Exhibit 99.1
FUNDTECH LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
IN U.S. DOLLARS
INDEX
Page
----
Report of Independent Auditors F-2
Consolidated Balance Sheets F-3 - F-4
Consolidated Statements of Operations F-5
Statements of Changes in Shareholders' Equity F-6 - F-7
Consolidated Statements of Cash Flows F-8 - F-9
Notes to Consolidated Financial Statements F-10 - F-32
- - - - - - - - - - -
ERNST & YOUNG |X| Kost Forer & Gabbay |X| Phone: 972-3-6232525
3 Aminadav St. Fax: 972-3-5622555
Tel-Aviv 67067, Israel
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
FUNDTECH LTD.
We have audited the accompanying consolidated balance sheets of Fundtech
Ltd. ("the Company") and its subsidiaries as of December 31, 2000 and 2001, 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, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance as to whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial position of
Fundtech Ltd. and its subsidiaries as of December 31, 2000 and 2001, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
Tel-Aviv, Israel KOST, FORER & GABBAY
February 11, 2002 A Member of Ernst & Young International
F-2
FUNDTECH LTD.
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
December 31,
-------------------
2000 2001
--------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,116 $ 39,923
Short-term bank deposits 3,132 --
Marketable securities (Note 3) 42,067 5,462
Trade receivables (net of allowance for doubtful
accounts of $ 1,315 and $ 5,005 at December 31, 2000
and 2001, respectively) (Note 4) 24,375 18,193
Other accounts receivable and prepaid expenses 2,623 1,406
Inventories 96 24
-------- --------
Total current assets 90,409 65,008
-------- --------
LONG-TERM INVESTMENTS:
Severance pay fund 343 413
Long - term trade receivables (net of allowance for
doubtful accounts of $ 0 and $ 961 at December 31, 2000
and 2001, respectively) (Note 5) 3,673 2,679
Lease deposits 476 607
-------- --------
Total long-term investments 4,492 3,699
-------- --------
PROPERTY AND EQUIPMENT, NET (Note 6) 11,038 9,276
-------- --------
OTHER ASSETS, NET (Note 7) 20,933 24,073
-------- --------
$126,872 $102,056
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
FUNDTECH LTD.
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands, except share data and per share data)
December 31,
----------------------
2000 2001
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables $ 3,090 $ 2,254
Deferred revenues 537 1,389
Accrued non recurring expenses (Note 9) -- 634
Employees and payroll accruals 1,489 2,393
Other accounts payable and accrued expenses (Note 8) 1,453 3,132
---------- ---------
Total current liabilities 6,569 9,802
---------- ---------
LONG-TERM LIABILITIES:
Accrued severance pay 462 506
Accrued non recurring expenses (Note 9) -- 528
Other long-term liabilities 127 --
---------- ---------
Total long-term liabilities 589 1,034
---------- ---------
Total liabilities 7,158 10,836
---------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 10)
SHAREHOLDERS' EQUITY(Note 11):
Share capital:
Ordinary shares of NIS 0.01 par value:
Authorized: 19,949,998 shares as of December 31, 2000
and 2001;
Issued and outstanding:14,184,474 and 14,278,096
shares at December 31, 2000 and 2001, respectively 42 43
Deferred shares of NIS 0.01 par value: Authorized,
issued and outstanding:
50,002 shares at December 31, 2000 and 2001 *) -- *) --
Additional paid-in capital 139,420 139,708
Deferred stock compensation (32) --
Accumulated other comprehensive loss (3,951) (1,140)
Accumulated deficit (15,765) (47,391)
---------- ---------
Total shareholders equity 119,714 91,220
---------- ---------
$ 126,872 $ 102,056
========== =========
*) Represents an amount lower than $ 1.
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
FUNDTECH LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands, except per share data)
Year ended December 31,
-----------------------------------
1999 2000 2001
---------- ---------- ----------
Revenues (Note 14a and 14b):
Software license fees $ 17,667 $ 28,492 $ 17,067
Maintenance and services fees 12,531 17,351 26,248
Hardware sales 1,493 1,437 842
-------- -------- --------
Total revenues 31,691 47,280 44,157
-------- -------- --------
Cost of revenues:
Software license costs 559 252 896
Maintenance and services costs 8,051 12,292 18,316
Hardware costs 1,132 1,131 686
-------- -------- --------
Total cost of revenues 9,742 13,675 19,898
-------- -------- --------
Gross profit 21,949 33,605 24,259
-------- -------- --------
Operating expenses:
Software development 12,880 17,747 19,185
Selling and marketing, net 6,464 9,637 10,325
General and administrative 3,737 6,207 9,328
Amortization of acquisition, related
goodwill and other intangible assets 1,275 2,462 2,525
Provision for doubtful accounts 258 717 5,966
Non recurring expenses (Note 9) -- -- 4,073
In-process research and development
write-off (Note 1b) 2,802 -- --
-------- -------- --------
Total operating expenses 27,416 36,770 51,402
-------- -------- --------
Operating loss (5,467) (3,165) (27,143)
Impairment and realized losses on available
for sale marketable securities (Note 3) -- -- (7,826)
Financial income, net (Note 14c) 3,756 5,542 3,343
-------- -------- --------
Net income (loss) $ (1,711) $ 2,377 $(31,626)
======== ======== ========
Basic net earnings (loss) per share (Note 12) $ (0.13) $ 0.17 $ (2.22)
======== ======== ========
Diluted net earnings (loss) per share (Note 12) $ (0.13) $ 0.16 $ (2.22)
======== ======== ========
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, except share data)
Ordinary shares Deferred shares Additional
----------------------- ---------------------- paid-in
Shares Amount Shares Amount capital
------------ ------------- ---------- ---------- ------------
Balance as of January 1, 1999 10,791,958 $ 34 50,002 $ *) -- $ 41,664
Exercise of stock options, net 118,546 *) -- -- 530
Exercise of warrants, net 35,763 *) -- -- 427
Issuance of Ordinary shares, net 3,005,315 8 -- -- 95,376
Amortization of deferred stock compensation -- -- -- -- --
Comprehensive loss:
Foreign currency translation adjustments -- -- -- -- --
Unrealized losses on available for sale
marketable securities, net -- -- -- -- --
Net loss -- -- -- -- --
------------- ------------ ------- --------- ---------
Total comprehensive loss
Balance as of December 31, 1999 13,951,582 42 50,002 *) -- 137,997
Exercise of stock options, net 192,892 *) -- 966
Exercise of warrants, net 40,000 *) -- 520
Amortization of deferred stock compensation -- -- -- -- --
Forfeiture of stock options -- -- -- -- (63)
Comprehensive loss:
Foreign currency translation adjustments -- -- -- -- --
Unrealized losses on available for sale
marketable securities, net -- -- -- -- --
Net income -- -- -- -- --
------------- ------------ ------- --------- ---------
