiary of Electronic Data Systems Corporation, is a
professional consulting services firm engaging in systems development and data
center and network management and offering special expertise in cash management,
risk management and customer relationship banking. EDS Japan's clients include
Citibank N.A., Fujitsu Ltd., General Motors, Yamaha Motor Co., Ltd. and
Mitsubishi Motor Co., Ltd. Fundtech has entered into contracts with EDS Japan
for the distribution in Asia of its cash management products.
Fiserv is an independent producer of financial data processing systems and
related information management services and products which it markets to
financial institutions worldwide. Fundtech has entered into contracts with two
divisions of Fiserv, Fiserv Pittsburgh and Fiserv CBS. Fiserv Pittsburgh is
selling Fundtech's products to its client base through sales representatives.
Fiserv's outsourcing division, Fiserv CBS, sells PAY$tar to its substantial
customer base through sales representatives.
Fundtech focuses a significant amount of its sales and marketing resources
on its distributors, communicates with them regularly and provides them with
ongoing support. In addition, Fundtech, in conjunction with its distributors,
participates in exhibitions of its products worldwide, places advertisements in
local publications, encourages exposure in the form of articles and editorials
in communications journals and other periodicals and prepares direct mailings of
flyers and advertisements focusing on Fundtech's products. Fundtech also markets
its products directly through our World Wide Web home page.
STRATEGIC ALLIANCES
The material strategic alliances formed by Fundtech to date include:
COMPAQ
Compaq has funded the initial development and integration of the NPF
Consortium's software products. Compaq's sales and marketing program for NPF
uses worldwide sales and systems integration resources to promote the integrated
offering. In addition, Fundtech and Compaq participate together in trade shows,
banking industry advertising and other joint marketing activities.
MICROSOFT
Fundtech is a Microsoft Independent Software Vendor and is also a Microsoft
Solution Provider. In the context of this strategic relationship, Fundtech
develops its software solutions to operate on Microsoft operating systems, such
as Windows, Windows NT and BackOffice. Microsoft provides Fundtech with
marketing support such as including Fundtech in Microsoft's regional banking
seminars, advertising some of Fundtech's products in Microsoft Solution Provider
directories (including the World Wide Web page), and jointly participating with
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Fundtech in trade shows, banking industry advertising and other public relations
opportunities. In addition, Microsoft provides Fundtech with technical and
software development support.
SWIFT
Another strategic partner of Fundtech is SWIFT, a global information
network that links approximately 6,000 banks, securities firms and stock
exchanges in more than 160 countries. Member financial institutions exchange
payment instructions and funds and securities transfer details using standard
message formats.
SOFTWARE DEVELOPMENT
Fundtech believes that its software development team provides a significant
competitive advantage. The team is comprised of developers with experience in
visual programming design and object-oriented software development of
mission-critical applications. Fundtech believes this assembly of diverse
technical expertise contributes to the highly integrated functionality of its
products. Fundtech's ability to attract and retain highly qualified employees
will be the principal determinant of its success in maintaining technological
leadership. The total software development staff consisted of 172 full-time
employees, as of March 1, 2000. All of Fundtech's products have been developed
internally by its product development staff. Fundtech believes significant
investments in product development are required to remain competitive.
To ensure that its products are developed successfully, within their
budgets and according to schedule, Fundtech sends its products through four
distinct design and testing stages: (1) specifications are developed through
consultation with prospective users to ensure that the product matches the
user's requirements; (2) an internal quality assurance team verifies the
integrity of the product at each stage of development prior to beta testing; (3)
beta testing data is used to evaluate the functionality of the products and
their ability to perform under realistic conditions; and (4) a controlled group
of users is polled regularly to identify any modifications that may be
necessary. In addition, Fundtech works closely with current and potential
end-users, Fundtech's strategic partners and leaders in certain industry
segments to identify market needs and define appropriate product specifications.
Fundtech's employees also participate in numerous user focus groups to review
product design. Fundtech has software development sites in Israel, Switzerland,
New Jersey, Massachusetts and Georgia. Fundtech believes that separating
development by geographic region both allows for development to be close to the
targeted market and increases Fundtech's opportunity to attract development
talent.
CUSTOMER SUPPORT AND MAINTENANCE
Fundtech believes that effective customer support and maintenance in the
software industry requires rapid, efficient and comprehensive installation of
the product. Upon installation, Fundtech strives to provide superior customer
support by solving problems quickly and providing customers with consistent,
accurate and understandable technical information. Fundtech employs test scripts
and bank production data to test its solutions and its products are shipped with
back-up procedures installed. Fundtech recognizes that, in the event problems do
arise, timely solutions are essential for mission-critical solutions like
FEDplu$, PAY$tar, PAYplus RTGS and Access Banking. Fundtech's policy is to
emphasize responsiveness to customer inquiries and to provide telephonic support
twenty-four hours a day. Customer inquiries range from production problems to
user questions and hardware issues. In addition, Fundtech utilizes Remote Access
Services (RAS-Windows NT service) to enhance remote customer support. Certain of
Fundtech's distributors also provide sales, service and technical support
functions for Fundtech's products to end-users in the distributors' respective
territories.
COMPETITION
Fundtech believes that the principal competitive factors in the industry in
which it operates are product performance, technical features, compatibility
with existing operating systems, reliability, security, relational database
powers, price, customer service and support, and ease of use. Fundtech believes
that its products and related services are competitive with respect to these
factors. However, there can be no assurance that Fundtech will be able to
differentiate its products from the products of its competitors or to develop or
introduce successfully new products that are less costly than or superior to
those of its competitors. In addition, existing and
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new competitors of Fundtech may have established relationships with Fundtech's
existing and potential customers, which could have a material adverse effect on
Fundtech's ability to compete.
The industry in which Fundtech operates is highly competitive and evolving.
Furthermore, certain large banks have developed solutions internally which they
have then marketed to other banks or implemented in banks that they have
acquired. Many of Fundtech's existing and potential competitors have or are
likely to have more extensive engineering, development, marketing, distribution
(particularly with respect to direct sales forces), financial, technological and
personnel resources than Fundtech.
Increased competition could materially adversely affect Fundtech's revenues
and profitability through loss of market share, pricing pressures and other
factors, any of which could have a material adverse effect on Fundtech's
business, financial condition and results of operations.
PROPRIETARY RIGHTS
Fundtech relies upon a combination of contractual rights, trade secrets,
copyrights, technical measures, non-disclosure agreements and trademarks to
establish and protect its proprietary rights in its products and technologies.
In addition, although Fundtech sometimes enters into non-disclosure and
confidentiality agreements with its employees and distributors with access to
sensitive information, there can be no assurance that these agreements will not
be breached, that Fundtech would have adequate remedies for any breach, that
others will not acquire substantially equivalent proprietary technologies, that
others will not otherwise gain access to Fundtech's proprietary technologies, or
that any particular technology will be regarded as a trade secret under
applicable law. As a result of the reliance that Fundtech places on its trade
secrets, loss of Fundtech's trade secret protection could have a material
adverse effect on Fundtech's business, financial condition and results of
operations. Fundtech has no registered patents or pending patent applications.
There can be no assurance that the steps taken by Fundtech to protect its
proprietary rights will be adequate to prevent misappropriation of Fundtech's
technology or independent development or sale by others of software products
with features based upon, or otherwise similar to, those of Fundtech's products.
Although Fundtech believes that its technology has been independently
developed and that none of its technology or intellectual property infringes on
the rights of others, there can be no assurance that Fundtech does not and will
not so infringe or that third parties will not assert infringement claims
against Fundtech in the future. If such infringement were found to exist,
Fundtech would, under certain circumstances, be required to modify its products
or technologies or obtain a license to permit their continued use. There can be
no assurance that Fundtech would be able to do either in a timely manner or upon
acceptable terms and conditions, and any failure to do so could have a material
adverse effect on Fundtech's business, financial condition and results of
operations. In addition, if future litigation were to become necessary to
protect trade secrets, know-how or other proprietary rights owned by Fundtech,
to defend Fundtech against claimed infringement of the rights of others or to
determine the scope and validity of the proprietary rights of others, such
litigation, whether successful or unsuccessful, could result in substantial cost
to, and diversion of efforts by, Fundtech. Adverse determinations in any such
litigation or proceedings also could subject Fundtech to significant liabilities
to third parties and could prevent Fundtech from producing, selling or using
certain of its products or technologies, any of which could have a material
adverse effect on Fundtech's business, financial condition and results of
operations. There can be no assurance that Fundtech will have the resources to
defend or prosecute a proprietary rights infringement or other action. In
addition, the laws of certain countries may not protect Fundtech's contractual
rights, trade secrets, copyrights, technical measures, non-disclosure
agreements, trademarks, products, processes or technologies to the same extent
as in the U.S.
GOVERNMENT REGULATION
Fundtech's current and prospective customers, which include financial
institutions such as state and federally chartered banks and savings and loan
associations as well as customers in other industries that Fundtech may target
in the future, operate in markets that are subject to extensive and complex
regulation. While Fundtech is not itself directly subject to such regulation,
Fundtech's products and services must be designed to work within the extensive
and evolving regulatory constraints under which its customers operate. The
failure of Fundtech's
11
<PAGE> 12
products and services to support customers' compliance with current regulations
and to address changes in customers' respective regulatory environments, or to
adapt to such changes in an efficient and cost-effective manner, could have a
material adverse effect on Fundtech's business, results of operations and
financial condition.
EMPLOYEES
As of March 1, 2000, Fundtech had 58 employees in Israel, 41 employees in
Switzerland, six employees in the United Kingdom, two in Australia, and 250
employees in the United States. Of the 250 employees in the United States, 113
were employed in software development, 81 in operations, 23 in sales and
marketing, and 33 in administration. Of the 58 employees in Israel, 41 were
employed in software development, seven in operations, four in sales and
marketing and six in administration. Of the 41 employees in Switzerland, 18 were
employed in software development, 12 in operations, four in sales and marketing,
and seven in administration. Of the six employees in the United Kingdom, four
were in sales and two were in operations. One employee in Australia is in
operations and one is in sales. Fundtech considers its relations with its
employees to be good and has never experienced a labor dispute, strike or work
stoppage. Fundtech's employees are not represented by a labor union.
None of Fundtech's employees is a party to a collective bargaining
agreement with Fundtech. However, Fundtech is subject to certain provisions of
collective bargaining agreements among the Government of Israel, the Histadrut
(General Federation of Labor in Israel) and the Coordinating Bureau of Economic
Organizations (including the Industrialists' Association) that are applicable to
Fundtech's Israeli employees by virtue of expansion orders of the Israeli
Ministry of Labor and Welfare. In addition, Israeli labor laws are applicable to
all of Fundtech's employees in Israel. Those provisions and laws principally
concern the length of the work day, minimum daily wages for workers, procedures
for dismissing employees, determination of severance pay and other conditions of
employment.
A general practice followed by Fundtech, although not legally required, is
the contribution of funds on behalf of most of its full-time employees in Israel
to an individual insurance policy known as "Managers' Insurance." This policy
provides a combination of savings plan, insurance and severance pay benefits to
the insured employee; it provides for payments to the employee upon retirement
or death and secures the severance pay, if any, to which the employee is legally
entitled upon termination of employment. The remaining part of this obligation
is presented on the balance sheet of Fundtech as provision for severance pay.
See Note 9 to the Consolidated Financial Statements.
All Israeli employers, including Fundtech, are required to provide certain
increases in wages as partial compensation for increases in the CPI. The
specific formula for such increases varies according to agreements reached among
the Government of Israel, the Manufacturers' Association and the Histadrut.
Israeli employees and employers also are required to pay pre-determined sums
(which include a contribution to national health insurance) to the Israel
National Insurance Institute, which provides a range of social security
benefits.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING INFORMATION
Statements included in this Report may contain forward-looking statements.
Such forward-looking statements are made pursuant to the safe-harbor provisions
of the Private Securities Litigation Reform Act of 1995. Such statements may
relate, but are not limited, to projections of revenues, income or loss, capital
expenditures, plans for growth and future operations, competition and regulation
as well as assumptions relating to the foregoing. Forward-looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
or quantified. When used in this Report, the words, "estimates", "expects",
"anticipates", "believes", "plans", "intends" and variations of such words and
similarly expressions are intended to identify forward-looking statements that
involve risks and uncertainties. Future events and actual results could differ
materially from those set forth in, contemplated by or underlying the
forward-looking statements. The factors that could cause actual results to
differ materially from those suggested by any such statements include, but are
not limited to, those discussed or identified from time to time in Fundtech's
public filings, including general economic and market conditions, changes in
regulations and taxes and changes in competition and pricing environments. Undue
reliance should not be placed on these forward-looking statements, which are
applicable only as of the date
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<PAGE> 13
hereof. Fundtech undertakes no obligation to revise or update these
forward-looking statements to reflect events or circumstances that arise after
the date of this Report or to reflect the occurrence of unanticipated events.
ITEM 2. PROPERTIES
Fundtech does not own any real property. As of March 1, 2000, Fundtech
leased an aggregate of approximately 1,214 square meters of office space in
Ramat Gan, Israel, an aggregate of approximately 6,000, 12,000, 15,000, 2,000
and 22,000 square feet of office space in Lexington, Massachusetts, Jersey City,
New Jersey, Carrollton, Texas, San Leandro, California and Norcross, Georgia,
respectively and 9,000 and 2,000 square feet of office space in Switzerland and
the U.K. The aggregate annual lease payments for Fundtech's facilities were
approximately $1,056,000.
ITEM 3. LEGAL PROCEEDINGS
On or about October 22, 1999, a complaint was filed in the United States
District Court for the District of New Jersey. Plaintiff purports to represent a
class consisting of persons and entities who purchased or acquired ordinary
shares of Fundtech Ltd. on October 6, 1999. Plaintiff alleges that Fundtech
violated section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder by making statements at an analysts conference before the
opening of the market on October 6, 1999 that did not reveal that later that day
Fundtech would announce an earnings shortfall. Plaintiff seeks compensatory
damages and/or rescission, the costs of the action, including attorneys' fees,
accountants' fees and expert fees, and such other further relief as the court
may deem just and proper. Plaintiff has advised Fundtech that an amended
complaint will be filed. At this point, the management is of the opinion that
the likely outcome of this litigation cannot be assessed. Fundtech's time to
answer or move to dismiss the complaint has been extended until 45 days after
the amended complaint is filed. Fundtech is not a party to any other litigation,
either in Israel or abroad, and is not aware of any other pending or threatened
litigation that may have a material adverse effect on Fundtech or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of Fundtech's security holders of
during the fourth quarter of 1999.
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<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF ORDINARY SHARES
The ordinary shares have been quoted on the Nasdaq National Market under
the symbol "FNDTF" since Fundtech's initial public offering until July 28, 1999
at which time the symbol was changed to "FNDT". The following table sets forth,
for the periods indicated, the high and low closing sales prices for the
ordinary shares:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1998
First Quarter (commencing March 13, 1998)................. 18 5/8 16 3/4
Second Quarter............................................ 24 5/8 15 3/4
Third Quarter............................................. 19 1/8 10 9/6
Fourth Quarter............................................ 20 11/16 8 3/4
1999
First Quarter............................................. 31 19
Second Quarter............................................ 44 1/4 25 1/4
Third Quarter............................................. 31 3/8 21 3/8
Fourth Quarter............................................ 21 1/2 10 9/16
2000
First Quarter (through March 23, 1999).................... 41 5/8 23 3/8
</TABLE>
On March 23, 2000, the last closing sale price of the ordinary shares, as
reported by the Nasdaq National Market, was $30.5 per share. As of March 21,
2000, Fundtech had 63 shareholders of record. Fundtech believes that the number
of beneficial owners of the ordinary shares is in excess of 400.
DIVIDEND POLICY
Fundtech intends to retain all future earnings for use in the development
of its business and does not anticipate paying cash dividends in the foreseeable
future. If cash dividends are declared by Fundtech, the cash dividends could be
taxable to the recipients of the dividends. Because Fundtech has received
benefits under the Law for the Encouragement of Capital Investments, 1959, as
amended (the "Investment Law"), payment of cash dividends during the exemption
period will subject that portion of Fundtech's income derived from the Approved
Enterprise to Israeli taxes to which the income would not otherwise be subject.
Fundtech has decided to reinvest the amount of the tax-exempt income derived
from its "Approved Enterprises" permanently and not to distribute such income as
dividends.
Cash dividends may be paid by an Israeli company only out of profits as
determined under Israeli law. The declaration of any final annual cash dividends
requires shareholder approval. Shareholders may reduce, but not increase,
dividends from the amount proposed by the Board of Directors. It is anticipated
that any dividends paid to non-residents of Israel would be paid in NIS.
RECENT SALES OF UNREGISTERED SECURITIES
On February 19, 1999, Inveco International Inc. exercised a warrant and
purchased an aggregate of 32,191 ordinary shares at a purchase price of $13.00
per share.
During March 1999 and April 1999, Mr. Eddie Shalev exercised a warrant and
purchased an aggregate of 3,572 ordinary shares at a purchase price of $2.57 per
ordinary share.
In April 1999, Fundtech sold one ordinary share to each of six individuals
for a purchase price of $34.00 per ordinary share.
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<PAGE> 15
On March 8, 2000, Inveco International Inc. exercised a warrant and
purchased an aggregate of 40,000 ordinary shares at a purchase price of $13.00
per ordinary share.
Each of the securities listed above was (i) sold pursuant to exemptions
from registration under Section 4(2) of the Securities Act and/or (ii) sold to
persons who were neither nationals nor residents of the United States and no
facilities or instrumentalities of United States interstate commerce were used
in connection with any offer or sale thereof. No underwriter or underwriting
discount or commission was involved in any of such sales."
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of Fundtech presented below as of
December 31, 1998 and 1999 and for each of the three years ended December 31,
1997, 1998 and 1999 are derived from Fundtech's Consolidated Financial
Statements set forth elsewhere herein which have been prepared in accordance
with U.S. generally accepted accounting principles. The selected consolidated
financial data of Fundtech as of December 31, 1996 and 1995 have been derived
from audited consolidated financial statements of Fundtech not included herein.
All of the financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto
appearing elsewhere herein.
