1
DRAFT: 26.03.01
FUNDTECH LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000
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
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7 - F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9 - F-29
- - - - - - - - - - -
2
[ERNST & YOUNG LOGO] - KOST FORER & GABBAY - Phone: 972-3-6232526
3 Aminadav St. Fax: 972-3-5622555
Tel-Avtv 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, 1999 and 2000, 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, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance as to whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial position of
Fundtech Ltd. and its subsidiaries as of December 31, 1999 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with generally
accepted accounting principles in the United States.
Tel-Aviv, Israel KOST, FORER & GABBAY
February 13, 2001 A Member of Ernst & Young International
F-2
3
FUNDTECH LTD.
CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS)
DECEMBER 31
1999 2000
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 41,493 $ 18,116
Short-term bank deposits -- 3,132
Marketable securities (Note 3) 41,023 42,067
Trade receivables (net of allowance for doubtful accounts
$ 310 in 1999 and $ 1,315 in 2000) (Note 4) 11,753 24,375
Other receivables and prepaid expenses 1,777 2,623
Inventories 91 96
-------- --------
96,137 90,409
-------- --------
LONG-TERM INVESTMENTS:
Severance pay fund 233 343
Long - term trade receivables (Note 5) 1,033 3,673
Lease deposits -- 476
-------- --------
1,266 4,492
-------- --------
PROPERTY AND EQUIPMENT, NET (Note 6) 7,941 11,038
-------- --------
OTHER ASSETS, NET (Note 7) 19,798 20,933
-------- --------
$125,142 $126,872
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
4
FUNDTECH LTD.
CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
1999 2000
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables $ 1,528 $ 3,090
Deferred revenues 991 537
Other payables and accrued expenses (Note 8) 3,602 2,942
--------- ---------
6,121 6,569
--------- ---------
LONG-TERM LIABILITIES:
Accrued severance pay 278 462
Other long-term liabilities 149 127
--------- ---------
427 589
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)
SHAREHOLDERS' EQUITY
Share capital (Note 10):
Ordinary shares of NIS 0.01 par value:
Authorized: 19,949,998 shares as of December 31, 1999 and 2000;
Issued and outstanding: 13,951,582 and 14,184,474 shares as of
December 31, 1999 and 2000, respectively 42 42
Deferred shares of NIS 0.01 par value: Authorized, issued and outstanding:
50,002 shares as of December 31, 1999 and 2000 -- --
Additional paid-in capital 137,997 139,420
Deferred stock compensation (147) (32)
Accumulated other comprehensive loss (1,156) (3,951)
Accumulated deficit (18,142) (15,765)
--------- ---------
118,594 119,714
--------- ---------
$ 125,142 $ 126,872
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
5
FUNDTECH LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
1998 1999 2000
Revenues:
Software license $ 14,007 $ 17,667 $ 28,492
Maintenance and service 7,116 12,531 17,351
Hardware sales 2,009 1,493 1,437
-------- -------- --------
Total revenues 23,132 31,691 47,280
-------- -------- --------
Cost of revenues:
Software license costs 238 559 252
Maintenance and service costs 4,549 8,051 12,292
Hardware costs 1,631 1,132 1,131
-------- -------- --------
Total cost of revenues 6,418 9,742 13,675
-------- -------- --------
Gross profit 16,714 21,949 33,605
-------- -------- --------
Operating expenses:
Software development, net 6,636 12,880 17,747
Selling and marketing, net 2,970 6,464 9,637
General and administrative (*) 2,318 (*) 3,995 6,924
Amortization of acquisition related goodwill and other
intangible assets (*) 153 (*) 1,275 2,462
In-process research and development write-off (Note 1b) 16,600 2,802 --
-------- -------- --------
Total operating expenses 28,677 27,416 36,770
-------- -------- --------
Operating loss (11,963) (5,467) (3,165)
Financial income, net (Note 13b) 571 3,756 5,542
-------- -------- --------
Net income (loss) $(11,392) $ (1,711) $ 2,377
======== ======== ========
Basic earnings (loss) per share (Note 11) $ (1.12) $ (0.13) $ 0.17
======== ======== ========
Diluted earnings (loss) per share (Note 11) $ (1.12) $ (0.13) $ 0.16
======== ======== ========
(*) Reclassified.
