FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2000.
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANFE ACT OF 1934
Commission File Number 0-29634
FUNDTECH LTD.
(Exact Name of Registrant as Specified in its Charter)
ISRAEL Not Applicable
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
12 Ha'hilazon Street 52522
Ramat-Gan, Israel (Zip Code)
(Address of Principal
Executive Officers)
011972-3-575-2750
(Registrant's Telephone Number, Including Area Code)
Former Address: Beit Habonim, 2 Habonim St. Ramat Gan, Israel
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 14,059,218 shares of Ordinary
Shares, NIS 0.01 par value, as of May 5, 2000.
46984.0003
FUNDTECH LTD.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements..........................................................p. 1
Condensed Consolidated Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999..................p. 1
Condensed Consolidated Statements of Operations (unaudited) for the Three Months Ended
March 31, 2000 and March 31, 1999..................................................................p. 2
Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31,
2000 and March 31, 1999............................................................................p. 3
Notes to Condensed Consolidated Financial Statements (unaudited)..............................................p. 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. p. 5
Item 3. Quantitative and Qualitative Disclosure About Market Risk...........................................p. 7
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............. ......................................................p. 8
Index To Exhibits.............................................................................................p. 8
Signatures....................................................................................................p. 9
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PART I
FINANCIAL INFORMATION
FUNDTECH LTD. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Data)
March 31, December 31,
ASSETS 2000 1999
---- ----
(unaudited)
Current assets:
Cash and cash equivalents $ 42,745 $ 41,493
Investment in securities 41,478 41,023
Trade receivables, net 15,512 11,753
Other current assets 1,955 1,868
------------- -----------
Total current assets 101,690 96,137
------------- -----------
Long-term trade receivables 1,841 1,033
Property and equipment, net 8,169 7,941
Other assets, net 18,808 19,798
------------- -----------
Total assets $ 130,508 $ 125,142
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade payables $ 1,943 $ 1,528
Deferred revenues and accrued expenses 10,496 4,593
------------- -----------
Total current liabilities 12,439 6,121
Other Liabilities 229 194
Shareholders' equity:
Share capital 42 42
Additional paid-in capital 138,899 137,997
Accumulated other comprehensive loss (2,080) (1,156)
Deferred compensation (131) (147)
Accumulated deficit (18,890) (18,142)
------------- -----------
Total shareholders' equity 117,840 118,594
------------- -----------
Total liabilities and shareholders' equity $ 130,508 $ 125,142
============= ===========
See notes to condensed consolidated financial statements (unaudited)
1
FUNDTECH LTD. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
Three Months
Ended March 31,
2000 1999
---- ----
Revenues
Software licenses $ 5,381 $ 4,622
Maintenance and services fees 3,982 2,808
Hardware sales 641 471
--------- ----------
Total revenues 10,004 7,901
--------- ----------
Cost of revenues
Software licenses costs 31 30
Maintenance and services costs 2,716 1,649
Hardware costs 507 372
--------- ----------
Total cost of revenues 3,254 2,051
--------- ----------
Gross profit 6,750 5,850
--------- ----------
Operating expenses:
Software development 4,175 2,337
Selling and marketing, net 2,466 1,095
Amortization of acquisition-related
Intangible assets 603 78
General and administrative 1,655 670
--------- ----------
Total operating expenses 8,899 4,180
--------- ----------
Operating income (loss) (2,149) 1,670
Financial income, net 1,401 124
--------- ----------
Net income (loss) $ (748) $ 1,794
========= ==========
Net income (loss) per share:
Basic income (loss) per share $ (0.05) $ 0.17
Diluted income (loss) per share $ (0.05) $ 0.16
Shares used in computing:
Basic income (loss) per share 13,987,202 10,845,658
Diluted income (loss) per share 13,987,202 11,554,345
Adjusted net income per share (a):
Adjusted net income used in
computing net income (loss) per share $ (145) $ 1,872
Diluted adjusted income (loss) per share $ (0.01) $ 0.16
Shares used in computing diluted
Income (loss) per share 13,987,202 11,554,345
(a) Adjusted net income and adjusted net income per share excluded the pre-tax
effects of the line item "Amortization of acquisition-related intangible
assets", listed above.