Total comprehensive loss
Balance as of December 31, 2000 14,184,474 42 50,002 *) -- 139,420
Exercise of stock options 93,622 1 -- 288
Amortization of deferred stock compensation -- -- -- -- --
Comprehensive loss:
Foreign currency translation adjustments -- -- -- -- --
Unrealized losses on available for sale
marketable securities, net -- -- -- -- --
Realization of losses on available for sale
marketable securities -- -- -- -- --
Net loss -- -- -- -- --
------------- ------------ ------- --------- ---------
Total comprehensive loss
Balance as of December 31, 2001 14,278,096 $ 43 50,002 $ *) -- $ 139,708
============= ============ ========= ========== ===========
Accumulated
Deferred other Total Total
stock comprehensive Accumulated Comprehensive Shareholders'
Compensation loss deficit loss equity
------------ ------------- ----------- ------------- -------------
Balance as of January 1, 1999 $ (219) $ -- $ (16,431) $ 25,048
Exercise of stock options, net -- -- -- 530
Exercise of warrants, net -- -- -- 427
Issuance of Ordinary shares, net -- -- -- 95,384
Amortization of deferred stock compensation 72 -- -- 72
Comprehensive loss:
Foreign currency translation adjustments (450) -- $ (450) $ (450) (450)
Unrealized losses on available for sale
marketable securities, net (706) -- (706) (706) (706)
Net loss -- (1,711) (1,711) (1,711) (1,711)
------------ ------------ ------------ ----------- -------------
Total comprehensive loss $ (2,867)
==========
Balance as of December 31, 1999 (147) (1,156) (18,142) 118,594
Exercise of stock options, net -- -- -- 966
Exercise of warrants, net -- -- -- 520
Amortization of deferred stock compensation 52 -- -- 52
Forfeiture of stock options 63 -- -- --
Comprehensive loss:
Foreign currency translation adjustments (465) -- $ (465) (465) (465)
Unrealized losses on available for sale
marketable securities, net (2,330) -- (2,330) (2,330) (2,330)
Net income -- 2,377 2,377 2,377 2,377
------------ ------------ ------------ ------------ -------------
Total comprehensive loss $ (418)
=========
Balance as of December 31, 2000 (32) (3,951) (15,765) 119,714
Exercise of stock options -- -- -- 289
Amortization of deferred stock compensation 32 -- -- 32
Comprehensive loss:
Foreign currency translation adjustments (225) -- $ (225) (225) (225)
Unrealized losses on available for sale
marketable securities, net (4,790) -- (4,790) (4,790) (4,790)
Realization of losses on available for sale
marketable securities 7,826 -- 7,826 7,826 7,826
Net loss -- (31,626) (31,626) (31,626) (31,626)
------------ ------------ ------------ ------------
Total comprehensive loss $(28,815)
=============
Balance as of December 31, 2001 $ -- $ (1,140) $ (47,391) $ 91,220
============ ============ ============ ============
*) Represents an amount lower 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,
---------------------------------
1999 2000 2001
----------- ---------- ---------
Cash flows from operating activities:
Net income (loss) $ (1,711) $ 2,377 $(31,626)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 3,179 5,187 6,303
Impairment and realized losses on
available for sale marketable securities -- -- 7,826
Write-off of other accounts receivable -- -- 1,035
Capital loss on abandonment of property
and equipment -- -- 270
Provision for doubtful accounts 258 717 5,966
In-process research and development
write-off 2,802 -- --
Amortization of deferred stock compensation 72 52 32
Trading marketable securities, net 1,176 -- --
Deferred income taxes, net -- -- (319)
Decrease (increase) in trade receivables
and long-term trade receivables (112) (15,989) 1,202
Decrease (increase) in other accounts
receivable, prepaid expenses and inventories (720) (856) 344
Increase (decrease) in trade payables 27 1,566 (832)
Increase (decrease) in deferred revenues,
employees and
payroll accruals and other accounts
payable and accrued expenses (5,970) (2,905) 3,546
Increase in accrued non-recurring expenses -- -- 1,162
Accrued severance pay, net 23 74 (26)
Other (19) (2) (14)
-------- -------- --------
Net cash used in operating activities (995) (9,779) (5,131)
-------- -------- --------
Cash flows from investing activities:
Payments for acquisitions (a) (17,040) -- --
Investments in available for sale
marketable securities (41,729) (3,374) (1,986)
Proceeds from (investments in) short-term -- (3,132) 3,170
bank deposits
Proceeds from sales of available for sale
marketable securities -- -- 33,801
Investments in long-term lease deposits -- (476) (143)
Purchase of property and equipment (5,156) (5,907) (2,322)
Proceeds from sale of property and equipment 7 81 --
Capitalization of software development costs -- (1,975) (5,901)
-------- -------- --------
Net cash provided by (used in) investing (63,918) (14,783) 26,619
activities
-------- -------- --------
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,
---------------------------------
1999 2000 2001
---------- ---------- ---------
Cash flows from financing activities:
Proceeds from issuance of Ordinary shares and
exercise of stock options and warrants, net 93,387 1,486 289
-------- -------- --------
Net cash provided by financing activities 93,387 1,486 289
-------- -------- --------
Effect of exchange rate on cash and cash
equivalents -- (301) 30
-------- -------- --------
Increase (decrease) in cash and cash equivalents 28,474 (23,377) 21,807
Cash and cash equivalents at the beginning of
the year 13,019 41,493 18,116
-------- -------- --------
Cash and cash equivalents at the end of the year $ 41,493 $ 18,116 $ 39,923
======== ======== ========
(a) Payments for acquisitions: (see Note 1b)
Estimated fair value of assets acquired and
liabilities assumed at the date of
acquisition:
Working capital deficiency, excluding cash and
cash equivalents $ (2,171)
Property and equipment 1,001
Goodwill 18,511
In-process research and development 2,802
Deferred income taxes (149)
---------
19,994
Less - amount acquired by the issuance of (2,954)
Ordinary shares ---------
$ 17,040
=========
Supplemental disclosure of cash flows activities:
Cash paid during the year for:
Interest $ 27 $ 34 $ 31
========== ======== =========
Non-cash transaction:
Unrealized losses on $ 706 $ 2,330 $ -
available-for-sale-securities ========= ======== ========
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, except share data and per share data)
NOTE 1:- GENERAL
a. Fundtech Ltd. ("the Company") was incorporated in Israel in
April 1993, and commenced operations approximately at that
time. In 1995, Fundtech Corporation ("Fundtech Corp."), a
wholly-owned U.S. subsidiary of the Company was incorporated
in the U.S.A and commenced operations at that time. On
December 29, 1998 the Company established a wholly-owned
subsidiary in England ("Fundtech England"). This subsidiary
commenced its operations on January 6, 1999.
