ITEM 4.   INFORMATION ON THE COMPANY.

 

History and Development of the Company

 

Both our legal and commercial name is Fundtech Ltd. We were incorporated in Israel in 1993 under the Israeli Companies Ordinance (New Version), 1983 (the “Companies Ordinance”), as a private limited company, under the name of “Fundtrust Technologies Limited”. The principal legislation under which we operate is the Israeli Companies Law, 5759-1999 as amended (the “Companies Law”), which replaced most of the provisions of the Companies Ordinance effective as of May 1, 2000.

 

Our registered office is located at 12 Ha’hilazon Street, 5th Floor, Ramat-Gan, Israel 52522, and our telephone number is 972-3-611-6500.

 

Our name was changed to “Fundtech Ltd.” in June 1994. Our primary business at that time was the automation of payments for community banks. In 1998, we acquired the assets of the cash management division of CheckFree Holdings Corporation (ACCESS Banking™). In 1999, we acquired the assets of the cash management division of Sterling Commerce (Banker product line); as well as 100% of the stock of Biveroni Batschelet Partners AG, Switzerland (“BBP”), which connects banks to the Central Bank of Switzerland and the SWIFT network for the processing and settlement of payments and securities. In 2004, we acquired 100% of the stock of Datasphere SA, Switzerland (“Datasphere”), which also offers financial messaging products; and Cashtech Solutions India Private Limited (“Cashtech”) which offers a line of cash management and financial supply chain products. In 2005, we acquired 100% of the stock of Radius Partners, Inc. (“Radius Partners”), which offers securities settlement products. In early 2007 we acquired 100% of the stock of Prang GMBH, Germany (“Prang”), which provides payments software for the German market. In January 2008 we acquired the ACH (Automated Clearing House) transaction processing, initiation and collection software business of Troy Group, Inc in an asset purchase. In February 2008 we acquired 100% of the stock of Accountis Limited, which offers electronic bill presentment software.

 

 

On March 13, 1998, we completed our initial public offering and our Ordinary Shares began trading on the NASDAQ National Market (now the NASDAQ Global Market). As part of the offering, we issued 3,450,000 Ordinary Shares in consideration of net proceeds of approximately $41,710,500.

 

On August 19, 2003 our Ordinary Shares began trading on the Tel-Aviv Stock Exchange in Israel, and we became a dual listed company.

 

Capital expenditures consisting primarily of purchases of property and equipment were $5.4 million, $5.2 million and $6.7 million during the years ended December 31, 2005, 2006 and 2007, respectively. We neither purchased nor owned any real property during this same period. We acquired all of the capital stock of Cashtech during 2004 for a total of $3.8 million and all of the capital stock of Radius Partners during 2005 for a total of $2.6 million. Each of these transactions carried an “earn out” provision for which we have made payments totaling $1.4 million during 2006 and $1.2 million in 2007. We acquired all of the capital stock of Prang during 2007 for a total of approximately €4.9 million ($6.3 million). The acquisition agreement caries an “earn out” provisions pursuant to which we made payment of €2.3 million ($3.4 million) in March 2008 based on Prang’s 2007 performance. Fundtech is currently in the process of amending the Prang acquisition agreement, which would change the earn-out payment obligations to €597 thousand in each of January 2009 and 2010. No further earn-out obligations will exist after these two payments. We acquired the ACH business of Troy Group, Inc. in an asset purchase for a total of $1.2 million in cash. We will pay additional amounts up to $400,000 by the end of 2008 contingent upon fulfillment of certain conditions. We acquired all of the capital stock of Accountis Limited in 2008 for £3.9 million paid at closing with a possible payment of an additional £2 million over the three years following if Accountis meets certain targets for net profits.

 

Capital expenditures for the year ending December 31, 2008 are expected to be approximately $11.5 million, of which $8.3 million will be spent in the United States and $3.2 million will be expended outside the United States. We anticipate financing these capital expenditures with our own funds.