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
6
FUNDTECH LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ADDITIONAL DEFERRED
PREFERRED SHARES ORDINARY SHARES DEFERRED SHARES PAID-IN STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
Balance as of January 1, 1998 5,202,521 $ 10 2,774,997 $ 7 50,002 $ - $ 12,623 $ (197)
Stock split effected as a stock
dividend (50%) - - - 8 - - (8) -
Exercise of stock options, net - - 42,325 *) - - - 159 -
Exercise of warrants, net - - 184,609 1 - - 130 -
Conversion of Preferred Shares
into Ordinary Shares (5,202,521) (10) 5,202,521 10 - - - -
Issuance of Ordinary Shares, net - - 2,587,500 8 - - 28,667 -
Deferred stock compensation - - - - - - 93 (93)
Amortization of deferred stock - - - - - - - 71
compensation
Net loss - - - - - - - -
-------- -------- ---------- ------- -------- ----- ---------- -------
Total comprehensive loss
Balance as of December 31, 1998 - - 10,791,952 34 50,002 - 41,664 (219)
Exercise of stock options, net - - 118,546 *) - - - 530 -
Exercise of warrants, net - - 35,763 *) - - - 427 -
Issuance of Ordinary Shares, net - - 3,005,321 8 - - 95,376 -
Amortization of deferred stock
compensation - - - - - - - 72
Comprehensive loss:
Foreign currency translation - - - - - - - -
adjustments
Unrealized losses on available
for sale securities, net - - - - - - - -
Net loss - - - - - - - -
-------- -------- ---------- ------- -------- ----- ---------- -------
Total comprehensive loss
Balance as of December 31, 1999 - - 13,951,582 42 50,002 - 137,997 (147)
Exercise of stock options, net - 192,892 *) - - 966 -
-
Exercise of warrants, net - 40,000 *) - - 520 -
-
Amortization of deferred stock
compensation - - - - - - - 52
Forfeiture of stock options - - - - - - (63) 63
Comprehensive loss:
Foreign currency translation
adjustments - - - - - - - -
Unrealized losses on available
for sale securities, net - - - - - - - -
Net income - - - - - - - -
Total comprehensive loss
-------- -------- ---------- ------- -------- ----- ---------- -------
Balance as of December 31, 2000 - $ - 14,184,474 $ 42 50,002 $ - $ 139,420 $ (32)
======== ======== ========== ======= ======== ===== ========== =======
ACCUMULATED
OTHER TOTAL TOTAL
COMPREHENSIVE ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
LOSS DEFICIT LOSS EQUITY
Balance as of January 1, 1998 $ - $ (5,039) $ - $ 7,404
Stock split effected as a stock
dividend (50%) - - - -
Exercise of stock options, net - - - 159
Exercise of warrants, net - - - 131
Conversion of Preferred Shares
into Ordinary Shares - - - -
Issuance of Ordinary Shares, net - - - 28,675
Deferred stock compensation - - - -
Amortization of deferred stock - - - 71
compensation
Net loss - (11,392) (11,392) (11,392)
--------- --------- --------- ---------
Total comprehensive loss $ (11,392)
Balance as of December 31, 1998 - (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
Comprehensive loss:
Foreign currency translation (450) - (450) (450)
adjustments
Unrealized losses on available
for sale securities, net (706) - (706) (706)
Net loss - (1,711) (1,711) (1,711)
--------- --------- --------- ---------
Total comprehensive loss $ (2,867)
=========
Balance as of December 31, 1999 (1,156) (18,142) 118,594
Exercise of stock options, net - - 966
Exercise of warrants, net - - 520
Amortization of deferred stock
compensation - - 52
Forfeiture of stock options - - -
Comprehensive loss:
Foreign currency translation
adjustments (465) - $ (465) (465)
Unrealized losses on available
for sale securities, net (2,330) - (2,330) (2,330)
Net income - 2,377 2,377 2,377
Total comprehensive loss
--------- --------- --------- ---------
$ (418)
=========
Balance as of December 31, 2000 $(3,951) $(15,765) $119,714
========= ========= =========
*) Represents an amount lower than $ 1.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
7
FUNDTECH LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
1998 1999 2000
Cash flows from operating activities:
Net income (loss) $(11,392) $ (1,711) $ 2,377
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 490 3,179 5,187
In-process research and development write-off 16,600 2,802 --
Amortization of deferred stock compensation 71 72 52
Trading marketable securities, net -- 1,176 --
Decrease (increase) in trade receivables and long-term
trade receivables (5,008) 146 (15,272)
Decrease (increase) in other receivables and prepaid
expenses 120 (720) (856)
Increase in trade payables 615 27 1,566
Increase (decrease) in deferred revenues, other payables
and accrued expenses 645 (5,970) (2,905)
Others -- 4 72
------- ------- -------
Net cash provided by (used in) operating activities 2,180 (995) (9,779)
------- ------- -------
Cash flows from investing activities:
Payments for acquisitions (a) (18,824) (17,040) --
Investments in available for sale marketable securities -- (41,729) (3,374)
Proceeds from short-term bank deposits 2,694 -- --
Investment in short-term bank deposits (3,132)
Investments in long-term lease deposits -- -- (476)
Purchase of property and equipment (3,069) (5,156) (5,907)
Proceeds from sale of property and equipment 12 7 81
Capitalization of software development costs -- -- (1,975)
------- ------- -------
Net cash used in investing activities (19,187) (63,918) (14,783)
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
8
FUNDTECH LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
1998 1999 2000
