<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 15, 2000
FILE NO. 333-31768
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AREMISSOFT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 68-0413929
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION CLASSIFICATION CODE) NO.)
OR ORGANIZATION)
</TABLE>
GOLDSWORTH HOUSE
DENTON WAY
WOKING, SURREY GU21 3LG
UNITED KINGDOM
TELEPHONE: 011-44-1483-885-000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROYS POYIADJIS
PRESIDENT AND VICE CHAIRMAN
AREMISSOFT CORPORATION
SENTRY OFFICE PLAZA
216 HADDON AVENUE, SUITE 607
WESTMONT, NEW JERSEY 08108
TELEPHONE: 212-246-2141
FACSIMILE: 212-765-7385
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE OF PROCESS)
------------------------
COPIES TO:
<TABLE>
<S> <C>
SCOTT E. BARTEL, ESQ. DAVID P. STONE, ESQ.
BARTEL ENG LINN & SCHRODER WEIL, GOTSHAL & MANGES LLP
300 CAPITOL MALL, SUITE 1100 767 FIFTH AVENUE
SACRAMENTO, CA 95814 NEW YORK, NY 10153
TELEPHONE: 916-442-0400 TELEPHONE: 212-310-8000
FACSIMILE: 916-442-3442 FACSIMILE: 212-310-8007
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value...... 3,450,000 shares(1) $38.9375(2) $134,334,375(2) $35,465(3)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 450,000 shares subject to the underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended,
based upon the average of the high and low prices reported on the Nasdaq
National Market on February 28, 2000.
(3) Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 14, 2000
PROSPECTUS
3,000,000 SHARES
AREMISSOFT LOGO
COMMON STOCK
------------------
We are selling 2,800,000 shares of common stock and the selling stockholder
named in this prospectus is selling 200,000 shares. We will not receive any
proceeds from the sale of the shares by the selling stockholder. The
underwriters named in this prospectus may purchase up to 450,000 additional
shares of common stock from us to cover over-allotments.
The common stock is quoted on the Nasdaq National Market under the symbol
AREM. The last reported sale price of the shares of our common stock on the
Nasdaq National Market on March 14, 2000 was $37 3/8 per share.
------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to AremisSoft (before expenses).................... $ $
Proceeds to the Selling Stockholder (before expenses)....... $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 2000.
------------------
SALOMON SMITH BARNEY
SG COWEN
WILLIAM BLAIR & COMPANY
ROTH CAPITAL PARTNERS, INC.
, 2000
<PAGE> 3
DESCRIPTION OF GRAPHICS
Inside Front Cover
The graphic reads "Enterprise Application Software Solutions" across the
top. Logo in center. In the top left corner are the words "AremisSoft
Healthcare" and the description, "GCS for Windows is one of the UK's leading
healthcare applications. The product suite includes clinical systems, EDI, GP-HA
links and a NHS net connection. The resources AremisSoft has at its disposal and
the flexible architecture of the software allows AremisSoft to adapt quickly to
changing healthcare legislation. "The graphic depicts a computer screen of
healthcare software. In the bottom left corner are the words "AremisSoft
Construction" and the description, "The ViXEN product suite offers an integrated
management and control system, designed specifically for contracting/service and
maintenance companies across the industrial spectrum. The software's modularity
and integration make it possible to use individual routines as building blocks
to construct a unique management system tailored to meet a company's particular
requirements, including those that differ among divisions within a company." The
graphic depicts a computer screen of construction software. In the top right
corner are the words "AremisSoft Hospitality" and the description, "Aremis 4.0
PMS has been designed to operate in hotels ranging from large international
groups and chains to the smallest privately owned concern. The product suite
offers an integrated system including property management, central reservations,
data warehousing for customer relationship management, and Internet and GDS
connectivity. Using the latest technology available, Aremis 4.0 PMS provides,
open access databases, graphical displays of rooms, maps, photographs, touch
screens, and data replication." The graphic depicts a computer screen of
hospitality software. In the bottom right corner are the words "AremisSoft
Manufacturing" and the description, "aremis enterprise and MTMS are
client-server-based, Internet enabled ERP systems targeted at growing and
emerging operations, as well as mid sized manufacturers. The aremis enterprise
suite includes an open GUI/Browser interface, flexible and extensive
functionality, database and hardware independence and an implementation
methodology that minimizes timescales and cost." The graphic depicts a computer
screen of manufacturing software. At the bottom are the words Advanced Real-time
Enterprise-wide Mission-Critical Integrated Software.
In the Center of the following page is a sphere with the logo and the words,
"Analyze Customer & Market Requirements," "Design Aremis Solutions," "Build
Solution Using C++/Aremis," and "Deliver Solution." In the top left corner is a
graphic depicting healthcare customers. In the bottom left corner is a graphic
depicting construction customers. In the top right corner is a graphic
depicting hospitality customers. In the bottom right corner is a graphic
depicting a manufacturing device. In the bottom center is the words:
ADVANCED
- -- Exploitation of modern development methods and tools
- -- Object-oriented development approach
REAL-TIME
- -- Client-server architecture
- -- Graphical user interface (GUI)
- -- On-Line and user-friendly
ENTERPRISE-WIDE
- -- Supports personnel, workgroup, departmental, divisional and
enterprise-wide customers
- -- Architecture supports multinational clients
MISSION-CRITICAL
- -- Supports core businesses 24 hours a day, 7 days a week
INTEGRATED SOFTWARE
- -- Platform independence
- -- Supports common relational database systems
- -- High component re-use across vertical markets
- -- Shared technologies
- -- Fully scalable architecture
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 5
Risk Factors................................................ 8
Forward-Looking Statements.................................. 16
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Price Range of Our Common Stock............................. 16
Capitalization.............................................. 17
Selected Consolidated Financial Data........................ 18
Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 19
Business.................................................... 30
Management.................................................. 45
Related Party Transactions.................................. 51
Principal and Selling Stockholders.......................... 53
Description of Capital Stock................................ 54
Shares Eligible for Future Sale............................. 57
Underwriting................................................ 58
Legal Matters............................................... 59
Experts..................................................... 59
Where You Can Find More Information......................... 60
Index to Consolidated Financial Statements.................. F-1
</TABLE>
3
<PAGE> 5
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 6
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information in this prospectus, including risk factors, regarding us and the
common stock being sold in this offering.
AREMISSOFT CORPORATION
We develop, market, implement and support enterprise-wide software
applications primarily for mid-sized organizations in the manufacturing,
healthcare, hospitality and construction industries. Our fully integrated suite
of Internet-enabled products allows our customers to manage and execute
mission-critical functions within their organization, including accounting,
purchasing, manufacturing, customer service, and sales and marketing. The
modular design of our products enables us to provide customers with a cost-
effective scalable solution which can be easily implemented. We focus on
mid-sized organizations with annual revenues of less than $200 million to
capitalize on a market we believe is receptive to our cost-effective solutions
and shorter implementation periods. To date, we have licensed our software
applications to more than 6,000 customers in over twenty countries.
Our software applications use our internally developed three-tiered, object
oriented software architecture, which we call the Aremis architecture. This
architecture enables us to develop software solutions rapidly and
cost-effectively by taking advantage of the common requirements of customers in
our target markets. In addition, we believe that, with 212 developers based in
our facilities in India, we have established a cost-effective model for
implementing, supporting and enhancing our software applications.
In December 1999, we acquired e-nnovations.com, an Internet software
solutions provider located in Bangalore, India. We believe this acquisition is a
key strategic milestone in our development because it enables us to address the
rapidly expanding market opportunities brought about by the Internet. For over
two years, we have partnered with e-nnovations.com and have utilized their
technological capabilities in several large projects. This acquisition enables
us to continue to leverage the diverse technological capabilities of
e-nnovations.com to address our customers' current and future e-business needs.
We believe the e-nnovations.com acquisition will also assist us to develop an
application service provider, or ASP, delivery method to best suit the evolving
requirements of our expanding customer base.
Our objective is to be a leading provider of enterprise-wide software
applications for mid-sized organizations in the manufacturing, healthcare,
hospitality and construction industries. Our strategy for achieving this
objective includes:
- focusing on marketing to mid-sized organizations,
- further penetrating our target markets in the manufacturing, healthcare,
hospitality and construction industries,
- increasing efficiencies by using our software development facilities
based in India,
- providing Internet-enabled software solutions in response to our
customers' needs,
- expanding on our technological expertise, and
- expanding sales, marketing, support and service.
------------------------
Our principal executive offices are located at Goldsworth House, Denton
Way, Woking, Surrey GU21 3LG, United Kingdom, and our telephone number is
011-44-1483-885-000.
5
<PAGE> 7
THE OFFERING
Common stock offered by us.... 2,800,000 shares
Common stock offered by the
selling stockholder........... 200,000 shares
Common stock to be outstanding
after this offering........... 18,001,595 shares
Use of proceeds............... For working capital and other general corporate
purposes and to fund potential acquisitions.
See "Use of Proceeds."
Nasdaq National Market
symbol........................ AREM
The table above is based on shares outstanding as of March 14, 2000. This
table excludes:
- 2,963,800 shares of our common stock issuable upon exercise of
outstanding options at a weighted average exercise price of $14.80 per
share,
- 86,200 shares of our common stock reserved for future issuances under our
1998 Stock Option Plan,
- 330,000 shares of our common stock issuable upon exercise of warrants at
an exercise price of $7.50 per share, and
- 42,354 shares of our common stock issuable upon exercise of warrants at
an exercise price of $8.56 per share.
------------------------
As used in this prospectus, the terms "we," "us," "our," and "AremisSoft"
mean AremisSoft Corporation and its subsidiaries, unless otherwise indicated.
Except as otherwise indicated, all information in this prospectus:
- assumes that the underwriters' over-allotment option is not exercised,
and
- assumes a public offering price of $37 3/8 per share, the closing price
of our common stock on March 14, 2000.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
PRO FORMA
1995 1996 1997 1998 1999 1999
-------- -------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenues........................ $ 21,422 $ 34,432 $42,374 $52,621 $73,386 $ 76,302
Gross profit.......................... 10,609 19,397 29,701 41,566 56,375 58,086
Profit (loss) from operations......... (13,248) (13,448) 310 7,231 17,875 13,657
Income (loss) after taxes before
extraordinary item.................. (14,569) (15,304) (1,620) 3,175 12,117 7,899
Net income (loss)..................... $(14,569) $(15,304) $(1,620) $ 3,175 $13,280 $ 9,062
======== ======== ======= ======= ======= ========
Basic earnings (loss) per share before
extraordinary item.................. $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 0.95 $ 0.62
======== ======== ======= ======= ======= ========
Diluted earnings (loss) per share
before extraordinary item........... $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 0.90 $ 0.59
======== ======== ======= ======= ======= ========
Basic earnings (loss) per share after
extraordinary item.................. $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 1.04 $ 0.71
======== ======== ======= ======= ======= ========
Diluted earnings (loss) per share
after extraordinary item............ $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 0.99 $ 0.68
======== ======== ======= ======= ======= ========
Weighted average number of shares used
in computing basic earnings (loss)
per share........................... 7,504 7,504 7,518 9,120 12,762 12,762
Weighted average number of shares used
in computing diluted earnings (loss)
per share........................... 7,504 7,504 7,518 9,135 13,434 13,434
</TABLE>
The basis for the determination of shares used in computing per share data
is described in note 1 of notes to our consolidated financial statements.
The consolidated statement of operations data for the year ended December
31, 1999 includes the operations of e-nnovations.com from December 17, 1999, the
date we acquired that business. The unaudited pro forma consolidated statement
of operations data reflects the combined results of operations of our company
and e-nnovations.com as if we had acquired that business on January 1, 1999. The
unaudited pro forma data is not necessarily indicative of what actually would
have occurred if the acquisition had occurred on January 1, 1999, nor is it
indicative of future operating results.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $13,386 $110,468
Working capital............................................. 17,840 114,922
Total assets................................................ 60,944 158,026
Long-term debt.............................................. -- --
Total stockholders' equity.................................. 36,246 133,328
</TABLE>
The actual and as adjusted consolidated balance sheet data give effect to
the e-nnovations.com acquisition which was consummated in December 1999. The as
adjusted consolidated balance sheet data also gives effect to our receipt of the
estimated net proceeds from the sale of 2,800,000 shares of common stock offered
by us in this offering, after deducting the underwriting discounts and estimated
offering expenses.
7
<PAGE> 9
RISK FACTORS
Investing in the shares of our common stock offered by this prospectus
involves a high degree of risk. You should carefully consider the risks
described below in addition to the other information in this prospectus. Our
business, operating results and financial condition could be seriously harmed
due to any of the following risks. The trading price of the shares of our common
stock could decline due to any of these risks, and you could lose all or part of
your investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND WE COULD SUFFER LOSSES IN THE FUTURE.
Until the second half of 1997, we incurred substantial losses. Our losses
were $1.6 million for 1997 and $15.3 million for 1996. As of December 31, 1999,
we had an accumulated deficit of $18.9 million.
Although we have operated profitability since the third quarter of 1997, we
cannot assure you that we will sustain profitability on a quarterly or annual
basis in the future. We expect to continue to incur increasing cost of revenues,
research and development, sales and marketing and general and administrative
expenses. If we are to continue to sustain profitability given our planned
expenditure levels, we will need to generate and sustain increased revenues.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE CAUSING VOLATILITY, OR DECLINE
IN THE MARKET PRICE OF OUR COMMON STOCK.
Our revenues, gross margins and other operating results have fluctuated
significantly in the past and may vary significantly from quarter to quarter.
These fluctuations may be due to a number of factors, many of which are beyond
our control. These factors include:
- the relatively long sales cycles for our products,
- the size and timing of our licensing transactions,
- the timing of release, proper operation and market acceptance of our
rejuvenated products, product enhancements or new products,
- changes in the budget cycles of our customers,
- seasonality of our customers' technology purchases, and
- foreign currency exchange rates.
The timing of our revenue recognition can be affected by many factors,
including the timing of a contract's execution and delivery, a customer's
acceptance and our post-delivery obligations with respect to the installation
and implementation of our products. As a result, the time between contract
execution and the satisfaction of the criteria necessary for revenue recognition
can be lengthy and unpredictable and, consequently, may affect our revenues. As
a result, it is possible that in some future quarters our results of operations
may fall below the expectations of some securities analysts and investors. In
that event, the trading price of our stock may likely be materially and
adversely affected.
WE MAY ACQUIRE OTHER COMPANIES' PRODUCTS, TECHNOLOGIES OR BUSINESSES THAT
COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS AND DILUTE STOCKHOLDER
VALUE.
As part of our strategy, we expect to continue to pursue acquisitions of
other businesses, products and technologies. In connection with an acquisition,
we may pay cash, issue stock or incur debt. Our stockholders will be diluted if
we finance acquisitions by incurring convertible debt or issuing equity
securities. In addition, we may be required to incur expenses related to
goodwill and other intangible asset amortization.
8
<PAGE> 10
Acquisitions of companies and businesses also involve numerous other risks,
including:
- difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired business,
- diversion of our management's attention from other business concerns,
- risks of entering markets in which we have no or limited direct
experience, and
- the potential loss of key employees of the acquired business.
From 1993 through 1996, we acquired eleven companies with aggregate annual
revenues in the last fiscal year prior to acquisition of approximately $24.2
million and we recently acquired e-nnovations.com which had revenues of
approximately $3.1 million in 1999. Our acquisition strategy is focused on
acquisitions that are potentially larger in scope and size than any of our
previous acquisitions and we cannot assure you that we will successfully
integrate an acquisition of this size into our operations. Although we currently
have no agreement, understanding or arrangement with respect to any future
acquisitions, we continually evaluate acquisition opportunities. Any future
acquisition may also disrupt our ongoing business, divert the attention of our
management and employees from day to day operations and increase our operating
expenses.
FAILURE TO MANAGE OUR GROWTH MAY SERIOUSLY HARM OUR ABILITY TO DELIVER
PRODUCTS IN A TIMELY MANNER, FULFILL EXISTING CUSTOMER COMMITMENTS AND ATTRACT
AND RETAIN NEW CUSTOMERS.
We have grown rapidly in the last five years, with total revenues
increasing from $21.4 million in 1995 to $73.4 million in 1999. Our growth has
placed a significant strain on our management, operations and financial
resources. Our recent expansion has resulted in substantial growth in the number
of our employees, the scope of our operating and financial reporting systems and
the geographic area of our operations. This growth has placed, and will continue
to place, a significant strain on our managerial, operational and financial
resources. Accordingly, our future operating results will depend on our ability
to continue to implement and improve our operational and customer support
systems and to expand, train and manage our employee base. We cannot assure you
that we will be able to manage our expansion successfully, and our inability to
do so may seriously harm our ability to deliver products in a timely manner,
fulfill existing customer commitments and attract and retain new customers.
