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 June 30, 2000.
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANFE ACT OF 1934
Commission File Number 0-29634
FUNDTECH LTD.
(Exact Name of Registrant as Specified in its Charter)
ISRAEL Not Applicable
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
12 Ha'hilazon Street 52522
Ramat-Gan, Israel (Zip Code)
(Address of Principal
Executive Officers)
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: 14,066,473 shares of Ordinary
Shares, NIS 0.01 par value, as of June 30, 2000.
NY2:\954265\02\KGBD02!.DOC\46984.0001
FUNDTECH LTD.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements..........................................................p. 1
Condensed Consolidated Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999...................p. 1
Condensed Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended
June 30, 2000 and June 30, 1999....................................................................p. 2
Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30,
2000 and June 30, 1999.............................................................................p. 3
Notes to Condensed Consolidated Financial Statements (unaudited)..............................................p. 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. p. 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)
June 30, December 31,
ASSETS 2000 1999
---- ----
(unaudited)
Current assets:
Cash and cash equivalents $ 37,845 $ 41,493
Investment in marketable securities 42,110 41,023
Trade receivables, net 16,518 11,753
Other current assets 2,267 1,868
----------- -----------
Total current assets 98,740 96,137
----------- -----------
Long-term trade receivables 1,965 1,033
Property and equipment, net 8,541 7,941
Other assets, net 19,673 19,798
----------- -----------
Total assets $ 128,919 $ 124,909
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade payables $ 1,516 $ 1,528
Deferred revenues and accrued expenses 8,191 4,593
----------- -----------
Total current liabilities 9,707 6,121
Other Liabilities 245 194
Shareholders' equity:
Share capital 42 42
Additional paid-in capital 138,999 137,997
Accumulated other comprehensive loss (2,181) (1,156)
Deferred compensation (114) (147)
Accumulated deficit (17,779) (18,142)
----------- -----------
Total shareholders' equity 118,967 118,594
----------- -----------
Total liabilities and shareholders' equity $ 128,919 $ 124,909
=========== ===========
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 Six Months
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues
Software licenses fees $ 6,810 $ 5,532 $ 12,191 $ 10,154
Maintenance and service fees 4,210 2,984 8,192 5,792
Hardware sales 295 516 936 987
--------- ----------- ---------- ----------
Total revenues 11,315 9,032 21,319 16,933
--------- ----------- ---------- ----------
Cost of revenues
Software licenses costs 31 278 62 308
Maintenance and services costs 2,764 2,004 5,480 3,653
Hardware costs 243 395 750 767
--------- ----------- ---------- ----------
Total cost of revenues 3,038 2,677 6,292 4,728
--------- ----------- ---------- ----------
Gross profit 8,277 6,355 15,027 12,205
--------- ----------- ---------- ----------
Operating expenses:
Software development 4,159 2,580 8,334 4,917
Selling and marketing, net 2,412 1,304 4,878 2,399
Amortization of acquisition-related
Intangible assets 603 165 1,206 243
General and administrative 1,597 816 3,252 1,486
In process R&D write-off -- 2,802 -- 2,802
--------- ----------- ---------- ----------
Total operating expenses 8,771 7,667 17,670 11,847
--------- ----------- ---------- ----------
Operating income (loss) (494) (1,312) (2,643) 358
Financial income, net 1,605 853 3,006 977
--------- ----------- ---------- ----------
Net income (loss) $ 1,111 $ (459) $ 363 $ 1,335
========= =========== ========== ==========
Net income (loss) per share:
Basic income (loss) per share $ 0.08 $ (0.04) $ 0.03 $ 0.11
Diluted income (loss) per share $ 0.08 $ (0.04) $ 0.02 $ 0.11
Shares used in computing:
Basic income (loss) per share 14,058,822 12,638,167 14,025,604 11,741,685
Diluted income (loss) per share 14,793,100 12,638,167 14,820,336 12,454,204
Adjusted net income per share (a):
Adjusted net income used in
computing net income per share $ 1,714 $ 2,508 $ 1,569 $ 4,380
Diluted adjusted net income per share 0.12 0.19 0.11 0.35
Shares used in computing diluted
Net income per share 14,793,100 13,383,537 14,820,336 12,454,204
(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" and "In process R&D write-off", listed above.