-------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of Ordinary shares and exercise of
stock options and warrants, net 28,965 93,387 1,486
Short-term bank credit, net (250) -- --
Principal payment of long-term loan to a related party (242) -- --
Principal payment of long-term loans (20) -- --
-------- ------- --------
Net cash provided by financing activities 28,453 93,387 1,486
-------- ------- --------
Effect of exchange rate on cash and cash equivalents -- -- (301)
-------- ------- --------
Increase (decrease) in cash and cash equivalents 11,446 28,474 (23,377)
Cash and cash equivalents at the beginning of the year 1,573 13,019 41,493
-------- ------- --------
Cash and cash equivalents at the end of the year $ 13,019 $41,493 $ 18,116
======== ======= ========
(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 $ (1,133) (2,171)
Property and equipment 241 1,001
Goodwill 3,116 18,511
In-process research and development 16,600 2,802
Deferred income taxes -- (149)
-------- -------
18,824 19,994
Issuance of Ordinary shares -- (2,954)
-------- -------
$ 18,824 $ 17,040
======== =======
Supplemental disclosure of cash flows activities:
Cash paid during the year for:
Interest $16 $ 27 $ 34
======== ======= ========
Non-cash transaction:
Unrealized losses on available-for-sale-securities $-- $706 $2,330
======== ======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
9
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
NOTE 1:- GENERAL
a. Fundtech Ltd. ("the Company") was incorporated in Israel in April
1993, and commenced operations approximately at that time. In 1995,
Fundtech Corporation ("Fundtech Corp."), a wholly-owned U.S.
subsidiary of the Company was incorporated in the U.S.A and commenced
operations at that time. On December 29, 1998 the Company established
a wholly-owned subsidiary in England ("Fundtech England"). This
subsidiary commenced its operations on January 6, 1999.
On July 26, 1999, the Company established a wholly-owned subsidiary in
the Netherlands under the name Fundtech Netherlands BV ("BV"). On
September 30, 1999, the Company established, through Fundtech Corp., a
wholly-owned U.S. subsidiary which is incorporated in the State of
Texas under the name FCMS, LLC.
On November 26, 1999, the Company established a wholly-owned
subsidiary in Australia under the name Fundtech Australia PTY Limited
("Fundtech Australia") This subsidiary 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.
No customer exceeded 10% of the Company's revenues in 1998, 1999 and
2000.
b. Acquisitions:
1. In April 1998, the Company through its wholly-owned subsidiary
("Fundtech Corp.") acquired from CheckFree Holdings Corporation
("CheckFree") assets and liabilities of certain businesses ("the
acquired businesses") engaged primarily in the design and
development of cash management software products and the
development and sale of wire transfer products ("the
Acquisition").
The Company paid $18,824 for the acquired businesses.
The acquisition has been accounted for using the purchase method
of accounting, and accordingly, the purchase price has been
allocated to the assets acquired and the liabilities assumed
based on their estimated 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 by the straight-line method over 10 years. The Company
recorded an expense in the amount of $ 16,600 which represents
the estimated value of the software acquired from CheckFree for
which technological feasibility has not yet been established and
for which no alternative future use exists ("in-process research
and development write-off").
The acquired business's financial statements are consolidated
with those of the Company commencing with the second quarter of
1998.
F-9
10
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The estimated fair value of the assets acquired and
liabilities assumed at the date of acquisition are
summarized as follows:
Working capital deficiency $ (1,133)
Property and equipment 241
In-process research and development 16,600
Goodwill 3,116
---------
$ 18,824
=========
2. In June 1999, the Company acquired through its wholly-owned
subsidiary (BV) all the 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.
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.
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(i) - for reallocation of the purchase price
during 2000.
F-10
11
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
3. On September 30, 1999, the Company acquired through its
wholly-owned subsidiary (FCMS, LLC) certain assets and certain
liabilities of Sterling, 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.
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(i) - for reallocation of the purchase price
during 2000.
c. The following represents the unaudited pro forma results of
operations assuming the 1999 acquisitions occurred on January 1,
1998 and January 1, 1999, and the 1998 acquisitions occurred on
January 1, 1998, excluding the write-off of the acquired
in-process research and development.
Statement of operations data:
YEAR ENDED DECEMBER 31,
1998 1999
Revenues $ 33,002 $ 37,957
========= =========
Net income (loss) $ 3,642 $ (696)
========= =========
Basic earnings (loss) per share $ 0.34 $ (0.05)
========= =========
Diluted earnings (loss) per share $ 0.31 $ (0.05)
========= =========
F-11
12
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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").