 

Business Overview

 

We are a leading provider of end-to-end financial transaction processing software solutions for financial institutions. These solutions are grouped into five broad categories: payment processing, foreign exchange settlement processing, financial messaging, cash management and securities settlement straight through processing products. The first three categories are transaction processing solutions, which enable banks to automate the payment and settlement processes and provide real-time transaction processing capabilities to financial institutions and their customers. The fourth category, cash management products, enable corporate clients to communicate with their financial institutions for the purpose of initiating payments, making inquiries and managing their activities with the financial institutions. The final category securities post-trade settlement is a multi-asset global trade management solution that consolidates and automates a broker/dealer’s middle office operations.

 

We acquired our ACCESS Banking™ products in April 1998, BBP, our Swiss subsidiary, in June 1999 and our banker products in September 1999. Our major products include ACCESS Banking™, CASHplus®, PAYplus USA™, PAYplus for CLS™, Global PAYplus™, Recovery Services for disaster recovery service bureau solutions and related services. We acquired Datasphere through BBP in August 2004 and Cashtech in November 2004. BBP and Datasphere have sold their products and services to approximately 150 customers for the purpose of accessing the SWIFT financial messaging network. Cashtech offers a suite of cash management products named CashWeb, CashIn and TransactCentral. Radius Partners is an STP (“straight through processing”) solutions provider to the securities industry. Radius offers two STP products named TRADEplus and TRADEplus Data Manager. Prang, acquired in early 2007, is a payments solution provider in Germany where it offers its Prang FTS solutions. The newly acquired ACH business’ products deliver real-time ACH transaction processing as well as automated exception handling. Accountis offers Electronic Invoice Presentment and Payments services to financial institutions and corporations in Europe.

 

Industry Background

 

As global commerce continues to increase, and new banking technologies are adopted, there have been dramatic increases in both the number of transactions consummated through electronic payment systems and the need for timely delivery of financial information. Financial institutions continue to seek more efficient methods of offering payment, settlement and cash management services.

 

The following trends continue to drive demand for our products and services in this dynamic market environment: an increasing need for centralized payment and treasury functions; global adoption of real-time gross settlement; migration to Internet-based solutions; growth in electronic commerce; consolidation in the financial services industry; increased regulatory requirements imposed on banks, particularly in respect to initiatives in the European Union, a desire to accelerate top-line revenue growth in the form of additional fee income generating services, the need to lower operating costs, a growing move away from in-house development toward packaged applications, increasing interest in financial supply chain solutions, and the need to develop unique services that allow an institution to differentiate itself from its competitors.

 

We believe that the current dynamic market environment and several market trends are favorable to our products and services. The following trends continue to drive demand for our products and services:

 

·

adoption of real-time gross settlement by central banks around the world;

·

growth in globalization and electronic commerce resulting in continued migration to Internet-enabled financial services such as 24-hour trading and settlement, as well as real-time information on financial positions and transactions;

·

demand from clients for simplified corporate banking relationship, which require banks to re-engineer customer facing systems;

·

the need among financial institutions to lower operating costs which is driving the need among banks for centralized payment and treasury functions;

·

increased regulatory requirements imposed on banks, including, but not limited to, those in the areas of interdiction, anti-money laundering, and in the European Union, the conversion to a Single European Payments Area (“SEPA”);

·

a desire among financial institutions to unlock un-tapped value in their transaction banking franchises and accelerate top-line revenue growth in the form of additional fee income-generating services, which is increasing the interest in financial supply chain solutions such as electronic invoice presentment and payment (EIPP);

·

a growing shift away from in-house development toward packaged applications, as well as an increased use of outsourcing, application service providers and “white-labeling” in lieu of developing and managing their own IT activities;

·

a shift on the part of financial institutions to establish strategic technology partnerships with a few key vendors in order to lower the cost and risk of integrating new applications with existing infrastructure; and

·

greater emphasis on risk mitigation in areas such as liquidity management and contingency and recovery capabilities.

 

Products and Services

 

Our products and related services are designed to integrate all elements of the electronic payments cycle, and we believe that they are among the most technologically advanced and cost-effective solutions in the financial services industry. Our products facilitate all aspects of the electronic payments and banking cycle including payment initiation, electronic balance reporting, account reconciliation, real-time account balance verification and other sophisticated auditing and reporting functionality. In addition, our products offer feature-rich graphical user interfaces that are easy learn and use, and enabling our customers to maximize their efficiency.