WE MUST SUCCESSFULLY DEVELOP NEW PRODUCTS AND KEEP PACE WITH RAPID
TECHNOLOGICAL CHANGE TO REMAIN COMPETITIVE.
The market for our products is characterized by rapid technological
changes, evolving industry standards in computer hardware and software
technology, changes in customer requirements and frequent new product
introductions and enhancements. Our future success will depend upon our ability
to continue to enhance our current product line and to develop and introduce new
products that keep pace with technological developments, satisfy increasingly
sophisticated customer requirements and achieve market acceptance. We cannot
assure you that we will be successful in developing and marketing, on a timely
and cost-effective basis, fully functional product enhancements or new products
that respond to technological advances by others. We can also not assure you
that our new or enhanced products will achieve market acceptance. Our customers
utilize a wide variety of hardware, software, database and networking platforms.
As a result, we must continue to support and maintain our products on a variety
of these platforms. In particular, we must continue to anticipate and respond
adequately to advances in other software and desktop computer operating systems
like Microsoft Windows.
9
<PAGE> 11
WE MAY NOT SUCCEED IN PENETRATING THE E-BUSINESS AND APPLICATION SERVICE
PROVIDER MARKETS.
We may not have the resources, skills and product offerings that will be
required to successfully penetrate the e-business and application service
provider markets. To succeed in these markets, we must continue to:
- develop expertise in marketing and selling Internet-based applications
and services,
- develop and cultivate new sales channels to market our applications to
prospective customers, and
- hire, train and integrate new technical and sales personnel.
The e-business and application service provider markets that we may attempt
to penetrate may not become substantial commercial markets for our applications
or may not evolve in a manner that will enable our applications to achieve broad
market acceptance.
UNDETECTED ERRORS MAY INCREASE OUR COSTS AND IMPAIR THE MARKET ACCEPTANCE OF
OUR PRODUCTS AND TECHNOLOGY.
Our products and technology have occasionally contained, and may in the
future contain, undetected errors when first introduced or when new versions are
released. Our customers integrate our products and technology into systems and
products that they develop themselves or acquire from other vendors. As a
result, when problems occur in equipment or a system into which our products or
technology have been incorporated, it may be difficult to identify their cause.
Regardless of the source of these errors, we must divert the attention of our
engineering personnel from our research and development efforts to address the
errors. We cannot assure you that we will not incur warranty or repair costs, be
subject to liability claims for damages related to product errors or experience
delays as a result of these errors in the future. Any insurance policies that we
have may not provide sufficient protection should a claim be asserted. Moreover,
the occurrence of errors, whether caused by our products or technology or the
products of another vendor, may result in significant customer relations
problems and injury to our reputation and may impair the market acceptance of
our products and technology.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS FROM PRODUCT DEFECTS, WHICH MAY
HARM OUR OPERATING RESULTS.
If our products malfunction or suffer from design defects, we may also be
subject to product liability claims. Our license agreements with our customers
typically contain provisions designed to limit our exposure to liabilities
arising from product liability claims. We also maintain errors and omissions
liability insurance in the amount of $6.0 million for damages as a result of
product defects or errors. However, we cannot assure you that the provisions in
our license agreements limiting our liability will be enforceable under
international, federal, state or local laws and judicial decisions or that our
insurance coverage will be sufficient to cover all losses resulting from product
defects or errors. To the extent our insurance is insufficient to cover any
losses we may incur, our operating results will suffer.
COMPETITION IN THE MARKETS FOR OUR PRODUCTS AND TECHNOLOGY IS INTENSE. WE MAY
NOT BE ABLE TO COMPETE EFFECTIVELY IN THESE MARKETS AND WE MAY LOSE MARKET SHARE
TO OUR COMPETITORS.
The markets for our enterprise-wide software applications are intensely
competitive and we expect competition to intensify in the future. We may not be
able to compete effectively in these markets and we may lose market share to our
competitors. Our principal competitors for products sold to customers in the
manufacturing industry include Epicor, Fourth Shift, QAD and Symix. We also
believe that large enterprise software vendors, like Baan, Oracle, PeopleSoft
and SAP, are increasing their marketing efforts to mid-sized organizations in
the manufacturing industry. In the healthcare industry, our principal
competitors include EMIS, GPASS, In Practice and TOREX. In the hospitality
industry, our principal competitors are Innsite and MICROS Systems. In the
construction industry, our competitors include Database, Estimation and FCG
Computer Systems. In addition, we face indirect competition from
10
<PAGE> 12
suppliers of customized enterprise-wide software applications with highly
customized software and from the internal information technology departments of
large organizations who develop their own systems.
MANY OF OUR COMPETITORS HAVE GREATER RESOURCES THAN WE DO. THIS MAY LIMIT OUR
ABILITY TO COMPETE EFFECTIVELY AND MAY DISCOURAGE CUSTOMERS FROM PURCHASING OUR
PRODUCTS.
Many of our competitors have greater financial, personnel and other
resources than we do, which may limit our ability to compete effectively. These
competitors may be able to respond more quickly to new or emerging technologies
or changes in customer requirements. These competitors may also:
- benefit from greater economies of scale,
- benefit from longer operating histories and name recognition,
- offer more aggressive pricing, and
- devote greater resources to the promotion of their products.
Any of these advantages may discourage customers from purchasing our
products. If we are unable to compete successfully against our existing or
potential competitors, our revenues and margins will decline.
WE FACE A RISK FROM INCREASED COMPETITION AS A RESULT OF ACQUISITIONS OF
COMPETITORS BY LARGE SOFTWARE COMPANIES.
We believe the fragmented nature of the enterprise-wide software
applications market will result in future acquisitions of competitors by large
software companies or strategic alliances, which will lead to significant
consolidation in our industry. As a result, we may face an increase in
competition from larger companies and new entrants to the industry which could
harm our business and cause our stock price to decline.
OUR ABILITY TO ACQUIRE COMPLEMENTARY BUSINESSES AND PRODUCTS MAY BE HARMED BY
THE INCREASING CONSOLIDATION IN OUR MARKETS.
Increasing consolidation in our markets may require us to compete with
other software companies for strategic acquisition opportunities. We have
acquired complementary businesses and products in the past and we expect to
continue to pursue similar opportunities in the future. As competition in our
markets has increased, a number of our competitors have been acquired or have
entered into strategic alliances. A continuation of this trend may require us to
compete with other software companies for attractive acquisition opportunities
and may lead to fewer opportunities and increased acquisition costs which will
harm our acquisition strategy.
OUR LENGTHY SALES AND IMPLEMENTATION CYCLES MAY CAUSE FLUCTUATIONS IN OUR
OPERATING RESULTS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.
Sales of our products require an extensive marketing effort because
decisions to purchase these products generally involve the evaluation of the
product by a significant number of a potential customer's personnel in various
functional and geographic areas. Our products are generally used for division-
or enterprise-wide purposes and involve significant capital outlays by customers
and relatively complex installations. Potential customers generally commit
significant resources to evaluate available enterprise-wide software
applications and require us to provide a significant level of education about
the use and benefits of our products. As a result, our sales cycle averages
between one and 12 months from initial contact to execution of a license
agreement. Our ability to forecast the timing and amount of specific sales is
limited, and the delay or failure to complete one or more large license
transactions could cause our operating results to fall below the expectations of
securities analysts and investors and cause our stock price to decline.
11
<PAGE> 13
WE ARE DEPENDENT ON OUR KEY PERSONNEL, PARTICULARLY DR. LYCOURGOS K.
KYPRIANOU, OUR FOUNDER AND CHIEF EXECUTIVE OFFICER. ANY LOSS OF THE SERVICES OF
OUR KEY PERSONNEL WOULD HARM OUR BUSINESS.
Our future success depends to a large extent on the continued services of
our senior management and key personnel. In particular, we are highly dependent
on the services of Dr. Lycourgos K. Kyprianou, our founder and chief executive
officer. If we were to lose the services of Dr. Kyprianou or other key
personnel, our ability to manage operations and generate revenues would be
harmed.
OUR FAILURE TO RETAIN AND ATTRACT QUALIFIED PERSONNEL COULD HARM OUR BUSINESS.
Our products require sophisticated research and development, sales and
marketing, and technical customer support. Our success depends on our ability to
attract, train and retain qualified personnel in each of these areas.
Competition for personnel in all of these areas is intense and we may not be
able to hire sufficient personnel to achieve our goals or support the
anticipated growth in our business. The market for the highly-trained personnel
we require is very competitive, due to the limited number of people available
with the necessary technical skills and understanding of our products and
technology. If we fail to attract and retain qualified personnel, our business
will suffer.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS MAY HARM OUR COMPETITIVENESS.
Our success is substantially dependent upon the protection of our
internally developed technology, including our Aremis architecture. Our
profitability could suffer if third parties infringe upon our intellectual
property rights or misappropriate our technology and other assets. To protect
our rights to our intellectual property, we rely on the protection provided by
applicable copyright, trademark and trade secret laws, confidentiality
procedures and licensing arrangements to establish and protect our proprietary
rights. We have a trademark application pending, but do not currently hold any
patents or registered copyrights. Despite our efforts, it may be possible for
unauthorized third parties to copy portions of our products or reverse engineer
or obtain and use information that we regard as proprietary. Policing
unauthorized use of our software is difficult and, while we are unable to
determine the extent to which piracy of our products exists, software piracy can
be expected to be a problem. In addition, the laws of some countries, including
India and the United Kingdom, do not protect our proprietary rights to the same
extent as do the laws of the United States. Any failure by us to protect our
intellectual property could result in competitors offering products
incorporating the same or similar technology which could reduce demand for our
products. Further, litigation to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others could result in substantial costs and diversion of
resources.
OUR PRODUCTS MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
COULD INCREASE OUR COSTS AND NEGATIVELY AFFECT OUR PROFITABILITY.
We expect that enterprise-wide software applications will increasingly be
subject to claims of infringement relating to software codes as the number of
products and competitors in our industry segment grows and the functionality of
products overlaps. We do not currently have liability insurance to protect
against the risk of third party intellectual property infringement claims. Any
claim, with or without merit and whether or not insured against, could be
time-consuming, result in costly litigation and require us to enter into royalty
and licensing agreements. These royalty or licensing agreements, if required,
might not be available on terms that are acceptable to us. An infringement
claim, even if not meritorious, could result in the expenditure of significant
resources and could negatively affect our profitability.
12
<PAGE> 14
WE OCCASIONALLY ENTER INTO FIXED PRICE SERVICE CONTRACTS, WHICH MAY LEAD TO
LOWER MARGINS AND HARM OUR OPERATING RESULTS.
We offer a combination of enterprise-wide software applications,
implementation and support services to our customers. We have, from time to
time, entered into fixed-price service contracts that require us to provide
support services for a fixed price regardless of our actual costs incurred in
fulfilling our support service obligations. Revenues attributable to fixed-price
service contracts were approximately 11% of our total revenues for 1997,
approximately 11% of our total revenues for 1998 and approximately 14% of our
total revenues for 1999. Our inability to successfully complete these contracts,
as budgeted, could lead to lower operating margins and reduced revenues and
profits.
RISKS RELATED TO OUR INTERNATIONAL OPERATIONS
OUR RESULTS OF OPERATIONS MAY BE ADVERSELY IMPACTED BY CURRENCY FLUCTUATIONS.
We currently have operations in Argentina, Bulgaria, Germany, India,
Ireland, Mexico, the United Kingdom and the United States and independent
distributors in 14 additional countries. A significant portion of our revenues
is received in currencies other than the United States dollar, primarily in the
British pound. We also anticipate receiving substantial future payments in
Bulgarian Leva relating to our work with the Bulgarian National Health Insurance
Fund and other customers in Bulgaria. Because our financial statements are
reported in United States dollars, fluctuations of the British pound and other
currencies against the United States dollar have caused, and will continue to
cause, us to recognize foreign currency transaction gains or losses, which may
be material to our operations and impact our reported financial condition and
results of operations.
WE FACE RISKS ASSOCIATED WITH DOING BUSINESS IN INTERNATIONAL MARKETS.
Our principal executive offices are located in the United Kingdom. Revenues
from our operations outside of the United States accounted for approximately 97%
of our total revenues in 1999. We expect that a significant portion of revenues
for the foreseeable future will be derived outside the United States. We are
subject to risks inherent in international business activities, including:
- difficulties in collecting accounts receivable and longer collection
periods,
- changing and conflicting regulatory requirements,
- potentially adverse tax consequences,
- tariffs and general export restrictions,
- difficulties in staffing and managing foreign operations,
- political instability,
- reduced protection for intellectual property rights in some countries,
and
- fluctuations in currency exchange rates.
THE TAX BENEFITS THAT WE CURRENTLY RECEIVE IN INDIA MAY BE LOST IF WE FAIL TO
SATISFY SPECIFIED CONDITIONS.
We maintain development and support facilities in New Delhi and Bangalore,
India. As of March 14, 2000, we had approximately 40% of our workforce in India.
As a means of encouraging foreign investment, the Indian government provides tax
incentives and exemptions from regulatory restrictions. Among the benefits that
directly affect us are tax holidays (temporary exemptions from taxation on
operating income) and liberalized import and export duties. The current tax
holiday to which we are entitled expires in March 2001. To be eligible for these
tax benefits, we must continue to meet specified conditions including continuing
to operate in a qualified software technology park and exporting sales of at
least 75% of our
13
<PAGE> 15
inventory turnover. Our failure to meet these conditions could result in
cancellation of the benefits or a requirement to pay damages in an amount as
later determined by the Indian government and customs duty on plant, machinery,
equipment, raw materials, components and consumables. In addition, goods, raw
materials and components for production imported by our offices in India are
generally exempt from the levy of a customs duty. These tax benefits could be
discontinued or modified in the future which could significantly harm our
operations in India.
OUR OPERATING RESULTS MAY BE HARMED BY CHANGING CONDITIONS IN INDIA.
Although wage costs in India are significantly lower than in the United
States, the United Kingdom and similar markets for comparably skilled software
engineering and other technical personnel, wages in India are increasing at a
faster rate than in the United States and the United Kingdom. In the past, India
has experienced significant inflation and shortages of foreign exchange, and has
been subject to civil unrest and acts of terrorism. Although the effect of
inflation on our financial statements for the periods discussed in this
prospectus has been insignificant, increases in inflation in the future or
changes in interest rates, taxation or other social, political, economic or
diplomatic developments could harm our operating results.
OUR PRODUCTS FOR THE HEALTHCARE INDUSTRY ARE SUBJECT TO GOVERNMENT REGULATIONS
AND SPECIFICATIONS THAT CAN BE DIFFICULT TO SATISFY. OUR EFFORTS TO SATISFY
THESE REGULATIONS AND SPECIFICATIONS MAY CAUSE THE PRICES OF OUR PRODUCTS TO
INCREASE SUBSTANTIALLY, WHICH MAY ADVERSELY AFFECT SALES.
Our products designed for the healthcare industry in the United Kingdom are
regulated by the National Health Service, a governmental agency commonly
referred to as the NHS, through a product accreditation procedure. While our
healthcare products currently meet NHS specifications for information systems,
these requirements are expected to be updated pursuant to the NHS' new
Information Management and Technology Strategy. The new mandatory specifications
are expected to require that all information technology systems in the United
Kingdom's healthcare marketplace conform with one another. Although we are
currently modifying our healthcare industry products in anticipation of the
proposed specifications, we may not meet all of these specifications or, if we
meet them, our related costs may be substantial and make the cost of our
healthcare products prohibitive for our customers. In addition, we have
experienced and expect to continue to experience a decrease in purchases of our
existing healthcare products as organizations in the healthcare industry in the
United Kingdom postpone purchases pending release of final regulations and
specifications. These regulations and specifications, as well as future changes
to NHS specifications for information systems, could harm our revenues from
healthcare related products.
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS AND SOME OF THE EXPERTS NAMED IN THIS PROSPECTUS, OR TO ASSERT U.S.
SECURITIES LAWS CLAIMS IN THE UNITED KINGDOM AND TO SERVE PROCESS ON
SUBSTANTIALLY ALL OF OUR OFFICERS AND DIRECTORS AND THESE EXPERTS.