In addition, a substantial portion of the Company's costs
is incurred in dollars. Company's management believes that
the dollar is the primary currency of the economic
environment in which the Company and its subsidiaries
operate. Thus, the functional and reporting currency of the
Company and its subsidiaries is the dollar.
Accordingly, monetary accounts maintained in currencies
other than the dollar are remeasured into U.S. dollars in
accordance with Statement No. 52 of the Financial
Accounting standard Board ("FASB") "Foreign Currency
Translation". All transactions 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 U.S. dollar, have been
translated into U.S. 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 income (loss) in shareholders' equity.
c. Principles of consolidation:
The consolidated financial statements include the accounts
of the Company and its subsidiaries. Intercompany balances
and transactions have been eliminated in consolidation.
d. Reclassification:
Certain amounts from prior years referring to amortization
of acquisition related goodwill and other intangible assets
have been reclassified to conform with current period
presentation.
e. Cash equivalents:
Cash equivalents are short-term, highly liquid investments
that are readily convertible to cash, when originally
purchased with maturities of three months or less.
F-12
13
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
f. Short-term bank deposits:
Bank deposits with maturities of more than three months but less
than one year, are included in short-term deposits. The
short-term deposits are presented at cost, including accrued
interest.
g. Marketable securities:
The Company accounts for its investments in marketable securities
using Statement of Financial Accounting Standard Board No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115").
Management determines the proper classifications of investments
in obligations with fixed maturities and marketable equity
securities at the time of purchase and reevaluates such
designations as of each balance sheet date. At December 31, 2000,
all securities covered by SFAS No. 115 were designated as
available-for-sale. Accordingly, these securities are stated at
fair value, with unrealized gains and losses reported in a
separate component of accumulated other comprehensive loss in
shareholders' equity. Realized gains and losses on sales of
investments, as determined on a specific identification basis,
are included in the consolidated statement of operations.
The Company's trading securities are carried at their fair value
based upon the quoted market price of those investments. All
trading securities were sold prior to December 31, 1999. Net
realized and unrealized gains and losses on these securities were
included in the statements of operations.
h. Long-term trade receivables:
Long-term receivables from extended payment agreements (See Note
2k) 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 SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of". As of December 31, 2000, no impairment losses have
been identified.
F-13
14
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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
The carrying values of goodwill and other intangible assets are
periodically reviewed by management, based on the expected future
undiscounted operating cash flows over the remaining goodwill
amortization period. If this review indicates that goodwill and
contract rights will not be recoverable the carrying value of the
goodwill 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 SFAS 38 "Accounting
for Preacquisition Contingencies". The fair value of the net
assets acquired from BBP and Sterling has been adjusted to
reflect the resolution of these contingencies established
relating to certain litigation and liabilities associated with
acquired contractual commitments.
The purchase price reallocation resulted in a total reduction to
the fair value of the 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
(SFAS) 109, "Accounting for Income Taxes". This Statement
prescribes the use of the liability method whereby deferred tax
asset and liability account balances are determined based on
differences between financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. The Company and its subsidiaries provide a valuation
allowance, if necessary, to reduce deferred tax assets to their
estimated realizable value.
l. Revenue recognition:
The Company and its subsidiaries generate revenues from licensing
the rights to use its software products directly to end-users and
indirectly through sub-license fees from resellers. The Company
and its subsidiaries also generate revenues from sales of
professional services, including consulting, implementation,
training and maintenance.
In December 1999, the SEC issued Staff Accounting Bulletin No.
101 ("SAB 101"), as amended in June 2000, which summarizes the
staffs views in applying generally accepted accounting principles
to revenue recognition in financial statements. The Company
adopted SAB 101 during the fourth quarter of 2000. The adoption
did not have a significant effect on the consolidated results of
operations or financial position.
F-14
15
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Revenues from software license agreements are recognized when all
criteria outlined in Statement Of Position (SOP) 97-2 "Software
Revenue Recognition" (as amended) are met. Revenue from license
fees is recognized when persuasive evidence of an agreement
exists, delivery of the product has occurred, the fee is fixed or
determinable and collectibility is probable.
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 revenues are 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.
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
1998, 1999 and 2000 totaled approximately $430, $1,700 and $
5,000 respectively.
When contracts contain hosting services arrangements, the Company
applies EITF 00-03 "Software Revenue Recognition, to Arrangements
That Include the Right to Use Software Stored On Another Entity's
Hardware".
Revenues 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 costs incurred to total costs estimated to
be incurred over the duration of the contract.
F-15
16
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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, 2000 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.
Revenues from maintenance and services are recognized over
the life of the maintenance agreement or at the time that
services are rendered.
Revenues from hardware sales are recognized 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 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 by monthly
deposits with severance pay funds, insurance policies and
by an accrual.