See notes to condensed consolidated financial statements (unaudited)
2
FUNDTECH LTD. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For Six Months Ended June 30, 2000 and June 30, 1999
(in thousands)
Six Months Ended June 30,
-------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 363 $ 1,335
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 2,531 762
In process research and development write-off -- 2,802
Amortization of deferred compensation 33 41
Capital gain on sale of property and equipment (4) --
Increase in other liabilities -- (13)
Increase in trade receivables, net (5,673) (2,057)
Increase in other current assets (389) (776)
Increase (decrease) in trade payables (18) 163
Increase (decrease) in deferred revenues and accrued expenses 2,247 (2,111)
------------- -------------
Net cash provided by (used in) operating activities (859) 146
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition -- (9,194)
Purchase of property and equipment (1,922) (1,646)
Investment in securities (1,646) --
Proceeds from sale of property and equipment 23 --
------------- -------------
Net cash used in investing activities (3,545) (10,840)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of share capital and exercise of
stock options and warrants, net 1,002 92,393
Proceeds from long term loans -- 387
------------- -------------
Net cash provided by financing activities 1,002 92,780
------------- -------------
Effect of exchange rate on cash and cash equivalent (246) --
Increase (decrease) in cash and cash equivalents (3,648) 82,086
Cash and cash equivalents at the beginning of the period 41,493 13,019
------------- -------------
Cash and cash equivalents at the end of the period $ 37,845 $ 95,105
============= =============
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
June 30, 2000 and for the three months ended June 30, 2000 and 1999 and for the
six months ended June 30, 2000 and 1999 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with management's
discussion and analysis of the financial condition and results of operations,
contained in Fundtech's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999. The results of operations for the three months ended June 30,
2000 are not necessarily indicative of the results for the entire fiscal year
ending December 31, 2000.
2. REALLOCATION OF BUSINESS ACQUISITIONS
In 1999 the company acquired all the shares of Biverony Batchelet Partners AG
("BBP") and certain assets and certain liabilities of Sterling, a U.S. company.
The acquisitions have been accounted for by the purchase method of accounting
and accordingly the purchases have been allocated to the net assets acquired
based on the fair value estimations at the date of acquisitions. The excess of
the purchase price over the estimated fair value of net assets acquired have
been recorded as goodwill.
During the three months ended June 30, 2000 the initial purchase price
allocation has been reallocated to appropriately reflect the fair value of
Sterling and BBP net assets acquired. the purchase price reallocation resulted
in a reduction of approximately $1,287 thousand at fair value assigned to
Sterling and BBP with corresponding increase to goodwill.
3. 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 Six Months Ended
June 30, June 30
2000 1999 2000 1999
-------------------- --------------------
(in thousands)
Numerator:
Numerator for basic and diluted per share
amounts - net income (loss) $1,111 $(459) $363 $1,335
Denominator:
Denominator for basic net income (loss)
per share weighted average shares 14,058,822 12,638,167 14,025,604 11,741,685
Effect of dilutive stock options and warrants 734,278 -- 794,732 712,519
Denominator for dilutive net income (loss)
per share weighted average shares
and
assumed conversions 14,793,100 12,638,167 14,820,336 12,454,204
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 June 30,
---------------------------
% of % of
2000 Revenues 1999 Revenues
---- -------- ---- --------
Revenues:
Software license fees $ 6,810 60.2% $ 5,532 61.3%
Maintenance and services fees 4,210 37.2 2,984 33.0
Hardware sales 295 2.6 516 5.7
--------- -------- ---------- --------
Total revenues 11,315 100.0 9,032 100.0
Cost of revenues:
Software license costs 31 0.3 278 3.1
Maintenance and services costs 2,764 24.4 2,004 22.1
Hardware costs 243 2.1 395 4.4
--------- -------- ---------- --------
Total cost of revenues 3,038 26.8 2,677 29.6
--------- -------- ---------- --------
Gross profit 8,277 73.2 6,355 70.4
--------- -------- ---------- --------
Operating expenses:
Software development 4,159 36.8 2,580 28.6
Selling and marketing, net 2,412 21.3 1,304 14.4
Amortization of acquisition-related
intangible assets 603 5.3 165 1.8
General and administrative 1,597 14.1 816 9.0
In process R&D write-off -- -- 2,802 31.0
--------- -------- ---------- --------
Total operating expenses 8,771 77.5 7,667 84.8
--------- -------- ---------- --------
Income from operations (494) (4.3) (1,312) (14.4)
Financial income, net 1,605 14.2 853 9.4
--------- -------- ---------- --------
Net income $ 1,111 9.9% $ (459) (5.0)%
========= ======== ========== ========
5
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
SOFTWARE LICENSE FEES. Software license fees consist of revenues derived from
software license agreements entered between Fundtech and its customers. Software
license fees increased by $1,278,000 to $6,810,000 in the three months ended
June 30, 2000 from $5,532,000 for the three months ended June 30, 1999, an
increase of 23%. The increase is attributable to the sale of our current product
offerings and PayPlus CLS, as well as growth in 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 $1,226,000 to
$4,210,000 in the three months ended June 30, 2000 from $2,984,000 in the three
months ended June 30, 1999, an increase of 41%. 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 decreased by $221,000 to $295,000 in the three months ended June 30, 2000
from $516,000 in the three months ended June 30, 1999, a decrease of 43%.