A majority of our directors, all of our executive officers and some of the
experts named in this prospectus are nonresidents of the United States. A
substantial portion of our assets and all or a substantial portion of the assets
of these officers and experts are located outside of the United States. As a
result, it may be difficult to effect service of process within the United
States with respect to matters arising under the United States securities laws
or to enforce, in United States courts, judgments predicated upon civil
liability under U.S. securities laws. It also may be difficult to enforce in the
United Kingdom, in original actions or in actions for enforcement of judgments
of U.S. courts, civil liabilities predicated upon U.S. securities laws.
14
<PAGE> 16
RISKS RELATED TO THIS OFFERING
DR. KYPRIANOU OWNS A LARGE PERCENTAGE OF OUR VOTING STOCK AND HAS SIGNIFICANT
INFLUENCE OVER MATTERS REQUIRING SHAREHOLDER APPROVAL, WHICH COULD DELAY OR
PREVENT A CHANGE OF CONTROL.
Following the closing of this offering, Dr. Kyprianou will beneficially own
approximately 42% of the outstanding common stock. In connection with the
private placement with Info-quest, an information technology company listed on
the Athens Stock Exchange, Dr. Kyprianou and Info-quest entered into a voting
agreement. As a result of the voting agreement, Dr. Kyprianou's beneficial
ownership includes shares held by Info-quest. The voting agreement requires Dr.
Kyprianou to vote his shares to elect board representatives of Info-quest and
Info-quest is similarly required to vote its shares for the board
representatives nominated by our board of directors. In addition, the agreement
provides that each of Dr. Kyprianou and Info-quest vote their shares by mutual
agreement on all other matters. As a result, these stockholders may, as a
practical matter, be able to substantially influence all matters requiring
stockholder approval which could delay or prevent a change of control.
OUR COMMON STOCK PRICE HAS BEEN VOLATILE IN THE PAST AND MAY BE VOLATILE IN
THE FUTURE.
The market price of our common stock is highly volatile and may be subject
to significant fluctuations in response to actual or anticipated variations in
quarterly operating results and other factors. From the time of our initial
public offering through March 14, 2000, the closing price of our common stock
reported on the Nasdaq National Market has ranged from $3 7/8 to $46 1/8 per
share. In addition, the stock market in general, and the market for technology
related stocks in particular, has experienced extreme volatility that often has
been unrelated to the operating performance of particular companies. These broad
market and industry fluctuations may adversely affect the trading price of our
common stock, regardless of our actual operating performance.
PROVISIONS OF OUR CORPORATE DOCUMENTS AND DELAWARE LAW COULD DETER TAKEOVERS
WHICH MAY PREVENT YOU FROM RECEIVING A PREMIUM FOR YOUR SHARES.
Provisions of our certificate of incorporation, bylaws and Delaware law
could delay, defer or prevent a change in our control. Our board of directors
has the authority to issue up to 15,000,000 shares of preferred stock and to fix
the rights, preferences, privileges and restrictions of those shares, including
voting rights, without any further vote or action by the stockholders. The
rights of our common stockholders could be adversely affected by the rights of
preferred stockholders in the future. In addition, we are subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which prohibits us from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner under Delaware law. The ability
of our board of directors to issue shares of preferred stock without further
stockholder approval, as well as the anti-takeover provisions of Delaware law,
could have the effect of delaying, deferring or preventing a change in control,
even if doing so would be beneficial to our stockholders.
WE DO NOT EXPECT TO PAY DIVIDENDS.
We have never declared or paid any cash dividends on our common stock. We
currently expect to retain our future earnings for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
15
<PAGE> 17
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, as that term is
defined in the Private Securities Litigation Reform Act of 1995, in the sections
entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of these terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks, uncertainties and
other factors, including the risks outlined under "Risk Factors," that may cause
our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements after the date of this prospectus to
conform these statements to actual results.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of common
stock offered by us will be approximately $97.1 million, after deducting the
underwriting discounts and our estimated offering expenses. We will not receive
any proceeds from the sale of shares by the selling stockholder.
We expect to use the net proceeds of this offering for working capital and
other general corporate purposes and capital expenditures. We may also apply a
portion of the net proceeds to acquire or invest in businesses, products or
technologies that complement ours. We have no present plans, agreements or
arrangements with respect to any acquisitions or investments. Pending these
uses, we will invest the net proceeds in government securities and other
short-term, investment-grade, interest-bearing instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently expect to retain our future earnings for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
PRICE RANGE OF OUR COMMON STOCK
Our common stock began trading publicly on the Nasdaq National Market on
April 22, 1999 and is traded under the symbol AREM. The following table shows
the high and low per share closing prices of our common stock for the periods
indicated.
<TABLE>
<CAPTION>
1999 HIGH LOW
- ---- ---- ---
<S> <C> <C>
Second quarter, beginning April 22, 1999.................... $ 5 3/32 $ 3 7/8
Third quarter............................................... $14 1/4 $ 5
Fourth quarter.............................................. $32 1/2 $11 7/8
</TABLE>
<TABLE>
<CAPTION>
2000
- ----
<S> <C> <C>
First quarter, through March 14, 2000....................... $46 1/8 $27 1/4
</TABLE>
On March 14, 2000, the closing price of the common stock on the Nasdaq
National Market was $37 3/8 per share, and there were 105 holders of record of
our common stock.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
December 31, 1999, other than the number of shares outstanding which are shown
as of March 14, 2000:
- on an actual basis, and
- on an as adjusted basis to give effect to this offering and our receipt
of the estimated net proceeds therefrom, after deducting underwriting
discounts and estimated offering expenses.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 13,386 $110,468
======== ========
Capital lease obligations, less current portion............. $ 2 $ 2
-------- --------
Stockholders' equity:
Preferred stock, $.001 par value per share; 15,000,000
shares authorized; no shares issued and outstanding.... -- --
Common stock, $.001 par value per share, 85,000,000 shares
authorized; 15,201,595 shares issued and outstanding,
actual; and 18,001,595 shares issued and outstanding,
as adjusted............................................ 15 18
Additional paid-in capital................................ 57,325 154,404
Accumulated deficit....................................... (18,921) (18,921)
Accumulated other comprehensive income (loss)............. (2,173) (2,173)
-------- --------
Total stockholders' equity........................ 36,246 133,328
-------- --------
Total capitalization............................ $ 36,248 $133,330
======== ========
</TABLE>
The above table excludes the following:
- 2,963,800 shares of our common stock issuable upon exercise of
outstanding options at a weighted average exercise price of $14.80 per
share,
- 86,200 shares of our common stock reserved for future issuances under our
1998 Stock Option Plan,
- 330,000 shares of our common stock issuable upon exercise of warrants at
an exercise price of $7.50 per share, and
- 42,354 shares of our common stock issuable upon exercise of warrants at
an exercise price of $8.56 per share.
17
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
We have derived the selected consolidated statement of operations data for
the years ended December 31, 1997, 1998 and 1999, and the selected consolidated
balance sheet data as of December 31, 1998 and 1999, from our consolidated
financial statements included in this prospectus. We have derived the selected
consolidated statement of operations data for the years ended December 31, 1995
and 1996, and the selected consolidated balance sheet data as of December 31,
1995, 1996 and 1997, from consolidated financial statements which are not
included in this prospectus. Please read the selected consolidated financial
data presented below in conjunction with the consolidated financial statements
and notes thereto and other financial information included elsewhere in this
prospectus. The consolidated statement of operations data for the year ended
December 31, 1999 includes the operations of e-nnovations.com from December 17,
1999, the date we acquired that business. The unaudited pro forma consolidated
statement of operations data reflects the combined results of operations of our
company and e-nnovations.com as if we had acquired that business on January 1,
1999. The unaudited pro forma data is not necessarily indicative of what
actually would have occurred if the acquisition had occurred on January 1, 1999,
nor is it indicative of future operating results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
PRO FORMA
1995 1996 1997 1998 1999 1999
-------- -------- ------- ------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses......................................... $ 6,641 $ 12,052 $17,024 $26,416 $37,224 $39,458
Maintenance and services.................................. 9,426 15,839 18,990 21,680 30,435 30,658
Hardware and other........................................ 5,355 6,541 6,360 4,525 5,727 6,187
-------- -------- ------- ------- ------- -------
Total revenues...................................... 21,422 34,432 42,374 52,621 73,386 76,302
Cost of revenues:
Software licenses......................................... 875 1,555 2,079 2,654 4,468 5,118
Maintenance and services.................................. 2,735 5,393 5,377 5,319 8,620 8,779
Hardware and other........................................ 4,829 5,760 5,147 2,817 3,625 4,021
Amortization of purchased software and capitalized
software development costs.............................. 1,986 2,327 70 265 298 298
Write-off of purchased software costs..................... 388 -- -- -- -- --
-------- -------- ------- ------- ------- -------
Total cost of revenues.............................. 10,813 15,035 12,673 11,055 17,011 18,216
-------- -------- ------- ------- ------- -------
Gross profit................................................ 10,609 19,397 29,701 41,566 56,375 58,086
Operating expenses:
Sales and marketing....................................... 10,811 15,182 17,834 21,594 25,518 25,727
Research and development.................................. 6,428 6,409 6,233 6,207 5,916 6,902
General and administrative................................ 3,442 5,605 5,227 4,868 7,108 7,239
Write-off of offering costs............................... -- -- -- 1,592 -- --
Amortization of intangible assets......................... 3,176 5,144 97 74 -- 4,603
Profit on disposition of subsidiary....................... -- -- -- -- (42) (42)
Write-off of intangible assets............................ -- 505 -- -- -- --
-------- -------- ------- ------- ------- -------
Total operating expenses............................ 23,857 32,845 29,391 34,335 38,500 44,429
-------- -------- ------- ------- ------- -------
Profit (loss) from operations............................... (13,248) (13,448) 310 7,231 17,875 13,657
Other income (expense):
Interest expense, net....................................... (1,284) (1,906) (1,895) (2,030) (661) (661)
-------- -------- ------- ------- ------- -------
Income (loss) before income taxes........................... (14,532) (15,354) (1,585) 5,201 17,214 12,996
Income tax expense (benefit)................................ 37 (50) 35 2,026 5,097 5,097
Income (loss) after taxes before extraordinary item......... (14,569) (15,304) (1,620) 3,175 12,117 7,899
Extraordinary item -- gain on debt forgiveness.............. -- -- -- -- 1,163 1,163
-------- -------- ------- ------- ------- -------
Net income (loss)........................................... $(14,569) $(15,304) $(1,620) $ 3,175 $13,280 $ 9,062
======== ======== ======= ======= ======= =======
Basic earnings (loss) per share before extraordinary item... $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 0.95 $ 0.62
======== ======== ======= ======= ======= =======
Diluted earnings (loss) per share before extraordinary
item...................................................... $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 0.90 $ 0.59
======== ======== ======= ======= ======= =======
Basic earnings (loss) per share after extraordinary item.... $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 1.04 $ 0.71
======== ======== ======= ======= ======= =======
Diluted earnings (loss) per share after extraordinary
item...................................................... $ (1.94) $ (2.04) $ (0.21) $ 0.35 $ 0.99 $ 0.68
======== ======== ======= ======= ======= =======
Weighted average number of shares used in computing:
Basic earnings (loss) per share........................... 7,504 7,504 7,518 9,120 12,762 12,762
Diluted earnings (loss) per share......................... 7,504 7,504 7,518 9,135 13,434 13,434
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 255 $ 867 $ 239 $ 149 $13,386
Working capital (deficit)................................... (8,244) (15,438) (12,971) (10,516) 17,840
Total assets................................................ 22,729 18,449 17,242 27,952 60,944
Long-term debt.............................................. 12,453 13,388 10,096 1,781 --
Total stockholders' equity (deficit)........................ (12,365) (25,103) (19,534) (7,109) 36,246
</TABLE>
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
information contained in "Selected Consolidated Financial Data" and our
consolidated financial statements and notes thereto appearing elsewhere in this
prospectus.
OVERVIEW
We develop, market, implement and support enterprise-wide software
applications primarily for mid-sized organizations in the manufacturing,
healthcare, hospitality and construction industries. We were founded in Cyprus
in 1978 and initially focused on developing customized enterprise-wide software
applications for international organizations located in the Middle East and Near
East. In 1986, we established our New Delhi, India software development and
support facility to access the skilled Indian labor force and capture cost
efficiencies. We established operations in the United Kingdom in 1992. From 1993
to 1996, we completed eleven acquisitions and established operations in the
United States, Mexico, Argentina and Ireland. By the end of 1996, all operating
entities were consolidated. In 1997, we reorganized as a United States holding
company, changing our domicile from the Netherlands to Nevada. We reincorporated
in Delaware in 1999 in connection with our initial public offering. As of
December 31, 1999, we had 535 full time employees and conducted business in over
twenty countries.
During 1999, we continued to expand our revenues in Europe, primarily
through large contracts in emerging markets in the manufacturing and healthcare
industries. We also experienced a decline in our revenues in the United Kingdom,
primarily in our healthcare division, as customers delayed purchase decisions
earlier in the year while they waited for government adoption of accreditation
procedures for healthcare products under recently adopted specifications.
During the second quarter of 1999, we completed the initial public offering
of our shares of common stock generating net proceeds of approximately $12.9
million. We used the proceeds to reduce our debt and for other corporate
purposes. In exchange for the early retirement of our indebtedness to a bank,
which occurred in the fourth quarter, we received a discount of approximately
$1.2 million, net of taxes, resulting in a one-time extraordinary gain for the
forgiveness of debt. By the end of 1999, we repaid all of our indebtedness to
banks and other lenders, which we expect will result in lower interest expense
in the year 2000.
During the fourth quarter of 1999, we were awarded two significant
contracts in Bulgaria. One contract was with a private Bulgarian information
technology company, Insyst Electronics, for our manufacturing products and
significant Internet related services. The contract is structured in multiple
phases and we anticipate recognizing revenues from the contract over a fifteen
month implementation period from the day of signing. The estimated value of all
phases under the contract is $9.2 million.
The second contract was with the Bulgarian National Health Insurance Fund,
commonly referred to as the NHIF, in connection with automating the Bulgarian
nationwide healthcare system. The contract is structured in multiple phases and
we anticipate recognizing revenues from the contract over a three year period
from the day of signing, with the later phases subject to the availability of
approximately $20 million in third party lease financing made available to
Bulgaria's general practitioners for the purchase of equipment and software to
be installed in their offices. The estimated value of all phases under the
contract is approximately $37.5 million, with later phases contingent upon
acceptance by the NHIF of the earlier phases and other conditions relating to
our performance. Under the contract, we will install a comprehensive suite of
our Internet-enabled healthcare products to provide financial, patient and
clinical information management and a communications network to link hospitals,
pharmacies, laboratories and general practitioners with the NHIF headquarters
and some regional centers. Initially, we will provide our products to
approximately 5,000 of Bulgaria's 12,000 general practitioners, 500 of its 1,000
pharmacies and 30 of its 250 hospitals. The NHIF has agreed to cooperate with us
in processing third party lease financing and has offered the possibility of a
financial guarantee for the lease obligations of their general practitioners.
19
<PAGE> 21
In October 1999, we divested ourselves of our Cyprus operations in exchange
for approximately $2.6 million in cash to be received in 2000 and approximately
9.5%, or 4,000,000 shares, of GlobalSoft.com, a recently organized Cyprus
company formed for the purpose of consolidating several Cyprus based software
companies. Dr. Lycourgos K. Kyprianou, our chairman and chief executive officer,
is the chairman of the board of GlobalSoft.com.
In December 1999, we completed our acquisition of e-nnovations.com, an
Internet software solutions provider located in Bangalore, India, for $14.5
million. In connection with the acquisition, we anticipate allocating
approximately $13.8 million to intangible assets, including goodwill, which will
be amortized over a period of three years, or $4.6 million per year.
Revenues
We derive our revenues from software licenses, maintenance and service
contracts and hardware sales. Software license revenues represent both new
licenses and upgrades derived from the licensing and service of industry
upgrades to existing customers. Maintenance and service contract revenues are
primarily derived from the ongoing support of installed software and training,
consulting and implementation services. Hardware sales revenues are derived from
the sale of third-party hardware to customers requiring turnkey solutions. The
sales cycles for our products can vary significantly among customers.
Historically, our sales cycles have ranged from one to 12 months.
For the year ended December 31, 1999, we derived 35% of our revenues from
customers in the manufacturing industry, 27% from customers in the healthcare
industry, 26% from customers in the hospitality industry and 7% from customers
in the construction industry. The remaining 5% of our revenues for the year
ended December 31, 1999, were derived from sales to approximately 1,000
relatively small customers in various industries.