On July 26, 1999, the Company established a wholly-owned
subsidiary in the Netherlands under the name Fundtech Netherlands
BV ("BV"). On September 30, 1999, the Company established,
through Fundtech Corp., a wholly-owned U.S. subsidiary which is
incorporated in the State of Texas under the name FCMS, LLC.
On November 26, 1999, the Company established a wholly-owned
subsidiary in Australia under the name Fundtech Australia PTY
Limited ("Fundtech Australia") This subsidiary commenced
operations in January 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.
For a description of principal markets and customers, see Note
14.
b. Acquisitions:
1. In June 1999, the Company acquired through its wholly-owned
subsidiary (BV) all the outstanding 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 using the purchase
method of accounting and accordingly, the purchase price has
been allocated to the assets acquired and the liabilities
assumed based on their fair values 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 using the
straight-line method over an average of eight and a half
years. (see also Note 2u).
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 write-off").
BBP's financial statements are consolidated with those of the
Company commencing with the second quarter of 1999.
F-9
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 1:- GENERAL (Cont.)
The estimated fair value of the assets acquired and
liabilities assumed at the date of acquisition are summarized
as follows:
Working capital deficiency $ (578)
Deferred income taxes (149)
Property and equipment 701
In process research and
development 2,802
Technology 3,390
Goodwill 7,797
-----------
$ 13,963
===========
See also Note 2(j) - for reallocation of the purchase price
during 2000.
2. On September 30, 1999, the Company acquired through its
wholly-owned subsidiary (FCMS, LLC) certain assets and
certain liabilities of Sterling Commerce, Inc., a U.S.
company engaged in the field of electronic data interchange,
for an aggregate purchase price of approximately $ 6,982.
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 their fair values at the date of
acquisition. The excess of the purchase price over the
estimated fair values 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 (see
also Note 2u).
Sterling's financial statements are consolidated with those
of the Company since September 30, 1999.
The estimated fair value of the assets acquired and
liabilities assumed at the date of acquisition are summarized
as follows:
Working capital deficiency $ (642)
Property and equipment 300
Technology 1,100
Goodwill 6,224
------------
$ 6,982
============
See also Note 2(j) - for reallocation of the purchase price
during 2000.
c. The following represents the unaudited pro forma results of
operations for the year ended December 31, 1999, assuming the
1999 acquisitions occurred on January 1, 1999, excluding the
write-off of the acquired in-process research and development.
F-10
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 1:- GENERAL (Cont.)
The pro-forma financial information is not necessarily indicative
of the consolidated results that would have been attained had the
acquisition taken place at the beginning of 1999, nor is it
necessarily indicative of future results.
Year ended
December 31,
1999
------------
Revenues $ 37,957
=========
Net loss $ (696)
=========
Basic and diluted net loss per share $ (0.05)
=========
d. Restructuring charges - see Note 9a.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States
("US GAAP").
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 in U.S. dollars:
A majority of the revenues of the Company and certain of its
subsidiaries is generated in U.S. dollars ("dollar" or
"dollars"). In addition, a substantial portion of their costs are
incurred in dollars. The Company and these subsidiaries'
management believes that the dollar is the primary currency of
the economic environment in which the Company and these
subsidiaries operates. Thus, the functional and reporting
currency of the Company and these subsidiaries is the dollar.
Accordingly, monetary accounts maintained in currencies other
than the dollar are remeasured into U.S. dollars in accordance
with Statement of Financial Accounting Standard No. 52
"Foreign Currency Translation" ("SFAS No. 52"). All
transaction gains and losses from the remeasurement of
monetary balance sheet items are reflected in the statements
of operations as financial income or expenses, as appropriate.
The financial statements of a foreign subsidiary whose functional
currency is not the dollar, have been translated into dollars.
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 for the period. The resulting translation
adjustments are reported as a separate component of accumulated
other comprehensive loss in shareholders' equity.
F-11
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)
c. Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Intercompany balances
and transactions have been eliminated in consolidation.
d. Cash equivalents:
Cash equivalents include short-term, highly liquid investments
that are readily convertible to cash, with original maturities of
three months or less.
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 their cost, including
accrued interest.
f. Marketable securities:
The Company accounts for its investments in marketable securities
using Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115").
Management determines the appropriate classification of its
investments in marketable debt and equity securities at the time
of purchase and reevaluates such determinations at each balance
sheet date. Debt securities for which the Company does not have
the intent or ability to hold to maturity are classified as
available-for-sale, along with any investments in equity
securities that have not been classified as "trading securities".
As of December 31, 2000 and 2001 all marketable securities
covered by SFAS No. 115 were designated as available-for-sale.
Accordingly, these securities are stated at fair value, with the
unrealized gains and losses, reported as a separate component of
shareholders' equity, 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.
According to the SEC's issued Staff Accounting Bulletin No. 59
("SAB 59") management is required to evaluate each period whether
a securities' decline in value is other than temporary.
As of December 31, 2001, the Company's management evaluation
indicated that the decline in available-for-sale marketable
securities was other than temporary. Therefore, the Company
realized its losses on available-for-sale marketable securities
which are included in the statement of operations as impairment
and realization of losses on marketable securities.