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<PAGE> 16
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license fees................... $ 284 $ 2,403 $ 4,997 $ 14,007 $ 17,667
Maintenance and services fees........... 68 498 2,313 7,116 12,531
Hardware sales.......................... 117 667 709 2,009 1,493
------- ------- ------- -------- --------
Total revenues....................... 469 3,568 8,019 23,132 31,691
------- ------- ------- -------- --------
Cost of revenues:
Software license costs.................. 58 163 334 238 559
Maintenance and services costs.......... 36 316 1,086 4,549 8,051
Hardware costs.......................... 99 596 646 1,631 1,132
------- ------- ------- -------- --------
Total cost of revenues............... 193 1,075 2,066 6,418 9,742
------- ------- ------- -------- --------
Gross profit.............................. 276 2,493 5,953 16,714 21,949
------- ------- ------- -------- --------
Operating expenses:
Software development, net............... 1,158 1,595 2,468 6,636 12,880
Selling and marketing, net.............. 1,319 1,424 1,750 2,970 6,464
General and administrative.............. 763 963 1,289 2,471 5,270
In-process research and development
write-off............................ -- -- -- 16,600 2,802
------- ------- ------- -------- --------
Total operating expenses............. 3,240 3,982 5,507 28,677 27,416
------- ------- ------- -------- --------
Operating income (loss)................... (2,964) (1,489) 446 (11,963) (5,467)
Financial income, net..................... 79 28 190 571 3,756
------- ------- ------- -------- --------
Net income (loss)......................... $(2,885) $(1,461) $ 636 $(11,392) $ (1,711)
======= ======= ======= ======== ========
Basic earnings (loss) per share........... $ (0.91) $ (0.50) $ 0.22 $ (1.12) $ (0.13)
======= ======= ======= ======== ========
Diluted earnings (loss) per share......... $ (0.91) $ (0.50) $ 0.08 $ (1.12) $ (0.13)
======= ======= ======= ======== ========
Shares used in computing:
Basic earnings (loss) per share......... 3,180 2,925 2,837 10,151 12,855
======= ======= ======= ======== ========
Diluted earnings (loss) per share....... 3,180 2,925 7,935 10,151 12,855
======= ======= ======= ======== ========
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, short-term bank
deposits and short term investments..... $ 660 $ 1,314 $ 4,267 $ 13,019 $ 82,516
Working capital........................... $ 390 $ 779 $ 6,645 $ 18,140 $ 90,016
Total assets.............................. $ 1,732 $ 3,847 $ 9,658 $ 32,717 $125,142
Short-term bank credits, including current
maturities of long-term debt............ $ 9 $ 962 $ 255 -- --
Long-term debt............................ $ 247 $ 271 $ 261 -- --
Shareholders' equity...................... $ 684 $ 1,475 $ 7,404 $ 25,048 $118,594
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Fundtech was incorporated in 1993. Fundtech is a leading provider of
software which enables businesses and their banks to process payments, transfer
funds and manage cash positions electronically. Fundtech's client/server web
enabled software products automate the process of transferring funds among
corporations, banks and clearance systems and enable businesses to manage global
cash positions efficiently and in real-time. Fundtech introduced its FEDplu$
product in May 1995, its PAY$tar product in January 1997, its PAYplus RTGS
product in
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<PAGE> 17
December 1997 and its PAYplus CLS product in September 1999. To date, Fundtech
has derived substantially all of its revenues from licenses of its Access
Banking, FEDplu$, PAY$tar, PAYplus RTGS and Global CASHstar WireUp and service
bureau products and solutions, and related services and third-party hardware
sales.
Fundtech's revenues are derived from software license fees, maintenance and
services fees and hardware sales. Revenues from software license agreements are
recognized when all criteria outlined in Statement Of Position (SOP) 97-2
"Software Revenue Recognition" (as amended by SOP 98-4) are met. That includes
evidence of an arrangement; delivery; fixed or determinable fees; and the
ability to collect. Revenues from certain of Fundtech's contracts are recognized
on a percentage-of-completion basis. Revenues from maintenance and services fees
are recognized over the life of the maintenance agreement or at the time when
services are rendered. Revenues from hardware sales are recognized upon
shipment.
Fundtech has received approximately $1.1 million in product development
grants from the Government of Israel through the OCS. These grants are credited
against software development expenses in the periods in which they are earned
and received. Fundtech is obligated to repay these product development grants
through the payment of royalties ranging from 3% to 5% (depending on the length
of time to repayment) of revenues generated from the products until such time as
the grants are repaid in full (and in some instances until 150% of the grant has
been repaid). Fundtech is not obligated to repay the grants if Fundtech does not
generate sufficient revenues to do so. The royalty payments are included in cost
of sales in the periods in which they are accrued. In addition, Fundtech has
received approximately $0.4 million in marketing grants from the Government of
Israel's Fund for the Encouragement of Marketing Activities. Fundtech is
obligated to repay approximately $0.2 million of the marketing grants through
payment of royalties equal to 3% of Fundtech's total increase in export sales in
comparison to 1995, from the end of the second year of implementation of the
marketing plan until such date as the grants have been fully repaid.
Fundtech records software development costs in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 86. Due to the immaterial
amount of time between technological feasibility and the time that the software
is generally available for sale, Fundtech has expensed software development
costs as incurred.
As a result of the need to develop new and enhanced products, Fundtech
expects to continue making significant investments in software development
before and after product introductions. Fundtech expects that the level of such
continued investments will be at least comparable to the level of such
investments in the past.
The currency of the primary economic environment in which the operations of
Fundtech are conducted is the dollar. Thus, Fundtech uses the dollar as its
functional and reporting currency. Transactions and balances in other currencies
are remeasured into dollars in accordance with the principles set forth in FASB
Statement No. 52. Exchange gains and losses arising from remeasurement are
recorded in income or expense as applicable. See "-- Impact of Inflation and
Currency Fluctuations; Market Risks."
Israeli companies, such as Fundtech, are generally subject to income tax at
the corporate rate of 36%. However, Fundtech is eligible for certain tax
benefits which should result in its income being taxed at a significantly lower
rate for some time after it begins to report taxable income and exhausts its net
operating loss carry-forwards. See "-- Effective Corporate Tax Rate."
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<PAGE> 18
The following table presents Fundtech's consolidated revenues according to
the geographical regions to which such revenues are attributable:
<TABLE>
<CAPTION>
1997 1998 1999
--------------------- --------------------- ---------------------
TOTAL TOTAL TOTAL
REVENUES PERCENTAGE REVENUES PERCENTAGE REVENUES PERCENTAGE
-------- ---------- -------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Israel........................... $ 204 2.5% $ 693 3.0% $ 495 1.6%
U.S.A............................ 7,471 93.2 19,190 83.0 23,257 73.4
Australia........................ 332 4.2 262 1.1 239 0.7
Switzerland...................... -- -- -- -- 4,156 13.1
Other............................ 12 0.1 2,987 12.9 3,544 11.2
------- ---- ------- ---- ------- ----
$ 8,019 100% $23,132 100% $31,691 100%
======= ==== ======= ==== ======= ====
</TABLE>
ACQUISITION OF BUSINESSES FROM CHECKFREE
In April 1998, Fundtech acquired from CheckFree two businesses engaged
primarily in the design and development of cash management software products and
the development and sale of wire transfer products. Fundtech paid $18,824,000 in
cash (including acquisition expenses) for the acquired CheckFree businesses. The
transaction was accounted for as a purchase and resulted in the initial
recording of approximately $3 million of goodwill which is being amortized over
a period of 10 years and a one time write-off of R&D in process in the amount of
$16.6 million.
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 $13.9 million, of which
75% was paid in cash and 25% in stock (105,315 Ordinary Shares). The transaction
was accounted for as a purchase and resulted in the initial recording of
approximately $11.1 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.
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 $6.9 million
(including acquisition expenses). 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 and other intangibles which is being
amortized over an average period of 9.2 years.
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<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
revenues represented by each of the items in Fundtech's statement of operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues:
Software license fees................................... 67.3% 62.3% 60.6% 55.6%
Maintenance and service fees............................ 14.0 28.8 30.8 39.7
Hardware sales.......................................... 18.7 8.9 8.6 4.7
----- ----- ----- -----
Total revenues....................................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues:
Software license costs.................................. 4.6 4.2 1.0 1.8
Maintenance and service costs........................... 8.9 13.5 19.7 25.3
Hardware costs.......................................... 16.7 8.1 7.1 3.6
----- ----- ----- -----
Total cost of revenues............................... 30.2 25.8 27.8 30.7
----- ----- ----- -----
Gross profit.............................................. 69.8 74.2 72.2 69.3
----- ----- ----- -----
Operating expenses:
Software development, net............................... 44.7 30.8 28.7 40.6
Selling and marketing, net.............................. 39.9 21.8 12.8 20.4
General and administrative.............................. 27.0 16.1 10.7 16.7
In-process research and development write-off........... -- -- 71.8 8.8
----- ----- ----- -----
Total operating expenses.................................. 111.6 68.7 124.0 86.5
----- ----- ----- -----
Operating income (loss)................................... (41.8) 5.5 (51.8) (17.2)
Financial income, net..................................... 0.8 2.4 2.5 11.8
----- ----- ----- -----
Net income (loss)......................................... (41.0)% 7.9% (49.3)% (5.4)%
===== ===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Software License Fees Software license fees consist of revenues derived
from software license agreements entered into between Fundtech and its
customers. Software license fees increased by $3,660,000 to $17,667,000 in the
year ended December 31, 1999 from $14,007,000 for the year ended December 31,
1998, an increase of 26%. This increase was attributable to the sale of our
current product offerings, as well as growth in the sales from our acquired
businesses including the internet cash management products and to revenues
generated from the BBP service bureau.
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
license. Maintenance and services fees increased by $5,415,000 to $12,531,000 in
the year ended December 31, 1999 from $7,116,000 in the year ended December 31,
1998, an increase of 76%. The increase was commensurate with the increase in the
number of customers and the acquisition of BBP and 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 $516,000 to $1,493,000 in the year ended December
31, 1999 from $2,009,000 in the year ended December 31, 1998, a decrease of 26%.
The decrease in hardware sales was 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
increased by $321,000 to $559,000 in the year ended December 31, 1999 from
$238,000 in the year
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<PAGE> 20
ended December 31, 1998, an increase of 135%. The gross margin of software
license fees decreased from 98% in the year ended December 31, 1998 to 97% in
the year ended December 31, 1999. The decrease in gross margin is attributable
to the increase in royalty bearing software as a percentage of total sales as
certain of Fundtech's product offerings are not royalty-bearing.
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 $3,502,000 to $8,051,000 in the year ended December 31, 1999
from $4,549,000 in the year ended December 31, 1998, an increase of 77%. The
gross margin on maintenance and services fees remained constant at 36% in the
years ended December 31, 1998 and 1999. The increase in maintenance and services
costs is attributable to the growth in sales and includes costs related to the
acquired entities.
Hardware Costs Hardware costs consist primarily of Fundtech's cost of
computer hardware resold to its customers. Cost of hardware sales decreased by
$499,000 to $1,132,000 in the year ended December 31, 1999 from $1,631,000 in
the year ended December 31, 1998, a decrease of 31%. This gross margin on
hardware increased from 19% in the year December 31, 1998 to 24% in the year
ended December 31, 1999. The increase on gross margin was primarily due to an
increase in higher margin products accounting for a greater percentage of the
overall hardware revenue.
Software Development Software development expenses are related to the
development and testing of new products. Software development expenses increased
by $6,244,000 to $12,880,000 in the year ended December 31, 1999, from
$6,636,000 in the year ended December 31, 1998, an increase of 94%. The increase
in software development costs is principally related to the development of new
product offerings by Fundtech such as Global PAYplus RTGS, Access.pro,
NostroPlus and Global CASHstar and also due to the development resources added
as a result of the acquisition of BBP and the Sterling Cash Management Business.
In the years ended December 31, 1998 and 1999, Fundtech did not receive grants
from the Government of Israel.
Selling and Marketing, Net Selling and marketing expenses increased by
$3,494,000 to $6,464,000 in the year ended December 31, 1999 from $2,970,000 in
the year ended December 31, 1998, an increase of 118%. Selling and marketing
expenses as a percentage of revenues increased from 13% in December 31, 1998 to
20% in the year ended December 31, 1999 due to decrease in sales attributable to
each salesperson, expenses relating to opening the sales office in Australia and
expanding the sales channels in Europe and increasing the size of the U.S. sales
group.
General and Administrative General and administrative expenses increased
by $2,799,000 to $5,270,000 in the year ended December 31, 1999 from $2,471,000
in the year ended December 31, 1998, an increase of 113%. The increase is due to
the expansion of the business and an increase of $1,122,000 relating to
amortization of goodwill from the acquisition of BBP and the Sterling Cash
Management Business.
In-Process R&D Write-Off In June 1999, Fundtech purchased from BBP's
shareholders all of the outstanding shares of BBP for approximately $13.9
million. The BBP acquisition has been accounted for using the purchase method of
accounting and, accordingly, the purchase price has been allocated to the assets
acquired and the liabilities assumed based on the their estimated fair value at
the date of acquisition. The excess of the purchase price over the estimated
fair value of the net assets acquired has been recorded, as goodwill, which is
amortized on a straight-line basis over 8.5 years. Fundtech recorded, according
to FASB interpretation No. 4 (FIN 4), an expense in the amount of $2,802,000
which represents the estimated value of software acquired from BBP for which
technological feasibility has not yet been established and for which no
alternative future use exists (in-process research and development).
Financial Income, Net Net financial income increased by $3,185,000 to
$3,756,000 in the year ended December 31, 1999 from $571,000 in the year ended
December 31, 1998 an increase of 558%. The increase of the financial income is
due mainly to interest earned on cash received from our April 30, 1999 secondary
public offering.
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<PAGE> 21
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Software License Fees Software license fees consist of revenues derived
from software license agreements entered into between Fundtech and its
customers. Software license fees increased by $9,010,000 to $14,007,000 in the
year ended December 31, 1998 from $4,997,000 for the year ended December 31,
1997, an increase of 180%. This increase was attributable to the sale of new
product offerings such as Global CASHstar and PAYplus RTGS, Fundtech's
international payment system and due to the revenue generated from the new
products of the acquired CheckFree businesses such as ACCESS.pro, webACCESS,
InfoVue and MicroACH. Additionally, this increase was due to an increase of
sales throughout Fundtech's distribution channels, such as Sterling Commerce,
and Fiserv.
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 services at the time of the sale of the
system. Maintenance and services fees increased by $4,803,000 to $7,116,000 in
the year ended December 31, 1998 from $2,313,000 in the year ended December 31,
1997, an increase of 208%. The increase is commensurate with the increase in
systems sold during this period and due to the revenue generated from
maintenance and services fees related to products of the acquired CheckFree
businesses.
Hardware Sales Hardware sales consist of revenues received from resales of
third-party hardware in connection with the license and installation of
Fundtech's software. Hardware sales increased by $1,300,000 to $2,009,000 in the
year ended December 31, 1998 from $709,000 in the year ended December 31, 1997,
an increase of 183%. Hardware sales increased due to the increase in number of
systems sold with hardware due to revenues generated by the acquired CheckFree
businesses. Fundtech currently requests that its customers purchase hardware on
their own and send it to Fundtech for testing with the software.
Software License Costs Software license costs consist primarily of the
royalty payments related to grants from the Government of Israel, product media,
duplication, manuals and shipping. Software license costs decreased by $96,000
to $238,000 in the year ended December 31, 1998 from $334,000 in the year ended
December 31, 1997, a decrease of 29%. The gross margin on software license fees
increased from 93% in the year ended December 31, 1997 to 98% in the year ended
December 31, 1998. The increase in gross margin is attributable to the decrease
in royalty payments as a percentage of total sales as certain of Fundtech's
product offerings are not royalty bearing.
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 $3,463,000 to $4,549,000 in the year ended December 31, 1998
from $1,086,000 in the year ended December 31, 1997, an increase of 319%. The
gross margin on maintenance and services fees decreased from 53% for the year
ended December 31, 1997 to 36% for the year ended December 31, 1998. The
decrease in gross margin was primarily due to an increase in personnel
associated with the acquired CheckFree businesses.
Hardware Costs Hardware costs consist primarily of Fundtech's cost of
computer hardware resold to its customers. Cost of hardware sales increased by
$985,000 to $1,631,000 in the year ended December 31, 1998 from $646,000 in the
year ended December 31, 1997, an increase of 152%. This increase is commensurate
with the increase in hardware sales by Fundtech in 1998.
Software Development Expenses, Net. Software development expenses consist
principally of expenses related to the development and testing of new products
and product enhancements. Software development expenses increased by $4,168,000
to $6,636,000 in the year ended December 31, 1998 from $2,468,000 in the year
ended December 31, 1997, an increase of 169%. The increase in software
development costs related to the development of new product offerings by
Fundtech such as the PAYplus RTGS system and Global CASHstar as well as
enhancements to certain of Fundtech's existing products. In the years ended
December 31, 1997 and 1998, Fundtech did not receive grants from the Government
of Israel.
Selling and Marketing Expenses, Net. Gross selling and marketing expenses
increased by $1,167,000 to $3,015,000 in the year ended December 31, 1998 from
$1,848,000 in the year ended December 31, 1997, an
21
<PAGE> 22
increase of 63%. However, gross selling and marketing expenses as a percentage
of revenues decreased to 13% in December 31, 1998 from 23% in the year ended
December 31, 1997 due to the increase in sales attributable to each salesperson.
In the year ended December 31, 1997 and 1998, Fundtech accrued $98,000 and
$45,000, respectively, for marketing grants from the Government of Israel. These
grants were recorded as a reduction to selling and marketing expenses resulting
in net selling and marketing expenses of $1,750,000 and $2,970,000 in 1997 and
1998, respectively.
General and Administrative Expenses. General and administrative expenses
increased by $1,182,000 to $2,471,000 in the year ended December 31, 1998 from
$1,289,000 in the year ended December 31, 1997, an increase of 92%. As a
percentage of total revenues, general and administrative expenses declined to
11% compared with 16% in the same period for 1997. This decrease is primarily
attributed to efficiencies attained through the elimination of duplicate
functions of the acquired CheckFree businesses.
In-Process Research and Development Write-Off. In April 1998, Fundtech
acquired from CheckFree assets and liabilities of certain businesses engaged
primarily in the design and development of cash management software products and
the development and sale of wire transfer products. Fundtech paid $18,824,000
for the acquired CheckFree businesses.