The decrease is attributable to the number of software licenses sold whereby the
customer purchases hardware through the Company.
SOFTWARE LICENSE COSTS. Software license costs consist primarily of the royalty
payments related to grants from the Government of Israel, product media,
duplication, manuals, shipping and royalties to others. Software license costs
decreased by $247,000 to $31,000 in the three months ended June 30, 2000 from
$278,000 in the three months ended June 30, 1999, a decrease of 89%. The gross
margin of software license fees increased from 95% in the three months ended
June 30, 1999 to 99% in the three months ended June 30, 2000. The increase is
attributed to a lower percentage of software that is subject to royalties.
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 $760,000 to $2,764,000 in the three months ended
June 30, 2000 from $2,004,000 in the three months ended June 30, 1999, an
increase of 38%. The gross margin on maintenance and services fees increased
from 33% in the three months ended June 30, 1999 to 34% in the three months
ended June 30, 2000. The increase 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 $152,000
to $243,000 in the three months ended June 30, 2000 from $395,000 in the three
months ended June 30, 1999, a decrease of 38%. The gross margin on hardware
decreased from 23% in the three months June 30, 1999 to 18% in the three months
ended June 30, 2000. The decrease is primarily attributed to a higher volume of
lower-margin hardware products.
SOFTWARE DEVELOPMENT. Software development expenses are related to the
development and testing of new products. Software development expenses increased
by $1,579,000 to $4,159,000 in the three months ended June 30, 2000, from
$2,580,000 in the three month ended June 30, 1999, an increase of 61%. 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 acquisitions of BBP and the Sterling Cash Management Business.
SELLING AND MARKETING, NET. Selling and marketing expenses increased by
$1,108,000 to $2,412,000 in the three months ended June 30, 2000 from $1,304,000
in the three months ended June 30, 1999, an increase of 85%. Selling and
marketing expenses as a percentage of revenues increased from 14% in June 30,
1999 to 21% in the three months ended June 30, 2000 the increase in the expenses
related to opening the sales office in Australia, expanding the sales channels
in Europe, increasing the size of the U.S. sales group and as a result of the
acquisition of BBP and the Sterling Cash Management Business.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
$781,000 to $1,597,000 in the three months ended June 30, 2000 from $816,000 in
6
the three months ended June 30, 1999, an increase of 96%. The increase is due
the expansion of the business and also due to the acquisitions of BBP and the
Sterling Cash Management Business.
AMORTIZATION OF ACQUISITION-RELATED INTANGIBLE ASSETS. Amortization expense
increased by $438,000 to $603,000 in the three months ended June 30, 2000 from
$165,000 in the three months ended June 30, 1999, an increase of 265%. The
increase is due to the amortization of goodwill from the BBP and Sterling
acquisitions.
FINANCIAL INCOME, NET. Net financial income increased by $752,000 to $1,605,000
in the three months ended June 30, 2000 from $853,000 in the three months ended
June 30, 1999, an increase of 88%. 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
As of June 30, 2000, working capital was $89.0 million. Cash,cash equivalents
and marketable securities was $80.0 million. Net cash provided by operating
activities amounted to $428,000 for the six months ended June 30, 2000 and net
cash utilized by operating activities amounted to $146,000 for the six months
ended June 30, 1999.
Fundtech believes that cash, cash equivalents and marketable securities
(including proceeds from its public offering) and cash flows from operations
will provide adequate financial resources to finance its current operations and
the planned expansion of its operations for the foreseeable future. However, in
the event that Fundtech makes one or more acquisitions 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.
FUNDTECH LTD.
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
27.00 Financial Data Schedule
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: August 11, 2000 Chairman, President and CEO
/s/ Michael Carus
-----------------------------------
Dated: August 11, 2000 Executive Vice President COO &
CFO (Principal Financial Officer)
9
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
27.00 Financial Data Schedule