The deposited funds include profits accumulated up to the
balance sheet date. The deposited funds may be withdrawn
only upon the fulfillment of the obligation pursuant to
Israeli severance pay law or labor agreements. The value of
the deposited funds is based on the cash surrendered value
of these policies, and includes immaterial profits.
Severance expenses for the years ended December 31, 1998,
1999 and 2000 amounted to approximately $104, $143 and $74,
respectively.
n. Software development costs:
Software development costs incurred in the process of
developing product improvements or new products, are
generally charged to expenses as incurred, net of
participation of the Office of the Chief Scientist.
SFAS No. 86 "Accounting for the Costs of Computer Software
to be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs
subsequent to the establishment of technological
feasibility. Based on the Company and its subsidiaries
product development process, technological feasibility is
established upon completion of a detailed program design.
Costs incurred by the Company between completion of the
detailed program design and the point at which the product
is ready for general release have been capitalized.
F-16
17
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Capitalized software costs are amortized by the greater of
the amount computed using the: (i) ratio that current gross
revenues from sales of the software to the total of current
and anticipated future gross revenues from sales of that
software, or (ii) the straight-line method over the
estimated useful life of the product (three to five years).
o. 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 in the United States. Marketable securities are
invested in major investment banks in the United States.
Management believes that the financial institutions that
hold the Company and its subsidiaries investments are
financially sound, the portfolio is well diversified and
accordingly, minimal credit risk exists with respect to
these investments. 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 and to date have not experienced any material
losses.
The Company has no off-balance-sheet concentration of
credit risk such as foreign exchange contracts, option
contracts of other foreign hedging arrangements.
p. Basic and diluted earnings (net loss) per share:
Basic earnings (net 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 FASB Statement No. 128, "Earnings Per
Share".
In 1998, 1999 and 2000 outstanding stock options and
warrants have been excluded from the calculation of the
diluted earnings 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 earnings (net loss) per share was
1,141,722, 1,355,421 and 543,120, for the years ended
December 31, 1998, 1999 and 2000, respectively. (See Note
11).
F-17
18
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
q. Accounting for stock-based compensation:
The Company has elected to follow Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25") and Interpretation No. 44 "Accounting
for Certain Transactions Involving Stock Compensation"
("FIN 44") in accounting for its employee stock option
plans. Under APB 25, when the exercise price of the
Company's share options is less than the market price of
the underlying shares on the date of grant, compensation
expense is recognized and amortized as compensation
expenses ratably over the vesting period. The pro forma
disclosures required by SFAS No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"), are provided in
Note 10d.
The Company applies SFAS 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 issued to non-employees.
SFAS 123 requires use of an option valuation model to
measure the fair value of the options at the grant date.
r. Fair value of financial instruments:
The following methods and assumptions were used by the
Company and its subsidiaries in estimating their fair value
disclosures for financial instruments:
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
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.
s. Impact of recently issued accounting standards:
In June 1998, the Financial Accounting Standards Board
issued Statement No. 133, accounting for Derivative
Instruments and Hedging Activities, as amended, which is
required to be adopted in fiscal years beginning after June
15, 2000. Because the Company uses no derivatives,
management believes that the adoption of the new Statement
will have no effect on earnings or the financial position
of the Company.
F-18
19
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 3:- MARKETABLE SECURITIES
DECEMBER 31
-------------------------
1999 2000
-------- --------
Cost $ 41,729 $ 45,103
Gross unrealized losses (706) (3,036)
-------- --------
Fair value $ 41,023 $ 42,067
======== ========
All marketable securities are mutual funds issued by an investment
bank in the U.S.
The Company did not realize losses on sales of available-for-sale
securities in 1999 and 2000. The net adjustment to unrealized
holding losses on available-for-sale securities included as a
separate component of other comprehensive income totaled $ 3,036
in 2000.
During 1999, one of the subsidiaries sold trading securities in
the amount of $ 1,176. The total loss from these securities
amounted to $ 19 and was charged to expenses. As of December 31,
2000 the Company and its subsidiaries do not hold any trading
securities.
NOTE 4: - TRADE RECEIVABLES
DECEMBER 31
------------------------
1999 2000
------- -------
Accounts receivable $ 4,416 $10,094
Unbilled receivables 7,337 14,281
------- -------
$11,753 $24,375
======= =======
NOTE 5:- LONG-TERM TRADE RECEIVABLES
Maturity dates - long-term trade
receivables:
First year (current maturities) $ 642 $2,603
Second year 529 1,125
Third year 260 971
Fourth year 117 713
Fifth year 127 864
------ ------
1,675 6,276
Less - current maturities 642 2,603
------ ------
$1,033 $3,673
====== ======
F-19
20
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 6:- PROPERTY AND EQUIPMENT
DECEMBER 31
-------------------
1999 2000
------- -------
Cost:
Office furniture and equipment $ 1,804 $ 2,426
Computers and software 9,178 13,401
Motor vehicles 235 293
Leasehold improvements 226 1,094
------- -------
11,443 17,214
------- -------
Accumulated depreciation 3,502 6,176
------- -------
Depreciated cost $ 7,941 $11,038
======= =======
Depreciation expenses for the years ended December 31, 1998, 1999
and 2000 are $ 337, $ 1,904 and $ 2,725, respectively.
