FUNDTECH LTD.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
DECEMBER 31
------------------------------------------
1998 1999
------------------ -----------------
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
================== =================
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
FUNDTECH LTD.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
DECEMBER 31,
---------------------------------------
1998 1999
----------------- ----------------
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
================= ================
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
FUNDTECH LTD.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1998 1999
-------------------- ------------------ -------------------
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 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)
==================== ================== ===================
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
FUNDTECH LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
PREFERRED SHARES ORDINARY SHARES DEFERRED SHARES ADDITIONAL
---------------- --------------- --------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ------ ------ -------
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
Amortization of deferred - - - - - - -
compensation
Net income - - - - - - -
--------- --------- --------- --------- --------- --------- ---------
Balance as of
December 31, 1997 5,202,521 10 2,774,997 7 50,002 - 12,623
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
Amortization of deferred - - - - - - -
compensation
Net loss - - - - - - -
--------- --------- --------- --------- --------- --------- ---------
Balance as of December 31, 1998 - - 10,791,952 34 50,002 - 41,664
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 - - - - - - -
Net loss - - - - - - -
--------- --------- --------- --------- --------- --------- ---------
Total comprehensive loss
Balance as of - $ - 13,951,582 $ 42 50,002 $ - $ 137,997
December 31, 1999 ========= ========= ========== ========= ========= ========= =========
*) Less than $ 1.
The accompanying notes are an integral part of the consolidated financial
statements.
Table continued...
ACCUMULATED
OTHER TOTAL TOTAL
DEFERRED COMPREHENSIVE ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
COMPENSATION LOSS DEFICIT LOSS EQUITY
----------- ----------- ----------- ----------- ----------
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 (201) - - -
Amortization of deferred 4 - - - 4
compensation
Net income - - 636 - 636
----------- ----------- ----------- ----------- ----------
Balance as of
December 31, 1997 (197) - (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 (93) - - - -
Amortization of deferred 71 - - - 71
compensation
Net loss - - (11,392) - (11,392)
----------- ----------- ----------- ----------- ----------
Balance as of December 31, 1998 (219) - (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 - - - 72
Net loss - - (1,711) (1,711) (1,711)
----------- ----------- ----------- ----------- ----------
Total comprehensive loss $ (2,867)
Balance as of $ (147) $ (1,156) $ (18,142) =========== $ 118,594
December 31, 1999 =========== =========== =========== ===========
*) Less than $ 1.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
FUNDTECH LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
YEAR ENDED
DECEMBER 31,
---------------------------------------------------------------------------
1997 1998 1999
--------------------- --------------------- -----------------------
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)
--------------------- --------------------- -----------------------
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
FUNDTECH LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------
1997 1998 1999
---------------- ---------------- ------------------
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
================ ==================
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
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.
F-9
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
The estimated fair value of the assets and
liabilities acquired are summarized as follows:
Working capital deficiency $ (1,133)
Fixed assets 241
In-process research and development 16,600
Goodwill 3,116
--------
$ 18,824
========
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:
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
========
F-10
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
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:
Working capital deficiency $ (642)
Fixed assets 300
Technology 1,100
Goodwill 6,224
-------
$ 6,982
=======
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.
Statement of operations data:
DECEMBER 31,
----------------------------------------
1997 1998 1999
------------- ----------- ----------
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)
============= =========== ==========
F-11
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
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.
F-12
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
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:
%
----------------
Office furniture and equipment 6 - 15
Computers and software 20 - 33
Motor vehicles 15
Leasehold improvements are depreciated over the
related lease periods.
F-13
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
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:
%
-----------------
Goodwill 10 - 12
Technology 20
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.
F-14
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
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 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.
F-15
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
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.
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".
F-16
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
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.