F-12
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
g Inventories:
Inventories are stated at the lower of cost or market value.
Inventory write-offs are provided to cover risks arising from
slow-moving items or technological obsolescence. In 2001, the
Company recorded a write-offs expenses in a total amount of $ 22,
which are included in the statement of operations as hardware
costs, as appropriate.
Cost is determined as follows:
Finished products - on the basis of direct costs with the
addition of allocable indirect costs.
h. Long-term trade receivables:
Long-term receivables from extended payment agreements (See Note
2m) 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. Property and equipment:
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation is calculated by the straight-line
method over the estimated useful lives of the assets, at the
following annual rate:
%
--------------------
Office furniture and equipment 6 - 15
Computers and software 20 - 33
Motor vehicles 15
Leasehold improvements Over the term of the lease
The Company and its subsidiaries periodically assess the
recoverability of the carrying amount of property and equipment
and provide for any possible impairment loss based upon the
difference between the carrying amount and fair value of such
assets. In accordance with Statements of Financial Accounting
Standard No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No.
121"). As of December 31, 2001, no impairment losses has been
identified.
j. Goodwill and technology:
Goodwill and technology are stated at amortized cost.
Amortization is calculated using the straight-line method over
the estimated useful lives at the following annual rates:
%
-------------
Goodwill 10 - 12
Technology 20
F-13
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The carrying values of goodwill and technology assets are
periodically reviewed by management, based on the expected future
undiscounted operating cash flows over the remaining goodwill and
technology amortization periods. If this review indicates that
goodwill and technology will not be recoverable, the carrying
value of the goodwill and technology is reduced to estimated fair
value.
Certain preacquisition contingency reserves were established as
of the acquisition dates that are subject to adjustment during
the "allocation period" in accordance with Statement of Financial
Standard No. 38 "Accounting for Preacquisition Contingencies"
("SFAS No. 38"). The fair value of the net assets acquired from
BBP and Sterling have been adjusted to reflect the resolution of
these contingencies established relating to certain litigation
and liabilities associated with acquired contractual commitments.
During 2000, the purchase price reallocation resulted in a total
reduction to the fair value of Sterling and BBP acquisitions of
approximately $ 1,573 and $ 214, respectively, as well as a
corresponding increase to goodwill.
k. Income taxes:
The Company and its subsidiaries account for income taxes in
accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS No. 109"). 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 their software products directly to end-users
and, to the lesser extent, indirectly through sub-license fees
from resellers, both of whom are considered end users. The
Company and its subsidiaries also generate revenues from sales of
professional services, including consulting, implementation,
training, maintenance and hardware.
Revenue from software license agreements are recognized when all
criteria outlined in Statement Of Position (SOP) 97-2 "Software
Revenue Recognition" (as amended) are met. Therefore, revenue
from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no
significant obligations with regard to implementation remain, the
fee is fixed or determinable and collectibility is probable.
F-14
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Where software arrangements involve multiple elements, revenue is
allocated to each element based on vendor specific objective
evidence ("VSOE") of the relative fair values of each element in
the arrangement, in accordance with the "residual method"
prescribed by SOP 98-9 "Modification of SOP 97-2, Software
Revenue Recognition With Respect to Certain Transactions". The
Company's VSOE used to allocate the sales price to services and
maintenance is based on the price charged when these elements are
sold separately. License revenue is recorded based on the
residual method. Under the residual method, revenue is recognized
for the delivered elements when (1) there is VSOE of the fair
values of all the undelivered elements, and (2) all revenue
recognition criteria of SOP 97-2, as amended, are satisfied.
Under the residual method any discount in the arrangement is
allocated to the delivered element.
The Company generally does not grant right of return to its
customers. The Company generally provides a warranty period for
up to six months at no extra charge. No provision is recorded at
the time revenues are recognized for estimated warranty costs
since according to the Company's experience it is immaterial.
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 overcomes the presumption that the software license
fees are not fixed or determinable. Thus, the Company should
recognize the software license fees when all other SOP 97-2
revenue recognition criteria are met. The Company has concluded
that for certain software arrangements with extended payment
terms, the "fixed or determinable" presumption has been overcome
and software license fees have been recognized upon meeting the
remaining SOP 97-2 revenue recognition criteria. The present
value of such software license fees recognized in fiscal years
1999, 2000 and 2001 totaled approximately $1,700, $ 5,000 and $
1,883, respectively.
When contracts contain hosting services arrangements, the Company
applies Emerging Issues Task Force No. 00-03 ("EITF 00-03")
"Software Revenue Recognition, to Arrangements That Include the
Right to Use Software Stored on Another Entity's Hardware".
Arrangements that include professional services are evaluated to
determine whether those services are essential to the
functionality of other elements of the arrangement. When services
are considered essential, revenue under the arrangement is
recognized using contract accounting. When services are not
considered essential, the revenue allocable to the software
services is recognized as the services are performed.
F-15
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Revenue from software licenses that require significant
customization, integration and installation are recognized based
on SOP 81-1 "Accounting for Performance of Construction - Type
and Certain Production - Type Contracts", using contract
accounting on a percentage of completion method, based on the
relationship of actual labor costs incurred to total labor costs
estimated to be incurred over the duration of the contract.
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. As of
December 31, 2001, no such estimated losses were identified.
Revenue on arrangements with customers who are not the ultimate
users (such as resellers) is not recognized until the product has
been delivered to the end user.
Revenue from maintenance and services is recognized over the life
of the maintenance agreement or at the time that services are
rendered.
Revenue from hardware sales is recognized in accordance with
Staff Accounting Bulleting No. 101 ("SAB No. 101") as amended,
when persuasive evidence of an agreement exists, delivery has
occurred, the fee is fixed or determinable and collectibility is
probable.
Deferred revenues include unearned amounts received under
maintenance and support contracts and amounts billed to customers
but not yet recognized as revenues.
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
for by monthly deposits with insurance policies and by an
accrual. The value of these policies is recorded as an asset in
the Company's balance sheet.
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 surrender value of these policies, including
immaterial profits.
Severance expenses for the years ended December 31, 1999, 2000
and 2001, amounted to approximately $ 143, $ 74 and $ 89,
respectively.
F-16
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
n. Software development costs:
Statement of Financial Accounting Standard No. 86 "Accounting
for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," ("SFAS No. 86") 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
detailed program design.