NOTE 7:- OTHER ASSETS
DECEMBER 31
-------------------
1999 2000
------- -------
Cost:
Goodwill $16,736 $18,358
Technology 4,490 4,490
Capitalized software development costs -- 1,975
------- -------
21,226 24,823
------- -------
Accumulated amortization 1,428 3,890
------- -------
Amortized cost $19,798 $20,933
======= =======
Amortization expenses amounted to $ 153, $ 1,275 and $ 2,462 for
the years ended December 31, 1998, 1999 and 2000, respectively.
NOTE 8:- OTHER PAYABLES AND ACCRUED EXPENSES
DECEMBER 31
------------------
1999 2000
------ ------
Employees and payroll accruals $1,825 $1,489
Accrued expenses 1,300 1,135
Deferred income taxes 61 83
Office of the Chief Scientist and the Fund for the
Encouragement of Marketing Activities (see Note 9) 140 72
Others 276 163
------ ------
$3,602 $2,942
====== ======
F-20
21
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 9: - COMMITMENTS AND CONTINGENT LIABILITIES
a. The Company participated in programs sponsored by the
Israeli Government for the support of research and
development activities. From the date of establishment, the
Company had obtained grants from the Office of the Chief
Scientist in the Israeli Ministry of Industry and Trade
("the OCS") aggregating to $ 1,115 for certain of the
Company's software development projects. The Company is
obligated to pay royalties to the OCS, amounting to 3%-5%
of the sales of the products and other related revenues
generated from such projects, up to an amount equal to 100%
- 150% of the grants received linked to the US dollars. No
grants were obtained in 1999 and 2000.
Through December 31, 2000, the Company has paid or accrued
royalties to the OCS in the amount of $ 956. As of December
31, 2000, the aggregate contingent liability to the OCS was
$ 349.
b. The Israeli Government, through the Fund for the
Encouragement of Marketing Activities, awarded the Company
grants for participation in expenses for overseas
marketing. The Company received an accumulated amount of
grants of $ 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, up to the amount of $ 347
as of December 31, 2000.
c. On October 22, 1999, an investor filed a class action
against the Company in the United States District Court for
the District of New Jersey, alleging violation of section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder by making statements at an analysts
conference before the opening of the market on October 6,
1999, that did not reveal that later that day the Company
would announce an earnings decrease.
Plaintiff purports to represent a class action consisting
of persons and entities who purchased or acquired Ordinary
shares of the Company on October 6, 1999.
At this point, management and the Company's legal counsel
are of the opinion that the, likely outcome of this
litigation can not be assessed. However, the Company
believes that the claim is without merit and it intends to
vigorously contest the lawsuit
F-21
22
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
d. 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,
2001 $ 2,167
2002 1,999
2003 1,897
2004 1,830
2005-2014 5,772
--------
$ 13,665
========
Total rent expenses for the years ended December 31, 1998,
1999 and 2000 were approximately $ 605, $ 1,056 and $1,778,
respectively.
NOTE 10:- SHARE CAPITAL
a. General:
The Ordinary shares of the Company are traded on the Nasdaq
National Market.
On June 1, 1999, the Company acquired Biveroni Batschelet
Partners AG ("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 $ 92.4 thousand, net of
expenses in a second Public Offering.
b. The Ordinary shares confer upon the in 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"), options may be granted
to employees and directors of the Company or its
subsidiaries.
2. Pursuant to the Plans, as of December 31, 2000, an
aggregate of 573,678 options of the Company are
still available for future grant.
3. Each option granted under the Plans to employees
expires no later than five years from the date of
the grant. The options vest primarily over four
years. Any options which are canceled or not
exercised before expiration become available for
future grants. Options granted to directors are
vested over a one year period from their date of
grant.