For the year ended December 31, 1999, our revenues were derived from
customers located in the following areas:
<TABLE>
<CAPTION>
AREA PERCENTAGE OF REVENUE
- ---- ---------------------
<S> <C>
United Kingdom.......................................... 35%
Rest of Europe.......................................... 44
United States........................................... 3
Asia.................................................... 5
Rest of world........................................... 13
---
Total......................................... 100%
===
</TABLE>
We recognize software license revenue upon execution of a contract and
delivery of software, provided that the license fees are fixed and determinable,
no significant obligations remain, collection of the resulting receivable is
deemed probable and no substantial customization or modification to core
software is required. We recognize software license and service revenues on a
percentage of completion basis when, among other things, customer contracts
require substantial customization or modification to our core software in order
to meet the customer's specifications. Maintenance contract revenues are
recognized ratably over the life of the contract, service contract revenues are
recognized in accordance with the terms of the contract and add-on hardware
sales revenues are recognized when the hardware is shipped to the customer. We
believe that our accounting policies are consistent with the guidance provided
by the American Institute of Certified Public Accountants' Statement of Position
(SOP) 97-2, as modified by SOP 98-9, Software Revenue Recognition.
Cost of Revenues
The cost of software license revenues consists primarily of personnel costs
as well as the costs of third-party software, media and freight. The cost of
maintenance and service contract revenues consists primarily of salary, travel
and other personnel costs. In addition, cost of service revenues may include the
20
<PAGE> 22
cost of outsourcing services when relatively large service contracts require
resources in excess of our resources. In general, our costs are higher when
services are outsourced. Costs incurred as a result of outsourcing were
approximately $320,000 for the year ended December 31, 1997, $18.0 million for
1998 and $12.0 million for 1999. The cost of hardware revenues consists
primarily of the cost of hardware purchased from third parties.
Gross Profit
We generally experience significant differences in profit margins from
software licenses, maintenance and services, and hardware. For example, gross
profit margins for our software licenses were 88% for 1997, 90% for 1998, and
88% for 1999. For maintenance and services, our gross profit margins were 72%
for 1997, 76% for 1998 and 72% for 1999. For hardware, our gross profit margins
were 19% for 1997, 38% for 1998 and 37% for 1999. Our overall gross profit
margin is affected by our relative mix of revenue sources.
Operating Expenses
Sales and marketing expenses consist primarily of sales personnel costs,
advertising and other public relations expenses. Research and development
expenses consist primarily of personnel costs, facility overhead and other
expenses associated with the development of new and enhanced products and
technologies. General and administrative expenses include salaries and benefits
for administrative, executive, finance, legal, human resources, data center,
distribution and internal systems personnel and associated overhead costs, as
well as bad debt, accounting and legal expenses. General and administrative
expenses also include depreciation, which represents the write down of the cost
of property and equipment over their expected useful lives. Amortization of
intangible assets consists of the amortization of customer lists and management
contracts of acquired businesses. Amortization of goodwill resulting from the
December 1999 acquisition of e-nnovations.com was not material in 1999.
We continue to make substantial investments and operational cost
improvements in our sales and marketing, research and development and
administrative infrastructure. From 1997 through 1999, we increased our sales
and marketing staff from 85 employees to 270 employees. During the same period,
we reduced our total research and development and administrative staff from 331
employees to 276 employees. The major impetus behind this transition is the
continuous shift of the research and development and, to a lesser degree,
administrative functions from the United Kingdom to India, where the relative
cost of operations is lower. During this period, our research and development
and administrative personnel in India increased from 115 to 212, while research
and development and administrative personnel in the United Kingdom and other
countries decreased from 216 to 64.
Research and Development
We have several software products which are under development or were
recently released. We expect a number of customers currently using rejuvenated
or legacy products to transition to our new products, which would likely reduce
the number of installed customers of the rejuvenated or legacy products.
We capitalize the qualifying costs of developing our software products.
Capitalization of such costs requires that technological feasibility has been
established. We define the establishment of technological feasibility as the
completion of all planning, designing, coding and testing activities that are
necessary to establish products that meet design specifications, including
functions, features and technical performance requirements. Under this
definition, establishing technological feasibility is considered complete only
after the majority of customer testing and customer feedback has been
incorporated into the product functions. Development costs incurred prior to the
establishment of technological feasibility are expensed as incurred. When
software is fully documented and available for unrestricted sale, capitalization
of development costs ceases, and amortization commences and is computed on a
product-by-product basis, based on either a straight-line basis over the
economic life of the product or the ratio of current gross revenues to the total
of current and anticipated future gross revenues, whichever is greater.
21
<PAGE> 23
Purchased Software
We capitalize as purchased software the costs associated with software
products either purchased from other companies for resale or developed by other
companies under contract with us. The cost of the software is amortized on the
same basis as capitalized software development costs. The amortization period is
re-evaluated quarterly with respect to external factors including, but not
limited to, technological feasibility, anticipated future gross revenues,
estimated economic life and changes in software and hardware technologies.
Currency Translation and Transactions
A significant portion of our business is conducted in currencies other than
United States dollars (the currency into which our historical financial
statements have been prepared). Historically, we have recorded a majority of our
operating expenses in British pounds, and a substantial portion of our research
and development costs in Indian rupees. In addition, during the fourth quarter
of 1999 we were awarded a significant contract with the Bulgarian National
Health Insurance Fund valued at $37.5 million which calls for payment in
Bulgarian Leva. However, we anticipate converting payments made in Bulgarian
Leva into U.S. dollars promptly upon receipt of payments. Our consolidated
balance sheets are translated into U.S. dollars at the exchange rate prevailing
at the balance sheet dates, and the statements of operations and cash flows are
translated into United States dollars at the average exchange rates for the
relevant periods. Gains and losses resulting from translation are included as a
component of accumulated other comprehensive income (loss). Increases in the
exchange rate from British pounds to U.S. dollars used from one year to the next
negatively impact stockholders' equity and decreases in the exchange rate
positively impact stockholders' equity. For example, because the exchange rate
used to translate our balance sheet for the year ended December 31, 1999 was
2.9% higher than the rate used for the year ended December 31, 1998, the
translation adjustment resulted in a decrease in stockholders' equity of
$148,000 for 1999.
Net gains and losses resulting from currency exchange transactions are
included in our statement of operations. We did not incur material net foreign
exchange transaction losses in 1997, 1998 or 1999. Because of the number of
currencies involved, the constant currency exposures and the substantial
volatility of exchange rates, we cannot assure you that we will not experience
currency losses in the future. We cannot predict the effect of exchange rate
fluctuations on our future operating results. We have not previously undertaken
hedging transactions to cover our currency exposure, but may implement programs
to mitigate foreign currency risk exposure in the future as management deems
appropriate.
22
<PAGE> 24
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of revenues represented by each item in our consolidated statements of
operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses....................................... 31% 35% 40% 50% 51%
Maintenance and services................................ 44 46 45 41 41
Hardware and other...................................... 25 19 15 9 8
--- --- --- --- ---
Total revenues.................................. 100 100 100 100 100
--- --- --- --- ---
Cost of revenues:
Software licenses....................................... 4 5 5 5 6
Maintenance and services................................ 13 16 13 10 12
Hardware and other...................................... 22 16 12 5 5
Amortization of purchased software and capitalized
software development costs........................... 9 7 -- 1 --
Write-off of purchased software costs................... 2 -- -- -- --
--- --- --- --- ---
Total cost of revenues.......................... 50 44 30 21 23
--- --- --- --- ---
Gross profit.............................................. 50 56 70 79 77
--- --- --- --- ---
Operating expenses:
Sales and marketing..................................... 51 44 42 41 35
Research and development................................ 30 19 15 12 8
General and administrative.............................. 16 16 12 9 10
Write-off of offering costs............................. -- -- -- 3 --
Amortization of intangible assets....................... 15 15 -- -- --
Write-off of intangible assets.......................... -- 1 -- -- --
--- --- --- --- ---
Total operating expenses........................ 112 95 69 65 53
--- --- --- --- ---
Profit (loss) from operations............................. (62) (39) 1 14 24
Other income (expense):
Interest expense, net..................................... (6) (6) (5) (4) (1)
--- --- --- --- ---
Income (loss) before income taxes......................... (68) (45) (4) 10 23
Income tax expense........................................ -- -- -- (4) (7)
Extraordinary item -- gain on debt forgiveness............ -- -- -- -- 2
--- --- --- --- ---
Net income (loss)......................................... (68)% (45)% (4)% 6% 18%
=== === === === ===
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues
Total revenues increased to $73.4 million for 1999 from $52.6 million for
1998. This increase was due primarily to higher software license revenues as a
result of an increase in the sale of licenses, and associated maintenance and
service contract revenues, generated by all four divisions.
Software license revenues increased to $37.2 million for 1999 from $26.4
million for 1998. This increase was due primarily to the growth in the number of
installed customers, increased sales of licenses for our recent generation of
products and price increases. As a percentage of total revenues, software
license revenues were 51% for 1999 and 50% for 1998, reflecting our strategy to
increase our software license revenues, which provide higher margins, as a
percentage of total revenues.
23
<PAGE> 25
Maintenance and service contract revenues increased to $30.4 million for
1999 from $21.7 million for 1998, as a result of the increase in the number of
installed customers and the growth in software license revenues. As a percentage
of total revenues, maintenance and service contract revenues remained the same
at 41% for both 1999 and 1998.
Hardware and other revenues increased to $5.7 million for 1999 from $4.5
million for 1998. As a percentage of total revenues, hardware and other revenues
decreased to 8% for 1999 from 9% for 1998, reflecting our strategy to reduce the
sale and installation of third-party hardware which has lower margins than
software licenses.
Cost of Revenues
Total cost of revenues increased to $17.0 million for 1999 from $11.1
million for 1998. As a percentage of total revenues, total cost of revenues
increased to 23% for 1999 from 21% for 1998.
The cost of software license revenues increased to $4.5 million for 1999
from $2.7 million for 1998. As a percentage of total revenues, the cost of
software license revenues increased to 6% in 1999 compared to 5% for 1998. The
increase from 1998 to 1999 was primarily the result of increased software
license revenues in 1999.
The cost of maintenance and service revenues increased to $8.6 million for
1999 from $5.3 million for 1998. As a percentage of total revenues, the cost of
maintenance and service revenues increased to 12% for 1999 from 10% for 1998.
This increase was primarily due to the use of outside personnel in certain
regions until our operations in these regions are firmly established.
The cost of hardware and other revenues increased to $3.6 million for 1999
from $2.8 million for 1998. As a percentage of total revenues, the cost of
hardware and other revenues was 5% for 1999 and 5% for 1998.
Sales and Marketing
Our sales and marketing expenses increased to $25.5 million for 1999 from
$21.6 million for 1998, primarily due to the expansion of sales and marketing
activities principally in Europe. As a percentage of total revenues, sales and
marketing expenses decreased to 35% for 1999, from 41% for 1998, primarily due
to increased efficiencies in our sales and marketing operations.
Research and Development
Research and development expenses decreased to $5.9 million for 1999 from
$6.2 million for 1998. As a percentage of total revenues, research and
development expenses decreased to 8% for 1999 from 12% for 1998. This decrease
was primarily due to cost savings resulting from the shifting of research and
development functions from the United Kingdom to India and a significant portion
of the planned expenditures relating to our new generation of software products
having been incurred in prior accounting periods.
General and Administrative
General and administrative expenses increased to $7.1 million for 1999 from
$4.9 million for 1998. As a percentage of total revenues, general and
administrative expenses increased to 10% for 1999, from 9% for 1998.
Net Interest Expense
Net interest expense reflects interest on our credit facilities, as reduced
by interest income on cash balances. Net interest expense decreased to $0.7
million for 1999 from $2.0 million for 1998, primarily due to repayment of all
long and short-term debts.
24
<PAGE> 26
Income Taxes
There was a provision for income taxes recorded for 1999 of $5.1 million.
We recorded a provision for income taxes of $2.0 million for 1998. The increase
in income taxes resulted from the increase in our profitability in 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues
Total revenues increased to $52.6 million for 1998 from $42.4 million for
1997. This increase was due primarily to higher software license revenues as a
result of an increase in the sale of licenses and associated maintenance and
service contract revenues, principally generated by the manufacturing and
hospitality divisions, which were partially offset by a slight decrease in
revenues from the healthcare division. The decrease in healthcare related
revenues was likely attributable to delayed purchasing decisions by existing and
potential customers pending release of new regulations in the United Kingdom
healthcare industry.
Software license revenues increased to $26.4 million for 1998 from $17.0
million for 1997. This increase is primarily due to the growth in the number of
installed customers, increased sales of licenses for our recent generation of
products and price increases. As a percentage of total revenues, software
license revenues increased to 50% for 1998 from 40% for 1997, reflecting our
strategy to increase our higher margin software license revenues as a percentage
of total revenues.
Maintenance and service contract revenues increased to $21.7 million for
1998 from $19 million for 1997, as a result of the increase in the number of
installed customers and the growth in software license revenues. As a percentage
of total revenues, maintenance and service contract revenues declined to 41% for
1998 from 45% for 1997, primarily as a result of our increased sales of higher
margin software licenses.
Hardware and other revenues decreased to $4.5 million for 1998 from $6.4
million for 1997. As a percentage of total revenues, hardware and other revenues
decreased to 9% for 1998 from 15% for 1997, reflecting our strategy to reduce
the sale and installation of lower margin third-party hardware.
Cost of Revenues
Total cost of revenues decreased to $11.1 million for 1998 from $12.7
million for 1997. As a percentage of total revenues, total cost of revenues
decreased to 21% for 1998 from 30% for 1997. This decrease was primarily the
result of an increase in sales of higher margin products.
The cost of software license revenues increased to $2.7 million for 1998
from $2.1 million for 1997. As a percentage of total revenues, the cost of
software license revenues was 5% for both 1998 and 1997. The increase in cost of
revenues from 1997 to 1998 was primarily the result of increased software
license revenues in 1998. Although the cost of software license revenues
increased from 1997 to 1998, the significant increase in software license
revenues for 1998 resulted in a 2.2% increase in gross profit on software
license revenues for 1998.
The cost of maintenance and service revenues decreased to $5.3 million for
1998 from $5.4 million for 1997. As a percentage of total revenues, the cost of
maintenance and service revenues decreased to 10% for 1998 from 13% for 1997.
This decrease was primarily due to increased efficiencies in the delivery of
maintenance and other services. The decrease in the cost of maintenance and
service revenues from 1997 to 1998 resulted in a 3.5% increase in gross profit
on maintenance and service revenues for 1998.
The cost of hardware and other revenues decreased to $2.8 million for 1998
from $5.1 million for 1997. As a percentage of total revenues, the cost of
hardware and other revenues decreased to 5% for 1998 from 12% for 1997. This
decrease was primarily attributable to a decrease in hardware sales generally,
which was partially offset by the sale of hardware with higher margins. The
decrease in cost of hardware and other revenues from 1997 to 1998 resulted in a
19% increase in gross profit on hardware and other revenues for 1998.
25
<PAGE> 27
Sales and Marketing
Our sales and marketing expenses increased to $21.6 million for 1998 from
$17.8 million for 1997, primarily due to the expansion of sales and marketing
activities principally in the United States and Europe. As a percentage of total
revenues, sales and marketing expenses decreased to 41% for 1998, from 42% for
1997, primarily due to increased efficiencies in our sales and marketing
operations.
Research and Development
Research and development expenses were $6.2 million for both 1998 and 1997.
As a percentage of total revenues, research and development expenses decreased
to 12% for 1998 from 15% of revenues for 1997. The decrease was primarily due to
cost savings resulting from the shifting of research and development functions
from the United Kingdom to India and a significant portion of the planned
expenditures relating to our new generation of software products having been
incurred in prior accounting periods.
General and Administrative
General and administrative expenses decreased to $4.9 million for 1998 from
$5.2 million for 1997. As a percentage of total revenues, general and
administrative expenses decreased to 9% for 1998 from 12% for 1997. This
decrease reflects the effect of our cost cutting and cost control measures,
including the closure of our office at Dukes Court, Central Woking, England,
during the fourth quarter of 1997. The decrease was partially offset by a one
time charge in 1998 reflecting severance payments to four individuals in the
aggregate amount of approximately $500,000.
Write-off of Offering Costs
In July 1998, we filed a registration statement in connection with our
initial public offering. Securities and Exchange Commission Staff Accounting
Bulletin, Topic 5:A (Expenses of Offering), deems that a postponement of the
offering process for greater than 90 days be treated as an aborted offering and
that all related costs be expensed. Accordingly, we wrote-off approximately $1.6
million in costs associated with our initial public offering in 1998.