Costs incurred by the Company and its subsidiaries in certain
projects between completion of the detailed program design and
the point at which the product is ready for general release have
been capitalized.
Capitalized development costs are not yet amortized as the
products are not ready for general release for customers.
o. Royalties-bearing grants:
The Company received royalty-bearing grants from the Israeli Fund
for Encouragement of Marketing Activity. These grants are
recognized at the time the Company is entitled to such grants on
the basis of the costs incurred and included as a deduction of
selling and marketing expenses.
Selling and marketing grants amounted to $ 0, $ 180 and $ 0 in
1999, 2000 and 2001, respectively.
p. Concentration of credit risks:
Financial instruments that potentially subject the Company and
its subsidiaries to concentrations of credit risk consist
principally of cash and cash equivalents, short-term bank
deposits marketable securities, trade receivables and long-term
trade receivables. The Company's cash and cash equivalents and
short-term bank deposits are invested mainly in deposits with
major banks in Israel, Europe and the United States. Such
deposits in the United States may be in excess of insured limits
and are not insured in other jurisdiction. Management believes
that the financial institutions that hold the Company and its
subsidiaries' investments are financially sound and, accordingly,
minimal credit risk exists with respect to these investments.
The Company marketable securities includes investments in mutual
funds of U.S. corporations. As of December 31, 2001, the Company
provided for impairment and realized losses on available-for-sale
marketable securities totaling $ 7,826.
F-17
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The trade receivables and long-term trade receivables of the
Company and its subsidiaries include banks and large financial
institutions. 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. An allowance for doubtful
accounts is determined with respect to those amounts that the
Company and its subsidiaries have determined to be doubtful of
collection. The Company and its subsidiaries perform ongoing
credit evaluations of its customers (see Note 4).
The Company has no off-balance sheet concentration of credit risk
such as foreign exchange contracts, option contracts or other
foreign hedging arrangements.
q. Basic and diluted net earnings (loss) per share:
Basic net earnings (loss) per share is computed based on the
weighted average number of Ordinary shares outstanding during
each year. Diluted earnings 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 Statement of
Financial Accounting Standard No. 128, "Earnings Per Share"
("SFAS No. 128").
In 1999, 2000 and 2001, outstanding stock options and warrants
have been excluded from the calculation of the diluted net
earnings net per Ordinary share because all such securities are
anti-dilutive for all periods presented. The total weighted
average number of shares related to the outstanding options and
warrants excluded from the calculations of diluted net earnings
(loss) per share was 1,355,421, 543,120 and 398,428, for the
years ended December 31, 1999, 2000 and 2001, respectively (see
Note 12).
s. Accounting for stock-based compensation:
The Company has elected to follow Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB
No. 25") and FASB Interpretation No. 44 "Accounting for Certain
Transactions Involving Stock Compensation" ("FIN 44") in
accounting for its employee stock option plans. Under APB No. 25,
when the exercise price of the Company's options are less than
the market price of the underlying shares on the date of grant,
compensation expense is recognized. The pro forma disclosures,
required by Statement of Financial Accounting Standard No. 123
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), are
provided in Note 11d.
The Company applies SFAS No. 123 and EITF 96-18 "Accounting for
Equity Instruments that are Issued to Other than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services"
with respect to options and warrants issued to non-employees.
SFAS No. 123 requires use of an option valuation model to measure
the fair value of the options at the grant date.
F-18
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
s. 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:
The carrying amounts of cash and cash equivalents, short-term
bank deposits, trade receivable and trade payables approximate
their fair value due to the short-term maturity of such
instruments.
The fair value of marketable securities is based on quoted market
price (see Note 3).
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 trade receivables approximates their
fair value since the interest rate which was used in order to
discount future cash flows remained unchanged.
t. Reclassification:
Certain prior years amounts have been reclassified in conformity
with current year's financial statement.
u. Impact of recently issued accounting standards:
In June 2001, the Financial Accounting Standards Board issued
SFAS No. 141, "Business Combinations" and No. 142, "Goodwill and
other Intangible Assets" ("the Statements"), effective for fiscal
years beginning after December 15, 2001. Under the new rules,
goodwill and intangible assets deemed to have indefinite lives
will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful
lives.
The Company will apply the new rule beginning in the first
quarter of 2002. Application of the non-amortization provisions
of the Statement is expected to result in an increase in net
income of approximately $ 2,500 per year, before the effect of
any impairment test as described next. During 2002, the Company
will perform the first of the required impairment tests of
goodwill and indefinite lived intangible assets. The Company can
not yet estimate what the effect, if any, of these tests will be
on its financial position and results of operations.
F-19
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and superseded SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Dispensed Of", and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations for a Disposal of a Segment of a Business".
SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. The
Company expects to adopts SFAS No. 144 as of January 1, 2002 and
it does not expect that the adoption of the statement will have a
significant impact, if any, on the Company's financial position
and results of operations.
NOTE 3:- MARKETABLE SECURITIES
December 31,
-----------------------
2000 2001
------------ ----------
Amortized cost and estimated fair value $ 45,103 $ 5,462
Gross unrealized losses (3,036) -
------------ ----------
Fair value $ 42,067 $ 5,462
============ ==========
a. All marketable securities are mutual funds issued by an
investment bank in the U.S.
b. As of December 31, 2001 due to the market conditions, and since
the Company's management believes that the decline in the fair
value is other than temporary, the cost basis of these securities
was written down to fair value as a new cost basis. During the
fourth quarter of 2001, the Company sold approximately 86% of its
investment in marketable securities. As of December 31, 2001 an
impairment and realized losses on available-for-sale marketable
securities amounting to $ 7,826 was included in earnings.
c. During 1999, one of the Company's subsidiaries sold trading
securities in the amount of $ 1,176. The total realized loss from
these securities amounted to $ 19 and was charged to financial
expenses. As of December 31, 2000 and 2001 the Company and its
subsidiaries do not hold any trading securities.
F-20
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 4: - TRADE RECEIVABLES
December 31,
-------------------------
2000 2001
------------ ------------
Accounts receivable, net (1) $ 10,094 $ 5,571
Unbilled receivables, net (1) 14,281 12,622
------------ ------------
$ 24,375 $ 18,193
============ ============
(1) allowance for doubtful accounts
Management's assessment for uncertainties of outstanding debts
collectability resulted in a provision for doubtful accounts
expenses in a total amount of $ 258, $ 717 and $ 5,966 for 1999,
2000 and 2001.