 

We are one of the largest providers of products and services that link banks to domestic and international payment networks. In the United States our products connect banks to the Federal Reserve System’s FedLine, which has approximately 7,500 banks connected. On a global basis, we provide banks with the capability to link to the SWIFT network for communicating cross-border transactions. SWIFT has over 7,000 banks in over 200 countries connected to their global network. Fundtech is also a leading provider in global settlements through the CLS Bank’s Continuous Linked Settlement System (“CLS”), which was established by the largest foreign exchange banks in the world to reduce foreign exchange settlement risk.

 

 

 

PAYplus USA™

 

PAYplus USA™ is a funds transfer solution used to connect a financial institution’s wire transfer room with the Federal Reserve’s FedWire system. This solution evolved from and replaces two older products, FEDplus™ and PAY$tar™. Our target market includes all banks operating in the United States that do not need a global payment solution, including U.S.-based banks, thrifts, savings and loans and international agency banks operating in the United States.

 

PAYplus USA™ supports payment processing, risk management and regulatory compliance for U.S. financial institutions that utilize the Federal Reserve Bank’s FedWire system for high value payments. PAYplus USA™ also offers the same functionalities for international multi-currency payments of international banks operating in the United States.

 

PAYplus USA™ provides financial institutions with complete funds transfer capacity at a substantially lower cost than other technologies. At the same time, it both reduces payments risk (through real-time updates of account balances by means of an on-line interface with the host computer) and improves customer service (through its comprehensive database containing relevant information about a transfer – from its creation to accounting and memo posting).

 

Global PAYplus™

 

Our Global PAYplus™ provides institutions with a real-time global view of their payments activity. This multi-tiered system addresses the needs of both local and global payment processes. At the local level, Global PAYplus™ employs a client/server funds transfer payment system that supports both the local payment processing, and risk management and regulatory compliance for the local clearing systems. At the global level, Global PAYplus™ aggregates worldwide payment activity. Global PAYplus™ is a multi-platform system supporting both UNIX and Microsoft operating systems that employ open technology standards. The system features end-to-end security and multi-currency capabilities.

 

 

Pan-European PAYplus

 

Pan-European PAYplus is a solution that provides a financial institution with the payment processing and liquidity management functionality required for handling Euro payments in the Single European Payments Area (SEPA). Pan European PAYplus provides an integrated solution to meet SEPA high impact changes while maximizing STP and preserving income from existing payment operations. Pan-European PAYplus incorporates new technology embedded in the SEPA technical infrastructure (e.g. ISO 20022, SWIFT Cash Reporting). The product can be deployed on a stand-alone basis for banks to integrate within their existing payments infrastructure, or as an integrated component of our Global PAYplus payment solution.

 

OmniPay

 

OmniPay is a web-based, intelligent payments hub that processes mixed payments files using the bank’s existing payments infrastructure. By eliminating the “siloed” approach of legacy systems, OmniPay allows banks to offer clients highly automated and highly customized payments services that integrate with their enterprise resource planning (ERP) systems. Banks are able to deliver a new level of customer satisfaction and generate new service fee revenue from value-added services.

 

IGTplus

 

Our Swiss subsidiary markets IGTplus, a message broker application for financial messages. For financial institutions it comprises the interface to their central banking system. IGTplus processes payments, securities transactions or related orders and information to/from other financial institutions, clearing organizations, and central banks, among others, using straight through processing in order to provide faster, better quality service to customers and to reduce costs. The SWIFT, SIC (Swiss Interbank Clearing), SIS (Swiss Securities Clearing) and FIX applications of IGTplus provide communication to/from these financial services with the option of manual investigations, exception handling and queries for liquidity information. Due to the high sensitivity and performance requirements inherent in this application, IGTplus is designed for very high throughput and 24x7 fully automated operation. The target markets are large banks, service centers and financial market infrastructures. Smaller financial institutions may obtain the same functionality as they would obtain by acquiring a license by contracting for the services of the BBP Service Bureau, which operates IGT Plus on behalf of a number of such institutions.