Net Interest Expense
Net interest expense reflects interest on our credit facilities, as reduced
by interest income on cash balances. Net interest expense increased to $2.0
million for 1998 from $1.9 million for 1997, primarily due to a slight increase
in amounts outstanding under our credit facilities.
Income Taxes
There was a provision for income taxes recorded for 1998 of $2.0 million.
We recorded a provision for income taxes of $35,000 for 1997. The increase in
income taxes resulted from the increase in our profitability in 1998.
26
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth the unaudited consolidated statement of
operations data for each of the eight quarters prior to December 31, 1999. In
the opinion of management, this information has been prepared substantially on
the same basis as the audited consolidated financial statements appearing
elsewhere in this prospectus, and all necessary adjustments, consisting only of
normal recurring adjustments, have been included in the amounts stated below to
present fairly the unaudited consolidated quarterly results of operations data.
The unaudited consolidated quarterly data should be read in conjunction with our
audited consolidated financial statements and the notes thereto appearing
elsewhere in this prospectus. The operating results for any quarter should not
be considered indicative of results of any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses........ $ 4,108 $ 6,535 $ 7,532 $ 8,241 $ 5,360 $ 8,890 $11,071 $11,903
Maintenance and
services............... 4,563 4,876 5,804 6,437 6,274 6,590 8,486 9,085
Hardware and other....... 1,425 895 532 1,673 1,478 1,262 721 2,266
------- ------- ------- ------- ------- ------- ------- -------
Total revenues...... 10,096 12,306 13,868 16,351 13,112 16,742 20,278 23,254
Cost of revenues:
Software licenses........ 480 640 735 799 716 1,061 1,373 1,318
Maintenance and
services............... 1,257 1,140 1,379 1,543 1,987 2,059 2,732 1,842
Hardware and other....... 1,139 596 322 760 1,037 884 566 1,138
Amortization of purchased
software and
capitalized software
development costs...... 17 17 17 214 62 62 58 116
------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues.......... 2,893 2,393 2,453 3,316 3,802 4,066 4,729 4,414
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............... 7,203 9,913 11,415 13,035 9,310 12,676 15,549 18,840
Operating expenses:
Sales and marketing...... 3,901 4,549 5,936 7,208 4,865 5,774 7,329 7,550
Research and
development............ 1,496 1,150 1,518 2,043 1,464 1,197 1,205 2,050
General and
administrative......... 1,069 1,069 1,269 1,461 1,188 1,496 1,773 2,651
Write-off of offering
costs.................. -- -- -- 1,592 -- -- -- --
Amortization of
intangible assets...... 24 24 100 (74) 88 88 88 (264)
Profit on disposition of
subsidiary............. -- -- -- -- -- -- -- (42)
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.......... 6,490 6,792 8,823 12,230 7,605 8,555 10,395 11,945
------- ------- ------- ------- ------- ------- ------- -------
Profit from operations..... 713 3,121 2,592 805 1,705 4,121 5,154 6,895
Other income (expense):
Interest expense, net.... (457) (475) (483) (615) (507) (341) (290) 477
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes.................... 256 2,646 2,109 190 1,198 3,780 4,864 7,372
Income tax expense......... 100 1,031 822 73 395 1,247 1,605 1,850
------- ------- ------- ------- ------- ------- ------- -------
Income after taxes before
extraordinary item....... 156 1,615 1,287 117 803 2,533 3,259 5,522
Extraordinary item -- gain
on debt forgiveness...... -- -- -- -- -- -- -- 1,163
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).......... $ 156 $ 1,615 $ 1,287 $ 117 $ 803 $ 2,533 $ 3,259 $ 6,685
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
27
<PAGE> 29
Similar to other enterprise-wide software applications companies, we have
experienced and expect to continue to experience seasonal fluctuations in our
operating results. We have generally realized lower revenues in our first and
second fiscal quarters and higher revenues in our third and fourth fiscal
quarters. This is due, in part, to the March 31 fiscal year-end of many of our
customers. In general, during our first fiscal quarter, many customers have
already expended their information technology budgets. As a result, our third
and fourth fiscal quarters generally reflect greater revenue recognition because
of a higher concentration of software system installations.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations since inception primarily through borrowings
under bank credit facilities, private placements of equity and debt securities,
equity contributions by our principal stockholder and our initial public
offering. In April 1999, we sold 3,300,000 shares of our common stock in our
initial public offering, generating net proceeds of approximately $12.9 million.
In June 1999, we sold 230,000 shares of our common stock and generated
approximately $1.1 million in connection with the exercise of a portion of the
over-allotment option granted to the underwriters of our initial public
offering. In October 1999, we sold 1,600,000 shares of our common stock to
Info-quest in a private placement, generating net proceeds of approximately
$16.2 million. As of December 31, 1999, we had approximately $13.4 million of
cash and cash equivalents and no short-term borrowings and a working capital
surplus of approximately $17.8 million.
We may, from time to time, consider acquisitions of complementary
businesses, products or technologies, which may require additional financing. In
addition, continued growth in our business may, from time to time, require
additional capital. We cannot assure you that additional capital will be
available to us at such time or times as such capital may be required or, if
available, that it will be on commercially acceptable terms or would not result
in additional dilution to our stockholders.
We had an operating cash flow surplus of $13.1 million for 1999. This was
primarily due to an increase in our revenue and the related net income. We had
operating cash flow deficits of $6.7 million and $4.0 million for 1998 and 1997,
respectively. Operating cash flow is affected by seasonality, among other
factors, and is often disproportionately higher in our third and fourth quarters
than in the first two quarters of the year.
Accounts receivable increased to $18.1 million for 1999 from $16.2 million
for 1998. The increase in accounts receivable in 1999 was primarily the result
of a greater number of significant contracts in 1999. These more significant
contracts have, by their terms, a longer period for payment, which is customary
in the industry. As of December 31, 1999, the average days revenue outstanding
was 90 compared to 112 for 1998. Accounts receivable increased to $16.2 million
as of December 31, 1998, from $9.5 million as of December 31, 1997.
We had an allowance for doubtful accounts of $507,000 for 1999 and $639,000
for 1998. We had $765,000 and $452,000 of write-offs in 1999 and 1998,
respectively. Due to our growth, we do not believe that historical write-offs
are necessarily indicative of future write-offs. We review the adequacy of the
allowance for doubtful accounts based primarily on a review of aged receivables,
with special attention paid to amounts over 90 days old. At December 31, 1999,
the allowance for doubtful accounts was $765,000, which management believes is
adequate to cover our receivable balance at December 31, 1999.
Accrued payroll taxes decreased to approximately $574,000 for 1999 from
$586,000 for 1998.
We utilized cash for investing activities of $17.6 million, $2.6 million
and $1.0 million for 1999, 1998 and 1997, respectively. During these periods, we
experienced significant growth and invested in property and equipment. During
the fourth quarter of 1999, we acquired e-nnovations.com for approximately $14.5
million.
Cash provided by financing activities was $18.1 million, $9.1 million and
$4.5 million for 1999, 1998 and 1997, respectively. Financing activities for
1999 primarily consisted of the initial public offering and a private placement
in October 1999. The net proceeds from the issuance of shares during the period
were
28
<PAGE> 30
$30.2 million. We used $13.9 million of the proceeds for payment of long and
short term borrowings. Financing activities for 1998 primarily consisted of a
private placement in February 1998 of approximately 1,294,500 shares of our
common stock, the net proceeds of which were $9.3 million. We used $2.9 million
of those proceeds for the repayment of long term borrowings in 1998. Financing
activities for 1997 primarily consisted of a private placement of equity
securities in the aggregate amount of $6.4 million, of which approximately $2.0
million was used to repay bank indebtedness. We believe that the net proceeds
from this offering, together with existing cash and cash equivalents, will be
sufficient to meet our working capital and currently planned expenditure
requirements for the next 12 months.
As of December 31, 1999, we had no outstanding indebtedness under our bank
credit facilities.
EURO CONVERSION
In January 1999, the Euro was introduced as the currency of a number of
participating nations in the European Union. Although the United Kingdom is not
currently a participating nation, the introduction of the Euro raises conversion
issues for business transacted with entities in participating nations. Our
products either include or have been upgraded to include the Euro and we do not
believe that the Euro conversion has had or will have an adverse effect on our
business. Because our critical internal systems have been modified to
accommodate a conversion to the Euro, we believe it is adequately prepared in
the event the United Kingdom converts to the Euro in the future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Rates
A significant portion of our business is transacted in currencies other
than the United States dollar. Our functional currency is the British Pound and
the functional currency of our non-United Kingdom subsidiaries are their local
currencies. As a result, we are subject to exposure from movements in foreign
currency exchange rates, specifically the U.S. dollar/British pound, the U.S.
dollar/Bulgarian Leva and the British pound/Bulgarian Leva exchange rates. We do
not use derivative financial instruments for speculative trading purposes, nor
do we hedge our foreign currency exposure to manage our foreign currency
fluctuation risk.
Interest Rate Sensitivity
In the past, our exposure related to adverse movements in interest rates
was primarily derived from the variable rate on our bank credit facilities. As
of the year ended December 31, 1999, we had repaid all of our indebtedness to
banks and other lenders. Therefore, we believe we are not currently exposed to
any market risks related to interest rate sensitivity.
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<PAGE> 31
BUSINESS
OVERVIEW
We develop, market, implement and support enterprise-wide software
applications primarily for mid-sized organizations in the manufacturing,
healthcare, hospitality and construction industries. Our fully-integrated suite
of Internet-enabled products allows our customers to manage and execute
mission-critical functions within their organization, including accounting,
purchasing, manufacturing, customer service, and sales and marketing. The
modular design of our products enables us to provide customers with a cost-
effective scalable solution which can be easily implemented. We focus on
mid-sized organizations with annual revenues of less than $200 million to
capitalize on a market we believe is receptive to our cost-effective solutions
and shorter implementation periods. To date, we have licensed our software
applications to more than 6,000 customers in over twenty countries.
Our software applications use our internally developed three-tiered, object
oriented software architecture, which we call the Aremis architecture. This
architecture enables us to develop software solutions rapidly and
cost-effectively by taking advantage of the common requirements of customers in
our target markets. In addition, we believe that, with 212 developers based in
our facilities in India, we have established a cost-effective model for
implementing, supporting and enhancing our software applications.
In December 1999, we acquired e-nnovations.com, an Internet software
solutions provider located in Bangalore, India. We believe this acquisition is a
key strategic milestone in our development because it enables us to address the
rapidly expanding market opportunities brought about by the Internet. For over
two years, we have partnered with e-nnovations.com and have utilized their
technological capabilities in several large projects. This acquisition enables
us to continue to leverage the diverse technological capabilities of
e-nnovations.com to address our customers' current and future e-business needs.
We believe the e-nnovations.com acquisition will also assist us to develop an
application service provider, or ASP, delivery method to best suit the evolving
requirements of our expanding customer base.
INDUSTRY BACKGROUND
Enterprise-wide software applications are designed to help a business
manage and execute its mission-critical operations. They provide an organization
with a strategic resource that can be used to generate and disseminate
mission-critical information, as well as enable it to respond rapidly to
changing market environments and customer needs.
Businesses are increasingly demanding flexible solutions that assist in the
management and execution of mission-critical functions in a continually changing
business environment. In the past, host-centric systems operating on mainframes
or mid-range computers achieved broad market acceptance. Although these systems
served the near-term needs of customers, they lacked the flexibility necessary
to operate in the modern marketplace due to their inability to accommodate
variations in business requirements and technology infrastructure. As a result,
companies like Baan, Oracle, PeopleSoft and SAP developed more flexible
enterprise-wide solutions targeted at Fortune 1000 companies. Although these
solutions have undergone significant evolution since their introduction, they
remain very expensive and require significant resources because they involve
lengthy implementation cycles and substantial customization. Small to mid-sized
organizations generally cannot afford and do not have the information technology
resources to purchase, implement and support these large-scale enterprise-wide
systems.
According to Forrester Research, an independent market research firm,
global packaged applications license revenues are estimated to grow from $14
billion in 1998 to over $41 billion by 2003. The international portion of this
market is estimated to grow from $6 billion to over $20 billion, representing an
annual compounded growth rate of approximately 27%. This growth can be
attributed, in part, to a shift among organizations away from developing
enterprise-wide software applications in-house to purchasing these applications
from outside sources. This shift has been fueled by the growing complexity of
new technology, the increasing failure rate of in-house software development
projects, and the difficulty in hiring, training and retaining software
professionals. By outsourcing their software needs, businesses can
30
<PAGE> 32
reduce their risk of in-house development failures and ensure quicker time to
market with new and increased functionality.
As a result, there is a substantial global market opportunity for
enterprise-wide software applications which cater to mid-sized organizations and
offer:
- ease of integration,
- faster implementation,
- reduced risks associated with business and technological changes,
- lower costs, and
- industry-specific and customized functionality.
THE AREMISSOFT SOLUTION
We focus on mid-sized organizations with limited information technology
resources and a need for cost-effective, modularized software systems that can
be scaled as the company grows. Our solutions provide the following benefits:
Industry-Specific Applications. We offer enterprise-wide software
applications for mid-sized organizations specifically tailored to four
vertical markets: manufacturing, healthcare, hospitality and construction.
Through our industry focus and history of working closely with customers,
we believe we have developed a high level of expertise in
industry-specific, complex business processes which enables us to develop
software applications to address our customers' specific needs.
Comprehensive Product Suite. Our comprehensive suite of products
provides our customers with significant flexibility and a wide range of
functions. We utilize a modular approach in configuring our solutions,
drawing upon a broad array of modules that handle various business
functions such as accounting, purchasing, manufacturing, customer service
and sales and marketing. As a result, our customers are able to incorporate
their business processes into a single system and add new modules as their
business needs increase.
Rapid Implementation and Integration Advantages. The modular design
and object oriented nature of our products, combined with our vertical
market focus and expertise, permits rapid product implementation. Our
software applications are designed to address the specific needs of our
customers so they need only purchase those applications with the functions
they require. This limits the need for extensive customizing after
installation and eliminates implementation and training time for
unnecessary features. Our software products operate on numerous hardware
platforms, are compatible with all major databases and can be integrated
with a variety of Internet technologies.
Global Service and Support. We provide high quality global service
and support, which we believe is a critical component of our solution. We
offer dedicated product service and support by highly trained personnel
locally and through our software development and support facilities in
India. We believe our investment in worldwide customer support services and
user groups improves communication and feedback, enhancing customer
satisfaction and cultivating long-term relationships with our customers.
Ease of Migration. Although we encourage our customers to migrate to
our newer products, we also support their use of legacy products. By
providing support for legacy products, we protect our customers' investment
in their existing systems and reduce the costs and business interruptions
associated with mandatory system upgrades. We believe this is critical to
customer satisfaction and improves our success in transitioning customers
to our rejuvenated and new products.
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<PAGE> 33
THE AREMISSOFT STRATEGY
Our business objective is to attain a leadership position as a provider of
enterprise-wide software applications in our target markets. As part of our
business strategy, we intend to continue to:
Focus on Marketing to Mid-sized Organizations. We believe that the
market for providing cost-effective, enterprise-wide software applications
to mid-sized organizations is large and underserved. We believe our
software products are well suited for this market because they are
generally less expensive and have significantly shorter implementation
periods than products marketed to larger businesses, which typically
require implementation periods in excess of one year. We intend to continue
to focus on the mid-sized market which is not easily penetrated by large
software vendors who face difficulties in tailoring their applications to
address the needs of smaller organizations.
Further Penetrate Targeted Markets. We believe there are significant
opportunities to increase our presence and expand our customer base within
the manufacturing, healthcare, hospitality and construction industries. We
intend to leverage the expertise we have developed in each of these
industries to further penetrate these markets and to take advantage of the
common functionality across these industries by utilizing our Aremis
architecture.
Increase Efficiencies by Using Our Software Development Facilities in
India. We believe our software development and support facilities in India
provide us with a significant competitive advantage in product development,
implementation, product rejuvenation and administrative functions. Our team
in India is responsible for research and development and shares
responsibilities for design and specification with our technical personnel
in the United Kingdom. We also utilize the satellite link that we
established between our operations in India and each of our other offices
to increase operating efficiency and enhance communications throughout our
operations. We intend to increase the use of our operations in India to
reduce costs in other areas of our business including administrative
functions.
Provide Internet-Enabled Software Solutions. Through our recent
acquisition of e-nnovations.com, we have enhanced our ability to provide
fully integrated Internet-enabled software solutions. We anticipate
releasing future versions of our software which have enhanced Internet
capabilities, including the delivery of our applications directly to our
customers over the Internet.