NOTE 5:- LONG-TERM TRADE RECEIVABLES
December 31,
----------------------
2000 2001
----------- ----------
Maturity dates - long-term trade receivables:
First year (current maturities) $ 2,603 $ 2,256
Second year 1,125 1,516
Third year 971 1,136
Fourth year 713 720
Fifth year 864 268
---------- ----------
6,276 5,896
---------- ----------
Less - Current maturities 2,603 2,256
Allowance for doubtful accounts - 961
(see also Note 4) ---------- ----------
$ 3,673 $ 2,679
========== ==========
F-21
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 6:- PROPERTY AND EQUIPMENT, NET
December 31,
----------------------
2000 2001
----------- ----------
Cost:
Office furniture and equipment $ 2,426 $ 2,532
Computers and software 13,401 15,065
Motor vehicles 293 298
Leasehold improvements 1,094 1,228
------- -------
17,214 19,123
------- -------
Accumulated depreciation 6,176 9,847
------- -------
Depreciated cost $11,038 $ 9,276
======= =======
Depreciation expenses for the years ended December 31, 1999, 2000 and 2001, are
$ 1,904, $ 2,725 and $ 3,778, respectively
NOTE 7:- OTHER ASSETS, NET
December 31,
----------------------
2000 2001
----------- ----------
Intangible assets Original amounts:
Goodwill $18,358 $18,061
Technology 4,490 4,490
Capitalized software development costs 1,975 7,876
------- -------
24,823 30,427
------- -------
Accumulated amortization 3,890 6,354
------- -------
Amortized cost $20,933 $24,073
======= =======
Amortization expenses amounted to $ 1,275, $ 2,462 and $ 2,525 for the years
ended December 31, 1999, 2000 and 2001, respectively
NOTE 8:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31,
----------------------
2000 2001
----------- ----------
Accrued expenses $ 728 $ 1,603
Deferred income taxes 83 --
Government authorities 407 1,176
Office of the Chief Scientist and the
Fund for the Encouragement of Marketing Activities
(see also Note 10) 72 333
Others 163 20
------- -------
$ 1,453 $ 3,132
======= =======
F-22
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 9:- NON-RECURRING EXPENSES
Year ended
December 31,
2001
-------------
Restructuring costs (a) $ 2,573
Integration costs (b) 465
Write-off of other accounts receivables (c) 1,035
-------
$ 4,073
=======
In response to declines associated with the current cautious
information technology ("IT") spending environment within the
financial services industry, during the second quarter of 2001,
the Company adopted a restructuring and integration plan ("the
Plan").
a. Restructuring costs:
The restructuring was accounted for in accordance with EITF 94-3
"Liability Recognition for Certain Employee Termination Benefits
and Other Cost to Exit and Activity (Including Certain Costs
Included in a Restructuring) and in accordance with SAB 100
"Restructuring and Impairment Charges".
The Plan consisted of employee termination benefits associated
with the involuntary termination of 89 employees (71 research and
development and professional services employees, 13
administrative employees and 5 selling and marketing employees)
and sublet portions of their existing office space. As part of
the plan, the Company also consolidated aspects of its Dallas
operations into its existing Atlanta operations in order to
improve efficiency and eliminate duplicate cost structures.
Through the second quarter of 2001, the Plan and the benefit
arrangement were communicated to employees. The communication of
the benefit arrangement includes sufficient detail to enable
employees to determine the type and amount of benefits they will
receive if they are terminated.
The restructuring Plan was substantially completed by January
2002.
The following table summarizes the restructuring accruals status
as of December 31, 2001:
Balance at
Original Utilized December
Accrual in Cash 31, 2001
---------- -------- -----------
Employee termination benefits and
related costs $ 790 $ 628 $ 162
Facility closures and related costs 1,513 513 1,000
--------- ------- ---------
$ 2,303 $ 1,141 $ 1,162
========= ======= === =====
F-23
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 9:- NON-RECURRING EXPENSES (Cont.)
Year ended
December
Restructuring costs: 31, 2001
-----------
Employee termination benefits and related costs $ 790
Facility closures and related costs 1,513
Property and equipment abandonment 270
-----------
$ 2,573
===========
b. Integration costs:
As part of the restructuring and integration plan, the Company
recorded $ 465 integration costs mainly for relocating employees
and abandonment of property and equipment pursuant to the Plan.
The Company does not anticipates material additional integration
charges in the future. All integration charges have been, and
will be, expensed as incurred.
c. Write-off of other accounts receivable:
In 2000 and 2001, the Company incurred expenses on behalf of a
new venture in the amount of approximately $ 924 and $ 111,
respectively. It was agreed between the investors that such
expenses would be reimbursed upon the formation of the new
entity, therefore such expenses in 2000 a were recorded as other
accounts receivable. In April 2001 the Company and the other
investor decided not to proceed with the formation of the new
entity. Accordingly, the Company wrote-off the related other
account receivable.
NOTE 10: - COMMITMENTS AND CONTINGENT LIABILITIES
a. Royalty commitments
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 $
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 linked to the US dollars. No grants
were obtained in 1999, 2000 and 2001.
Through December 31, 2001, the Company has paid or accrued for
OCS royalties liability in a total amount of $ 1,232. Subject to
OCS final approval, as of December 31, 2001, the Company paid or
accrued for the entire amount.
F-24
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 10: - COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
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 $ 614 for the years
up to and including 2000. The Company is committed to pay
royalties at the rate of 3% of the increase in export sales.
Subject to final approval, as of December 31, 2001, the Company
paid and accrued for the entire amount.
b. Litigations:
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.
As of December 31, 2001 the case was dismissed without prejudice.
c. Lease commitments:
The Company leases its facilities and vehicles under various
operating lease agreements, which expire on various dates, the
latest of which is in 2014. The minimum lease commitments under
non-cancelable operating leases are as follows:
Year ended December 31,
-----------------------
2002 $ 2,146
2003 1,984
2004 1,921
2005 1,440
2006-2014 5,852
--------
13,343
Less - sublease rentals 16
--------
$ 13,327
==========
Total facilities lease expenses for the years ended December 31,
1999, 2000 and 2001, were approximately $ 1,056, $ 1,778 and $
2,150 (net of sublease rentals incurred of $ 4), respectively.
d. Guarantees:
The Company has obtained a bank guarantees (restricted deposit)
of $ 54, in connection with the Company's facilities operating
lease agreement in Israel.