 

Global PAYplus Liquidity Manager

 

Global PAYplus Liquidity Manager (GLM) is a management and planning tool, that ensures more efficient control and management of multi-currency liquidity assets across the bank’s accounts and Real Time Gross Settlement channels. The system provides flexible functionality which allows the bank to centralize, monitor and control the management of liquidity. GLM provides Treasury personnel with accurate, online and timely information to facilitate better decision-making and also can provide Treasury staff with efficient payment delivery and execution based upon up-to-date information. GLM interfaces with other systems within the bank to gather liquidity information, ensuring that a complete and accurate liquidity position is continuously available.

 

StarACH

 

StarACH is a server-based, enterprise class software application designed to streamline processing for all levels of ACH processors. The system is built on a scalable platform that can handle increasing transaction volumes as needed. The system includes many advanced features such as continuous processing, process automation, advanced reporting, and risk management. Its web interface allows originators, bank internal staff, and ACH operators to upload files to the system for processing, search the warehouse and retrieve and view reports.

 

Originet

 

OrigiNET is an Internet-based software application, derivative of StarACH, which allows corporations and banks to make or collect payments electronically using ACH. The software structures payment data into a standard file format that can be accepted by any financial institution, third-party processor, or ACH operator. Common applications of OrigiNET include payroll, expense reimbursements, pensions, annuities, dividends, commissions, and benefit payments.

 

ProcessMaster

 

ProcessMaster is a Windows®-based software application that enables small to medium size processors to streamline their ACH operations, enabling them to reduce operational costs by providing increased transaction capacity through automation. The system includes features that ensure National Automated Clearing House Association (NACHA) compliance, improve risk management, automate processing, scheduling and billing, and address other critical issues involved in ACH processing. This central, automated processing system effectively manages the origination and receipt of ACH transactions and enables ACH processors to automate tasks, minimize risk and increase productivity.

 

 

BACSTEL-IP

 

Accountis BACSactive-IP provides organizations with a modern, well designed, reliable and secure electronic funds transfer solution. Designed by experts in the field of Internet payments to take advantage of features of the BACS system and all it has to offer, such as the highest levels of security and easy-to-use reporting facilities.

 

Accountis EIPP Services

 

Accountis Enterprise AP enables corporations to automate payables process from the creation of purchase orders and receipt of invoices, to handling disputes and submitting payments online by integrating with existing ERP or accounting systems. It can work as a stand-alone solution or in conjunction with Accountis Enterprise AR and additional modules to provide a complete end-to-end solution. Accountis Enterprise AP is designed for organizations that deal with large volumes of inbound and wish to receive them electronically. It supports multiple currencies and languages and is fully VAT compliant across European member states. The system integrates easily with existing ERP or finance systems to save resources by automating the receivables process, from capturing purchase orders and issuing invoices to controlling debtors and collecting payments online. It can also work as a stand-alone solution. By consolidating invoice data quickly and simply, Accountis Enterprise AR presents one-view of all receivables transactions for the benefit of both internal users and buyers alike.

 

 

ACCESS Banking™

 

Our ACCESS Banking™ solution is a client/server product that enables banks and other financial institutions to provide cash management services to their corporate clients. ACCESS Banking™ is targeted at the mid-to-large-size financial institutions. Through ACCESS Banking™, clients can obtain balance history and intra-day reporting, manage check transactions, originate wire transfer payment transactions and initiate intra-bank account transfers. ACCESS Banking™ consists of a server located in the back-office of a bank and a remote access module located at the premises of the bank’s corporate client. Clients can interact with the bank’s ACCESS Banking™ server remotely via the web, touch-tone telephone with voice response, teletype terminal emulation or facsimile transmission.

 

CASHplus®

 

The CASHplus® product enables corporations to perform sophisticated cash management functions across accounts at multiple branches, in multiple currencies, and in multiple countries and regulatory environments. CASHplus® is designed to reduce the cost of delivering remote banking services through universal access and simplified maintenance and distribution of remote software.