F-22
23
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
d. A summary of the Company's share option activity under the
Plans is as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1998 1999 2000
----------------------- ----------------------- -----------------------
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 543,753 $ 3.22 1,065,959 $ 8.16 1,355,421 10.84
Granted 624,438 $12.29 528,075 $16.58 818,100 17.38
Exercised (42,325) $ 3.77 (118,546) $ 4.71 (192,892) 4.94
Forfeited (59,907) $12.55 (120,067) $18.36 (90,070) 12.10
--------- ------ --------- ------ --------- ------
Outstanding - end
of the year 1,065,959 $ 8.16 1,355,421 $10.84 1,890,559 $14.15
========= ====== ========= ====== ========= ======
Exercisable options 268,355 $ 4.48 451,805 $ 7.93 624,269 $11.70
========= ====== ========= ====== ========= ======
The options outstanding as of December 31, 2000 have
been separated into ranges of exercise price, as
follows:
OPTIONS WEIGHTED OPTIONS
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AS OF REMAINING AVERAGE AS OF AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICE 2000 LIFE (YEARS) PRICE 2000 PRICE
--------------- ------------ ------------ -------- ------------ --------
$ 2.33 - 3.33 200,074 1.5 $ 3.15 155,813 $ 3.10
$ 7.33 - 10.38 40,125 1.9 $ 7.48 31,500 $ 7.42
$ 11.50 - 17.00 1,099,147 3.7 $ 13.53 310,710 $ 12.75
$ 19.25 - 22.31 551,213 4.1 $ 19.88 126,246 $ 20.81
--------------- --------- --- -------- ------- --------
$ 2.33 - 22.31 1,890,559 3.5 $ 14.15 624,269 $ 11.70
=============== ========= === ======== ======= ========
Pro-forma information regarding net income (loss)
and earnings (net loss) per share is required by
SFAS No. 123, 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
grant date using the Black-Scholes Option valuation
Model with the following weighted-average
assumptions for the years ended December 31, 1998,
1999 and 2000: risk-free interest rates of 5.5%,
5.6% and 6.0%, respectively dividend yields of 0%
for each year, volatility factors of the expected
market price of the Company's Ordinary shares of
0.75 for each year, and a weighted-average expected
life of four years.
The weighted average fair values of options granted
for the year ended December 31, 1998, 1999 and 2000
at their grant date were $6.33, $9.90 and $10.60,
respectively.
F-23
24
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The weighted average fair values of options granted
at an exercise price less than the market price at
their grant date for the year ended December 31,
1998 was $ 8.20. 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.
Because changes in the subjective input assumptions
can materially affect the fair value estimate, it is
the management's opinion that the existing option
pricing models do not necessarily provide a reliable
single measure of the fair value of its employee
stock options. Pro-forma information under SFAS No.
123 is as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- -----
Net income (loss) as reported $(11,392) $ (1,711) 2,377
======== ======== =====
Pro-forma net loss $(11,803) $ (3,580) (980)
======== ======== =====
Pro-forma basic and diluted
net loss per share $ (1.16) $ (0.28) (0.07)
======== ======== =====
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 12a).
F-24
25
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 11:- EARNINGS (NET LOSS) PER SHARE
The following table sets forth the computation of historical basic
and diluted earnings (net loss) per share:
1998 1999 2000
------------ ------------ ------------
Numerator:
Net income (loss) $ (11,392) $ (1,711) $ 2,377
============ ============ ============
Numerator for basic earnings (net loss) per net -
income (loss) available to Ordinary shareholders $ (11,392) $ (1,711) $ 2,377
============ ============ ============
Numerator for diluted earnings (net loss) per share -
net income (loss) available to Ordinary
shareholders after assumed conversions $ (11,392) $ (1,711) $ 2,377
============ ============ ============
Denominator:
Weighted average
Ordinary Shares outstanding 10,151,033 12,854,999 14,096,298
------------ ------------ ------------
Denominator:
Denominator for basic earnings (net loss) per
share - weighted - average shares 10,151,033 12,854,999 14,096,298
------------ ------------ ------------
Effect of dilutive securities:
Employee stock options (*) -- (*) -- 674,510
Warrants (*) -- (*) -- 5,807
------------ ------------ ------------
Dilutive potential Ordinary Shares -- -- 680,317
------------ ------------ ------------
Denominator for diluted earnings (net loss) per
share 10,151,033 12,854,999 14,776,615
============ ============ ============
(*) Antidilutive
NOTE 12: - TAXES ON INCOME
a. Tax benefits under the Law for the Encouragement of Capital
Investments, 1959:
The Company has been granted in November 1995 the status of
an "Approved Enterprise", under the Law for the
Encouragement of Capital Investments, 1959 (the "Investment
Law") and the Company has elected the alternative benefits
program, waiver of grants in return for tax exemptions.
Pursuant thereto, the income of the Company derived from
the "Approved Enterprise" program is tax-exempt for two
years and will enjoy a reduced tax rate of 20% for an
eight-year period (subject to an adjustment based upon the
foreign investors' ownership of the Company).
The Company completed its investment according to its first
program on November 27, 1997. Income derived from this
program was tax exempt for two years commencing in 1998 and
will enjoy a reduced tax of 20% for an additional eight
years (subject to an adjustment based upon the foreign
investors' ownership of the Company).
F-25
26
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
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.
The period of tax benefits detailed above is subject to
limits of 12 years from the year of commencement of
production, or 14 years from the date of granting the
approval, whichever is earlier.