F-25
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 11:- SHAREHOLDERS' EQUITY
a. General:
The Ordinary shares of the Company are traded on the NASDAQ
National Market.
On June 1, 1999, the Company acquired BBP, for the consideration
stated in Note 1b. As part of the acquisition, the Company issued
105,315 Ordinary shares.
On April 30, 1999, 2,900,000 Ordinary shares were issued in
consideration of approximately $ 92,400, net of expenses in a
secondary Public Offering.
b. 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.
Deferred shares are non-transferable and entitle their holders to
no voting, dividend or other rights except for the right to
receive the par value of the shares upon dissolution of the
Company.
c. Stock options:
1. Under the Company's 1996, 1997, 1998, 1999 Stock Option Plans
(the "Plans"), up to 2,786,248 options may be granted to
employees and directors of the Company or its subsidiaries.
As of December 31, 2001, the 1996 Israeli stock option plan
was expired.
2. Pursuant to the Plans, as of December 31, 2001, an aggregate
of 975,207 options of the Company are still available for
future grant.
3. Each option granted under the Plans to employees expires not
later than five years from the date of the grant. The options
vest primarily over four years. Any options that are canceled
or forfeited before expiration become available for future
grants. Options granted to directors are vested over a one
year period from their date of grant. The exercise price of
the options granted under the plans may not be less than the
nominal value of the shares into which such options are
exercised.
F-26
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 11:- SHAREHOLDERS' EQUITY(Cont.)
d. A summary of the Company's option activity under the Plans is
as follows:
Year ended December 31,
---------------------------------------------------------------------------------------------
1999 2000 2001
----------------------------- ----------------------------- ------------------------------
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 1,065,959 $ 8.16 1,355,421 10.84 1,830,893 $ 14.15
Granted 528,075 $ 16.58 818,100 17.38 - -
Exercised (118,546) $ 4.71 (192,892) 4.94 (93,622) $ 2.94
Forfeited (120,067) $ 18.36 (149,736) 12.10 (373,428) $ 14.54
------------- ------------- ------------
Outstanding at
December 31 1,355,421 $ 10.84 1,830,893 $ 14.15 1,363,843 $ 14.85
============= ============ ============= ========== ============ =========
Exercisable options at
December 31, 451,805 $ 7.93 624,269 $ 11.70 810,987 $ 13.85
============= ============ ============ ========== ============ ==========
The options outstanding as of December 31, 2001, have been separated into ranges of exercise price, as follows:
Options Weighted
outstanding average Options
Ranges of as of remaining Weighted exercisable Weighted
exercise December 31, contractual average as of average
price 2001 life (years) exercise price December 31, 2001 exercise price
------------------------- ------------------ ---------------- ---------------- ------------------- ----------------
$ 3.33 101,831 0.5 $ 3.33 101,831 $ 3.33
$ 7.33 - $ 10.38 10,000 1.0 $ 7.64 9,750 $ 7.56
$ 11.50 - $ 17.00 810,219 2.6 $ 13.61 485,823 $ 13.34
$ 19.25 - $ 22.31 441,793 3.0 $ 19.93 213,583 $ 20.31
------------------ ------------- ------------- ------------
1,363,843 2.6 $ 14.85 810,987 $ 13.85
================== ============= ============ ============= ============
Pro-forma information regarding net earnings (loss) and net
earnings (loss) per share is required by SFAS No. 123 (for grants
after December 1994), and has been determined as if the Company
had accounted for its employee stock options under the fair value
method of that Statement. The fair value for these options was
estimated at the date of grant using the Black-Scholes Option
Valuation Model with the following weighted-average assumptions
for each of the two years in the period ended December 31, 2000:
Volatility of 0.73 for each year; risk-free interest rates of
5.6% and 6.0% and 6.0%, respectively, dividend yields of 0% for
each year, and a weighted-average expected life of four years.
All options granted during 1999 and 2000 were at an exercise
price that is equal to the fair value of the stock at the grant
date. No options were granted during 2001.
F-27
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 11:- SHAREHOLDERS' EQUITY(Cont.)
Pro-forma information under SFAS No. 123 is as follows:
Year ended December 31,
------------------------------------
1999 2000 2001
---------- ---------- ----------
Net income (loss) as reported $ (1,711) $ 2,377 $ (31,626)
========= ========= ===========
Pro-forma net loss $ (3,580) $ (980) $ (34,491)
========= ========= ===========
Pro-forma basic and diluted net $ (0.28) $ (0.07) $ (2.43)
loss per share ========= ========= ===========
Compensation expenses recognized by the Company related to its
share based employee compensation awards amounted to $ 72, $ 52
and $ 32 for the years ended December 31, 1999, 2000 and 2001,
respectively. Such compensation expenses are amortized over the
vesting period.
e. 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 13b).
NOTE 12:- NET EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of historical basic and
diluted net earnings (loss) per share:
Year ended December 31,
--------------------------------
1999 2000 2001
---------- ---------- ---------
Numerator:
Net income (loss) $ (1,711) $ 2,377 $ (31,626)
========== ========== =========
Numerator for basic net earnings (loss)
per share - net income (loss) available
to Ordinary shareholders $ (1,711) $ 2,377 $ (31,626)
========== ========== =========
Numerator for diluted net earnings
(loss) per share - net income (loss)
available to Ordinary shareholders
after assumed exercises $ (1,711) $ 2,377 $(31,626)
========== ========== =========
Number of shares
-----------------------------------
Denominator:
Denominator for basic net earnings
(loss) per share - weighted - average 12,854,999 14,096,298 14,218,388
shares
---------- ---------- ----------
Effect of dilutive securities:
Employee stock options *) - 674,510 *) -
Warrants *) - 5,807 *) -
---------- ---------- -----------
Dilutive potential Ordinary Shares *) - 680,317 *) -
---------- ---------- -----------
Denominator for diluted net earnings
(loss) per share 12,854,999 14,776,615 14,218,388
========== ========== ===========
*) Antidilutive.