 

 

webBANKER™

 

web BANKER™ was designed for community banks – it is cost-effective to operate and easy to set up and use. It offers the features needed to be competitive in the marketplace such as wire transfer. ACH origination with federal and state tax payments, compatibility with FEDLine Advantage, information reporting, cash concentration and disbursement. Fundtech offers this system on an installed or ASP basis.

 

CashWeb

 

Developed by our Cashtech subsidiary, this multi-currency Internet front-end program offers a single-window interface for all types of cash management transactions. The software can also be customized to meet both client and country specific requirements.

 

CashIn

 

Also developed by our Cashtech subsidiary, CashIn is a business engine equipped with features that support all cash management activities and products. The system handles basic clearing products like automated clearinghouse, wire clearing and other collection mechanisms. CashIn can also be customized to meet more complex client needs.

 

TransactCentral

 

TransactCentral is a component-based cash management platform that is designed to be highly customized by the bank’s in-house development staff. This rules-based system is built in Java (J2EE) and can be integrated into a highly complex bank infrastructure. TransactCentral enables financial institutions to offer their corporate customers the business benefits of tracking cash balances, monitoring payments and receivables and performing liquidity management functions.

 

 

 

 

TRADEplus™

 

TRADEplus is a multi-asset, global trade management solution that consolidates and automates a broker/dealer’s middle office operations. Its advanced exceptions management capabilities allow users to detect and resolve trade issues in real time. Its rules engine ensures more efficient control and management of transactions across asset classes, offices, central services and clients. Its services oriented architecture provides scalability, simplifies enterprise integration and allows clients to quickly enable new external client and service connections and to automate trade operations for greater efficiency and client service. TRADEplus automates the trade process from the point of execution through booking and notification of settlement, delivering significant operating efficiencies and reducing complexity and costs.

 

TRADEplus Data Manager

 

TRADEplus Data Manager audits, controls and manages all of the customer, account and settlement instruction data necessary for institutional trade processing. Its real-time interfaces automatically access new and changed information from industry sources such as Omgeo ALERT and SWIFT. Its rules-based workflows efficiently convert inconsistent and inaccurate data into a trusted, high-quality source that can be relied upon for trade and back office process automation. In addition, TRADEplus Data Manager enriches trade messages as needed for timely and accurate settlement.

 

TRADEplus Fixed Income

 

TRADEplus Fixed Income allows brokers to choose to process at the Trade level or Breakdown level. Trade level users send trades into TRADEplus that are matched against allocations received from Omgeo OASYS, FIX or manual input. Exceptions are routed to the appropriate business area based on trade inputs and routing rules. Matched trades auto-generate ACCEPTS back to OASYS. Mismatched trades are reviewed by users and can be amended, accepted or rejected. Breakdown level users receive allocations from OASYS (using one or more acronyms) and these allocations are routed to the appropriate business area based on allocation inputs and routing rules. Users accept or reject allocations online. Regardless of level, once the trade is accepted then the broker’s back office system can be updated via an automated FIX, MQ or file-based communication.

 

Fundtech Connect – PAYplus USA and CASHplus

 

Fundtech Connect is an ASP solution available based upon our PAYplus USA and Cash Management products. This service allows banks to have our solutions reside at our data center rather than requiring the bank to purchase the necessary hardware and software to host the solution in-house.

 

 

 

Corporate Connect

 

Through Fundtech’s SWIFT Service Bureau, corporate entities now have access to a cost-effective connection to the SWIFT messaging network. The service is a complete interbank solution that is centrally operated, eliminating the need for significant investment in hardware or software. Installation is quick and relatively easy.

 

Both corporate entities and their banks will benefit by processing transactions in an STP (straight through processing) environment, with fewer interfaces to enterprise resource planning (ERP) systems and other in-house applications. Fundtech’s SWIFT Service Bureau is the world’s largest, currently serving over 100 financial institutions. Corporate access to the SWIFTNet is made possible through SWIFT’s Member Administered Closed User Groups (MA-CUG).

 

IGTplus Message Converter

 

The IGTplus Message Converter is a unique middleware application specifically designed for the financial services industry. It allows financial institutions to convert proprietary messages into SWIFT and other standard messages and vice versa, saving time and reducing costs of conversion.