The tax-exempt profits that will be earned by the Company's
"Approved Enterprise" can be distributed to shareholders,
without imposing tax liability on the Company only upon the
complete liquidation of the Company. As of December 31,
2000, 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 20% for an "Approved Enterprise").
The Investment Law also grants entitlement to claim
accelerated depreciation on equipment used by the "Approved
Enterprise" during five tax years.
Should the Company derive income from sources other than
the "Approved Enterprise" during the periods of benefits,
such income shall be taxable at the regular corporate tax
rate of 36%.
The entitlement to the above benefits is conditional upon
the Company's 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.
b. Tax benefits under the Israeli Law for the Encouragement of
Industry (Taxation), 1969:
The Company is an "industrial company" under the Law for
the Encouragement of Industry (Taxation), 1969 and,
therefore, it is entitled to certain tax benefits,
including accelerated rates of depreciation and deduction
of public offering expenses.
F-26
27
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
c. Measurement of results for tax purposes under the Income
Tax Law (Inflationary Adjustments), 1985:
Results for tax purposes are measured in real terms of
earnings in NIS after certain adjustments for increases in
the CPI. As explained in Note 2b, the financial statements
are 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.
d. Net operating losses carryforwards:
As of December 31, 2000, the Company had approximately $
7,870 of Israeli net operating loss carryforwards. The
Israeli loss carryforwards have no expiration date.
As of December 31, 2000, Fundtech Corporation had a U.S.
federal net operating loss carryforward of approximately $
15,502 which can be carried forward and offset against
taxable income for 10-15 years and expire in 2010-2015.
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, 2000 BBP had a Swiss net operating loss
carryforwards of approximately $1,380, which can be offset
against taxable income for a period of up to 7 years.
e. Deferred income taxes:
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
DECEMBER 31
-----------------------
1999 2000
-------- --------
Deferred tax assets:
U.S. net operating loss carryforwards $ 5,005 6,201
Israel net operating loss carryforwards -- 801
Swiss net operating loss carryforwards -- 331
Other reserve and allowances 5,273 4,915
-------- --------
Total deferred assets before valuation allowance 10,278 12,248
Valuation allowance (10,278) (12,248)
-------- --------
Balance at the end of the year $ -- $ --
======== ========
Deferred tax liabilities:
Deferred tax due to assets acquired
and liabilities assumed (all foreign) $ (210) $ (210)
======== ========
F-27
28
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
The Company and its subsidiaries have provided valuation
allowances in respect of deferred tax assets resulting from
tax loss carryforwards and other temporary differences,
since it has a history of losses over the past years.
Management currently believes that it is more likely than
not that the deferred tax regarding the loss carryforwards
and other temporary differences will not be realized.
f. Income (loss) before taxes on income:
Income (loss) before taxes on income consists of the
following:
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
Domestic $ 4,183 $ 4,665 $ 6,943
Foreign (15,575) (6,376) (4,566)
-------- -------- --------
$(11,392) $ (1,711) $ 2,377
======== ======== ========
NOTE 13: - SELECTED STATEMENTS OF OPERATIONS DATA
The Company has evaluated its business activities in accordance
with the provisions of SFAS No. 131 "Disclosure about Segments of
an Enterprise and Related Information" and determined that its
operating segments have similar economic characteristics such as
products and services, customers' methods used to distribute
products and services, and regulatory environment resulting in
their aggregation.
a. Summary information about geographical destinations:
The Company manages its business on a basis of one
reportable segment (see Note 1 for a brief description of
the Company's business) and follows the requirements of
SFAS 131, "Disclosures About Segments of an Enterprise and
Related Information". The total revenues are attributed to
geographic information, based on the end customers'
location.
1998 1999 2000
-------------------- -------------------- --------------------
LONG- LONG- LONG-
TOTAL LIVED TOTAL LIVED TOTAL LIVED
REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS
-------- ------- -------- ------ -------- -------
Israel $ 693 $ 413 $ 495 $ 538 $ 574 $ 830
U.S.A 19,190 6,422 23,257 16,273 26,942 20,942
Australia 262 -- 239 -- 4,062 7
Switzerland -- -- 4,156 10,902 6,313 10,529
Others 2,987 -- 3,544 26 9,389 139
------- ------- ------- ------- ------- -------
$23,132 $ 6,835 $31,691 $27,739 $47,280 $32,447
======= ======= ======= ======= ======= =======
F-28
29
FUNDTECH LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
------ ------ ------
b. Financial income, net:
Financial expenses:
Interest and other $ 24 $ 64 $ 2
Foreign currency translation
differences, net -- -- 33
------ ------ ------
24 64 35
------ ------ ------
Financial income:
Foreign currency translation
differences, net 9 39 --
Interest and other 586 3,781 5,577
------ ------ ------
595 3,820 5,577
------ ------ ------
$ 571 $3,756 $5,542
====== ====== ======
F-29