The CheckFree acquisition has been accounted for using the purchase method
of accounting and, accordingly, the purchase price has been allocated to the
assets acquired and the liabilities assumed based on their estimated fair value
at the date of acquisition. The excess of the purchase price over the estimated
fair value of the net assets acquired has been recorded, as goodwill, which is
amortized on a straight-line basis over 10 years. Fundtech recorded, according
to FASB interpretation No. 4 (FIN 4), an expense in the amount of $16,600,000
which represents the estimated value of software acquired from CheckFree for
which technological feasibility has not yet been established and for which no
alternative future use exists (in-process research and development).
Financial Income, Net. Net financial income increased by $381,000 to
$571,000 in the year ended December 31, 1998 from $190,000 in the year ended
December 31, 1997. The increase in the financial income is due mainly to
interest earned on cash received from our initial public offering in March 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Software License Fees. Software license fees increased by $2,594,000 to
$4,997,000 in the year ended December 31, 1997 from $2,403,000 for the year
ended December 31, 1996, an increase of 108%. This increase is primarily due to
the increased demand for Fundtech's FEDplu$ product. The majority of the
increase in 1997 was the result of sales by Fundtech's distributors, including
CheckFree and Sterling Commerce.
Maintenance and Services Fees. Maintenance and services fees increased by
$1,815,000 to $2,313,000 in the year ended December 31, 1997 from $498,000 in
the year ended December 31, 1996, an increase of 364%. The increase is
commensurate with the increase in systems sold during 1997. In addition, this
increase was attributable to the increase in the number of large systems sold
during 1997 to customers that required protocol certification by the Federal
Reserve, which in turn increased the need for on-site consulting services.
Hardware Sales. Hardware sales increased by $42,000 to $709,000 in the
year ended December 31, 1997 from $667,000 in the year ended December 31, 1996,
an increase of 6%. Although hardware sales increased in total dollars, they
decreased as a percentage of revenue to 9% for the year ended December 31, 1997
from 19% for the year ended December 31, 1996. Fundtech currently requests that
its direct-sales customers and distributors purchase and resell hardware on
their own and send it to Fundtech for testing with the software.
Software License Costs. Software license costs increased by $171,000 to
$334,000 in the year ended December 31, 1997 from $163,000 in the year ended
December 31, 1996, an increase of 105%. The gross margin on software license
fees was 93% for each of the years ended December 31, 1997 and 1996. The
increase in the dollar amount of the cost of license fees resulted from the
increase in the number of software licenses sold.
Maintenance and Services Costs. Maintenance and services costs increased
by $770,000 to $1,086,000 in the year ended December 31, 1997 from $316,000 in
the year ended December 31, 1996, an increase of 244%. The gross margin on
maintenance and services fees increased from 37% for the year ended December 31,
1996 to
22
<PAGE> 23
53% for the year ended December 31, 1997. The increase in gross margin was
primarily due to an increased percentage of maintenance and services fee revenue
being derived from maintenance contracts associated with the sales of software
licenses in the period, which revenue typically has a higher gross margin than
service-based revenue, as well as from an increase in the rates charged for
consulting services.
Hardware Costs. Cost of hardware sales increased by $50,000 to $646,000 in
the year ended December 31, 1997 from $596,000 in the year ended December 31,
1996, an increase of 8%. Gross margin on hardware sales decreased to 9% in the
year ended December 31, 1997 from 11% in the year ended December 31, 1996. This
decrease in gross margin is due to the reduced prices of such hardware.
Software Development Expenses, Net. Software development expenses
increased by $674,000 to $2,468,000 in the year ended December 31, 1997 from
$1,794,000 in the year ended December 31, 1996, an increase of 38%. In the year
ended December 31, 1996, Fundtech received $199,000 in development grants from
the Government of Israel, while in the year ended December 31, 1997, Fundtech
received no such grants. The grants were recorded as a reduction to software
development expenses resulting in a net software development expense in 1996 of
$1,595,000. Consequently, software development expenses, net increased by
$873,000 to $2,468,000 in the year ended December 31, 1997 from $1,595,000 in
the year ended December 31, 1996, an increase of 55%. The increase in software
development costs was related to the increase in the development of Fundtech's
product offerings. During 1997, Fundtech released its PAY$tar and PAYplus RTGS
product offerings for U.S. and non-U.S. financial institutions, respectively.
Selling and Marketing Expenses, Net. Gross selling and marketing expenses
increased by $184,000 to $1,848,000 in the year ended December 31, 1997 from
$1,664,000 in the year ended December 31, 1996, an increase of 11%. However,
gross selling and marketing expenses as a percentage of revenues decreased to
23% in 1997 from 47% in 1996 due to Fundtech's shift towards selling through
distributors in 1997. In the year ended December 31, 1996, Fundtech accrued
$240,000 in marketing grants from the Government of Israel and in the year ended
December 31, 1997 Fundtech accrued $98,000 in such grants. These grants were
recorded as a reduction to selling and marketing expenses resulting in net
selling and marketing expenses of $1,750,000 and $1,424,000 in 1997 and 1996,
respectively. As a result, net selling and marketing expenses increased by 23%.
General and Administrative Expenses. General and administrative expenses
increased by $326,000 to $1,289,000 in the year ended December 31, 1997 from
$963,000 in the year ended December 31, 1996, an increase of 34%. This increase
was attributable to the growth of Fundtech, including an increase in
administrative staff support expenses from $630,000 in the year ended December
31, 1996 to $809,000 in the year ended December 31, 1997, an increase in
occupancy costs from $87,000 in the year ended December 31, 1996 to $153,000 in
the year ended December 31, 1997, and an increase in communications costs from
$10,000 in the year ended December 31, 1996 to $46,000 in the year ended
December 31, 1997. There was also an increase in other related items from
$236,000 in the year ended December 31, 1996 to $281,000 in the year ended
December 31, 1997.
Financial Income, Net. Net financial income increased by $162,000 to
$190,000 in the year ended December 31, 1997 from $28,000 in the year ended
December 31, 1996, an increase of 579%. The increase in the financial income is
due mainly to an increase in the interest earned on cash and short-term bank
deposits raised in a private placement of equity consummated by Fundtech in
March 1997.
LIQUIDITY AND CAPITAL RESOURCES
Fundtech has financed its operations primarily through the sale of equity
securities to its shareholders in the amount of approximately $137.9 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, grants from the Government of Israel and borrowings
from banks.
As of December 31, 1999, Fundtech's working capital was $90.0 million. Cash
equivalents and marketable securities were $82.5 million. Fundtech utilized net
cash from operations amounting to $995 for the year ended December 31, 1999 and
provided $2,180 for the year ended December 31, 1998.
23
<PAGE> 24
In April 1998, Fundtech acquired the CheckFree businesses 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 $92.4 million.
In June 1999, Fundtech acquired all of the outstanding shares of BBP for
approximately $11.1 million in cash and $2.9 million in stock.
In September 1999, Fundtech purchased certain assets constituting the Cash
Management Business of Sterling for $6.9 million in cash (including acquisition
expenses).
Fundtech believes that cash on hand and cash flows from operations together
with the proceeds from the 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.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS; MARKET RISK
The dollar cost of Fundtech's operations in Israel is influenced by the
extent to which any increase in the rate of inflation in Israel is (or is not)
offset (or is offset on a lagging basis) by the devaluation of the NIS in
relation to the dollar. Inflation in Israel will have a negative effect on the
profitability to Fundtech of contracts under which Fundtech is to receive
payment in dollars or dollar-linked NIS while incurring expenses in NIS linked
to the Israeli CPI, unless such inflation is offset by a devaluation of the NIS.
For some time until 1997, inflation in Israel exceeded the devaluation of
the NIS against the dollar and Fundtech experienced increases in the dollar cost
of its operations in Israel. This trend was reversed during 1997 and 1998. In
1997, the rate of inflation was 7.0% and the rate of devaluation was 8.8%. In
1998, the rate of inflation was 8.6% and the rate of devaluation was 17.6%. In
1999, Israel experienced inflation at the rate of 1.3% as well as a devaluation
of the dollar against the NIS at the rate of 0.2%.
A devaluation of the NIS in relation to the dollar would have the effect of
decreasing the dollar value of any asset of Fundtech which consists of NIS or
receivables payable in NIS (unless such receivables are linked to the dollar).
Such a devaluation would also have the effect of reducing the dollar amount of
any expenses or liabilities of Fundtech which are payable in NIS (unless such
expenses or payables are linked to the dollar). Conversely, any increase in the
value of the NIS in relation to the dollar would have the effect of increasing
the dollar value of any unlinked NIS assets of Fundtech and the dollar amounts
of any unlinked NIS liabilities and expenses of Fundtech.
Because exchange rates between the NIS and the dollar fluctuate
continuously (albeit with a historically declining trend in the value of the
NIS), exchange rate fluctuations and especially larger periodic devaluations
will have an impact on Fundtech's profitability and period-to-period comparisons
of Fundtech's results. Such impact is recorded in Fundtech's financial
statements as financial income or expense. To date, Fundtech has not engaged in
currency-hedging transactions intended to reduce the effect of fluctuations in
foreign currency exchange rates on Fundtech's results of operations.
EFFECTIVE CORPORATE TAX RATE
Fundtech's development facility in Israel has been granted "Approved
Enterprise" status under Israel's Law for the Encouragement of Capital
Investments. Fundtech has derived, and expects to continue to derive, a portion
of its income from Approved Enterprise investments. Under the Approved
Enterprise program, Fundtech is entitled to reductions in the tax rate normally
applicable to Israeli companies with respect to income generated from its
Approved Enterprise investments. Fundtech is entitled to a tax exemption for a
period of two years commencing in the first year in which such income is earned,
subject to certain time restrictions. The first year of tax exemption for
Fundtech Ltd. was 1998. At December 31, 1999, Fundtech had net operating loss
carryforwards in the U.S. of approximately $14.3 million and $2.4 million loss
carry-forwards in Israel. See Note 13 to the Consolidated Financial Statements.
24
<PAGE> 25
ITEM 7A. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
25
<PAGE> 26
<TABLE>
<S> <C> <C>
- KOST FORER & GABBAY - Phone: 972-3-6232525
2 Kremenetski St. Fax: 972-3-5622555
Tel-Aviv 67899, Israel
ERNST & YOUNG
KOST FORER & GABBAY
</TABLE>
REPORT OF INDEPENDENT AUDITORS
To the shareholders of
FUNDTECH LTD.
We have audited the accompanying consolidated balance sheets of Fundtech
Ltd. and its subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. 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 generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance as to whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the 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 referred to above,
present fairly, in all material respects, the consolidated financial position of
Fundtech Ltd. and its subsidiaries as of December 31, 1998 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles in the United States.
<TABLE>
<S> <C>
Tel-Aviv, Israel KOST, FORER & GABBAY
February 7, 2000 A Member of Ernst & Young International
</TABLE>
26
<PAGE> 27
FUNDTECH LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1999
------------ ------------
(U.S. DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 13,019 $ 41,493
Marketable securities (Note 3).............................. -- 41,023
Inventories................................................. -- 91
Trade receivables (net of allowance -- $301 in 1998 and $310
in 1999) (Note 4)......................................... 12,040 11,753
Other receivables and prepaid expenses (Note 5)............. 579 1,777
-------- --------
Total current assets...................................... 25,638 96,137
-------- --------
SEVERANCE PAY FUND (Note 9)................................. 113 233
-------- --------
LONG-TERM TRADE RECEIVABLES (Note 6)........................ 244 1,033
-------- --------
FIXED ASSETS, NET (Note 7).................................. 3,759 7,941
-------- --------
Other Assets (Net of Amortization of $153 in 1998 and $1,428
in 1999).................................................. 2,963 19,798
-------- --------
$ 32,717 $125,142
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Deferred revenues........................................... $ 3,933 $ 991
Trade payables.............................................. 1,386 1,528
Other payables and accrued expenses (Note 8)................ 2,179 3,602
-------- --------
7,498 6,121
-------- --------
LONG-TERM LIABILITIES:
Other liabilities........................................... 36 --
Deferred taxes.............................................. -- 149
Accrued severance pay (Note 9).............................. 135 278
-------- --------
Total long-term liabilities................................. 171 427
======== ========
COMMITMENTS AND CONTINGENT LIABILITIES (Note 10)
SHAREHOLDERS' EQUITY: (Note 11)
Share capital --
Ordinary Shares:
Authorized: 19,949,998 of NIS 0.01 par value; Issued
and outstanding: 10,791,952 as of December 31, 1998
and 13,951,582 as of December 31, 1999................ 34 42
Deferred Shares:
Authorized, issued and outstanding:
50,002 of NIS 0.01 par value as of December 31, 1998
and 1999............................................ -- --
Additional paid-in capital.................................. 41,664 137,997
Deferred compensation....................................... (219) (147)
Accumulated other comprehensive loss........................ -- (1,156)
-------- --------
Accumulated deficit......................................... (16,431) (18,142)
-------- --------
Total shareholders' equity.................................. 25,048 118,594
-------- --------
$ 32,717 $125,142
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE> 28
FUNDTECH LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(U.S. DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Software licenses fees.................................... $ 4,997 $ 14,007 $ 17,667
Maintenance and service fees.............................. 2,313 7,116 12,531
Hardware sales............................................ 709 2,009 1,493
-------- -------- --------
Total revenues.............................................. 8,019 23,132 31,691
-------- -------- --------
Cost of revenues:
Software license costs.................................... 334 238 559
Maintenance and service costs............................. 1,086 4,549 8,051
Hardware costs............................................ 646 1,631 1,132
-------- -------- --------
Total cost of revenues...................................... 2,066 6,418 9,742
-------- -------- --------
Gross profit................................................ 5,953 16,714 21,949
-------- -------- --------
Operating expenses:
Software development, net................................. 2,468 6,636 12,880
Selling and marketing, net (Note 10)...................... 1,750 2,970 6,464
General and administrative................................ 1,289 2,471 5,270
In-process research and development write-off (Note 1b)... -- 16,600 2,802
-------- -------- --------
Total operating expenses.................................... 5,507 28,677 27,416
-------- -------- --------
Operating income (loss)..................................... 446 (11,963) (5,467)
Financial income, net (Note 14c)............................ 190 571 3,756
-------- -------- --------
Net income (loss)........................................... $ 636 $(11,392) $ (1,711)
======== ======== ========
Basic earnings (loss) per share............................. $ 0.22 $ (1.12) $ (0.13)
======== ======== ========
Diluted earnings (loss) per share........................... $ 0.08 $ (1.12) $ (0.13)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE> 29
FUNDTECH LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED SHARES ORDINARY SHARES DEFERRED SHARES ADDITIONAL
------------------- ------------------- --------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
---------- ------ ---------- ------ ------ ------ ---------- ------------
(U.S. DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1997.... 3,662,769 $ 8 2,924,997 $ 7 50,002 $-- $ 7,135 $ --
Issuance of Preferred "D"
Shares net of issuance costs..... 1,389,752 2 -- -- -- -- 5,287 --
Conversion of Ordinary Shares to
Preferred "D" Shares........... 150,000 -- (150,000) -- -- -- -- --
Deferred compensation related to
grant options.................. -- -- -- -- -- -- 201 (201)
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 4
Net income....................... -- -- -- -- -- -- -- --
---------- --- ---------- --- ------ --- ------- -----
Balance as of December 31,
1997........................... 5,202,521 10 2,774,997 7 50,002 -- 12,623 (197)
Stock dividend................... -- -- -- 8 -- -- (8) --
Exercise of stock options, net... -- -- 42,325*) -- -- -- 159 --
Exercise of warrants, net........ -- -- 184,609 1 -- -- 130 --
Conversion of Preferred Shares
into Ordinary Shares........... (5,202,521) (10) 5,202,521 10 -- -- -- --
Issuance of Ordinary Shares,
net............................ -- -- 2,587,500 8 -- -- 28,667 --
Deferred compensation related to
grant options.................. -- -- -- -- -- -- 93 (93)
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 71
Net loss......................... -- -- -- -- -- -- -- --
---------- --- ---------- --- ------ --- ------- -----
Balance as of December 31,
1998........................... -- -- 10,791,952 34 50,002 -- 41,664 (219)
Foreign currency translation
adjustment................... -- -- -- -- -- -- -- --
Unrealized loss from
securities................... -- -- -- -- -- -- -- --
Other comprehensive loss....... -- -- -- -- -- -- -- --
Exercise of stock options, net... -- -- 118,546*) -- -- -- 530 --
Exercise of warrants............. -- -- 35,763*) -- -- -- 427 --
Issuance of Ordinary Shares,
net............................ -- -- 3,005,321 8 -- -- 95,376 --
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 72
Net loss......................... -- -- -- -- -- -- -- --
---------- --- ---------- --- ------ --- ------- -----
Total comprehensive loss.........
Balance as of December 31,
1999........................... -- $-- 13,951,582 $42 50,002 $-- $137,997 $(147)
========== === ========== === ====== === ======= =====
<CAPTION>
ACCUMULATED
OTHER TOTAL TOTAL
COMPREHENSIVE ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
LOSS DEFICIT LOSS EQUITY
------------- ----------- ------------- -------------
(U.S. DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance as of January 1, 1997.... $ -- $ (5,675) -- $ 1,475
Issuance of Preferred "D"
Shares net of issuance costs..... -- -- -- 5,289
Conversion of Ordinary Shares to
Preferred "D" Shares........... -- -- -- --
Deferred compensation related to
grant options.................. -- -- --
Amortization of deferred
compensation................... -- -- -- 4
Net income....................... -- 636 -- 636
------- -------- ------- --------
Balance as of December 31,
1997........................... -- (5,039) -- 7,404
Stock dividend................... -- -- -- --
Exercise of stock options, net... -- -- -- 159
Exercise of warrants, net........ -- -- -- 131
Conversion of Preferred Shares
into Ordinary Shares........... -- -- -- --
Issuance of Ordinary Shares,
net............................ -- -- -- 28,675
Deferred compensation related to
grant options.................. -- -- -- --
Amortization of deferred
compensation................... -- -- -- 71
Net loss......................... -- (11,392) -- (11,392)
------- -------- ------- --------
Balance as of December 31,
1998........................... -- (16,431) -- 25,048
Foreign currency translation
adjustment................... (450) -- (450) (450)
Unrealized loss from
securities................... (706) -- (706) (706)
-------
Other comprehensive loss....... -- -- (1,156)
-------
Exercise of stock options, net... -- -- -- 530
Exercise of warrants............. -- -- -- 427
Issuance of Ordinary Shares,
net............................ -- -- -- 95,384
Amortization of deferred
compensation................... -- -- -- 72
Net loss......................... -- (1,711) (1,711) (1,711)
------- -------- ------- --------
Total comprehensive loss......... $(2,867)
=======
Balance as of December 31,
1999........................... $(1,156) $(18,142) $118,594
======= ======== ========
</TABLE>
- ---------------
*) Less than $1.