 

IGTplus Compliance Filter

 

IGTplus Compliance Filter provides online, real time compliance protection. Every transaction is checked before it leaves or enters the bank system. It monitors transaction flow based on the requirements of the OFAC (Office of Foreign Assets Control), Factiva, Worldcheck or other country specific standards. The IGTplus Compliance Filter is available for SWIFT, SIC/euroSIC and SECOM.

 

Interbank Gateway Services

 

Interbank Gateway Services is a set of electronic payments and securities application services provided by our service bureau in Switzerland. The Interbank Gateway Services provides a secure and reliable technology infrastructure, which enables financial institutions to initiate process and support electronic payment transactions across a wide range of settlement systems. The service bureau’s customers are currently predominantly Swiss banks.

 

·

Interbank Gateway Services provides its services to smaller financial institutions using the IGTplus software to provide communication to/from SWIFT, SIC (Swiss Interbank Clearing), SIS (Swiss Securities Clearing) and FIX (Financial Information Exchange) protocol.

 

Recovery Services – Contingency Processing Centers

 

Recovery Services – Contingency Processing Centers were developed to respond to the need of our customers for a contingency back-up system for wire transfer operations (in accordance with government regulations). Recovery Services supports all of our U.S.-based product groups, and we have centers in Jersey City, New Jersey, San Leandro, California and Norcross, Georgia.

 

Customers and Markets

 

Our scaleable products are sold to a wide array of financial institutions and large business enterprises.

 

The markets for our products consist of the following end-users:

 

·

U.S. Banks – This group of customers is divided into three tiers. The top tier consists of approximately 100 banks, each with more than $10 billion of assets. The second tier consists of approximately 3,500 banks, each with over $100 million in assets. The third tier consists of approximately 5,500 small banks, each with less than $100 million of assets.

 

 

·

Agency Banks and Branches of Foreign Banks located in the United States – These banks are located mainly in financial centers such as New York City, San Francisco, Los Angeles and Dallas.

·

Banks located outside of the United States – These banks are located in countries that have moved to or will move to processing payments on a real time gross settlement (RTGS) basis.

 

Capital Market Institutions - The back office processing in capital markets is complex and costly. For decades the securities industry has continually sought efficiency improvements through greater automation. This trend continues today and is accelerated by the expanding number of new investment vehicles and globalization of the markets. Fundtech sees an opportunity in the securities industry from leveraging its knowledge of back office processing at banks. Process improvements from automated transaction processing, error repair and routing are integral to Fundtech’s banking product line, and can be applied to the securities industry.

 

Corporations – With the addition of Accountis AR and Accountis AP and Troy’s OrigiNET, Fundtech has a line of payments related products that are being sold directly to corporate entities. While we intend to continue to support the sale of these products directly to end users, we will also expand the distribution of the products through Fundtech’s traditional client base of financial institutions.

 

In 2004 we acquired Datasphere and Cashtech and began the process of assimilating their products and services into our offerings. We acquired Radius Partners in 2005 and have begun to market its solutions through our securities division. Likewise, we acquired Prang in early 2007. Prang has approximately 50 customers, primarily in Germany. We also acquired the ACH business of Troy Group in early 2008 which brings several new ACH products to our portfolio along with approximately 18 customer relationships. Accountis Limited acquired in February 2008, has over 770 clients using its BACS payments and electronic invoicing and presentment products and services.

 

Please see the table that presents our consolidated revenues according to the geographical regions to which such revenues are attributable in Item 5A, “Operating and Financial Review and Prospects —Results — Significant Revenue Information.”

 

Sales and Marketing

 

We sell our products and services primarily through our direct sales force, located in the United States, United Kingdom, Switzerland, India and Singapore. We use the services of distributors in the Republic of Korea, Greece and the Balkans.

 

Our marketing efforts include a variety of activities that promote our products including public relations and industry analyst relations, direct response marketing programs, telemarketing lead generation and lead nurturing, and industry trade shows and conferences. In addition, we receive inquiries about our products directly through our corporate website.