Expand on our Technological Expertise. We believe that our
three-tiered object oriented architecture enables us to respond to and
rapidly incorporate new technologies. We intend to continue to invest in
the development of new technologies and products to address evolving
customer requirements. In addition, our technology strategy is focused on
transitioning customers from legacy products to products utilizing our
Aremis architecture.
Expand Sales, Marketing, Support and Service. We believe there are
significant opportunities to expand our market position in our existing
markets by further developing our sales, marketing and support
infrastructure. We sell and support our software products directly in
Argentina, Bulgaria, Germany, India, Ireland, Mexico, the United Kingdom
and the United States and indirectly in 14 additional countries through
value added resellers. We plan to continue to invest significantly in
expanding our sales, marketing, support and services in these and other
geographic regions.
ACQUISITION STRATEGY
We believe we have developed a successful and proven acquisition model,
from pre-acquisition due diligence to post-acquisition integration. We believe
our model enables us to integrate acquired products and customers and, over
time, rejuvenate those products and transition those customers to our new
applications. A significant aspect of our growth strategy is, and will continue
to be, the acquisition of complementary businesses to achieve market presence
and increase our customer base. From January 1993 to March 1996, we acquired
eleven businesses, and in December 1999, we acquired e-nnovations.com.
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<PAGE> 34
Our acquisition strategy focuses on the corporate, financial and
operational characteristics of a potential business to be acquired. We
extensively consider a potential acquisition's customer base, products and
applications, application environment and operating platform to assess the
potential for rejuvenation utilizing our Aremis architecture.
After we have acquired a business, it is integrated into our operations.
The first step in the integration process is to establish a satellite link
between it and our software development and support facilities in India. A team
within our India facilities immediately assumes responsibility for product
development, finance and administration. As a result, we are able to reduce
staff in the development and administrative functions of the acquired business.
The next step in the process is to begin rejuvenating the acquired products
and transitioning them to our Aremis architecture. At this point, we offer
customers of the acquired business three choices, to transition to one of our
products, to upgrade to a rejuvenated legacy product or to continue to utilize
the existing legacy product. We are sensitive to the customer's investment in
legacy systems and do not require them to transition to the rejuvenated
products, rather, we continue to support the acquired businesses' legacy
products until all customers are transitioned to one of our rejuvenated or new
products. Because the transition process is gradual and, to a large extent,
controlled by the customer, disruption to the customer's operations is
minimized.
The following table illustrates a typical product rejuvenation process:
PRODUCT REJUVENATION PROCESS
[FLOW CHART]
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<PAGE> 35
THE AREMIS ARCHITECTURE
We believe that our Aremis architecture enables us to produce high quality,
scalable enterprise-wide software applications with substantially reduced
development, implementation and maintenance costs. The foundation of our Aremis
architecture is a three-tiered, object-oriented model, as depicted below:
AREMIS ARCHITECTURE
[AREMIS ARCHITECTURE CHART]
The three tiers of our Aremis architecture consist of presentation, logic
and database. The presentation tier is the interface between the user and the
system which, in the Aremis architecture, is a graphical user interface, or GUI.
The logic tier comprises the applications within each product that interact with
the database tier. The database tier stores mission-critical enterprise-wide
data. A primary advantage of this three-tier structure is that it allows
software programmers to make changes and enhancements to any one tier, without
needing to modify others.
We believe that our Aremis architecture's object orientation provides us
with a significant competitive advantage. We have devoted significant resources
to developing an extensive proprietary software library of well-defined,
reusable business objects which link business rules and policies to our
applications. This object orientation enables our developers to easily create
additional modules or to rapidly adapt existing software to changing business
conditions or requirements. It also facilitates the re-use of functional
applications which are similar across our products and our markets. We believe
that approximately 70% of the objects used within the Aremis architecture are
common across the markets we target. This means that the same objects can be
used in applications across various industries without substantial modification.
The object orientation of our Aremis architecture also helps to minimize
training costs since our software developers, who are already trained in the
development methods and language, can be assigned to various vertical markets
with little or no additional training. In a similar manner, we can add modules
to a customer's Aremis system with minimal additional cost and training.
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<PAGE> 36
Our Aremis architecture encompasses most industry standard database
technologies including:
<TABLE>
<S> <C>
- Informix - SQL Server
- Oracle - Sybase
</TABLE>
This provides our customers with the flexibility to utilize our high quality
data warehousing and data mining applications. Our Aremis architecture is also
based on open, client/server computing technology. This open environment
provides compatibility with other software applications, even among multiple
revision levels of the same or different products. Components of the Aremis
architecture have been implemented on numerous hardware platforms and operating
systems, including:
<TABLE>
<S> <C>
- Windows NT - Novell
- Windows 95 - Multitasking DOS environments
- UNIX
</TABLE>
OUR PRODUCTS
We provide customized enterprise-wide software applications for mid-sized
organizations in four principal vertical markets. For each of the last three
years, revenues in each of these markets, as a percentage of our total revenues,
were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Manufacturing............................................... 22% 32% 35%
Healthcare.................................................. 45 30 27
Hospitality................................................. 24 26 26
Construction................................................ 8 8 7
Other....................................................... 1 4 5
--- --- ---
Total............................................. 100% 100% 100%
=== === ===
</TABLE>
As a result of the acquisitions we completed from January 1993 to March
1996, our customer base is in various stages of transition to products utilizing
our Aremis architecture. Each of our legacy products was originally acquired as
part of an acquisition and subsequently rejuvenated. In the rejuvenation
process, a legacy product is enhanced by incorporating the then current features
of the Aremis architecture appropriate for that product. New customers in each
of our target markets are sold rejuvenated products and updated versions of
products, while existing customers of the acquired businesses are encouraged to
transition to the rejuvenated product line at their own pace. As a result, the
products we sell and support consist of:
- legacy products of acquired businesses that have not been rejuvenated,
- legacy products of acquired businesses that have been rejuvenated and
incorporate features of our Aremis architecture, and
- new products that incorporate all or a substantial portion of the
features of our Aremis architecture.
We currently sell and support products in each of the following vertical
markets: manufacturing, healthcare, hospitality and construction.
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<PAGE> 37
MANUFACTURING PRODUCTS
[PRODUCT GRAPH]
- ---------------
(1) Some customers are licensed for more than one version of the product and, as
a result, are represented more than once in the number of installed
customers.
aremis enterprise is a fully-integrated enterprise-wide management and
control system which provides full enterprise resource planning capabilities and
broad functionality and is compatible with larger enterprise resource planning
systems. aremis enterprise consists of nine main application modules and
incorporates features of our Aremis architecture.
MTMS, which operates on UNIX or Windows platforms, is compatible with
larger enterprise resource planning systems. MTMS was acquired in connection
with our acquisition of BEC Group Limited and was subsequently rejuvenated. The
rejuvenated version of MTMS contains the same application modules and programs
as aremis enterprise but does not incorporate all features of our Aremis
architecture.
License fees for the aremis enterprise and MTMS products range from
approximately $50,000 to $500,000 depending upon the size of a customer and
number of application modules utilized.
The following table describes the main application modules and the primary
customer benefits of aremis enterprise and the rejuvenated MTMS products:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
Manufacturing Data Management - Enables the creation of, and access to, parts
details, bills of material, process routes and
other resources fundamental to the control of the
manufacturing process
Production Planning - Assists in the control of daily targets for
inventory and labor
Production Control - Facilitates ordering and controlling work in
progress
Inventory and Stores - Defines and controls inventory requirements,
records unplanned inventory movements, tracks
inventory in all stages of the manufacturing
process and generates product forecasts
Purchasing - Integrates purchase orders, material requirements
planning, quality control and purchase invoice
validation
Sales - Provides several methods of entering purchase
orders
System Software - Provides the framework upon which the MTMS
customer implementation is built and maintained;
includes modules to parameterize system
functions, set defaults and provide options for
creating and maintaining basic system data
Quality Control - Enables management of quality control of raw
materials and finished products
Environment - Contains the control mechanism to support a range
of database facilities
</TABLE>
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<PAGE> 38
HEALTHCARE PRODUCTS
[HEALTHCARE PRODUCTS FLOW CHART]
- ---------------
(1) Some customers have been licensed for more than one version of the product
and, as a result, are represented more than once in the number of installed
customers.
Global Clinical System for Windows, commonly referred to as GCS for
Windows, is a navigation system for managing the medical and administrative
tasks that are routinely encountered by physicians, physician groups and
community hospitals. It utilizes many features of our Aremis architecture,
incorporating object-oriented and touch screen technologies. GCS for Windows
consists of nine main application modules.
AMSyS is a DOS-based clinical system we acquired in connection with our
acquisition of Advanced Medical Systems Limited that we subsequently
rejuvenated. The rejuvenated version of AMSyS incorporates primarily the same
application modules as GCS for Windows but in a non-Windows format and operates
alone or in a PC/local area network environment.
Genisyst is a product we acquired in connection with our acquisition of
Genisyst Limited. The rejuvenated version of Genisyst incorporates functionality
similar to GCS for Windows and provides a nondisruptive transition for customers
to GCS for Windows.
License fees for our GCS products range from approximately $20,000 for
single users to $150,000 for multiple user systems, depending upon the number of
application modules utilized. License fees for our other rejuvenated products
vary depending on the product but are generally lower than GCS license fees.
The following table describes the main application modules and their
primary customer benefit of GCS for Windows:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
Administration Manager - Contains all basic patient record information including
name, age, gender and address
Consultation Manager - Delivers an electronic patient record to the clinician's
desktop, providing the user with the significant medical
history of the patient, consultation history, test results
and tests due
Prescription Manager - Provides access to the 40 most commonly prescribed drugs,
as well as information on generic types, preferred drugs,
packaging and costs
Appointment Manager - Creates an appointment calendar for multiple physicians
across various specialties, tracks patient visits, prints
details and produces statistical reports for physicians
Reporting - Generates reports specific to a practice or health
authority, based on a number of factors including age,
gender and patient profile
Training - Provides state-of-the-art training techniques from the
user's screen
Communications - Enables a facility to link its system to the NHS intranet,
the local hospital and the health authority
Word Processing - Allows users to incorporate data from other modules into
letters and referrals
Dispensing - Facilitates the issuance of drugs and prescriptions
</TABLE>
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HOSPITALITY PRODUCTS
[HOSPITALITY PRODUCTS FLOW CHART]
- ---------------
(1) Some customers are licensed for more than one version of the product and, as
a result, are represented more than once in the number of installed
customers.
Aremis 4.0 Property Management System, commonly referred to as Aremis 4.0
PMS, is a comprehensive client/server hotel property management system that can
be dynamically configured to match a customer's business model. Aremis 4.0 PMS
consists of eight main application modules that offer a wide range of functions
for both the front and back office operations in a hotel and incorporates
features of our Aremis architecture. Aremis 4.0 PMS is scalable to accommodate
hotels with more than 500 rooms.
IGS Hotel is a product we acquired in connection with our acquisition of
IGS Leisure Technology Limited. IGS Hotel operates in a DOS format and offers a
wide range of functions for both the front and back office operations in a
hotel. The rejuvenated version of IGS Hotel contains primarily the same
application modules as Aremis 4.0 PMS but does not incorporate all features of
our Aremis architecture.
License fees for IGS Hotel and Aremis 4.0 PMS range from approximately
$11,000 to $1.0 million, depending on the size of a customer and number of
application modules utilized.
The following table describes the main application modules and the primary
customer benefits of Aremis 4.0 PMS and the rejuvenated version of IGS Hotel:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
Front Office - Assists hotels in managing their front office
operations from reservation through check out
Central Reservations - Provides hotel chains with a central reservations
facility for each hotel within the chain
Data Warehousing - Provides a central information database for hotel
chains and an executive information system for
management
History & Marketing - Provides hotels with key profile information on
guests and prospects
Conferencing & Banqueting - Assists hotels in organizing events and facilitates
the reservation process by consolidating billing
statements and maintaining detailed information on
guests and events
Point of Sale (Restaurant & Bar) - Provides automatic and direct settlement of
restaurant and bar charges onto the appropriate
account; advanced inventory module also controls
all aspects of the catering process
Interfaces - Offers interfaces to a number of high quality
third-party hardware and software systems including
room access control systems, telephone systems,
television systems, mini-bar systems and in-room
fax facilities
AccountMaster - Provides hotels with a comprehensive range of
management accounting and reporting software
designed specifically for the hospitality industry
</TABLE>
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<PAGE> 40
CONSTRUCTION PRODUCTS
[CONSTRUCTION PRODUCTS FLOW CHART]
- ---------------
(1) Some customers are licensed for more than one version of the product and, as
a result, are represented more than once in the number of installed
customers.
ViXEN Windows is a fully-integrated Windows-based management and control
system designed specifically for contracting companies across a variety of
industries. It consists of 13 main application modules and incorporates many
features of our Aremis architecture.
ViXEN Plus & ODBC operates on a UNIX platform. The product was acquired in
connection with our acquisition of Briter Computer Systems Limited and was
subsequently rejuvenated. ViXEN Plus & ODBC operates in a multi-user environment
and contains the same application modules as ViXEN Windows but does not
incorporate all features of our Aremis architecture.
License fees for a ViXEN contracting system range from approximately
$80,000 to $500,000 depending on the size of a customer and number of
application modules utilized.
The following table describes the main application modules and the primary
customer benefits of ViXEN Windows and ViXEN Plus:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
Services and Maintenance - Controls various tasks related to servicing and
maintaining equipment and facilities by allowing
users to record and manage customer address and plant
equipment parameters
Job Costing - Records and analyzes costs of each job; serves as the
hub of the ViXEN contracting system
Purchase Orders - Produces printed orders, calculates prices and
discounts automatically and records the value of
outstanding orders as part of work in progress
Estimating - Calculates a quote based on changes in labor rates,
overhead, task factors, wastage, allowances,
increased cost percentages and desired profit margin
and performs sensitivity analysis
Inventory Control - Maintains control of inventory changes by providing
detailed information on inventory levels, goods
ordered from suppliers and incoming and outgoing
transactions
Price File Database - Provides instant access to current prices on
frequently used products for a variety of purposes,
including estimating, material requisitions, purchase
orders, inventory control and small works invoicing
Client Reconciliation - Assists in the recording, reconciling and accounting
for interim applications, client certificates,
deferred value-added taxes and discounts and
retentions on contracts
Subcontractor Reconciliation - Provides the same functionality for subcontractors as
Client Reconciliation provides for contractors
</TABLE>
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<PAGE> 41
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
Sales Ledger - Automatically posts invoices through the Job Costing
module and performs sales analyses
Purchase Ledger - Logs invoices, validates input data, specifies
payment options, makes automatic payments and
produces invoices and checks
Nominal Ledger - Provides extensive reporting modules in a variety of
formats based on a user-defined structure
Payroll - Processes the wage and salary payments of various
types of employees
System Management - Encompasses a range of necessary features,
integrating other ViXEN modules in a UNIX environment
</TABLE>
CUSTOMERS
We primarily focus on mid-sized organizations within the manufacturing,
healthcare, hospitality and construction industries worldwide. As of March 14,
2000, we had licensed software products to over 6,000 customers in over twenty
countries. No one customer accounted for more than 10% of our total revenues in
1999. The following is a representative list of companies in our targeted
markets:
<TABLE>
<CAPTION>
MANUFACTURING HEALTHCARE HOSPITALITY CONSTRUCTION
- ---------------------- --------------------- ---------------------- -------------------------
<S> <C> <C> <C>
ABB Kent Joy BHB Hospital Trust Bass (Toby Inns) CWS Engineering Services
Alcan Aluminum Birmingham Multifund Cliveden East Midlands
Electricity
British Aerospace Blackburn National Forte Limited London Electricity
Health Trust
Fernz Corporation Dudley Multifund Friendly Hotels Midlands Electricity
Nabisco Biscuit Co. Durham Multifund Jarvis Hotels NG Bailey & Co.
Rotork Controls Kingston & Richmond Jurys Hotel Group Norweb Contracting
Spartan Electronics Lambeth & Lewisham Millennium & Copthorne ROMEC
Hotels
Telefon AB LM Ericsson Potteries Healthcare Regal Hotel Group Southern Electric
Tomkins Group South Wales GP Group Thistle Hotels Southwestern Electricity
Watts Industries Southampton Multifund Whitbread (Travel Inn) Yorkshire Electricity
Europe
</TABLE>
SALES AND MARKETING
We market our products primarily through a direct sales force organized
around our target markets which enables us to address the specialized needs of
our customers in each of these markets. In the manufacturing and hospitality
industries, we also rely, to a limited extent, on value added resellers to sell
our products.