The accompanying notes are an integral part of the consolidated financial
statements.
29
<PAGE> 30
FUNDTECH LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- -------- --------
(U.S. DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ 636 $(11,392) $ (1,711)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 155 529 3,179
In-process research and development write-off........... -- 16,600 2,802
Amortization of deferred compensation................... 4 71 72
Proceeds from sale of trading securities................ -- -- 1,176
Decrease (increase) in trade receivables and unbilled
receivables.......................................... (1,989) (5,008) 146
Decrease (increase) in other receivables and prepaid
expenses............................................. (498) 120 (720)
Increase in trade payables.............................. 324 615 27
Increase (decrease) in other payables and accrued
expenses............................................. 316 645 (5,970)
Others.................................................. (4) -- 4
------- -------- --------
Net cash provided by (used in) operating activities....... (1,056) 2,180 (995)
------- -------- --------
Cash flows from investing activities:
Acquisitions (a).......................................... -- (18,824) (17,040)
Purchase of available for sale securities................. -- -- (41,729)
Investment in short-term bank deposits.................... (6,460) -- --
Proceeds from short-term bank deposits.................... 4,975 2,694 --
Purchase of fixed assets.................................. (574) (3,069) (5,156)
Proceeds from sale of fixed assets........................ 13 12 7
------- -------- --------
Net cash used in investing activities..................... (2,046) (19,187) (63,918)
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE> 31
FUNDTECH LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998 1999
------ ------- -------
(U.S. DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of share capital and exercise of
stock options and warrants, net of expenses............... 5,289 28,965 93,387
Short-term bank credit, net................................. (705) (250) --
Principal payment of long-term loan to a related party...... -- (242) --
Principal payment of long-term loans........................ (14) (20) --
------ ------- -------
Net cash provided by financing activities................... 4,570 28,453 93,387
------ ------- -------
Increase in cash and cash equivalents....................... 1,468 11,446 28,474
Cash and cash equivalents at the beginning of the year...... 105 1,573 13,019
------ ------- -------
Cash and cash equivalents at the end of the year............ $1,573 $13,019 $41,493
====== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS ACTIVITIES:
Cash paid during the period for:
Interest.................................................... $ 24 $ 16 $ 27
====== ======= =======
Non-cash transaction:
Unrealized losses on available for sale securities.......... $ -- $ -- $ 706
====== ======= =======
(a) PAYMENT FOR ACQUISITIONS: (SEE NOTE 1B):
Estimated fair value of assets acquired and liabilities
assumed:
Issuance of share capital............................ $ -- $(2,954)
Working capital deficiency........................... (1,133) (2,171)
Fixed assets......................................... 241 1,001
Goodwill............................................. 3,116 18,511
In-process research and development.................. 16,600 2,802
Deferred taxes....................................... -- (149)
------- -------
$18,824 $17,040
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE> 32
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1: GENERAL
A. Fundtech Ltd. ("the Company") was incorporated in Israel in April 1993, and
commenced operations approximately at that time. In 1995, Fundtech Corporation
("Fundtech Corp."), a wholly-owned U.S. subsidiary of the Company was
incorporated in the U.S.A and commenced operations at that time.
On December 29, 1998 the Company established a wholly-owned subsidiary in
England ("Fundtech England"). This subsidiary commenced its operations on
January 6, 1999.
On July 26, 1999, the Company established a wholly-owned subsidiary in the
Netherlands under the name Fundtech Netherlands BV ("BV").
On September 30,1999, the Company established, through Fundtech Corp., a
wholly-owned U.S. subsidiary which is incorporated in the State of Texas under
the name FCMS, LLC.
On November 26, 1999, the Company established a wholly-owned subsidiary in
Australia under the name Fundtech Australia PTY Limited ("Fundtech Australia")
This subsidiary will commence operation in the year 2000.
The Company and its subsidiaries design, develop, market and support a
suite of mission critical client/server software and internet software which
automate the process of transferring funds among corporations, banks and
clearance systems and enable businesses to manage global cash positions
efficiently and in real time.
As to principal markets and customers, see Note 14.
B. ACQUISITIONS:
1) In April 1998, the Company through a wholly-owned subsidiary ("Fundtech
Corp.") acquired from CheckFree Holdings Corporation ("CheckFree") assets and
liabilities of certain businesses ("the acquired businesses") engaged primarily
in the design and development of cash management software products and the
development and sale of wire transfer products ("the Acquisition").
The Company paid $18,824 for the acquired businesses.
The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the assets
acquired and the liabilities assumed based on the estimated fair value at the
date of acquisition. The excess of the purchase price over the estimated fair
value of the net assets acquired has been recorded as goodwill, which is
amortized by the straight-line method over 10 years. The Company recorded an
expense in the amount of $16,600 which represents the estimated value of the
software acquired from CheckFree for which technological feasibility has not yet
been established and for which no alternative future use exists ("in-process
research and development").
Checkfree's financial statements are consolidated with those of the Company
commencing with the second quarter of 1998.
The estimated fair value of the assets and liabilities acquired are
summarized as follows:
<TABLE>
<S> <C>
Working capital deficiency.................................. $(1,133)
Fixed assets................................................ 241
In-process research and development......................... 16,600
Goodwill.................................................... 3,116
-------
$18,824
=======
</TABLE>
32
<PAGE> 33
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2) In June 1999, the Company acquired through its wholly-owned subsidiary (BV)
all the shares of Biveroni Batchelet Partners AG ("BBP"), a Swiss corporation in
the field of electronic payment solutions, for an aggregate purchase price of
approximately $ 13,963, of which $ 11,009 was paid in cash and $ 2,954 in stock
(105,315 Ordinary Shares). The acquisition has been accounted for by the
purchase method of accounting and accordingly, the purchase price has been
allocated to the assets acquired and the liabilities assumed based on the fair
value at the date of acquisition.
The excess of the purchase price over the estimated fair value of the net
assets acquired has been recorded as goodwill which is amortized by the
straight-line method over an average of eight and a half years.
The Company recorded an expense in the amount of $ 2,802 which represents
the estimated value of the software acquired for which technological feasibility
has not yet been established and for which no alternative future use exists ("in
process research and development")
BBP's financial statements are consolidated with those of the Company
commencing with the second quarter of 1999.
The estimated fair value of the assets and liabilities acquired are
summarized as follows:
<TABLE>
<S> <C>
Working capital deficiency.................................. $ (578)
Deferred taxes.............................................. (149)
Fixed assets................................................ 701
In process research and development......................... 2,802
Technology.................................................. 3,390
Goodwill.................................................... 7,797
-------
$13,963
=======
</TABLE>
3) On September 30, 1999, the Company acquired through a wholly-owned
subsidiary (FCMS, LLC) certain assets and certain liabilities of Sterling, a
U.S. company, for an aggregate purchase price of approximately $6,982.
The acquisition has been accounted for by the purchase method of
accounting, and accordingly the purchase price has been allocated to the assets
acquired and the liabilities assumed based on the fair value 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 which is being amortized by
the straight-line method over an average of 9.2-year period.
Sterling's financial statements are consolidated with those of the Company
commencing with the last quarter of 1999.
The following is a summary of the assets acquired:
<TABLE>
<S> <C>
Working capital deficiency.................................. $ (642)
Fixed assets................................................ 300
Technology.................................................. 1,100
Goodwill.................................................... 6,224
------
$6,982
======
</TABLE>
C. The following represents the unaudited pro forma results of operations
assuming the 1999 acquisitions occurred on January 1,1998, and the 1998
acquisitions occurred on January 1, 1997, excluding the write-off of the
acquired in-process research and development.
33
<PAGE> 34
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenues.................................................... $16,718 $33,002 $37,957
======= ======= =======
Net income (loss)........................................... $ 31 $ 3,642 $ (696)
======= ======= =======
Basic net income (loss) per share........................... $ 0.01 $ 0.34 $ (0.05)
======= ======= =======
Diluted net income (loss) per share......................... $ 0.01 $ 0.31 $ (0.05)
======= ======= =======
</TABLE>
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States.
A. 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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
B. FINANCIAL STATEMENTS:
1. FINANCIAL STATEMENTS IN U.S. DOLLARS:
The functional currency of the Company and most of its subsidiaries is the
U.S. dollar, which is the primary currency of the economic environment in which
the operations of the Company and most of its subsidiaries are conducted.
Transactions and balances denominated in dollars are presented at their
dollar amounts. Non-dollar transactions and balances are remeasured into dollars
in accordance with the principles set forth in Statement No. 52 of the Financial
Accounting Standards Board and resulting gains and losses are included in
financial income (expenses).
2. FOREIGN CURRENCY TRANSLATION:
The financial statements of certain subsidiaries, whose functional currency
is not the U.S. dollar, have been translated into U.S. dollars, in accordance
with FASB Statement No. 52, "Foreign Currency Translation". All balance sheet
accounts have been translated using the exchange rates in effect at the balance
sheet date. Statement of operations amounts have been translated using the
average exchange rate of the year. The resulting aggregate translation
adjustments are reported as a component of other comprehensive income.
C. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
D. CASH EQUIVALENTS:
Cash equivalents are short-term, highly liquid investments that are readily
convertible to cash, with maturities of three months or less when purchased.
34
<PAGE> 35
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
E. SHORT-TERM BANK DEPOSITS:
Bank deposits with maturities of more than three months but less than one
year, are included in short-term deposits. The short-term deposits are presented
at cost, including accrued interest.
F. MARKETABLE SECURITIES:
The Company accounts for its investments using Statement of Financial
Accounting Standard Board No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" ("SFAS No. 115").
Management determines the proper classifications of investments in
obligations with fixed maturities and marketable equity securities at the time
of purchase and reevaluates such designations as of each balance sheet date. At
December 31, 1999, all securities covered by SFAS No. 115 were designated as
available-for-sale. Accordingly, these securities are stated at fair value, with
unrealized gains and losses reported in a separate component of accumulated
other comprehensive loss. Realized gains and losses on sales of investments, as
determined on a specific identification basis, are included in the consolidated
statement of operations.
The Company's trading securities are carried at their fair value based upon
the quoted market price of those investments. Net realized and unrealized gains
and losses on these securities are included in the statements of operations.
G. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The allowance for doubtful accounts is determined with respect to specific
debts that are doubtful of collection.
H. LONG-TERM TRADE RECEIVABLES:
Long-term receivables are recorded at estimated present values determined
based on current rates of interest and reported at the net amounts in the
accompanying financial statements. Imputed interest is recognized, using the
effective interest method as a component of interest income in the accompanying
statements.
I. FIXED ASSETS:
Fixed assets are stated at cost. Depreciation is calculated by the
straight-line method over the estimated useful lives of the assets:
<TABLE>
<CAPTION>
%
-----
<S> <C>
Office furniture and equipment.............................. 6-15
Computers and software...................................... 20-33
Motor vehicles.............................................. 15
</TABLE>
Leasehold improvements are depreciated over the related lease periods.
J. OTHER ASSETS:
Other assets are stated at amortized cost. Amortization is calculated using
the straight-line method over the estimated useful lives at the following annual
rate:
<TABLE>
<CAPTION>
%
-----
<S> <C>
Goodwill.................................................... 10-12
Technology.................................................. 20
</TABLE>
35
<PAGE> 36
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
K. DEFERRED TAXES:
The Company and its subsidiaries account for income taxes in accordance
with Statement of Financial Accounting Standards (SFAS) 109, "Accounting for
Income Taxes". This Statement prescribes the use of the liability method whereby
deferred tax asset and liability account balances are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. The Company and its subsidiaries
provide a valuation allowance, if necessary, to reduce deferred tax assets to
their estimated realizable value.
L. REVENUE RECOGNITION:
The Company and its subsidiaries generate revenues from licensing the
rights to use its software products directly to end-users and indirectly through
sub-license fees from resellers. The Company and its subsidiaries also generate
revenues from sales of professional services, including consulting,
implementation, training and maintenance.
Revenues from software license agreements are recognized when all criteria
outlined in Statement Of Position (SOP) 97-2 "Software Revenue Recognition" (as
amended by SOP 98-4) are met. That includes evidence of an arrangement;
delivery; fixed or determinable fees; and collectibility
SOP 97-2 specifies that extended payment terms in a software licensing
arrangement may indicate that the software license fees are not deemed to be
fixed or determinable. In addition, if payment of a significant portion of the
software license fees is not due until more than twelve months after delivery,
the software license fees should be presumed not to be fixed or determinable,
and thus should be recognized as the payments become due. However, SOP 97-2
specifies that if the Company has a standard business practice of using extended
payment terms in software licensing arrangements and has a history of
successfully collecting the software license fees under the original terms of
the software licensing arrangement without making concessions, the Company can
overcome the presumption that the software license fees are not fixed or
determinable. If the presumption is overcome, the Company should recognize the
software license fees when all other SOP 97-2 revenue recognition criteria are
met.
The Company has concluded that for certain software arrangements with
extended payment terms, the "fixed or determinable" presumption has been
overcome and software license fees have been recognized upon meeting the
remaining SOP 97-2 revenue recognition criteria. The present value of such
software license fees recognized in fiscal year 1999 totaled approximately
$1,700.
Revenues from software licenses that require significant customization,
integration and installation are recognized using contract accounting by the
percentage of completion method, based on the relationship of actual costs
incurred to total estimated costs.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are first determined, in the amount of the estimated
loss on the entire contract.
Revenues from maintenance and services are recognized over the life of the
maintenance agreement or at the time that services are rendered.
Revenues from hardware sales are recognized upon shipment.
Deferred revenues include unearned amounts received under maintenance and
support contracts and amounts billed to customers but not recognized as
revenues.
In December 1998, the AICPA issued Statement of Position 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions" ("SOP 98-9"). SOP 98-9 amends SOP 98-4 to
36
<PAGE> 37
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
extend the deferral of the application of certain passages of SOP 97-2 provided
by SOP 98-4 through fiscal years beginning on or before March 15, 1999. All
other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. The company believes that the
effect of the final adoption of SOP 98-9 on its financial condition or results
of operations would be insignificant.
M. SEVERANCE PAY:
The Company's liability for severance pay is calculated pursuant to Israeli
severance pay law based on the most recent salary of the employees multiplied by
the number of years of employment, as of the balance sheet date. Employees are
entitled to one month's salary for each year of employment or a portion thereof.
The Company's liability for all of its employees, is fully provided by monthly
deposits with severance pay funds, insurance policies and by an accrual.
The deposited funds include profits accumulated up to the balance sheet
date. The deposited funds may be withdrawn only upon the fulfillment of the
obligation pursuant to Israeli severance pay law or labor agreements. The value
of the deposited funds is based on the cash surrendered value of these policies,
and includes immaterial profits.
N. SOFTWARE DEVELOPMENT:
Software development costs incurred in the process of developing product
improvements or new products, are charged to expenses as incurred, net of
participation of the Office of the Chief Scientist.
SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," requires capitalization of certain software
development costs subsequent to the establishment of technological feasibility.
Based on the Company and its subsidiaries product development process,
technological feasibility is established upon completion of a working model.
Costs incurred by the Company and its subsidiaries between completion of the
working model and the point at which the product is ready for general release
have been insignificant. Therefore, all research and development costs have been
expensed.
O. CONCENTRATION OF CREDIT RISKS:
SFAS No.105, "Disclosure of Information About Financial Instruments with
Off-Balance-sheet Risk and Financial Instruments with Concentrations of Credit
Risk", requires disclosure of any significant off-balance sheet and credit risk
concentrations. The Company and its subsidiaries have no significant off-balance
sheet concentration of credit risk, such as foreign exchange contracts, option
contracts or other foreign hedging arrangements.
Financial instruments that potentially subject the Company and its
subsidiaries to concentrations of credit risk consist principally of cash
equivalents, marketable securities, accounts receivable and long-term
receivables. The Company's cash and cash equivalents are invested mainly in
deposits with major banks in Israel, Europe and in the United States. Marketable
securities are invested in major investment banks in the United States.
Management believes that the financial institutions holding the Company and its
subsidiaries investments are financially sound, and accordingly, minimal credit
risk exists with respect to these investments. Provisions for bad debts in the
years ended December 31, 1998 and 1999 were $301 and $310, respectively. The
Company and its subsidiaries generally do not require collateral; however, in
certain circumstances, the Company and its subsidiaries may require letters of
credit, other collateral or additional guarantees. The Company and its
subsidiaries perform ongoing credit evaluations of its customers and to date has
not experienced any material losses.
37
<PAGE> 38
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
P. BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Basic net loss per share is computed based on the weighted average number
of Ordinary shares outstanding during each year. Diluted net loss per share is
computed based on the weighted average number of Ordinary shares outstanding
during each year, plus dilutive potential Ordinary shares considered outstanding
during the year, in accordance with FASB Statement No. 128, "Earnings Per
Share".
All outstanding stock options, and warrants have been excluded from the
calculation of the diluted net loss per Ordinary share for the years ended
December 31, 1998 and 1999 because these securities are anti-dilutive for those
periods. The total numbers of shares related to the outstanding options and
warrants excluded from the calculations of diluted net loss per share were
1,141,722 and 1,355,421 for the years ended December 31, 1998 and 1999,
respectively. (See Note 12).
Q. ACCOUNTING FOR STOCK-BASED COMPENSATION:
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") in accounting for its
employee stock options plans. Under APB 25, when the exercise price of the
Company's employee stock options equals or is above the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The pro forma information with respect to the fair value of options granted is
provided in accordance with the provisions of Statement No. 123 Accounting for
Stock-Based compensation ("SFAS No 123") (see Note 11d).
In accounting for options granted to persons other than employees and
directors, the provisions of SFAS 123 were applied.
R. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used by the Company and its
subsidiaries in estimating their fair value disclosures for financial
instruments:
Cash and cash equivalents -- The carrying amounts of these items
approximate their fair value due to the short-term maturity of such instruments.