 

We maintain a working relationship with the Federal Reserve Bank in the United States to ensure that our products meet Federal Reserve requirements. We also maintain a working relationship with SWIFT, a utility for communication of global financial institutions payment and settlement instructions owned by the largest banks in the world. By ensuring that our solutions are SWIFT-compliant, we are well positioned to offer payment and settlement solutions to international banks.

 

Software Development

 

We believe that our software development team provides a significant competitive advantage. The team is comprised of developers with experience in visual programming design and object-oriented software development of mission-critical applications. We also believe that this assembly of diverse technical expertise contributes to the highly integrated functionality of our products. Our ability to attract and retain highly qualified employees will be one of the principal determinants of our success in achieving technological leadership. The total software development staff consisted of 266 full-time employees on December 31, 2007. All of our payments products have been developed internally by our product development staff. Our cash management, BBP, ACH, EIPP and securities products were initially developed by the personnel of the businesses we acquired (such personnel migrating to us with the acquired businesses), and have since continued to be developed by our product development staff. Some of these products are embedded, or bundled, with standardized software products developed by other companies. We believe significant investments in product development are required to remain competitive.

 

 

To ensure that our products are developed successfully, within their budgets and according to schedule, all of our products are sent through the following four distinct design and testing stages: (1) requirements descriptions are developed through consultation with prospective users to ensure that the product matches the user’s requirements; (2) an internal quality assurance team verifies the integrity of the product at each stage of development prior to beta testing; (3) beta testing data are used to evaluate the functionality of the products and their ability to perform under realistic conditions; and (4) a controlled group of users is polled regularly to identify any modifications that may be necessary. In addition, we work closely with current and potential end-users, our strategic partners and leaders in certain industry segments to identify market needs and define appropriate product requirements. Our employees also participate in numerous user focus groups to review product design. We have software development sites in Georgia, New Jersey, Massachusetts, California, Israel, Switzerland, India, Wales and Germany. We believe that separating development by geographic region allows for development to be in close proximity to the targeted market, while increasing our ability to attract development talent.

 

Customer Support

 

We believe that effective customer support in the software industry requires rapid, efficient and comprehensive installation of the product. Upon installation, we strive to provide superior customer support by solving problems quickly and providing customers with consistent, accurate and understandable technical information. We employ test scripts and bank production data to test our solutions and our products are shipped with back-up procedures installed. We recognize that timely solutions are essential for our mission-critical solutions in the event problems do arise. We emphasize responsiveness to our customers’ inquiries and offer telephonic support for the reporting of problems twenty-four hours a day. Customer inquiries range from production problems to user questions and hardware issues. In addition, we utilize remote access services inclusive of virtual private networks, to enhance remote customer support. Certain of our marketing representatives and contractors also provide sales, service and technical support functions for our products to end-users in specific geographic territories.

 

Proprietary Rights

 

We rely upon a combination of trademarks, contractual rights, trade secret law, copyrights, nondisclosure agreements and technical measures to establish and protect our proprietary rights in our products and technologies. We also enter into non-disclosure and confidentiality agreements with our customers, employees and marketing representatives and with certain contractors with access to sensitive information. However, we have no registered patents and these measures taken by us may not be adequate to protect our technology from third-party infringement. In addition, our competitors may also independently develop technologies that are substantially equivalent or superior to ours. See the risk factor entitled “We may be unable to adequately protect our proprietary rights, which may limit our ability to compete effectively” in Item 3C above.

 

Competition

 

The industry in which we operate is highly competitive and evolving. Our competitors include, but are not limited to, BankServ, Logica PLC, Digital Insights, Inc., S1 Corporation, Fidelity Information Services, Banklink, TietoEnator, Sunguard, Smartstream Technologies, ACI Worldwide Inc., Dovetail, Fiserv, GIFTS Software, Bottomline, OB ¹⁰ , Harbor Payments and Clear2Pay. Furthermore, several large financial institutions have developed solutions internally which they have then marketed to other banks or implemented in banks that they have acquired. In order to maintain our competitive position, we must differentiate our products from the products of our competitors and successfully develop and introduce new products that meet the changing needs of our clients.