See notes to condensed consolidated financial statements (unaudited)
2
FUNDTECH LTD. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For Three Months Ended March 31, 2000 and March 31, 1999
(in thousands)
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (748) $ 1,794
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 1,235 281
Amortization of deferred compensation 16 23
Capital loss (gain) on sale of property and equipment (4) --
Increase in other liabilities 35 13
Increase in trade receivables, net (4,622) (591)
Increase in other current assets (117) (1,047)
Increase (decrease) in trade payables 439 835
Increase (decrease) in deferred revenues and accrued expenses 6,058 (1,822)
------------ ------------
Net cash provided by (used in) operating activities 2,292 (514)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (939) (1,185)
Investment in securities (841) --
Proceeds from sale of property and equipment 22 --
------------ ------------
Net cash used in investing activities (1,758) (1,185)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of share capital and exercise of
stock options and warrants, net 902 694
------------ ------------
Net cash provided by financing activities 902 694
------------ ------------
Effect of exchange rate on cash and cash equivalent (184) --
Increase (decrease) in cash and cash equivalents 1,252 (1,005)
Cash and cash equivalents at the beginning of the period 41,493 13,019
------------ ------------
Cash and cash equivalents at the end of the period $ 42,745 $ 12,014
============ ============
See notes to condensed consolidated financial statements (unaudited)
3
FUNDTECH LTD.
NOTES TO CONDENSED CONDOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements as of
March 31, 2000 and for the three months ended March 31, 2000 and 1999 are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
periods. The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of the financial condition
and results of operations, contained in Fundtech's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999. The results of operations for the
three months ended March 31, 2000 are not necessarily indicative of the results
for the entire fiscal year ending December 31, 2000.
2. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted average number
of common shares outstanding during each period. Diluted net income (loss) per
share is computed using the weighted average number of common shares outstanding
and dilutive common stock equivalents outstanding during the period. Our
reconciliation of the numerators and denominators used in computing the basic
and diluted net income (loss) per share is as follows:
Three Months Ended
March 31,
2000 1999
---- ----
(in thousands)
Numerator:
Numerator for basic and diluted per share
amounts - net income (loss) $(748) $1,794
Denominator:
Denominator for basic net income (loss)
per share weighted average shares 13,987,202 10,845,658
Effect of dilutive stock options and warrants -- 708,687
Denominator for dilutive net income (loss)
per share weighted average shares and
assumed conversions 13,987,202 11,554,345
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth certain financial data and the
percentage total revenue of the Company for the periods indicated:
Three Months Ended March 31,
----------------------------
% of % of
2000 Revenues 1999 Revenues
---- -------- ---- --------
Revenues:
Software license fees $ 5,381 53.8% $ 4,622 58.5%
Maintenance and services fees 3,982 39.8 2,808 35.5
Hardware sales 641 6.4 471 6.0
------ ----- ------ -----
Total revenues 10,004 100.0 7,901 100.0
Cost of revenues:
Software license costs 31 0.3 30 0.4
Maintenance and services costs 2,716 27.1 1,649 20.9
Hardware costs 507 5.1 372 4.7
------ ----- ------ -----
Total cost of revenues 3,254 32.5 2,051 26.0
------ ----- ------ -----
Gross profit 6,750 67.5 5,850 74.0
------ ----- ------ -----
Operating expenses:
Software development 4,175 41.7 2,337 29.5
Selling and marketing, net 2,466 24.7 1,095 13.9
Amortization of acquisition-related
intangible assets 603 6.0 78 1.0
General and administrative 1,655 16.5 670 8.5
------ ----- ------ -----
Total operating expenses 8,899 88.9 4,180 52.9
------ ----- ------ -----
Income from operations (2,149) (21.4) 1,670 21.1
Financial income, net 1,401 14.0 124 1.6
------ ----- ------ -----
Net income $ (748) (7.4)% $ 1,794 22.7%
====== ===== ====== =====
5
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
SOFTWARE LICENSE FEES. Software license fees consist of revenues derived from
software license agreements entered between Fundtech and its customers. Software
license fees increased by $759,000 to $5,381,000 in the three months ended March
31, 2000 from $4,622,000 for the three months ended March 31, 1999, an increase
of 16%. 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.
MAINTENANCE AND SERVICES FEES. Maintenance and services fees include revenues
derived from maintenance contracts, installation and training revenue, service
bureau fees, consulting fees, certification fees and related items. Fundtech
generally receives a contract for maintenance and service at the time of the
sale of the system. Maintenance and services fees increased by $1,174,000 to
$3,982,000 in the three months ended March 31, 2000 from $2,808,000 in the three
months ended March 31, 1999, an increase of 42%. The increase is commensurate
with the increase in the number of customers and the acquisitions 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 increased by $170,000 to $641,000 in the three months ended March 31, 2000
from $471,000 in the three months ended March 31, 1999, an increase of 36%.
The increase 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 $1,000 to $31,000 in the three months ended March 31, 2000 from
$30,000 in the three months ended March 31, 1999, an increase of 3%. The gross
margin of software license fees remained constant at 99% in the three months
ended March 31, 2000 compared to the three months ended March 31, 1999.