Marketable securities are based on quoted market price.
The fair value of long-term receivables is estimated by discounting the
future cash flows using the current rates of which similar credits would be made
to customers with similar credit ratings and for the same remaining maturities.
The carrying amount of long-term receivables approximates their fair value since
the interest rate which was used in order to discount future cash flows remained
unchanged.
S. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
This Statement establishes 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. The Statement also requires 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 gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for fiscal years beginning after
June 15, 2000 and cannot be applied retroactively.
38
<PAGE> 39
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company does not expect that this new Statement will have any material
impact on the Company and its subsidiaries consolidated balance sheets or
results of operations.
NOTE 3: MARKETABLE SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Cost........................................................ $ -- $41,729
Gross unrealized losses..................................... -- (706)
------- -------
Fair value.................................................. $ -- $41,023
======= =======
</TABLE>
All marketable securities are mutual funds issued by an investment bank in
the U.S.
The Company did not realize losses on sales of available-for-sale
securities in 1999. The net adjustment to unrealized holding losses on
available-for-sale securities included as a separate component of other
comprehensive income totaled $ 706 in 1999.
During 1999, one of the subsidiaries sold trading securities in the amount
of $ 1,176. The total loss from these securities amounted to $ 19 and was
charged to expenses. As of December 31, 1999 the Company and its subsidiaries do
not hold any trading securities.
NOTE 4: TRADE RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Account receivable.......................................... $ 7,244 $ 4,416
Unbilled receivable......................................... 4,796 7,337
------- -------
$12,040 $11,753
======= =======
</TABLE>
NOTE 5: OTHER RECEIVABLES AND PREPAID EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Prepaid expenses............................................ $ 249 $ 852
Accrued income.............................................. 224 488
Employees................................................... 34 151
Government authorities...................................... 42 103
Other....................................................... 30 183
------- -------
$ 579 $ 1,777
======= =======
</TABLE>
39
<PAGE> 40
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6: LONG-TERM TRADE RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Maturity dates -- long-term trade receivables:
First year (current maturities)........................... $ 189 $ 642
Second year............................................... 131 529
Third year................................................ 75 260
Fourth year............................................... 26 117
Fifth year................................................ 12 127
------- -------
433 1,675
Less -- current maturities.................................. 189 642
------- -------
$ 244 $ 1,033
======= =======
</TABLE>
NOTE 7: FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- --------
<S> <C> <C>
Cost:
Office furniture and equipment............................ $ 798 $ 1,804
Computers and software.................................... 3,494 9,178
Motor vehicles............................................ 156 235
Leasehold improvements.................................... 16 226
------- --------
4,464 11,443
------- --------
Accumulated depreciation:
Office furniture and equipment............................ 106 402
Computers and software.................................... 567 3,025
Motor vehicles............................................ 20 48
Leasehold improvements.................................... 12 27
------- --------
705 3,502
------- --------
Depreciated cost............................................ $ 3,759 $ 7,941
======= ========
</TABLE>
Depreciation expenses for the years ended December 31, 1997, 1998 and 1999
are $155, $337 and $1,905, respectively.
40
<PAGE> 41
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8: OTHER PAYABLES AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- --------
<S> <C> <C>
Employees and payroll accruals.............................. $ 514 $ 1,825
Accrued expenses............................................ 1,365 1,300
Deferred taxes.............................................. -- 61
Office of the Chief Scientist and the Fund for the
Encouragement of Marketing Activities (see Note 10)....... 214 140
Others...................................................... 86 276
------- --------
$ 2,179 $ 3,602
======= ========
</TABLE>
NOTE 9: ACCRUED SEVERANCE PAY, NET
Under Israeli law, the liability for severance pay to Israeli employees is
calculated based upon the employees' most recent monthly salary multiplied by
the period of employment.
The Company's liability for severance pay, pursuant to Israel law, is fully
provided by an accrual. Part of the liability is funded through insurance
policies. The cash value of these policies is recorded as an asset in the
Company's balance sheets.
Severance expenses for the years ended December 31, 1997, 1998 and 1999
amounted to approximately $ 37, $ 104 and $ 143, respectively.
NOTE 10: COMMITMENTS AND CONTINGENT LIABILITIES
A. The Company participated in programs sponsored by the Israeli Government for
the support of research and development activities. From the date of
establishment, the Company had obtained grants from the Office of the Chief
Scientist in the Israeli Ministry of Industry and Trade ("the OCS")
aggregating to $ 1,115 for certain of the Company's software development
projects. The Company is obligated to pay royalties to the OCS, amounting to
3%-5% of the sales of the products and other related revenues generated from
such projects, up to an amount equal to 100%-150% of the grants received. No
grant was obtained in 1999.
Through December 31, 1999, the Company has paid or accrued royalties to the
OCS in the amount of $ 744. As of December 31, 1999, the aggregate contingent
liability to the OCS was $ 543.
B. The Israeli Government, through the Fund for the Encouragement of Marketing
Activities, awarded the Company grants for participation in expenses for
overseas marketing.
The Company received an accumulated amount of grants of $ 433 for the years
up to and including 1999.
The Company is committed to pay royalties at the rate of 3% of the increase
in export sales, up to the amount of $ 178 as of December 31, 1999.
C. On October 22, 1999, an investor filed a class action against the Company
in the United States District Court for the District of New Jersey,
alleging violation of section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5 promulgated thereunder by making statements at an analysts
conference before the opening of the market on October 6, 1999, that did
not reveal that later that day the Company would announce an earnings
decrease.
41
<PAGE> 42
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Plaintiff purports to represent a class action consisting of persons and
entities who purchased or acquired Ordinary shares of the Company on October 6,
1999. However, the Company believes that the claim is without merit and it
intends to vigorously contest the lawsuit.
At this point, management and the Company's legal counsel are of the
opinion that the, likely outcome of this litigation can not be assessed.
D. The Company leases its facilities under various operating lease agreements,
which expire on various dates, the latest of which is in 2004. The minimum
lease commitments under non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------
<S> <C> <C>
2000................................................................ $1,005
2001................................................................ 923
2002................................................................ 718
2003................................................................ 541
2004................................................................ 530
------
$3,717
======
</TABLE>
Total rent expenses for the years ended December 31, 1997, 1998 and 1999,
were approximately $193, $605 and $1,056, respectively.
NOTE 11: SHARE CAPITAL
A. GENERAL:
The Ordinary shares of the Company are traded on the Nasdaq National
Market.
On June 1, 1999, the Company acquired Biveroni Batschelet Partners AG, for
the consideration stated in Note 1b. As part of the acquisitions, the Company
issued 105,315 Ordinary shares.
On April 30, 1999, 2,900,000 Ordinary shares were issued in consideration
of approximately $92.4 thousands, net of expenses in a second Public Offering.
In March 1998, 2,587,500 Ordinary shares were issued in consideration of
approximately $29 thousands, net of expenses in an Initial Public Offering
("IPO").
B. COMPOSITION OF SHARE CAPITAL:
<TABLE>
<CAPTION>
AUTHORIZED ISSUED AND OUTSTANDING
----------------------- -----------------------
DECEMBER 31, DECEMBER 31,
----------------------- -----------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
NUMBER OF SHARES
<S> <C> <C> <C> <C>
Shares of NIS 0.01 par value:
Ordinary Shares(1)......................... 19,949,998 19,949,998 10,791,952 13,951,582
Deferred Shares(2)......................... 50,002 50,002 50,002 50,002
---------- ---------- ---------- ----------
20,000,000 20,000,000 10,841,954 14,001,584
========== ========== ========== ==========
</TABLE>
- ---------------
(1) The Ordinary Shares confer upon the holders the right to receive notice to
participate and vote in general meetings of the Company, and the right to
receive dividends, if declared.
42
<PAGE> 43
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(2) Deferred Shares are non-transferable and entitle their holders to no
voting, dividend or other rights except the right to receive the par value
of the shares upon dissolution of the Company.
C. WARRANTS AND OPTIONS:
1. The Company's outstanding warrants as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
PRICE
ISSUANCE DATE AMOUNT PER SHARE EXPIRATION DATE
- ------------- ------ --------- -------------------
<S> <C> <C> <C>
August 26, 1997(a).................................... 40,000 $13.00 March 13, 2000
====== ======
</TABLE>
a) On August 26, 1997, the Company granted 72,191 warrants to a consultant
which were exercisable upon the success of the IPO. The consultant is
entitled to purchase, for a period of two years after the IPO, Ordinary
Shares of the Company, at an exercise price of $ 13 per share. On February
19, 1999, the consultant exercised 32,191 warrants.
In addition, during 1998, the Company paid this consultant a fee equal to
approximately 1% of the gross proceeds of the IPO.
b) In 1996, the Company issued 167,859 warrants to a group of investors. Each
warrant can be exercised to purchase an Ordinary Share within three years
from a date of its issuance at an exercise price of $ 2.57 per warrant.
During 1998, 164,287 warrants were exercised. During 1999, the remaining
3,572 warrants were exercised.
2. STOCK OPTIONS:
a. Under the Company's 1996, 1997, 1998 and 1999 Stock Option Plans (the
"Plans"), options may be granted to employees and directors of the Company or
its subsidiaries.
b. Pursuant to the Plans, as of December 31, 1999, an aggregate of 394,033
options of the Company are still available for future grant.
c. Each option granted under the Plans to employees expires no later than
four to five years from the date of the grant. The options vest primarily over
four years. Any options which are canceled or not exercised before expiration
become available for future grants.
Options granted to directors are vested over a one year period from their
date of grant.
d. Each option granted to employees and directors is exercisable to one
Ordinary Share at an exercise price of $ 2.33 to $ 24.625.
43
<PAGE> 44
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A summary of the Company's share option activity under the Plans is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1997 1998 1999
------------------------- --------------------------- ---------------------------
NUMBER WEIGHTED WEIGHTED WEIGHTED
OF AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OPTIONS EXERCISE PRICE OF OPTIONS EXERCISE PRICE OF OPTIONS EXERCISE PRICE
-------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of the year..... 415,128 $2.33 543,753 $ 3.22 1,065,959 $ 8.16
Granted.................................. 334,500 $3.80 624,438 $12.29 528,075 $16.58
Exercised................................ -- $ -- (42,325) $ 3.77 (118,546) $ 4.71
Forfeited................................ (205,875) $2.34 (59,907) $12.55 (120,067) $18.36
-------- ----- --------- ------ --------- ------
Outstanding -- end of the year........... 543,753 $3.22 1,065,959 $ 8.16 1,355,421 $10.84
======== ===== ========= ====== ========= ======
Exercisable options...................... 133,689 $2.54 268,355 $ 4.48 451,805 $ 7.93
======== ===== ========= ====== ========= ======
</TABLE>
The options outstanding as of December 31, 1999 have been separated into
ranges of exercise price, as follows:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED OPTIONS
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AS OF REMAINING AVERAGE AS OF AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICE 1999 LIFE PRICE 1999 PRICE
- ------------ ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$2.33-3.33... 358,336 2.3 $ 2.90 238,420 $ 2.71
$7.33-10.38.. 45,375 3.0 $ 7.47 22,687 $ 7.40
$11.50-17.00.. 822,023 4.2 $12.72 161,577 $12.98
$19.25-24.63.. 129,687 4.3 $22.02 29,121 $23.06
- ------------ --------- --- ------ ------- ------
$2.33-24.63.. 1,355,421 3.7 $10.84 451,805 $ 7.93
============ ========= === ====== ======= ======
</TABLE>
On October 20, 1998 the Board of Directors decided to reduce the exercise
price of all employee stock options to the current market price, except in the
case of options granted to members of the Board of Directors, that were not
exercised, canceled or forfeited, that had an original exercise price above $
11.625.
The number of options repriced was 304,500. The original exercise price of
these options ranged between $ 13-$ 21.5.
Compensation expense for the excess of market value over the exercise price
of options at the date of grant totaled $ 294 and is being amortized to income
over the vesting period for four years.
Under SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"), pro-forma information regarding net income (loss) and earnings (loss) per
share is required for grants issued after December 1994, and has been determined
as if the Company had accounted for its employee share options under the fair
value method of SFAS No. 123. The fair value for these options was estimated at
the grant date using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1997, 1998 and 1999: risk-free interest rates
of 5.5%, 5.5% and 5.6% respectively dividend yields of 0%, volatility factors of
the expected market price of the Company's Ordinary Shares of 0.2, 0.75 and
0.76, respectively, and a weighted-average expected life of four years per
option.
The weighted average fair values of options granted for the years ended
December 31, 1997, 1998 and 1999, were $ 3.61, $ 6.33 and $ 9.90, respectively.
44
<PAGE> 45
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The weighted average fair values of options granted at an exercise price
less than the market price for the year ended December 31, 1998 was $ 8.20. No
options were granted during 1999 at an exercise price less than fair value.
Because changes in the subjective input assumptions can materially affect
the fair value estimate, it is management's opinion that the existing option
pricing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
Pro-forma information under SFAS No. 123 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998 1999
----- -------- -------
<S> <C> <C> <C>
Net income (loss) as reported............................... $ 636 $(11,392) $(1,711)
===== ======== =======
Pro-forma income (loss)..................................... $ 586 $(11,803) $(3,580)
===== ======== =======
Pro-forma basic earnings (loss) per share................... $0.21 $ (1.16) $ (0.28)
===== ======== =======
Pro-forma diluted earnings (loss) per share................. $0.07 $ (1.16) $ (0.28)
===== ======== =======
</TABLE>
D. DIVIDENDS:
In the event that cash dividends are declared in the future, such dividends
will be paid in NIS. The Company does not intend to pay cash dividends in the
foreseeable future.
The Company has decided to permanently reinvest its tax exempt income (see
Note 13a).
45
<PAGE> 46
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 12: EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of historical basic and
diluted earnings (loss) per share:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income (loss)................................. $ 636 $ (11,392) $ (1,711)
========== =========== ===========
Numerator for basic earnings (loss) per
share -- income (loss) available to Ordinary
shareholders................................... $ 636 $ (11,392) $ (1,711)
========== =========== ===========
Numerator for diluted earnings (loss) per
share -- income (loss) available to Ordinary
shareholders after assumed conversions......... $ 636 $ (11,392) $ (1,711)
========== =========== ===========
Denominator:
Weighted average Ordinary Shares outstanding........ 2,837,497 10,151,033 12,854,999
---------- ----------- -----------
Denominator:
Denominator for basic earnings (loss) per share --
weighted -- average shares..................... 2,837,497 10,151,033 12,854,999
---------- ----------- -----------
Effect of dilutive securities*) Employee stock
options........................................ 168,660 -- --
Warrants.......................................... 135,827 -- --
Convertible Preferred Shares...................... 4,792,583
---------- ----------- -----------
Dilutive potential Ordinary Shares................ 5,097,070 -- --
---------- ----------- -----------
Denominator for diluted earnings (loss) per
share-adjusted weighted-average shares and
assumed conversions............................ 7,934,567 10,151,033 12,854,999
========== =========== ===========
</TABLE>
NOTE 13: TAXES ON INCOME
A. TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS,
1959:
The Company has been granted in November 1995 the status of an "Approved
Enterprise", under the Law for the Encouragement of Capital Investments, 1959
(the "Investment Law") and the Company has elected the alternative benefits
program, waiver of grants in return for tax exemptions. Pursuant thereto, the
income of the Company derived from the "Approved Enterprise" program is
tax-exempt for two years and will enjoy a reduced tax rate of 25% for an
eight-year period (subject to an adjustment of 20% based upon the foreign
investors' ownership of the Company).
The Company completed its investment according to its first program on
November 27, 1997. Income derived from this program is tax exempt for two years
commencing in 1998 and will enjoy a reduced tax of 25% for an additional eight
years (subject to an adjustment of 20% based upon the foreign investors'
ownership of the Company).
In 1998, the Company received approval for an expansion program of its
Approved Enterprise. Accordingly, the Company's income from the expansion
program 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
aforementioned benefits are in respect of the taxable income that the Company
derives from the expansion program.
The period of tax benefits detailed above is subject to limits of 12 years
from the year of commencement of production, or 14 years from the date of
granting the approval, whichever is earlier.
46
<PAGE> 47
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The tax-exempt profits that will be earned by the Company's "Approved
Enterprise" can be distributed to shareholders, without tax liability to the
Company only upon the complete liquidation of the Company. As of December 31,
1999 retained earnings included approximately $ 4,476 in tax exempt income
earned by the Company's "Approved Enterprise". The Company has decided to
permanently reinvest its tax exempt income. Accordingly, no deferred income
taxes have been provided on income attributable to the Company's "Approved
Enterprise". If these retained tax-exempt profits are distributed in a manner
other than in the complete liquidation of the Company, they would be taxed at
the corporate tax rate applicable to such profits as if the Company had not
chosen the alternative tax benefits (currently 25% for an "Approved
Enterprise").
The Investment Law also grants entitlement to claim accelerated
depreciation on equipment used by the "Approved Enterprise" during five tax
years.
Should the Company derive income from sources other than the "Approved
Enterprise" during the periods of benefits, such income shall be taxable at the
regular corporate tax rate of 36%.
B. TAX BENEFITS UNDER THE ISRAELI LAW FOR THE ENCOURAGEMENT OF INDUSTRY
(TAXATION), 1969:
The Company is an "industrial company" under the Law for the Encouragement
of Industry (Taxation), 1969 and, therefore, it is entitled to certain tax
benefits, including accelerated rates of depreciation and deduction of public
offering expenses.
C. MEASUREMENT OF RESULTS FOR TAX PURPOSES UNDER THE INCOME TAX LAW
(INFLATIONARY ADJUSTMENTS), 1985:
Results for tax purposes are measured in real terms of earnings in NIS
after certain adjustments for increases in the CPI. As explained in Note 2b, the
financial statements are presented in U.S. dollars. The difference between the
annual change in the CPI and in the NIS/dollar exchange rate causes a difference
between taxable income and the income before taxes shown in the financial
statements. In accordance with paragraph 9(f) of SFAS No. 109, the Company has
not provided deferred income taxes on this difference between the reporting
currency and the tax bases of assets and liabilities.
D. NET OPERATING LOSSES CARRYFORWARDS:
As of December 31, 1999, the Company had approximately $ 2,400 of Israeli
net operating loss carryforwards. The Israeli loss carryforwards have no
expiration date. 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 income
taxes have been included in these financial statements.