We have adopted a tailored sales and marketing strategy to develop demand
for our products by creating visibility for us and awareness of our products.
This strategy includes advertisements in leading trade publications,
participation in trade shows and sponsorship of user groups. In addition, we
have developed corporate sales and marketing materials as well as general
financial and technical materials that we distribute to each of our subsidiaries
for inclusion in their sales materials as well as make available on our web
site, thereby promoting a consistent portrayal of our image and products.
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<PAGE> 42
The sales cycles for our products vary across each target market typically
ranging from one to 12 months. The average sales cycle for our manufacturing
products is three to nine months, healthcare is one to three months, hospitality
is three to six months, and construction is six to 12 months. The sales cycle
depends on many factors, including the size of customer's organization, the
number of individuals involved in the purchasing decision, whether a potential
customer has retained a consultant to assist in a purchasing decision, the
status of a customer's implementation of a hardware system and the degree of
implementation, consulting and training required.
PRODUCT DEVELOPMENT
Since our inception, we have made substantial investments in research and
development. We are continually designing and developing new generations of
software applications to provide improved performance and enhanced functions
utilizing the most recent proven technology.
We maintain research and development centers in both the United Kingdom and
India. Our operation in the United Kingdom concentrates primarily on new product
design and prototyping using our Aremis architecture. Our software engineering
research division also evaluates and develops new technologies and methodologies
for the future benefit of our broad range of products. These include hand held,
imaging, Internet/intranet, voice activation, touchscreen and multimedia
technologies. Coding, integration and testing are performed at our software
development and support facilities in India, where employees are divided into
teams for each target market. Our teams in India also focus on incorporating
enhancements and error corrections to existing products.
Use of the software development and support facilities in India provides us
with access to highly skilled software engineers. In contrast, the available
pool of appropriately skilled software professionals in Europe and the United
States is limited. In addition, the cost of recruiting and training software
developers in C++ and Java is substantially greater in Europe and North America.
We believe our facilities in India provide us with a significant advantage over
our competitors in Western Europe and the United States, even with the
additional communications and management overhead associated with remote
development.
CUSTOMER SERVICE AND SUPPORT
We provide service and support to our customers to promote rapid and
efficient implementation. Our service and support offerings include:
Installations and Training. Installations are planned and overseen by
specialized project managers in accordance with customer requirements and
pre-installation consultation is provided when necessary. We offer a
fully-integrated training program to support customer implementation of our
products to help ensure successful installations.
Customer Support. In addition to local support provided on a daily basis,
we provide a high level of customer support through our software development and
support facilities in India. Support and product information are also provided
through our web page. In addition, through user groups in the United Kingdom and
North America, we seek feedback to enhance the support and development of our
products as well as our brand.
Business Review Services. We provide a business review service to ensure
that our customer organizations recognize and respond to market trends. These
reviews assess the factors influencing the performance of a customer's business
with respect to the management of required information services. As part of the
service, we produce a comprehensive report containing recommendations for
improvement and the related costs and benefits.
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<PAGE> 43
PROPRIETARY RIGHTS AND LICENSING
Our success is dependent upon our proprietary technology and other
intellectual property. We have submitted an application for federal registration
of the AremisSoft tradename, trademark and logo with the United States Patent
and Trademark Office. We have not registered any copyrights nor have we received
or applied for any patents for our products, technology or other intellectual
property. We rely primarily on the protection provided by applicable copyright,
trademark and trade secret laws, as well as confidentiality procedures and
licensing arrangements, to establish and protect our rights to our software. We
also enter into confidentiality agreements with some employees, distributors and
customers and limit access to and distribution of the source codes for our
products and other proprietary technology.
We enter into license arrangements that provide for the nonexclusive
license of our software. These license agreements generally allow the use of our
software solely by the customer for internal purposes without the right to
sublicense or transfer the software to third parties. These licenses generally
are perpetual, but subject to termination for breach or on notice, and contain
confidentiality and nondisclosure provisions, a limited warranty covering the
software, and indemnification for the customer from any infringement action
related to the software.
COMPETITION
The enterprise-wide software applications market, including the market for
client/server-based systems, is intensely competitive and rapidly changing. The
competition that we encounter varies across and within each vertical market
depending upon, among other things, the customer's size and specific system
requirements. There are many factors that affect competition in the software
applications market, including a vendor's responsiveness to customer needs and
the quality of customer support as well as a product's architecture,
functionality, speed of implementation, ease of integration, performance,
features, reliability, breadth of distribution and price. Although some factors
are applicable to each vertical market, others are unique to specific markets or
take on greater relative importance.
In the manufacturing industry, the principal factors include the ease of
implementation of a product and its functions, customer service, training and
price. Our main competitors in the manufacturing industry include:
<TABLE>
<S> <C>
- Epicor - QAD
- Fourth Shift - Symix
- Glovia
</TABLE>
In the healthcare industry in the United Kingdom, the principal factors
include the ability to produce applications to market in relatively short
periods of time, compliance with the requirements of primary care groups,
compliance with National Health Service specifications, access to reliable
software support, system implementation and maintenance costs. Our main
competitors in the healthcare industry include:
<TABLE>
<S> <C>
- EMIS - Microtest Europe
- Exeter Systems - PCTI Solution
- GPASS - Seetec
- In Practice - TOREX
- Medical Care Systems
</TABLE>
In the hospitality industry, the principal factors include the
functionality of the product, the ease of implementation, the return on the
customer's investment, customer service, training and price. Our main
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<PAGE> 44
competitors in the hospitality industry in the United Kingdom and Europe are
Innsite and MICROS Systems.
In the construction industry, the principal factors include the ability to
collect marketing data, produce accurate invoicing, profit control and
purchasing information, as well as price. Our main competitors in the
construction industry are:
<TABLE>
<S> <C>
- Database - FCG Computer Systems
- Estimation - Misys
</TABLE>
HEALTHCARE REGULATIONS
The healthcare industry in the United Kingdom is regulated by the National
Health Service, commonly referred to as the NHS, a government agency. Health
authorities ensure that the healthcare services provided meet the needs of
residents in their designated areas.
Our healthcare products sold in the United Kingdom are regulated by the NHS
through an accreditation process. The requirements for accreditation ensure that
computer systems provide consistent core functions and conform to NHS standards.
A new Information Management and Technology Strategy is expected to be
published by the NHS. The strategy will set the information technology standards
for the future including specifications for primary care groups. The purpose of
the strategy is to ensure that all primary care groups have in place an
auditable clinical system with the ability to provide management information.
Primary care groups are groups of physicians who combine practices to manage a
budget for staff, provide hospital referrals, drug costs, community nursing
services and management costs. The NHS recently recommended that major
investments in information technology systems to support primary care groups
should not be made before the strategy is published. As a result, we anticipate
that we will continue to experience delays in customer purchases of our
healthcare products pending such publication.
The strategy is expected to be the basis for drafting an updated
requirements for accreditation. In the future, the NHS is expected to only
reimburse primary care groups for purchases of information technology systems
that meet its accreditation criteria.
EMPLOYEES
As of December 31, 1999, we had 535 full-time employees. Of these
employees, 241 are based in our offices in the United Kingdom, 115 are based in
our software development and support facility in New Delhi, India and 97
employees are based in our software and development facility in Bangalore,
India. The remaining 82 employees are in various facilities in other locations.
None of our employees is represented by any collective bargaining agreements and
we have never experienced a work stoppage. We consider our relationship with our
employees to be good and we have not experienced any interruptions of operations
due to labor disagreements.
All of our employees in India are full-time employees. We do not employ
contractors or fixed term temporary personnel in India. In order to retain key
personnel, we operate a number of incentive programs, including subsidized
housing, car allowances, and overseas allowances and bonuses for employees
working on special projects. Currently, we utilize a three-shift system at our
facilities in India, thereby allowing us to ensure key projects are delivered on
time and to specification and facilitating customer access to our software
staff.
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<PAGE> 45
PROPERTIES
We lease various facilities which house our administration, sales,
marketing, support and research and development functions. The following table
sets forth information concerning our principal facilities as of December 31,
1999:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION FUNCTION LEASE EXPIRATION SQUARE FOOTAGE
- -------- -------- ---------------- --------------
<S> <C> <C> <C>
Blackburn, United Manufacturing Division 2010 12,000
Kingdom..................
Bangalore, India........... Internet, Workflow, 2002 11,700
Research and Development
New Delhi, India........... Research and Development, 2001 7,620
Customer Support
Woking, United Kingdom..... Principal Executive 2012 7,430
Offices
Hitchin, United Kingdom.... Healthcare Division 2000 7,125
Alton, United Kingdom...... Construction Division 2005 4,500
Westmont, New Jersey....... Manufacturing Division 2000 4,200
Nicosia, Cyprus............ Administration 2004 4,000
</TABLE>
We also have relatively small leaseholdings elsewhere in Argentina,
Bulgaria, Germany, India, Ireland, Mexico, the United Kingdom and the United
States which expire on various dates from 2000 through 2013. We believe that our
current facilities will be sufficient to meet our needs for the next 12 months.
LEGAL PROCEEDINGS
We are not party to any material legal proceedings.
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<PAGE> 46
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table lists our current directors, executive officers and
other key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Dr. Lycourgos K. Kyprianou..... 45 Chairman of the Board and Chief Executive Officer
Roys Poyiadjis................. 34 President and Vice Chairman of the Board
Michael A. Tymvios............. 37 Chief Financial Officer
Noel R. Voice.................. 58 Chief Operating Officer, Secretary and Director
M.C. Mathews................... 35 General Manager of Group Software Development and
Director
Barry J. Crowe................. 55 General Manager of Manufacturing Systems
Dennis Badman.................. 53 General Manager of Healthcare Systems
Michael J. Gadbury............. 52 General Manager of Hospitality Systems
Brian Rogers................... 59 General Manager of Construction Systems
Dann V. Angeloff............... 64 Director
George H. Ellis................ 50 Director
H. Tate Holt................... 48 Director
Theodoros Fessas............... 48 Director
George Papadopoulos............ 53 Director
John Malamas................... 52 Director
</TABLE>
Dr. Lycourgos K. Kyprianou has served as our chairman of the board and
chief executive officer since October 1997 and has served as chairman of the
board and managing director of our subsidiaries and predecessors since 1978. Dr.
Kyprianou is the sole founder of our worldwide business, including our software
development and support facility in India. Dr. Kyprianou received a bachelor of
science degree with first class honors in computer science from the University
of London and a doctorate in philosophy (computer science) from Cambridge
University.
Roys Poyiadjis has served as our president and vice chairman of the board
since June 1998 and our chief financial officer from October 1998 through
September 1999. From 1997 to 1998, Mr. Poyiadjis served as a partner of Alpha
Capital Limited, an investment banking firm primarily focused on investments in
technology companies. From 1995 to 1996, he served as a director of Lehman
Brothers International Ltd. and from 1993 to 1995 he served as an associate with
Morgan Stanley & Co. International Limited. Mr. Poyiadjis received a bachelor of
science (honors) degree in communications engineering from the University of
Kent and a masters degree in business administration from the London Business
School.
Michael A. Tymvios has served as our chief financial officer and senior
vice president of finance since September 1999. From 1991 to 1999, Mr. Tymvios
was a partner at Morison International, a certified public accounting firm.
Prior to joining Morison International, he was a senior manager at Deloitte
Haskins & Sells. He is a chartered certified accountant and a fellow member of
the Chartered Association of Certified Accountants of the United Kingdom. Mr.
Tymvios received a bachelor of science (honors) degree in economics from the
University of Athens.
Noel R. Voice has served as a director since June 1998 and as our chief
operating officer and secretary since October 1997. From 1992 to 1997, he served
as the senior vice president of administration of our United Kingdom operations.
From 1987 to 1992, he was founder and managing director of Noble Marketing Ltd.,
a sales and marketing consulting firm. From 1987 to 1989, he was managing
director of Cara Consulting Ltd., a United Kingdom hotel systems company.
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<PAGE> 47
M.C. Mathews has served as a director since April 1999 and has served as
our general manager of group software development since October 1997. Since
1995, he has served as the managing director of software engineering of LK
Global Software Engineering (India) Private Limited, one of our subsidiaries.
From 1992 to 1995, he served as our group project manager. Prior to joining us
in 1990, Mr. Mathews was employed as a programmer with Alphabetics Ltd., an IBM
distributor in India. Mr. Mathews received a bachelor of science (honors) degree
from Kerala and a masters of science degree in physics from Delhi Universities.
Barry J. Crowe has served as our general manager of manufacturing systems
since October 1997. Since 1995, Mr. Crowe served as project manager, account
manager and managing director of one of our subsidiaries, LK Global
Manufacturing Systems (UK) Limited. From 1992 to 1995, he was a managing
director of BEC Group Limited, a manufacturing computer systems company that we
acquired. From 1988 to 1991, he served as a consultant for the BM Group, plc, a
construction company. Mr. Crowe is a chartered structural engineer.
Dennis Badman has served as our general manager of healthcare systems since
May 1999 and a senior manager of healthcare systems since August 1998. From 1994
to 1998, Mr. Badman served as general manager of LK Global Field Engineering,
one of our subsidiaries. From 1989 to 1994, he served as the regional manager of
Misys Computer Maintenance.
Michael Gadbury has served as our general manager of hospitality systems
since October 1997. From 1996 to 1998, he served as director of international
business development of LK Global Hospitality Systems (UK) Limited, one of our
subsidiaries, From 1993 to 1996, he served as our managing director. From 1984
to 1993, he was a managing director of IGS Leisure Technology Limited, a hotel
computer systems company we acquired.
Brian Rogers has served as our general manager of construction systems
since October 1997. Since 1995, he has served as managing director of LK Global
Construction Systems (UK) Limited, one of our subsidiaries. From 1978 to 1995,
Mr. Rogers served as managing director for Briter Computer Systems Limited, a
manufacturing computer systems company that was acquired by LK Global
Construction Systems (UK) Limited, one of our subsidiaries.
Dann V. Angeloff has served as a director since April 1999. Mr. Angeloff is
the founder and president of The Angeloff Company, a corporate financial
advisory firm, a position he has held since 1976. He also currently serves as a
director of Public Storage, Inc., a New York Stock Exchange listed company,
Nicholas/Applegate Growth Equity Fund, top jobs.net, plc, a company quoted on
the Nasdaq National Market and various private companies. Mr. Angeloff is a
former trustee of the University of Southern California and is a university
counselor. He received a bachelor of science degree in business administration
and a masters degree in finance from the University of Southern California.
George H. Ellis has served as a director since April 1999. Mr. Ellis
currently serves on the board of directors of various private companies. Since
1996, he has provided consulting services to various technology related
companies. From 1986 to 1996, he was the chief financial officer of Sterling
Software, Inc., a New York Stock Exchange listed company. Mr. Ellis is a
certified public accountant and received a bachelor of science degree in
accounting from Texas Tech University and a juris doctor degree from the
Southern Methodist University School of Law.
H. Tate Holt has served as a director since April 1999. Since 1990, Mr.
Holt has been president of Holt & Associates, a growth management consulting
firm. From 1987 to 1990, he served as a senior vice president of Automatic Data
Processing (ADP). Prior to 1987, Mr. Holt held positions in various senior
sales, marketing and general management positions at IBM, Triad Systems
Corporation and ADP. Mr. Holt is also a director of DBS Industries, Inc. and
Onsite Energy Corporation. Mr. Holt received a bachelor of arts degree from
Indiana University.
Theodoros Fessas has served as a director since November 1999. Since 1981,
Mr. Fessas has been a majority shareholder and president of several companies,
including Info-quest, that comprise the QUEST Group, a diversified information
technology and communications enterprise, headquartered in Athens,
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<PAGE> 48
Greece. Prior to that, Mr. Fessas worked in the construction industry as an
independent engineer while also serving as a scientific associate with the
thermodynamics faculty of Metsovio University. Mr. Fessas received a bachelors
of science degree in mechanical engineering from National Technical University
of Athens and a master of science degree in thermodynamics from Birmingham
University, England.
George Papadopoulos has served as a director since November 1999. Mr.
Papadopoulos was appointed as the managing director of Info-quest in February
2000. From 1977 to January 2000, he was the general manager of Info-quest. From
1995 to 1996, he served as the general manager of Decision System Integration, a
subsidiary of Info-quest, and from 1985 to 1995, he was a founder and managing
director of ABC Systems and Software. Mr. Papadopoulos received a degree in
agricultural engineering from the University of Thessaloniki and a bachelors of
arts degree in economics from the University of Athens.