F-28
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 13: - INCOME TAXES
a. Measurement of taxable income under the Israeli 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 Israeli
Customer Price Index. As explained in Note 2b, the financial
statements are measured 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.
b. Tax benefits under the Israeli Law for the Encouragement of
Capital Investments, 1959:
The Company has been granted in November 1995 the status of an
"Approved Enterprise", under the Israeli 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 commencing with the year it
first earns taxable income relating to each expansion program,
and subject to corporate taxes at the reduced rate of 10% to 25%,
for an additional eight years, (subject to an adjustment based
upon the foreign investors' ownership of the Company).
The Company completed its investment according to certain of its
first program on November 27, 1997. Income derived from this
program was tax exempt for two years commencing in 1998 and will
enjoy a reduced tax of 10% to 25% for eight years ending in 2005
(subject to an adjustment based upon the foreign investors'
ownership of the Company).
In 1998, the Company received approval for its first expansion
program of its "Approved Enterprise". In 2000, the Company
received approval for its second expansion program of its
"Approved Enterprise". Income derived from the expansion programs
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
programs. The period of benefits for these programs has not yet
commenced since no income was derived.
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.
F-29
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 13: - INCOME TAXES (Cont.)
The tax-exempt profits that will be earned by the Company's
"Approved Enterprise" can be distributed to shareholders, without
imposing tax liability on the Company only upon the complete
liquidation of the Company. As of December 31, 2001, retained
earnings included approximately $ 4,597 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 elected the alternative tax benefits
(currently between 10% to 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.
The entitlement to the above benefits is conditional upon the
Company fulfilling the conditions stipulated by the above law,
regulations published thereunder and the instruments of approval
for the specific investments in "approved enterprises". In the
event of failure to comply with these conditions, the benefits
may be canceled and the Company may be required to refund the
amount of the benefits, in whole or in part, including interest.
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.
Income not eligible for "Approval Enterprise" benefits mentioned
above is taxed at the regular rate of 36%.
c. 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.
d. Net operating losses carryforwards:
As of December 31, 2001, the Company had approximately $ 5,850 of
Israeli net operating loss carryforwards. The Israeli loss
carryforwards have no expiration date.
As of December 31, 2001, Fundtech Corporation had a U.S. federal
net operating loss carryforward of approximately $ 36,344 which
can be carried forward and offset against taxable income for
10-15 years and expire in 2010-2016. Utilization of U.S. net
operating losses may be subject to the substantial annual
limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state provisions. The
annual limitation may result in the expiration of net operating
losses before utilization.
As of December 31, 2001 BBP had a Swiss net operating loss
carryforwards of approximately $ 490, which can be offset against
taxable income for a period of up to 7 years.
F-30
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(U.S. dollars in thousands)
NOTE 13: - INCOME TAXES (cont.)
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.
Significant components of the Company and its subsidiaries assets
are as follows.
December 31
------------------------
2000 2001
------------ -----------
Deferred tax assets:
U.S. net operating loss carryforwards $ 6,201 $ 14,538
Israel net operating loss carryforwards 801 585
Swiss net operating loss carryforwards 331 109
Other reserve and allowances 4,915 7,414
----------- ----------
Total deferred tax assets before 12,248 22,646
valuation allowance
Valuation allowance (12,248) (22,537)
----------- ----------
Balance at the end of the year
(all foreign) $ - $ 109
========== ==========
Deferred tax liabilities:
Deferred taxes due to assets acquired
and liabilities assumed (all foreign) $ (210) $ -
=========== ==========
As of December 31, 2001, the Company and its subsidiaries have
provided valuation allowances of approximately $ 10,289 in
respect of deferred tax assets resulting from tax loss
carryforwards and other temporary differences. Management
currently believes that since the Company and its subsidiaries
have a history of losses, it is more likely than not that the
deferred tax regarding the loss carryforwards and other temporary
differences will not be realized in the foreseeable future. The
Company's deferred tax asset composed of net operating loss
carryforwards of BBP is included in other accounts receivable.
g. Income (loss) before taxes on income:
Year ended December 31,
--------------------------------------
1999 2000 2001
----------- ------------ -----------
Domestic $ 4,665 $ 6,943 $ (7,577)
Foreign (6,376) (4,566) (24,049)
----------- ----------- -----------
$ (1,711) $ 2,377 $ (31,626)
=========== =========== ===========
F-31
NOTE 14: - GEOGRAPHICAL INFORMATION, MAJOR CUSTOMERS AND FINANCIAL INCOME
DATA
The Company and its subsidiaries have evaluated their business
activities in accordance with the provisions of Statement of Financial
Accounting Standard No. 131 "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS No. 131") 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 geographic destinations:
The total revenues are attributed to geographic information,
based on the end customers' location (see Note 1 for a brief
description of the Company's business).
1999 2000 2001
------------------ ------------------- ------------------
Long- Long- Long-
Total lived Total lived Total lived
revenues assets revenues assets revenues assets
-------- ------- --------- -------- -------- --------
Israel 495 538 574 830 205 737
U.S. 23,257 16,273 26,942 20,942 30,773 24,140
Australia 239 -- 4,062 7 -- 10
Switzerland 4,156 10,902 6,313 10,529 7,381 8,847
Others 3,544 26 9,389 139 5,798 222
------- ------- ------- ------- ------- -------
$31,691 $27,739 $47,280 $32,447 $44,157 $33,956
======= ======= ======= ======= ======= =======
b. Major customer data as a percentage of total revenue:
Year ended December 31,
-------------------------------
1999 2000 2001
--------- --------- ----------
Customer A - - 18%
========== ========= =========
In 1999 and 2000 no customer exceeded 10% of the Company's
consolidated revenue.
c. Financial income, net:
Financial expenses:
Interest and other $ 64 $ 2 $ 325
Foreign currency translation
differences, net - 33 205
--------- -------- --------
64 35 530
--------- -------- --------
Financial income:
Interest and other 3,781 5,577 3,787
Foreign currency translation
differences, net 39 - 86
--------- -------- --------
3,820 5,577 3,873
--------- -------- --------
$ 3,756 $ 5,542 $ 3,343
========= ======== ========
- - - - - - - - - - - - -
F-32