As of December 31, 1999, Fundtech Corporation had a U.S. federal net
operating loss carryforward of approximately $ 14,300 which can be carried
forward and offset against taxable income for 10 years and expire in 2009.
E. DEFERRED INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
47
<PAGE> 48
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1999
------- --------
<S> <C> <C>
Deferred tax assets:
U.S. net operating loss carryforwards..................... $ 1,659 $ 5,005
Other reserve and allowances (including in process,
research and development write-off $5,552 and $6,107 in
1998 and 1999, respectively)........................... 5,657 5,273
------- --------
Total deferred assets....................................... 7,316 10,278
Valuation allowance......................................... (7,316) (10,278)
------- --------
Balance at the end of the year.............................. $ -- $ --
======= ========
Deferred tax liabilities:
Deferred tax due to assets acquired and liabilities
assumed................................................ $ -- $ (210)
======= ========
</TABLE>
The U.S. subsidiary has provided valuation allowances in respect of
deferred tax assets resulting from tax loss carryforwards and other temporary
differences, since it has a history of losses over the past years. Management
currently believes that it is more likely than not that the deferred tax
regarding the loss carryforwards and other temporary differences will not be
realized.
F. INCOME (LOSS) BEFORE TAXES ON INCOME:
Income (loss) before taxes on income consists of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------ -------- -------
<S> <C> <C> <C>
Domestic.................................................... $1,599 $ 4,183 $ 4,665
Foreign..................................................... (963) (15,575) (6,376)
------ -------- -------
$ 636 $(11,392) $(1,711)
====== ======== =======
</TABLE>
NOTE 14: SELECTED STATEMENTS OF OPERATIONS DATA
The Company has evaluated its business activities in accordance with the
provisions of SFAS No. 131 "Disclosure about Segments of an Enterprise and
Related Information" and determined that its operating segments have similar
economic characteristics such as products and services, customers' methods used
to distribute products and services, and regulatory environment resulting in
their aggregation.
A. SUMMARY INFORMATION ABOUT GEOGRAPHICAL DESTINATIONS:
The Company manages its business on a basis of one reportable segment (see
Note 1 for a brief description of the Company's business) and follows the
requirements of SFAS 131, "Disclosures About Segments of an Enterprise and
Related Information".
48
<PAGE> 49
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The total revenues are attributed to geographic information, based on the
customers' location.
<TABLE>
<CAPTION>
1997 1998 1999
--------------------- --------------------- ---------------------
TOTAL LONG-LIVED TOTAL LONG-LIVED TOTAL LONG-LIVED
REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Israel............................ $ 204 $189 $ 693 $ 413 $ 495 $ 538
U.S.A............................. 7,471 689 19,190 6,422 23,257 16,273
Australia......................... 332 -- 262 -- 239 --
Switzerland....................... -- -- -- -- 4,156 10,902
Others............................ 12 -- 2,987 -- 3,544 26
------ ---- ------- ------ ------- -------
$8,019 $878 $23,132 $6,835 $31,691 $27,739
====== ==== ======= ====== ======= =======
</TABLE>
B. MAJOR CUSTOMERS DATA; PERCENTAGE OF TOTAL REVENUES:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Customer A.................................................. 31% 1% 6%
=== === ===
Customer B.................................................. 12% 4% 5%
=== === ===
</TABLE>
C. FINANCIAL INCOME:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ----- -------
<S> <C> <C> <C>
Financial expenses:
Interest and other........................................ $ 28 $ 24 $ 64
---- ---- ------
Financial income:
Foreign currency translation differences, net............. 57 9 39
---- ---- ------
Interest and other........................................ 161 586 3,781
---- ---- ------
218 595 3,820
---- ---- ------
$190 $571 $3,756
==== ==== ======
</TABLE>
49
<PAGE> 50
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table lists the names and ages of the current directors,
executive officers and key employees of Fundtech:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Reuven Ben-Menachem.................. 39 Chief Executive Officer, President and Chairman
Ariu Levi............................ 52 President of Fundtech Corp.
Joseph P. Mazzetti................... 59 Executive Vice President, Sales and Marketing
Michael Carus........................ 34 Executive Vice President, Chief Operating Officer
and Chief Financial Officer
Gil Gadot............................ 38 Executive Vice President of Technology, General
Manager of Israeli Operations
Paul J. Citarella.................... 42 Executive Vice President, Corporate Marketing
Edmund Orr III....................... 49 Executive Vice President and General Manager,
Electronic Banking
George M. Lieberman.................. 56 Director
Jay B. Morrison...................... 53 Director
Rina Shainski........................ 40 Director
Eddy Shalev.......................... 52 Director
Rimon Ben-Shaoul..................... 55 Director
Achi Racov........................... 54 Director
</TABLE>
Reuven Ben-Menachem, a co-founder of Fundtech, has served as Fundtech's
Chief Executive Officer and President, as a director of Fundtech since its
inception in April 1993 and as Chairman of the Board of Directors since August
1998. Before founding Fundtech, Mr. Ben-Menachem was employed at Logica Data
Architects, a funds transfer software provider, most recently as a Technical
Director and a Product Manager. From January 1984 until June 1986, Mr.
Ben-Menachem served as Director of Banking Systems at Manof Communications
Systems, a middleware software provider. Prior thereto, Mr. Ben-Menachem served
as a senior programmer/analyst in the Israeli Air Force.
Ariu Levi, a co-founder of Fundtech, has been President of Fundtech
Corporation since it commenced operations in 1993. Before founding Fundtech,
from 1991 to 1993, Mr. Levi was the Vice President of West Coast Sales at Winter
Partners, an international banking software company. From 1981 to 1991, Mr. Levi
was employed in the payments systems consultancy and sales and marketing
divisions at TMI, Inc. and Logica USA. From 1973 to 1981, Mr. Levi was Vice
President at the Cashiers Division of Bank America, and was responsible for the
management of Bank America's consolidated cash flow and payment systems policy.
Mr. Levi has 24 years of experience in the wholesale payments industry.
Joseph P. Mazzetti serves as Executive Vice President, Sales and Marketing
of Fundtech. Prior to joining Fundtech, Mr. Mazzetti was employed as an
Executive Vice President at PRT Corp., a Year 2000 solution company from 1992 to
1994. From 1984 to 1992, Mr. Mazzetti was employed at Logica Data Architects,
most recently as Executive Vice President of the Financial Products Group, where
he had responsibility for funds transfer, message switching, and asset/liability
product lines. Mr. Mazzetti has more than 30 years of experience
50
<PAGE> 51
in information technology in the public and private sectors with concentration
in the banking and financial institutions market.
Michael Carus has served as Executive Vice President, Chief Operating
Officer and Chief Financial Officer since July 1999. Prior to that, Mr. Carus
served as Executive Vice President and Chief Financial Officer since May 1998,
and as Senior Vice President and Chief Financial Officer from September 1997 to
May 1998. From May 1995 to August 1997, Mr. Carus was employed by Geotek
Communications Inc., a wireless communications solution provider, most recently
as Vice President and Acting Chief Financial Officer, Corporate Controller and
Chief Accounting Officer. From 1988 to 1995, Mr. Carus was employed by Coopers &
Lybrand as a Certified Public Accountant, most recently in the position of
Manager -- Business Assurance.
Gil Gadot has served as Executive Vice President of Technology and regional
General Manager Israeli Operations of Fundtech since September 1998. From 1995
until September 1998, Mr. Gadot was Senior Vice President of -Technology and
U.S. Operations, and served as Vice President of Research and Development of
Fundtech since it commenced operations in 1993 until 1995. From 1987 to 1993,
Mr. Gadot was a senior project manager of DSSI, a leading systems and software
supplier. Prior thereto, Mr. Gadot served as a senior programmer - analyst
holding a rank of a captain in the Israeli Army Computer center. Mr. Gadot has
more than 18 years of software development experience, particularly in advanced
graphical user interface, operating and real-time systems.
Paul J. Citarella has served as Executive Vice President, Corporate
Marketing since July 1999. Prior to that, Mr. Citarella served as Senior Vice
President and General Manager of the Electronic Banking Division of Fundtech
since April 1998. Mr. Citarella held the same position at CheckFree Corporation
where he was employed from 1996 to April 1998. From 1985 to 1995, Mr. Citarella
was employed by Unisys Corporation, an information technology solutions
provider, where he held management and sales positions with that company's
Financial Services Division.
Edmund Orr III has served as Executive Vice President and General Manager
of the Electronic Bank Division since joining Fundtech in July 1999. Prior to
joining Fundtech, Mr. Orr was the Vice President of Transaction Software
Technologies (TST) responsible for Product Management and New Business
Development from 1993 through 1998. Prior to joining TST, Mr. Orr was employed
by Security Pacific Bank/Bank of America from 1979 through 1993, where he held
various management positions within their Treasury Management organization.
George M. Lieberman has served as a Director of Fundtech since December
1998. Mr. Lieberman has been with WIT Capital, a pioneer online investment
banking firm, as Senior Vice President and CIO since February 1998. Prior to
February 1998, Mr. Lieberman held a number of positions at Merrill Lynch
including First Vice President of Technology Strategy and Planning and was a
member of the Merrill Lynch Technology Advisory Board. Mr. Lieberman has more
than 30 years of information technology management and development experience
across a broad spectrum of industries. He holds two computer related patents.
Mr. Lieberman was also responsible for the development of major systems projects
at many financial industry companies including Citibank and ADP. Mr. Lieberman
holds advanced degrees in Industrial Engineering and Operations Research. Mr.
Lieberman is the chairman of the Corporate Advisory Board of The Institute for
Technology and Enterprise part of the Polytechnic University of New York.
Jay B. Morrison has served as a director of Fundtech since 1995 and was
co-Chairman of the Board of Directors until August 1998. Since 1995, Dr.
Morrison also serves as director of Jacada Ltd, a newly public company. Dr.
Morrison has been a General Partner of Newbury Ventures, Inc., a venture capital
investment firm, since 1992. Prior thereto, Dr. Morrison held a number of
positions with Govett & Co. Ltd., a European international fund management
company, including Chief Financial Officer and President of its venture capital
subsidiary from 1990 to 1991. Dr. Morrison holds B.Ie. and M.S. degrees from
Ohio State University and a Ph.D. from the University of California, Berkeley,
and has more than 15 years of experience in investing in and working with
emerging growth companies.
Rina Shainski has served as a director of Fundtech since March 1999 after
serving as an alternate director of Fundtech since August 1998. Ms. Shainski has
served as Vice President Business Development of Clal Industries
51
<PAGE> 52
and Investments Ltd ("CII"), one of Israel's largest investment and holding
companies, which is invested primarily in the industrial and technology sectors,
since September 1997. From 1989 until 1996 Ms. Shainski was employed by
Tecnomatix Technologies Ltd., most recently as Director Research & Development
and Vice President Business Development. Ms. Shainski has more than 13 years of
management experience in high-tech software companies. Ms. Shaninski holds an
M.Sc. degree in Computer Science from Weizmann Institute of Science, Israel and
a B.Sc. degree in Physics from Tel Aviv University. Ms. Shainski is a graduate
of the International Executive Program in Insead, Fontainbleau, France.
Eddy Shalev has served as a director of Fundtech since April 1997, and has
been affiliated with Fundtech since 1993. Mr. Shalev also serves as the Managing
General Partner of Genesis Partners. Since 1985, Mr. Shalev has served as Chief
Executive Officer of E. Shalev Ltd., currently an affiliate of CIBC World
Markets Corp. From 1992 to 1996, Mr. Shalev was primarily engaged in sourcing
and management of principal private equity activities in Israeli high technology
companies and has led and participated in many private equity investments in
emerging growth and technology companies. In 1992, Mr. Shalev co-founded Mofet
Israel Technology Fund. Mr. Shalev holds a B.A. in Statistics and a M.Sc degree
in information Systems from Tel Aviv University.
Rimon Ben-Shaoul has served as a director of Fundtech since August 1998. He
has also served as President of CII since May 1997. From 1985 until 1997, Mr.
Ben-Shaoul served as President and as a member of the board of directors of Clal
Insurance Company Ltd. Mr. Ben-Shaoul also serves as the chairman or a member of
the boards of directors of several other companies in which CII has interests.
Mr. Ben-Shaoul earned a B.A. in Economics as well as an M.B.A. from Tel Aviv
University.
Achi Racov has served as Chief Information Officer of National Westminster
Bank Group, London ("NatWest Group"), since 1997. Prior to his position as Chief
Information Officer, Mr. Racov served as Director of Architecture & Governance
of NatWest Group IT from 1994 through 1996. From 1991 through 1994, Mr. Racov
was employed by Nedcor, South Africa, as IT Executive Strategy and Technology.
From 1978 to 1990, Mr. Racov served as Technical Director of MSS International.
From 1975 to 1978, Mr. Racov served as Technology Specialist at Digitron. From
1971 to 1975, Mr. Racov served as General Manager, Systems and Development, of
Burroughs Israel and served as Project Leader and Head of Support at the Israeli
Ministry of Education from 1967 to 1970. Prior thereto, Mr. Racov served as an
Electronics Engineer in the Israeli Army.
The Amended and Restated Articles of Association of Fundtech (the "Articles
of Association"), provide that, unless otherwise resolved by an ordinary
resolution of the General Meeting of Fundtech, the number of directors of
Fundtech shall be between five and seven directors. The minimum number of
directors is four. Officers of Fundtech serve at the discretion of the Board of
Directors. Directors may be removed at any time by an ordinary resolution of the
shareholders, provided the shareholders are given 21 days' notice.
Prior to every annual ordinary meeting of Fundtech, the Board of Directors
of Fundtech is to select between five and seven persons to be proposed to the
shareholders of Fundtech for election as directors of Fundtech until the next
annual ordinary meeting. Except for such nominees, no candidate for the office
of a director may be proposed at an annual ordinary meeting of Fundtech unless
not less than 72 hours and not more than 42 days prior to the date appointed for
the annual ordinary meeting, a notice in writing, signed by members holding at
least 10% of Fundtech's issued and outstanding shares who are entitled to attend
a meeting in respect of which notice has been sent and who are entitled to vote
thereat, is delivered to Fundtech stating that such members intend to propose
candidates for the office of directors instead of the nominees proposed by the
Board of Directors. The directors are elected by an ordinary resolution at every
annual ordinary meeting, for a term of office which shall end upon the convening
of the first annual ordinary meeting held after the date of their election.
The Articles of Association provide that a director may appoint, by written
notice to Fundtech, any individual to serve as an alternate director. Any
alternate director shall have all of the rights and obligations of the
appointing director except the power to appoint an alternate for himself. Unless
the period or scope of any such appointment is limited by the appointing
director, such appointment is effective for all purposes and for a period of
time concurrent with the term of the appointing director. Currently, no
alternate directors have been appointed.
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<PAGE> 53
INDEPENDENT DIRECTORS
Under the requirements for quotation on Nasdaq, Fundtech is required to
have at least two independent directors on its Board of Directors and to
establish an audit committee, a majority at least of whose members are
independent of management. Fundtech is in compliance with this requirement.
DUTIES UNDER THE COMPANIES LAW
Fundtech is subject to the provisions of the new Israeli Companies Law,
5759-1999, which became effective on February 1, 2000 (the "Companies Law"). The
Companies Law codifies the fiduciary duties that "office holders," including
directors and executive officers, owe to a company. An office holder's fiduciary
duties consist of a duty of care and a duty of loyalty. The duty of loyalty
includes avoiding any conflict of interest between the office holder's position
in the company and his personal affairs, avoiding any competition with the
company, avoiding exploiting any business opportunity of the company in order to
receive personal advantage for himself or others, and revealing to the company
any information or documents relating to the company's affairs which the office
holder has received due to his position as an office holder. Each person listed
in the table under "Directors and Executive Officers of the Registrant" above
(other than Mr. Ariu Levi, who is an officer of Fundtech Corp.) is an office
holder. Under the Companies Law, all arrangements as to compensation of office
holders who are not directors require approval of the board of directors.
Arrangement regarding the compensation of directors also requires audit
committee and shareholder approval.
Under the Companies Law, a shareholder has a duty to act in good faith
towards the company and other shareholders and to refrain from abusing his power
in the company including, among other things, in voting in a general meeting of
shareholders on the following matters (i) any amendment to the articles of
association, (2) an increase of the company's authorized share capital, (3) a
merger, or (4) approval of interested party transactions which require
shareholder approval.
In addition, any controlling shareholder, any shareholder who knows that it
possesses power to determine the outcome of a shareholder vote and any
shareholder who, pursuant to the provisions of a company's articles of
association, has the power to appoint or prevent the appointment of an office
holder in the company, is under a duty to act with fairness towards the company.
The Companies Law does not describe the substance of this duty.
APPROVAL OF CERTAIN TRANSACTION UNDER THE COMPANIES LAW
The Companies Law requires that an office holder of the company promptly
disclose any personal interest that he or she may have and all related material
information known to him or her, in connection with any existing proposed
transaction by the company. In addition, if the transaction is an extraordinary
transaction as defined under Israeli law, the office holder must also disclose
any personal interest held by the office holder's spouse, siblings, parents,
grandparents, descendants, spouse's descendants and the spouses of any of the
foregoing. In addition, the office holder must also disclose any interest held
by any corporation in which the office holder is a 5% or greater shareholder,
director or general manager or in which he or she has the right to appoint at
least one director or the general manager. An extraordinary transaction is
defined as a transaction other than in the ordinary course of business,
otherwise than on market terms, or that is likely to have a material impact on
the company's profitability, assets or liabilities.
In the case of a transaction which is not an extraordinary transaction,
after the office holder complies with the above disclosure requirement, only
board approval is required unless the articles of association of the company
provide otherwise. The transaction must not be adverse to the company's
interest. Furthermore, if the transaction is an extraordinary transaction, then,
in addition to any approval stipulated by the articles of association, it also
must be approved by the company's audit committee and then by the board of
directors, and, under certain circumstances, by a meeting of the shareholders of
the company. An office holder who has a personal interest in a matter which is
considered at a meeting of the board of directors or the audit committee may not
be present at this meeting or vote on this matter.