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, service bureau and consulting services. Maintenance
and services costs increased by $1,067,000 to $2,716,000 in the three months
ended March 31, 2000 from $1,649,000 in the three months ended March 31, 1999,
an increase of 65%. The gross margin on maintenance and services fees decreased
from 41% in the three months ended March 31, 1999 to 32% in the three months
ended March 31, 2000. The decrease in gross margin was primarily due to increase
in personnel required for the current backlog of services contract . 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 increased by $135,000
to $507,000 in the three months ended March 31, 2000 from $372,000 in the three
months ended March 31, 1999, an increase of 36%. The gross margin on hardware
remained constant at 21% in the three months March 31, 1999 compared to the
three months ended March 31, 2000.
SOFTWARE DEVELOPMENT. Software development expenses are related to the
development and testing of new products. Software development expenses increased
by $1,838,000 to $4,175,000 in the three months ended March 31, 2000, from
$2,337,000 in the three month ended March 31, 1999, an increase of 79%. The
increase in software development costs is principally related to the development
of new product such as Global PAYplus RTGS, PAYplus CLS, Access.pro, NostroPlus
and Global CASHstar and also due to the development resources added as a result
of the acquisition of BBP and the Sterling Cash Management Business. In the
three months ended March 31, 2000 and 1999, Fundtech did not receive grants from
the Government of Israel.
SELLING AND MARKETING, NET. Selling and marketing expenses increased by
$1,371,000 to $2,466,000 in the three months ended March 31, 2000 from
$1,095,000 in the three months ended March 31, 1999, an increase of 125%.
Selling and marketing expenses as a percentage of revenues increased from 14% in
March 31, 1999 to 25% in the three months ended March 31, 2000 expenses relating
to opening the sales office in Australia, expanding the sales channels in
Europe, d increasing the size of the U.S. sales group and as a result of the
acquisition of BBP and the Sterling Cash Management Business.
6
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
$985,000 to $1,655,000 in the three months ended March 31, 2000 from $670,000 in
the three months ended March 31, 1999, an increase of 147%. The increase is due
the expansion of the business and also due to the acquisition of BBP and the
Sterling Cash Management Business.
AMORTIZATION OF ACQUISITION-RELATED INTANGIBLE ASSETS amortization expense
increased by $525,000 to $603,000 in the three months ended March 31, 2000 from
$78,000 in the three months ended March 31, 1999, an increase of 673%. This
increase was due to the amortization of goodwill from the BBP and Sterling
acquisitions.
FINANCIAL INCOME, NET. Net financial income increased by $1,277,000 to
$1,401,000 in the three months ended March 31, 2000 from $124,000 in the three
months ended March 31, 1999, an increase of 1,030%. The increase of the
financial income is due mainly to interest earned on cash received from our
April 30, 1999 secondary public offering.
LIQUIDITY AND CAPITAL RESOURCES
Fundtech has financed its operations primarily through the sale of
equity securities to its shareholders in the amount of approximately $138.8
million including net proceeds from the IPO in the amount of approximately $29.0
million, proceeds from the follow-on public offering in the amount of
approximately $92.4 million, grants from the Government of Israel and borrowings
from banks.
As of March 31, 2000, working capital was $89.3 million. Cash,cash equivalents
and marketable securities were $84.2 million. Net cash provided by operating
activities amounted to $2,292,000 for the three months ended March 31, 2000 and
net cash utilized by operating activities amounted to $514,000 for the three
months ended March 31, 1999.
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, cash equivalents and marketable securities
(including proceeds from its public offering) and cash flows from operations
will provide adequate financial resources to finance its current operations and
the planned expansion of its operations for the foreseeable future. However, in
the event that Fundtech makes one or more acquisitions for consideration
consisting of all or a substantial part of Fundtech's available cash, Fundtech
might be required to seek external debt or equity financing for such acquisition
or acquisitions or to fund subsequent operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Fundtech does not utilize financial instruments for trading purposes
and holds no derivative financial instruments, which could expose Fundtech to
significant market risk.
7
FUNDTECH LTD.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter, Fundtech filed the following Current Report on
Form 8-K:
(1) A Current Report on Form 8 dated and filed on March 17, 2000, pertaining to
Item 5, Other Events, to which Fundtech's and Its subsidiaries consolidated
balance sheets 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 were attached.
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fundtech Ltd.
(Registrant)
/s/ Reuven Ben Menachem
----------------------------------
Dated: May 12, 2000 Chairman, President and CEO
/s/ Michael Carus
----------------------------------
Dated: May12, 2000 Executive Vice President COO &
CFO (Principal Financial Officer)
9
FUNDTECH LTD.
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
27.00 Financial Data Schedule
10