F-17
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
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
DECEMBER 31,
----------------------
1998 1999
----------- --------
Cost $ - $ 41,729
Gross unrealized losses - (706)
----------- --------
Fair value $ - $ 41,023
=========== ========
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
DECEMBER 31,
-----------------
1998 1999
------- -------
Account receivable $ 7,244 $ 4,416
Unbilled receivable 4,796 7,337
------- -------
$12,040 $11,753
======= =======
NOTE 5: - OTHER RECEIVABLES AND PREPAID EXPENSES
Prepaid expenses $ 249 $ 852
Accrued income 224 488
Employees 34 151
Government authorities 42 103
Other 30 183
------- -------
$ 579 $ 1,777
======= =======
NOTE 6:- LONG-TERM TRADE RECEIVABLES
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
======= =======
F-18
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
NOTE 7:- FIXED ASSETS
DECEMBER 31,
-----------------
1998 1999
------- -------
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
======= =======
Depreciation expenses for the years ended December 31, 1997, 1998 and
1999 are $ 155, $ 337 and $ 1,905, respectively
NOTE 8:- OTHER PAYABLES AND ACCRUED EXPENSES
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
======= =======
F-19
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
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.
F-20
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
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.
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.
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. However, the Company believes that the claim
is without merit and it intends to vigorously contest the
lawsuit
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:
YEAR ENDED
DECEMBER 31,
-----------------------
2000 $ 1,005
2001 923
2002 718
2003 541
2004 530
-----------------
$ 3,717
=================
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").
F-21
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
b. Composition of share capital:
AUTHORIZED ISSUED AND OUTSTANDING
---------- ----------------------
DECEMBER 31, DECEMBER 31,
------------ ------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
NUMBER OF SHARES
---------------------------------------------
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
========== ========== ========== ==========
(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.
(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:
PRICE PER
ISSUANCE DATE AMOUNT SHARE EXPIRATION DATE
------------------- ---------------- --------------- ---------------
August 26, 1997 (a) 40,000 $ 13.00 March 13, 2000
================ ===============
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.
F-22
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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.
A summary of the Company's share option activity
under the Plans is as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1997 1998 1999
----------------------------- ----------------------------- ------------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------- ------------- ------------- -------------- -------------- --------------
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
============= ============= ============= ============== ============== ==============
The options outstanding as of December 31, 1999 have been separated into ranges
of exercise price, as follows:
OPTIONS WEIGHTED
OUTSTANDING AVERAGE WEIGHTED OPTIONS WEIGHTED
AS OF REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE AS OF EXERCISE
PRICE 1999 LIFE PRICE DECEMBER 31, 1999 PRICE
------------------- ------------------ --------------- -------------- ------------------ ------------
$ 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
=================== ================== =============== ============== ================== ============
F-23
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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.
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:
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1997 1998 1999
--------------- --------------- ---------------
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)
=============== =============== ===============
F-24
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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).
NOTE 12:- EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of historical basic and
diluted earnings (loss) per share:
1997 1998 1999
---------------- ------------------ -----------------
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
================ ================== =================
F-25
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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.
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%.
F-26
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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.
DECEMBER 31
----------------------------------
1998 1999
-------------- ---------------
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)
============== ===============
F-27
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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:
1997 1998 1999
----------- ------------- ------------
Domestic $ 1,599 $ 4,183 $ 4,665
Foreign (963) (15,575) (6,376)
----------- ------------- ------------
$ 636 $ (11,392) (1,711)
=========== ============= ============
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".
The total revenues are attributed to geographic information,
based on the customers' location.
1997 1998 1999
---------------------------- ----------------------------- ---------------------------------
LONG- LONG- LONG-
TOTAL LIVED TOTAL LIVED TOTAL LIVED
REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS
------------- ----------- ------------ ------------ --------------- ---------------
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
============= =========== ============ ============ =============== ===============
F-28
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
b. Major customers data; percentage of total revenues:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1998 1999
--------------- ---------------- ---------------
Customer A 31% 1% 6%
=============== ================ ===============
Customer B 12% 4% 5%
=============== ================ ===============
c. Financial income:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1998 1999
--------------- ---------------- ---------------
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
=============== ================ ===============
- - - - - - - - - - - - -
F-29