The Companies Law applies the same disclosure requirements to a controlling
shareholder of a public company, which includes a shareholder that holds 25% or
more of the voting rights if no other shareholder owns
53
<PAGE> 54
more than 50% of the voting rights in the company. Extraordinary transactions
with a controlling shareholder or in which a controlling shareholder has a
personal interest, and the terms of compensation of a controlling shareholder
who is an office holder, require the approval of the audit committee, the board
of directors and the shareholders of the company. The shareholder approval must
include at least one-third of the shareholders who have no personal interest in
the transaction and are present, in person or by proxy, at the meeting or,
alternatively the total shareholdings of those who have no personal interest in
the transaction who vote against the transaction must not represent more than
one percent of the voting rights in the company.
In addition, a private placement of securities that will increase the
relative holdings of a shareholder that holds five percent or more of the
company's outstanding share capital (assuming the exercise or conversion of all
securities held by such person that are exercisable for or convertible into
shares) or that will cause any person to become, as a result of the issuance, a
holder of more than five percent of the company's outstanding share capital,
requires approval by the board of directors and the shareholders of the company.
The Articles of Association of Fundtech provide that the Board may delegate
all of its powers to such committees of the Board as it deems appropriate,
subject to the provisions of the applicable law.
For information concerning the direct and indirect personal interests of
certain Office Holders and principal shareholders of Fundtech in certain
transactions with Fundtech, see "Certain Relationships and Related Party
Transactions."
INTERNAL AUDITOR
Under the Companies Law, the board of directors must appoint an internal
auditor, nominated by the audit committee. The role of the internal auditor is
to examine, among other matters, whether the company's actions comply with the
law and orderly business procedure. Under the Companies Law, the internal
auditor may be an employee of the company but not an office holder, or an
affiliate, or a relative of an office holder or affiliate, and he may not be the
company's independent accountant or its representative. Fundtech intends to
appoint an internal auditor in accordance with the requirements of the new
Companies Law.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 260 and 261 of the Companies Law permit a company's articles of
association to provide that: (i) the company may insure a director or officer
for the breach of his duty of care or, to the extent he acted in good faith and
had a reasonable basis to believe that the act would not prejudice the company,
for the breach of his fiduciary duty as well as for monetary liabilities charged
against him as a result of an act or omission he committed in connection with
his serving as an officer or director of the company and (ii) the company may
indemnify an officer or director in connection with his service as officer or
director, for monetary liability incurred pursuant to a judgment, including a
settlement or arbitration decision approved by a court, in an action brought
against him by a third party as well as for reasonable legal expenses incurred
in an action brought against him by or on behalf of the company or others, or as
a result of a criminal charge of which he was acquitted, or as a result of a
conviction for a crime which does not require proof of criminal intent. These
provisions are specifically limited in their scope by Section 263 of the
Companies Law, which provides that a company may not indemnify an officer or
director nor enter into an insurance contract which would provide coverage or
any monetary liability incurred as a result of the following: (a) a breach by
the director or officer of his fiduciary duty unless he acted in good faith and
had a reasonable basis to believe that the act would not prejudice the company;
(b) a breach by the director or officer of his duty of care if such breach was
done intentionally or in disregard of the circumstances of the breach or its
consequences; (c) any act or omission done with the intent to derive an illegal
personal benefit; or (d) any fine levied against the director or officer as a
result of a criminal offense.
The Articles of Association of Fundtech provide that, subject to the
provisions of the applicable laws, Fundtech may enter into a contract for the
insurance of the liability, in whole or in part, of any of its Office Holders
with respect to: (i) a breach of his duty of care to Fundtech or to another
person; (ii) a breach of his fiduciary duty to Fundtech, provided that the
Office Holder acted in good faith and had reasonable cause to assume that his
act would not prejudice the interests of Fundtech; or (iii) a financial
liability imposed upon him in favor of another person in respect of an act
performed by him in his capacity as an Office Holder of Fundtech. In
54
<PAGE> 55
addition, Fundtech may indemnify an Office Holder against: (i) a financial
liability imposed on him in favor of another person by any judgment, including a
compromise judgment or an arbitrator's award approved by a court in respect of
an act performed in his capacity as an Office Holder of Fundtech, and (ii)
reasonable litigation expenses, including attorneys' fees, incurred by such
Office Holder or charged to him by a court in proceedings instituted against him
by Fundtech or on its behalf or by another person, or in a criminal charge from
which he was acquitted, all in respect of an act performed in his capacity as an
Office Holder of Fundtech. The Articles of Association of Fundtech state that an
Office Holder of Fundtech, for purposes of this Article, includes a director, a
general manager, the chief executive officer, an executive vice president, a
vice president, other managers directly subordinate to the general manager and
any person who fills one of the above positions in Fundtech, even if he carries
a different title. Fundtech has obtained directors and officers liability
insurance for the benefit of Fundtech's Office Holders.
AUDIT COMMITTEE
The Companies Law requires public companies to appoint an audit committee.
The responsibilities of the audit committee under the Companies Law include
identifying irregularities in the management of the company's business and
approving related party transactions as required by law. Under the Companies
Law, an audit committee must consist of at least three directors, including at
least two outside directors. The chairman of the board of directors, any
director employed by or otherwise providing services to the company, and a
controlling shareholder or any relative of a controlling shareholder, may not be
a member of the audit committee.
Under the Nasdaq rules, Fundtech is currently required to have at least two
independent directors on its board of directors and to maintain an audit
committee, at least a majority of whose members are independent of management.
Nasdaq recently amended these rules, however, to require that companies quoted
on Nasdaq have at least three independent directors on the audit committee, all
of whom are financially literate and one of whom has accounting or related
financial management expertise. Fundtech must comply with these amended rules by
June 14, 2001. The responsibilities of the audit committee under the Nasdaq
rules include, among other things, evaluating the independence of a company's
outside auditors. Fundtech's current audit committee complies with the Nasdaq
rules. Under the newly amended Nasdaq rules, Fundtech is required to adopt an
audit committee charter that complies with Nasdaq specifications no later than
June 14, 2000. Fundtech intend to adopt an audit committee charter and comply
with the other new requirements before the applicable deadlines.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has formed an Audit and Control Committee (the
"Audit Committee") and a Compensation Committee. The Audit Committee, which
consists of Dr. Jay Morrison, Mr George Lieberman and Ms. Rina Shainski,
exercises the powers of the Board of Directors with respect to the accounting,
reporting and financial control practices of Fundtech. The Compensation
Committee, which consists of Mr. Achi Racov, Dr. Jay Morrison and Ms. Rina
Shainski, administers Fundtech's stock option plans and Fundtech's overall
compensation practices.
DIRECTOR COMPENSATION
Pursuant to its directors' stock option plan, Fundtech granted options to
purchase up to 6,000 ordinary shares to each member of the board of directors.
In addition pursuant to its directors' stock option plan, Fundtech granted Rina
Shainski and George Lieberman options to purchase an additional 3,000 and 4,500
ordinary shares respectively as members of the board of directors.
We do not otherwise currently compensate directors for attending meetings
of the board of directors or committee meetings of the board of directors, but
we do reimburse directors for their reasonable travel expenses incurred in
connection with attending these meetings.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During 1999, Mr. Ariu Levi, who is president of Fundtech Corp. failed to
timely file with the Securities and Exchange Commission (the "SEC") seven Forms
4 relating to seven transactions, Mr. Paul Citarella, who is an
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<PAGE> 56
Executive Vice President, Corporate Marketing failed to timely file with the SEC
a Form 3 and one Form 4 relating to one transaction, Mr. Edmund Orr III, who is
Executive Vice President and General Manager, Electronic Banking failed to
timely file with the SEC a Form 3 and one Form 4 relating to one transaction,
Mr. George M. Lieberman, who is a Director failed to timely file with the SEC
one Form 4 relating to one transaction, Mr. Jay B. Morrison, who is a Director
failed to timely file with the SEC one Form 4 relating to one transaction.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or distributed during
the years ended December 31, 1999, 1998 and 1997 by Fundtech for services
rendered by (i) Fundtech's chief executive officer and (ii) Fundtech's four most
highly compensated executive officers (the "Named Executive Officers") other
than the chief executive officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- ------------------------- ---- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Reuven Ben-Menachem.................. 1999 $200,000 $65,000 6,000(2) 2,447
Chief Executive Officer, President 1998 165,417 140,000 21,000(3) 2,954
and Chairman 1997 141,246 5,000 -- 2,866
Gil Gadot............................ 1999 107,878 45,000 -- 5,406
Executive Vice President of 1998 115,000 20,000 10,000 2,954
Technology, 1997 90,000 20,000 -- 2,866
General Manager Israeli Operations
Joseph P. Mazzetti................... 1999 160,000 18,000 2,447
Executive Vice President -- Sales 1998 146,875 25,000 15,000 2,866
and Marketing 1997 110,000 10,000 10,500 3,300
Michael Carus........................ 1999 160,000 43,000 2,447
Executive Vice President, Chief 1998 145,833 40,000 15,000 2,954
Operating Officer and Chief
Financial Officer 1997 40,833 -- 60,000 716
Paul Citarella....................... 1999 145,000 50,000 12,000 2,447
Executive Vice President 1998(4) 79,000 10,000 50,000 1,969
Corporate Marketing 1997 -- -- -- --
</TABLE>
- ---------------
(1) Represents relocation, housing and health insurance premiums.
(2) Includes 6,000 options granted pursuant to the Director's Option Plan.
(3) Includes 6,000 options granted pursuant to the Director's Option Plan and
15,000 options granted pursuant to Fundtech's employee option plans.
(4) Joined Fundtech Corporation in April 1998.
No other annual compensation, stock appreciation rights, long-term
restricted stock awards, or long-term incentive plan payouts were awarded to,
earned by, or paid to the named executive officers during any of Fundtech's last
three fiscal years.
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<PAGE> 57
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding options granted to the
Named Executive Officers during the fiscal year ended December 31, 1999. We have
never granted any stock appreciation rights.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
PERCENTAGE
OF TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE
SECURITIES GRANTED TO VALUE AT ASSUMED
UNDERLYING EMPLOYEES EXERCISE ANNUAL RATE STOCK
OPTIONS IN FISCAL PRICE PER EXPIRATION PRICE APPRECIATION FOR
NAME GRANTED YEAR(3) SHARE(4) DATE OPTION TERM(5)
- ---- ---------- ---------- --------- ---------- -----------------------
5% 10%
<S> <C> <C> <C> <C> <C> <C>
Reuven Ben-Menachem 6,000(1) 1.1% $22.31 09/30/04 $36,988 $81,734
Paul J. Citarella 12,000(2) 2.3% $13.25 10/28/04 $43,929 $97,071
</TABLE>
- ---------------
(1) Each option represents the right to purchase one ordinary share. These
options were granted pursuant to Fundtech's Directors Option Plan on
September 30, 1999. The options vest at a rate of 25% every three months.
(2) Each option represents the right to purchase one ordinary share. These
options were granted pursuant to Fundtech Ltd. 1999 Employee Option Plan on
October 28, 1999. The options vest at a rate of 12.5% every six months.
(3) In the year ended December 31, 1999, we granted options to employees and
directors to purchase an aggregate of 528,075 ordinary shares, including
options to purchase an aggregate of 49,500 ordinary shares granted to
Fundtech's directors.
(4) The exercise price on the date of grant was equal to 100% of the fair
market value of the ordinary shares on the date of grant.
(5) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 5% and
10% assumed annual rates of compounded stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent an estimate or projection of our future ordinary share prices.
These amounts represent certain assumed rates of appreciation in the value
of our ordinary shares from the fair market value on the date of grant.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the ordinary shares and overall stock market conditions. The
amounts reflected in the table may not necessarily be achieved.
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<PAGE> 58
OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table summarizes for each of the Named Executive Officers
option exercises during fiscal 1999, including the aggregate value of gains on
the date of exercise, the total number of unexercised options for ordinary
shares, if any, held at December 31, 1999 and the aggregate dollar value of
unexercised in-the-money options for ordinary shares, if any, held at December
31, 1999. Value of unexercised in-the-money options at fiscal year-end is the
difference between the exercise or base price of such options and the fair
market value of the underlying ordinary shares on December 31, 1999, which was
$20.50 per share. These values have not been, and may never be, realized, as
these options have not been, and may never be, exercised. Actual gains, if any,
upon exercise will depend on the value of ordinary shares on the date of any
exercise of options.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
- -----------------------------------------------------------------------------------------------------------------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Reuven Ben-Menachem 3,000(1) $ 60,135 8,250(2) 15,000 $ 63,383 $133,125
- -----------------------------------------------------------------------------------------------------------------------------------
Paul Citarella 7,000 157,500 11,750 43,250 73,438 282,313
- -----------------------------------------------------------------------------------------------------------------------------------
Joseph Mazzetti 15,000 336,612 22,312 15,188 363,991 167,459
- -----------------------------------------------------------------------------------------------------------------------------------
Michael H. Carus 12,500 313,687 18,750 33,750 290,831 486,169
- -----------------------------------------------------------------------------------------------------------------------------------
Gil Gadot 5,500 150,122 30,002(3) 7,500 521,899 66,563
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 3,000 options exercised by his wife.
(2) Includes 2,250 options held by his wife.
(3) Includes 3,000 options held by his wife.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for the fiscal year ended
December 31, 1999 were Mr. Achi Racov, Ms. Rina Shainski and Dr. Jay Morrison.
No member of the Compensation Committee is an officer or employee of Fundtech.
The responsibilities of the Compensation Committee include administering
Fundtech's stock plans and approving the base compensation of Mr. Reuven
Ben-Menachem.
STOCK OPTION PLANS
Fundtech has established five plans for granting options to employees of
the company and its subsidiaries and one plan for granting options to the
directors of the company: the Fundtech Ltd. 1996 Employee Stock Option Plan for
the Employees of Fundtech Ltd. (the "102 Plan"); the Fundtech Ltd. 1996 Stock
Option Plan for Fundtech Corporation (the "1996 U.S. Plan"); the Fundtech Ltd.
1997 Stock Option Plan for Fundtech Corporation (the "1997 U.S. Plan"); the
Fundtech Ltd. The 1997 Israeli Share Option Plan (the "1997 Israel Plan"); the
Fundtech Ltd. 1999 Employee Option Plan (the "1999 Option Plan"); and the
Fundtech Ltd. Directors Option Plan (the "Directors Option Plan").
Pursuant to resolutions of Fundtech's Board of Directors adopted on
September 30 2000 and March 26, 1999 and to resolutions of the shareholders
adopted on September 7, 1999 (the "Reservation Resolutions"), a total of
1,868,000 ordinary shares have been reserved for the granting of options to
employees of Fundtech Ltd. and Fundtech Corporation and directors of Fundtech
Ltd. As of March 23, 2000, 1,280,633 options were outstanding, 223,296 options
have been exercised and 364,071 options are available to be issued. These
options have been reserved and granted pursuant to the following plans:
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<PAGE> 59
1996 STOCK OPTION PLANS
The 102 Plan was adopted in May 1996 and provides for the granting of
options under Section 102 of the Israel Income Tax Ordinance ("Section 102").
Pursuant to Section 102 and the rules promulgated thereunder (including the
requirement that the options and/or the resulting shares be deposited with a
trustee for at least two years), the tax on the benefit arising to the employee
from the grant and exercise of options as well as from the allotment of ordinary
shares under these options is deferred until the transfer of the options and/or
ordinary shares to the employee's name or upon sale of those options and/or
ordinary shares. Fundtech will be allowed to claim as an expense for tax
purposes the amounts credited to the employees as a benefit upon sale of the
shares allotted under the plan at a price exceeding the exercise price, when the
related capital gains tax is payable by the employee. The options granted under
the 102 Plan vest over a period of four years and expire five years from the
date of grant. Pursuant to the Reservation Resolutions 120,573 ordinary shares
were reserved and allocated to the 102 Plan. Of the 120,573 options available
for grant under the 102 Plan, as of March 23, 2000. 71,704 options were
outstanding, 40,800 options have been exercised, and 8,249 options remain
available to be issued.
The 1996 U.S. Plan was adopted in October 1996. The options granted under
the U.S. Plan vest over a period of four years and expire five years from the
date of grant. Pursuant to the Reservation Resolutions 235,500 ordinary shares
were reserved and allocated to the 1996 U.S. Plan. Of the 235,500 options
available for grant under the 1996 U.S. Plan, as of March 23, 2000 144,663
options were outstanding, 75,649 options have been exercised, and 15,188 options
remain available to be issued.
1997 STOCK OPTION PLANS
The 1997 U.S. Plan was adopted in September 1997. The options granted under
the 1997 U.S. Plan vest over a period of four years and expire five years from
the date of grant. Pursuant to the Reservation Resolutions 626,747 ordinary
shares were reserved and allocated to the 1997 U.S. Plan. Of the 626,747 options
available for grant under the 1997 U.S. Plan, as of March 23, 2000 469,477
options were outstanding, 84,705 options have been exercised, and 72,565 options
remain available to be issued.
The 1997 Israel Plan was adopted in December 1997. The options granted
under the 1997 Israel Plan vest over a period of four years and expire five
years from the date of grant. Pursuant to the Reservation Resolutions 275,000
ordinary shares were reserved and allocated to the 1997 Israel Plan. Of the
275,000 options available for grant under the 1997 Israel Plan, as of March 23,
2000 155,701 options were outstanding, 21,955 options have been exercised, and
97,344 options remain available to be issued.
On October 20, 1998, the Board of Directors repriced all stock options
(other than those held by Directors or the Named Executive Officers) with an
exercise price of more than $11.625 to an exercise price of $11.625 (the then
current market price of the ordinary shares at the close of trading on that
day).
The 1999 Option Plan was adopted in September 1999. The options granted
under the 1999 Option Plan vest over a period of four years and expire five
years from the date of grant. Pursuant to the Reservation Resolutions 500,000
ordinary shares were reserved and allocated to the 1999 Option Plan. Of the
500,000 options available for grant under the 1999 Option Plan, as of March 23,
2000 355,088 options were outstanding, 187 options have been exercised, and
144,725 options remain available to be issued.
DIRECTORS' STOCK OPTION PLAN
The Directors Option Plan was adopted, 42,000 ordinary shares were reserved
and granted following the election of a Board of Directors at Fundtech's annual
general meeting of the shareholders in August 1998. An additional 49,500 were
granted following the 1999 annual shareholders meeting in September, 1999. These
options vest over a period of one year and expire five years from the date of
grant. Pursuant to the Reservation Resolutions an additional 68,000 ordinary
shares were reserved and allocated to the Directors Option Plan. Of the 110,000
options available for grant under the Directors Option Plan, as of March 23,
2000 84,000 options were outstanding, no options have been exercised, and 26,000
options remain available to be issued.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the ordinary shares as of March 24, 1999, and as adjusted to
reflect the sale of the ordinary shares in this offering, by (i) all directors,
(ii) all executive officers, (iii) all directors and executive officers as a
group, and (iv) each person who is known by Fundtech to own beneficially more
than 5% of its outstanding ordinary shares. Unless otherwise indicated, the
address of each beneficial owner listed below is c/o Fundtech Ltd., Beit
Habonim, 2 Habonim Street, Ramat Gan, Israel.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(2)
- ------------------------ --------------------- ---------------------
<S> <C> <C>
PRINCIPAL SHAREHOLDERS
Aura Investments Ltd.(3)................................ 1,144,590 8.14%
Clal Industries and Investments(4)...................... 3,833,497 27.28%
DIRECTORS
Rina Shainski(5)........................................ 3,839,497 27.31%
Rimon Ben-Shaoul(6)..................................... 3,842,497 27.32%
Reuven Ben-Menachem(7).................................. 376,025 2.68%
Jay B. Morrison(8)...................................... 14,079 *
Eddy Shalev(9).......................................... 20,666 *
George M. Lieberman(10)................................. 7,500 *
Achi Racov(11).......................................... 3,000 *
EXECUTIVE OFFICERS
Ariu Levi(12)........................................... 304,150 2.16%
Gil Gadot(13)........................................... 134,581 0.96%
Joseph Mazzetti(14)..................................... 25,500 *
Michael Carus(15)....................................... 20,625 *
Paul Citarella(16)...................................... 19,500 *
J. Edmund Orr III(17)................................... 6,350 *
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (13
PERSONS).............................................. 4,780,473 31.83
</TABLE>
- ---------------
* Less than one percent.
(1) Except as otherwise noted and pursuant to applicable community property
laws, each person or entity named in the table has sole voting and
investment power with respect to all ordinary shares listed as owned by
such person or entity. Shares beneficially owned included shares that may
be acquired pursuant to the exercise of fully vested options that are
exercisable through May 30, 2000.
(2) Based on 14,054,007 ordinary shares outstanding. Ordinary shares deemed
beneficially owned by virtue of the rights of any person or group to
acquire such shares within 60 days of the date of this disclosure are
treated as outstanding only for purposes of determining the percentage
owned by such person or group.
(3) Consist of 1,055,000 ordinary shares held by Aura Investment Research and
Developments Ltd. and 89,590 ordinary shares held by Aura Red Investments
Ltd. The address of both shareholders is 16B Szold Street, Ramat Hasharon,
Israel.
(4) Consists of 3,833,497 ordinary shares held by Clal Industries and
Investments Ltd. ("CII"), of which Mr. Ben-Shaoul is President. The
address of Clal is Clal Atidim Tower, Building No. 4, Tel Aviv 61581,
Israel.
(5) Consists of 3,833,497 ordinary shares owned by Clal. Ms. Shainski
disclaims beneficial ownership of the shares held by Clal. Also includes
options to purchase 6,000 ordinary shares granted pursuant to the
Directors' Option Plan.
(6) Includes 3,833,497 ordinary shares owned by Clal, of which Mr. Ben-Shaoul
is President. Mr. Ben-Shaoul disclaims beneficial ownership of the shares
held by Clal. Also includes options to purchase 9,000 ordinary shares
granted pursuant to the Directors' Option Plan.
60
<PAGE> 61
(7) Consists of 359,150 ordinary shares held by Reuven Ben-Menachem. Includes
options to purchase 14,625 ordinary shares granted pursuant to the
Directors' Option Plan. Also includes options to purchase 2,250 ordinary
shares held by Mr. Ben-Menachem's spouse.
(8) Includes 5,079 ordinary shares held by Jerusalem Pacific Ventures, which
is affiliated with JPV Investors LP and JPV Investors GP., of which Dr.
Morrison is a General Partner. Mr. Morrison disclaims beneficial ownership
of such shares except to the extent of his proportionate pecuniary
interest therein. Also includes options to purchase 9,000 ordinary shares
granted pursuant to the Directors' Option Plan.
(9) Consists of 11,666 ordinary shares held by Mr. Shalev and includes options
to purchase 9,000 ordinary shares granted pursuant to the Directors'
Option Plan.
(10) Consists of options to purchase 7,500 ordinary shares granted pursuant to
the Directors' Option Plan.
(11) Consists of options to purchase 3,000 ordinary shares granted pursuant to
the Directors' Option Plan.
(12) The address of Ariu Levi is c/o Fundtech Corporation, 428 McCormick
Street, San Leandro, California 94577.
(13) Consists of 103,329 ordinary shares held by Gil Gadot. Includes options to
purchase 28,252 and 3,000 ordinary shares held by Mr. Gadot and his wife,
respectively.
(14) Consists of options to purchase 25,500 ordinary shares.
(15) Consists of options to purchase 20,625 ordinary shares.
(16) Consist of options to purchase 19,500 ordinary shares.
(17) Consist of 100 ordinary shares held by J. Edmund Orr III. Includes options
to purchase 6,250 ordinary shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OPTION GRANTS
Between May 15, 1996 and October 7, 1996, Fundtech granted to certain
executive officers options to purchase an aggregate of 117,004 ordinary shares
at an exercise price of $2.33 per share. Such options vest over four years and
expire five years following the date of grant.
Between May 22, 1997 and September 17, 1997, Fundtech granted to certain
executive officers options to purchase an aggregate of 93,000 ordinary shares at
an exercise price of $3.33 per share. Such options vest over four years and
expire five years from the date of grant.
Between September 18, 1997 and May 1, 1998, Fundtech granted to certain
executive officers options to purchase an aggregate of 50,000 ordinary shares at
an exercise price of $21.00 per share. In October 1998, these options were
repriced at the then current market price for the ordinary shares of $11.625.
Such options vest over four years and expire five years from the date of grant.
On May 18, 1998, Fundtech agreed to grant options to purchase an aggregate
of 42,000 ordinary shares to members of the Board of Directors. These grants
were made following the election of a Board of Directors at Fundtech's annual
general meeting of the shareholders in August 1998. The options vest over a
period of one year.
On October 20, 1998, Fundtech granted certain executive officers options to
purchase an aggregate of 98,750 ordinary shares at an exercise price of $11.625
per share. Such options vest over four years and expire five years from the date
of grant.
On September 30, 1999, Fundtech granted options to purchase an aggregate of
49,500 ordinary shares at an exercise price of $22.31 per share to members of
the Board of Directors. These grants were made following the election of a Board
of Directors at Fundtech's annual general meeting of the shareholders in
September 1999.
61
<PAGE> 62
7,500 of these options were granted to two members of the Board, who had served
on the Board for a portion of the previous year and had not previously received
options. These 7,500 were fully vested when granted. The remaining options vest
over a period of one year and expire five years from the date of grant.
On October 28, 1999, Fundtech granted certain executive officers options to
purchase an aggregate of 62,000 ordinary shares at an exercise price of $13.25
per share. Such options vest over four years (from the date of hire for new
employees and from the date of grant for old employees) and expire five years
from the date of grant.
REGISTRATION RIGHTS
Fundtech has entered into agreements with some of its existing shareholders
entitling them to certain registration rights (relating to 917,000 ordinary
shares). Pursuant to such agreements, Fundtech's existing shareholders will each
have the right, exercisable at any time within four years from the date of IPO,
to demand one registration of their shares under the Securities Act. In
addition, each of the parties to such agreements (other than Fundtech) will have
the right to have its shares included in certain registration statements of
Fundtech.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND SCHEDULES
FINANCIAL STATEMENTS
Consolidated Financial Statements of Fundtech Ltd. for the three years
ended December 31, 1999.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors..............................
Consolidated Balance Sheets.................................
Consolidated Statements of Operations.......................
Statements of Changes in Shareholders' Equity...............
Consolidated Statements of Cash Flows.......................
Notes to Consolidated Financial Statements..................
</TABLE>
All financial statements required to be filed as part of this Annual Report
on Form 10-K are filed under "Item 8. Financial Statements and Supplementary
Data."
FINANCIAL STATEMENT SCHEDULES
The schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
62
<PAGE> 63
(B) REPORTS ON FORM 8-K
On October 11, 1999 Fundtech has filed a report with respect to Item 5 of
Form 8-K. No financial statements were filed as part of such report on Form 8-K.
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
3.1 Amended Memorandum of Association of Registrant*
3.2 Amended and Restated Articles of Association of Registrant*
4.1 Form of Ordinary Share Certificate*
4.2 Form of Registration Rights*
10.1 Asset Purchase Agreement dated September 30, 1999, by and
among FCMS, LLC., Fundtech Corporation, Sterling Commerce
(Northern America), INC., Sterling Commerce (America) INC.
and Sterling Commerce, INC.*****
10.2 Software Development, Licensing and Maintenance Agreement,
dated September 26, 1997, by and between Merrill Lynch and
Fundtech*+
10.3 Development and Distribution License Agreement, dated August
15, 1997, by and between Compaq and Fundtech*+
10.4 Share Purchase Agreement, dated June 1, 1999, by and among
Fundtech Ltd., Biveroni Batschelet Partners AG and the
Shareholders listed on Schedule I thereto.******
10.5 Fundtech Ltd. 1996 Employee Stock Option Plan for the
Employees of Fundtech Ltd.*
10.6 Fundtech Ltd. 1996 Employee Stock Option Plan for the
Employees of Fundtech Ltd. and the Employees of Fundtech
Corp.*
10.7 Fundtech Ltd. 1997 Stock Option Plan for Fundtech
Corporation*
10.8 Fundtech Ltd. December 1997 Israeli Share Option Plan
(English summary)*
10.9 Fundtech Ltd. 1999 Employee Option Plan****
10.10 Fundtech Ltd. Directors Option Plan*******
10.11 Loan Agreement, dated March 1993, between Fundtech and Aura
Research & Development Ltd., as amended (English summary)*
10.12 Grant Approvals issued by the Chief Scientist to Fundtech
(English summary of representative approval)*
10.13 Grant Approvals issued by the Marketing Fund to Fundtech
(English summary)*
10.14 Asset Purchase Agreement between CheckFree Corporation and
Fundtech Ltd., dated as of April 20, 1998**
10.15 Employment Agreement between Reuven Ben-Menachem and
Fundtech Corporation, dated November 25, 1997***
10.16 Lease Agreement relating to Fundtech's Facility in Ramat
Gan, Israel (English summary)***
10.17 Lease Agreement relating to Fundtech's Facility in Atlanta,
Georgia***
21 Subsidiaries of Registrant
23.1 Consent of Kost, Forer & Gabbay
27.1 Financial Date Schedule for the year ended December 31, 1999
</TABLE>
- ---------------
* Previously filed as an exhibit to the Registrant's Registration
Statement on Form F-1, as amended, dated March 13, 1998, and
incorporated herein by reference.
** Previously filed as an exhibit to the Registrant's Report on Form 6-K,
dated April 30, 1998, and incorporated herein by reference.
*** Previously filed as an exhibit to the Registrant's Report on Form 10-K,
dated March 30, 1999, and incorporated herein by reference.
**** Previously filed as an annex to the Registrant's Proxy Statement, dated
August 23, 1999.
63
<PAGE> 64
***** Previously filed as an Exhibit to Registrant's Report on Form 8-K, dated
October 11, 1999, and incorporated herein by reference.
****** Previously filed as an Exhibit to Registrant's Report on Form 8-K, dated
June 1, 1999, and incorporated herein by reference.
******* Previously filed as Exhibit to the Registrants Registration Statement on
Form S-8, as amended (Commission Registration No. 333-9380), and
incorporated herein by reference.
+ Certain portions of this agreement have been omitted pursuant to a request for
confidential treatment.
64
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
31, 2000.
FUNDTECH LTD.
REUVEN BEN-MENACHEM
By:
--------------------------------------
Name: Reuven Ben-Menachem
Title: Chairman of the Board of
Directors,
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of 1933, this
Report has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ REUVEN BEN-MENACHEM Chairman of the Board of Directors, March 30, 2000
- --------------------------------------------- Chief Executive Office and
Reuven Ben-Menachem President
/s/ JAY B. MORRISON Director March 30, 2000
- ---------------------------------------------
Jay B. Morrison
/s/ EDDY SHALEV Director March 30, 2000
- ---------------------------------------------
Eddy Shalev
/s/ GEORGE M. LIEBERMAN Director March 30, 2000
- ---------------------------------------------
George M. Lieberman
/s/ RINA SHAINSKI Director March 30, 2000
- ---------------------------------------------
Rina Shainski
/s/ RIMON BEN-SHAOUL Director March 30, 2000
- ---------------------------------------------
Rimon Ben-Shaoul
/s/ MICHAEL CARUS Executive Vice President and Chief March 30, 2000
- --------------------------------------------- Financial Officer (principal
Michael Carus financial and accounting officer)
/s/ ACHI RACOV Director March 30, 2000
- ---------------------------------------------
Achi Racov
FUNDTECH CORP. March 30, 2000
/s/ REUVEN BEN-MENACHEM
- ---------------------------------------------
Reuven Ben-Menachem,
Chief Executive Officer
</TABLE>
65
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<C> <S>
3.1 Amended Memorandum of Association of Registrant*
3.2 Amended and Restated Articles of Association of Registrant*
4.1 Form of Ordinary Share Certificate*
4.2 Form of Registration Rights*
10.1 Asset Purchase Agreement dated September 30, 1999, by and
among FCMS, LLC., Fundtech Corporation, Sterling Commerce
(Northern America), INC., Sterling Commerce (America) INC.
and Sterling Commerce, INC.*****
10.2 Software Development, Licensing and Maintenance Agreement,
dated September 26, 1997, by and between Merrill Lynch and
Fundtech*+
10.3 Development and Distribution License Agreement, dated August
15, 1997, by and between Compaq and Fundtech*+
10.4 Share Purchase Agreement, dated June 1, 1999, by and among
Fundtech Ltd., Biveroni Batschelet Partners AG and the
Shareholders listed on Schedule I thereto.******
10.5 Fundtech Ltd. 1996 Employee Stock Option Plan for the
Employees of Fundtech Ltd.*
10.6 Fundtech Ltd. 1996 Employee Stock Option Plan for the
Employees of
Fundtech Ltd. and the Employees of Fundtech Corp.*
10.7 Fundtech Ltd. 1997 Stock Option Plan for Fundtech
Corporation*
10.8 Fundtech Ltd. December 1997 Israeli Share Option Plan
(English summary)*
10.9 Fundtech Ltd. 1999 Employee Option Plan****
10.10 Fundtech Ltd. Directors Option Plan*******
10.11 Loan Agreement, dated March 1993, between Fundtech and Aura
Research & Development Ltd., as amended (English summary)*
10.12 Grant Approvals issued by the Chief Scientist to Fundtech
(English summary of representative approval)*
10.13 Grant Approvals issued by the Marketing Fund to Fundtech
(English summary)*
10.14 Asset Purchase Agreement between CheckFree Corporation and
Fundtech Ltd., dated as of April 20, 1998**
10.15 Employment Agreement between Reuven Ben-Menachem and
Fundtech Corporation, dated November 25, 1997***
10.16 Lease Agreement relating to Fundtech's Facility in Ramat
Gan, Israel (English summary)***
10.17 Lease Agreement relating to Fundtech's Facility in Atlanta,
Georgia***
21 Subsidiaries of Registrant
23.1 Consent of Kost, Forer & Gabbay
27.1 Financial Date Schedule for the year ended December 31, 1999
</TABLE>
- ---------------
* Previously filed as an exhibit to the Registrant's Registration
Statement on Form F-1, as amended, dated March 13, 1998, and
incorporated herein by reference.
** Previously filed as an exhibit to the Registrant's Report on Form 6-K,
dated April 30, 1998, and incorporated herein by reference.
*** Previously filed as an exhibit to the Registrant's Report on Form 10-K,
dated March 30, 1999, and incorporated herein by reference.
**** Previously filed as an annex to the Registrant's Proxy Statement, dated
August 23, 1999.
***** Previously filed as an Exhibit to Registrant's Report on Form 8-K, dated
October 11, 1999, and incorporated herein by reference.
****** Previously filed as an Exhibit to Registrant's Report on Form 8-K, dated
June 1, 1999, and incorporated herein by reference.
******* Previously filed as Exhibit to the Registrants Registration Statement on
Form S-8, as amended (Commission Registration No. 333-9380), and
incorporated herein by reference.
+ Certain portions of this agreement have been omitted pursuant to a request
for confidential treatment.
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION
- ------------------ ----------------------
<S> <C>
Fundtech Corporation................. Delaware
Fundtech U.K. Limited................ United Kingdom
Fundtech Australia Pty Limited....... Australia
Fundtech Netherlands BV.............. Netherlands
FCMS, LLC Delaware
Biveroni Batschelet Partners AG Switzerland
</TABLE>
<PAGE> 1
[ERNST & YOUNG LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-31130) pertaining to the Fundtech Ltd. 1999 Employee Option
Plan, the Fundtech Ltd. 1997 Stock Option Plan for Fundtech Corporation, the
1997 Israeli Share Option Plan, the Fundtech Ltd 1996 Employee Stock Option
Plan and the Fundtech Ltd. Directors Option Plan, of our report, dated February
7, 2000, with respect to the consolidated financial statements and schedules of
Fundtech Ltd. included in its Annual Report (Form 10-K) for the year ended
December 31, 1999.
Tel Aviv, Israel
March 29, 2000
KOST, FORER and GABBAY
Certified Public Accountants Israel)
A Member of Ernst & Young International
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 41,493
<SECURITIES> 41,023
<RECEIVABLES> 11,753
<ALLOWANCES> 310
<INVENTORY> 91
<CURRENT-ASSETS> 96,137
<PP&E> 7,941
<DEPRECIATION> 1,905
<TOTAL-ASSETS> 125,142
<CURRENT-LIABILITIES> 6,121
<BONDS> 0
0
0
<COMMON> 42
<OTHER-SE> 137,997
<TOTAL-LIABILITY-AND-EQUITY> 125,142
<SALES> 31,691
<TOTAL-REVENUES> 31,691
<CGS> 9,742
<TOTAL-COSTS> 37,158
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,711)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,711)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,802
<CHANGES> 0
<NET-INCOME> (1,711)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