John Malamas has served as a director since November 1999. Since 1987, Mr.
Malalmas has served as the corporate administrator and finance manager of the
QUEST Group. Mr. Malamas worked as a financial manager in various Greek and
multinational companies from 1973 to 1987 when he joined the QUEST Group. From
1990 to 1992, he served as the general manager of Com-Quest. Mr. Malamas
received a bachelors degree in business administration from University of
Pireus.
BOARD OF DIRECTORS
Our board of directors consists of ten members, all of whom are elected for
one-year terms at each annual meeting of stockholders. Holders of shares of
common stock have no right to cumulative voting in the election of directors.
Consequently, at each annual meeting, a majority of the stockholders are able to
elect all of the directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
The audit committee of the board of directors makes recommendations
regarding the retention of independent auditors, reviews the scope of the annual
audit undertaken by our independent auditors and the progress and results of
their work, and reviews our financial statements, internal accounting and
auditing procedures and corporate program to ensure compliance with applicable
laws. The members of the audit committee are Messrs. Angeloff, Ellis and Holt.
Compensation Committee
The compensation committee of the board of directors reviews and approves
executive compensation policies and practices, reviews salaries and bonuses for
our officers, administers our 1998 Stock Option Plan and other benefit plans,
and considers other matters as may, from time to time, be referred to them by
the board of directors. The current members of the compensation committees are
Dr. Kyprianou and Messrs. Poyiadjis, Angeloff, Ellis and Holt.
COMPENSATION OF THE BOARD OF DIRECTORS
Our directors who are not also our employees or employees of one of our
subsidiaries receive $20,000 per year plus $1,000 for each board meeting
attended and $1,000 for each committee meeting attended. Directors do not
receive any other cash compensation for services as a director. All directors
are reimbursed for their expenses incurred in attending meetings. Each outside
director also receives, for each year of service as a director, options to
purchase 20,000 shares of common stock. All options are granted at an exercise
price equal to the fair market value of the common stock on the date of grant
and vest at the rate of 33 1/3% per year commencing on the grant date.
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by or paid to our
chairman of the board and chief executive officer for 1997, 1998 and 1999 and
our two other highest paid executive officers whose total salary and bonuses for
1999 exceeded $100,000. No other executive officer's total annual compensation
for services rendered in all capacities for 1997, 1998 and 1999 exceeded
$100,000.
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<PAGE> 49
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
-------------------------- ALL OTHER AWARDS SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION UNDERLYING OPTIONS
- --------------------------- ---- -------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Dr. Lycourgos K. Kyprianou(2)........... 1999 $250,000 $300,000 -- 700,000
Chairman of the Board and 1998 250,000 200,000 -- --
Chief Executive Officer 1997 250,000 200,000 -- --
Roys Poyiadjis.......................... 1999 200,000 300,000 -- 700,000
President and Vice Chairman of
the Board
Noel R. Voice........................... 1999 100,000 50,000 -- 60,000
Chief Operating Officer, General
Manager of Healthcare Systems and
Secretary
</TABLE>
- ---------------
(1) As translated into United States dollars based upon the average conversion
rate in effect during each fiscal year.
(2) Does not include payment of business related expenses of approximately
$250,000 in 1997 and 1998.
OPTION GRANTS IN 1999
The following table provides information relating to stock options granted
during the year ended December 31, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERMS
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED(#) IN FISCAL YEAR PER SHARE DATE 5% 10%
- ---- ----------- ---------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dr. Lycourgos
Kyprianou............ 400,000 18.07% $ 5.000 04/22/04 $ 552,563 $1,221,020
300,000 13.55 10.875 09/01/04 901,369 1,991,789
Roys Poyiadjis......... 200,000 9.03 5.000 04/22/04 276,282 610,510
500,000 22.59 10.875 09/01/04 1,502,281 3,319,648
Noel R. Voice.......... 30,000 1.36 5.000 04/22/04 41,442 91,577
30,000 1.36 10.875 09/01/04 90,137 199,179
</TABLE>
The exercise price of each option was equal to the fair market value of our
common stock on the date of the grant. Percentages shown under "Percent of Total
Options Granted to Employees in the Last Fiscal Year" are based on an aggregate
of 2,213,800 options granted to our employees under the 1998 Stock Option Plan
and outside of this plan during the year ended December 31, 1999. The vesting of
the options granted outside of the 1998 Stock Option Plan are subject to
stockholder approval.
Potential realizable value is based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the five-year term. These numbers are calculated
based on Securities and Exchange Commission requirements and do not reflect our
projection or estimate of future stock price growth. Potential realizable values
are computed by:
- multiplying the number of shares of common stock subject to a given
option by the exercise price,
- assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the entire
five-year term of the option, and
- subtracting from that result the aggregate option exercise price.
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<PAGE> 50
FISCAL YEAR END OPTION VALUES
The following table sets forth, for each of the executive officers named in
the summary compensation table, the number and value of exercisable and
unexercisable options for the year ended December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNSECURED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Dr. Lycourgos Kyprianou................... 133,333 266,667 $3,666,658 $7,333,343
150,000 150,000 3,243,750 3,243,750
Roys Poyiadjis............................ 66,666 133,334 1,833,315 3,666,685
250,000 250,000 5,406,250 5,406,250
Noel R. Voice............................. 10,000 20,000 275,000 550,000
15,000 15,000 324,375 324,375
</TABLE>
Amounts shown under the column "Value of Unexercised In-The-Money Options
at December 31, 1999" represent the difference between the fair market value of
the shares of common stock underlying the options at December 31, 1999, $32.50
per share (the closing price on the last trading day of 1999, as reported by the
Nasdaq National Market) less the corresponding exercise price of such options.
1998 STOCK OPTION PLAN
In October 1997, our board of directors adopted the 1998 Stock Option Plan,
which provides for awards in the form of options, including incentive stock
options and nonqualified stock options. Our directors, officers, employees and
consultants are eligible for the grant of nonqualified stock options, while only
our employees are eligible for the grant of incentive stock options. Options can
have a term of up to ten years from the date of grant.
The 1998 Stock Option Plan is administered by our compensation committee.
The consideration for each award under the 1998 Stock Option Plan is established
by the compensation committee, but in no event can the option exercise prices
for incentive stock options be less than 100% of the fair market value of the
common stock on the date of grant. Awards for employees have such terms and are
exercisable in such manner and at a time as the compensation committee
determines, subject to the terms of the plan.
Our board of directors may amend the 1998 Stock Option Plan as desired
without further action by our stockholders except as required by applicable law.
The 1998 Stock Option Plan will continue in effect, unless terminated by our
board of directors, for a term of ten years expiring in October 2007.
As of March 14, 2000, options to purchase 1,413,800 shares of common stock
were outstanding under the 1998 Stock Option Plan at a weighted exercise price
of $6.3032 per share. In addition, we granted options outside the 1998 Stock
Option Plan to purchase 800,000 shares of common stock at an exercise price of
$10.875 per share and 750,000 shares at an exercise price of $35.00 per share.
The vesting of the options granted outside of the 1998 Stock Option Plan are
subject to stockholder approval.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Dr. Kyprianou and Mr.
Poyiadjis. The employment agreements for Dr. Kyprianou and Mr. Poyiadjis expire
on June 1, 2001. Each of the employment agreements may be terminated by us or
the employee without cause (as defined in the employment agreements) upon 30
days notice, or for cause without notice. Under the terms of Dr. Kyprianou's
employment agreement, Dr. Kyprianou is entitled to minimum annual compensation
of $350,000 in 2000 and $400,000 in 2001. Under the terms of Mr. Poyiadjis'
employment agreement, Mr. Poyiadjis is entitled to minimum annual compensation
of $300,000 in 2000 and $350,000 in 2001. Under their employment agreements, Dr.
Kyprianou and Mr. Poyiadjis are each entitled to receive a severance benefit
equal to one times his annual compensation if terminated without cause and 2.99
times
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<PAGE> 51
his annual compensation if terminated without cause within 180 days after a
change in control. Each of these agreements also contain provisions prohibiting
each of Dr. Kyprianou and Mr. Poyiadjis from competing with us during the term
of their employment. The employment agreements with Dr. Kyprianou and Mr.
Poyiadjis also provide that we will indemnify them for any losses, costs,
damages or expenses incurred as a direct consequence of the discharge of their
duties or by reason of their status as our agents.
Dr. Kyprianou and Mr. Poyiadjis are also entitled to bonuses based on a
bonus plan adopted by the compensation committee at its December 1999 meeting.
Under this plan, Dr. Kyprianou and Mr. Poyiadjis are each entitled to receive a
bonus based on our ability to meet earnings per share targets, as established by
the board of directors or compensation committee. The bonus can be up to three
times their 2000 annual salaries, but cannot exceed $1.4 million individually.
In 1999, the compensation committee awarded each of Dr. Kyprianou and Mr.
Poyiadjis a $300,000 bonus.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors consists of five
directors including Dr. Kyprianou, our chief executive officer, and Mr.
Poyiadjis, our president. A majority of the members of the compensation
committee are non-employee directors and none of our executive officers serve on
the board of directors or compensation committee of any other entities.
In May 1998, we loaned approximately $2.6 million to Dr. Kyprianou. The
loan accrued interest at the rate of LIBOR plus 2% per annum and was repaid in
November 1999.
During the third and fourth quarters of 1998, Mr. Poyiadjis made loans to
us in the aggregate amount of approximately $1.7 million. The loans were
reflected in a promissory note that accrued interest at the rate of LIBOR plus
2%. We repaid the loan in May 1999.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We have adopted provisions in our certificate of incorporation that limit
the liability of our directors for monetary damages for breach of their
fiduciary duty as directors, except for liability that cannot be eliminated
under Delaware law. Delaware law provides that directors of a company will not
be personally liable for monetary damages for breach of their fiduciary duty as
directors, except for liability:
- for any breach of their duty of loyalty to the company or its
stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- that arises under Section 174 of the Delaware General Corporation Law for
unlawful payment of dividends or unlawful stock repurchases or
redemptions, or
- for any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation and bylaws also provide for
indemnification of our directors and officers to the fullest extent permitted by
Delaware law. We have entered into separate indemnification agreements with some
of our directors and officers that could require us, among other things, to
indemnify such persons against some liabilities that may arise by reason of
their status or service as directors or officers and to advance their expenses
as a result of any proceeding against them as to which they could be
indemnified. We believe that the limitation of liability provision in our
certificate of incorporation and the indemnification agreements facilitate our
ability to continue to attract and retain qualified individuals to serve as
directors and officers.
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<PAGE> 52
RELATED PARTY TRANSACTIONS
INFO-QUEST PRIVATE PLACEMENT
In October 1999, we raised approximately $17.6 million in a private
placement of 1.6 million shares of our common stock to Info-quest S.A.
Concurrent with the private placement, Info-quest acquired an additional 1.2
million shares of our common stock from LK Global (Holdings) N.V., a company
controlled by Dr. Kyprianou, our chief executive officer. In connection with
this private placement, we agreed to increase the size of our board of directors
to ten and nominate three representatives of Info-quest to our board of
directors so long as Info-quest holds twenty percent or more of our outstanding
common stock. If we increase the size of our board of directors or Info-quest
sells a portion of its shares, the number of directors it may nominate will be
adjusted in accordance with the agreement. As a result of the private placement
and concurrent purchase from LK Global (Holdings) N.V., Info-quest's holdings of
our common stock exceeded twenty percent of the outstanding common stock. In
accordance with the agreement, in November 1999 we increased the size of our
board to ten directors and appointed three representatives of Info-quest:
Messrs. Fessas, Papadopolous and Malamas.
We also granted Info-quest preemptive rights to acquire from us, at anytime
we make further issuances of our equity or convertible debt securities, an
amount of our securities necessary to maintain, after any future issuance, its
percentage of ownership in us immediately before the issuance. Info-quest has
indicated it will not exercise its pre-emptive rights in connection with this
offering.
Info-quest may require us to register under the Securities Act all or a
portion of its shares at our expense. In addition if we propose to register any
of our securities either for our own account or the account of others,
Info-quest is entitled to include their shares in the registration at our
expense. However, Info-quest agreed not to sell or transfer any of the shares
sold to it by us until October 2000 without our prior written consent if, after
giving effect to the sale, Info-quest would hold less than twenty percent of our
outstanding common stock. Finally, Info-quest granted us a right of first
refusal with respect to any of the shares sold to it by us that it decides to
sell in the future.
In connection with the private placement to Info-quest in October 1999,
Info-quest entered into a voting agreement with LK Global (Holdings) N.V., a
company controlled by Dr. Kyprianou, our chief executive officer, in which
Info-quest and LK Global (Holdings) agreed to vote all of our shares owned by
them for a slate of directors, seven of which are nominated by us and three of
which are nominated by Info-quest, for a total of ten directors. Pursuant to the
voting agreement, both parties shall also agree on the voting of their shares on
all other matters. If Info-quest and LK Global (Holdings) cannot agree on the
voting of their shares for any particular matter, neither of the parties will
vote their shares on that matter.
OFFICER LOANS
During the third and fourth quarters of 1998, Mr. Poyiadjis, our president,
made loans to us in the aggregate principal amount of approximately $1.7
million. The loans were reflected in a promissory note dated December 31, 1998,
bearing interest at the rate of LIBOR plus 2% per annum. We repaid the loan in
May 1999 and the largest aggregate amount outstanding under the note at any time
during 1999 was $1.8 million. The purpose of the loans made by Mr. Poyiadjis was
to provide us with additional working capital.
On May 15, 1998, we loaned $2.6 million to Dr. Kyprianou, our chief
executive officer, which was evidenced by a promissory note. The loan was made
to Dr. Kyprianou in order to provide temporary liquidity to Dr. Kyprianou. The
loan accrued interest at the rate of LIBOR plus 2% per annum. Dr. Kyprianou
repaid the loan in November 1999 and the largest aggregate amount outstanding
under the note at any time during 1999 was $1.9 million.
For a description of the employment and indemnification agreements we have
entered into with some of our directors and executive officers, please see the
section of this prospectus entitled "Management."
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<PAGE> 53
REGISTRATION RIGHTS
In connection with the private placement to third party investors of our
common stock and a convertible note in 1998, we granted the investors
registration rights. Pursuant to their registration rights, the holders thereof
may require us to register all or a portion of their shares at our expense. In
addition, if we propose to register any of our securities either for our own
account or the account of others, these investors are entitled to include their
shares in the registration at our expense.
We have also entered into registration rights agreements with each of Dr.
Kyprianou and Mr. Poyiadjis, who will beneficially own in the aggregate
4,067,410 shares of our common stock after this offering, exclusive of the
shares of Info-quest which Dr. Kyprianou may be deemed to beneficially own as a
result of the voting agreement. Under these agreements, Dr. Kyprianou and Mr.
Poyiadjis each have the right to require us to use our best efforts to register
all or a portion of their shares at our expense. In addition, if we propose to
register any of our securities either for our own account or the account of
others, Dr. Kyprianou and Mr. Poyiadjis are entitled to include their shares at
our expense. Dr. Kyprianou and Mr. Poyiadjis' registration rights are assignable
to parties who agree to be bound by the terms of registration rights.
In connection with our initial public offering in April 1999, we issued
warrants to Roth Capital Partners, Inc., formerly known as Cruttenden Roth
Incorporated. The warrants are exercisable beginning April 27, 2000 and the
holders have the right, subject to limitations, to require us to register the
shares of our common stock issuable upon exercise of the warrants. The expense
of one registration which is requested by Roth Capital Partners, Inc. will be
borne by us. All expenses of any subsequent registration shall be borne by them.
If we propose to register any of our securities either for our own account or
the account of others, the holders are also entitled to include their shares at
our expense.
For a description of the registration rights granted to Info-quest, see
"-- Info-quest Private Placement" above.
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<PAGE> 54
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of March 14, 2000, and as adjusted to reflect
the sale of the shares of common stock offered hereby, for:
- each person or entity known by us to own beneficially more than five
percent of our outstanding shares of common stock,
- each of our directors and executive officers,
- all directors and executive officers as a group, and
- the selling stockholder.
The number of shares shown as beneficially owned by each stockholder is
adjusted to reflect the sale of shares offered in this offering. Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Securities
and Exchange Act of 1934. Under this rule, shares may be deemed to be
beneficially owned by more than one person if, for example, persons share the
power to vote or the power to dispose of the shares. In addition, shares are
deemed to be beneficially owned by a person if the person has the right to
acquire shares within sixty days of the date as of which the information is
provided, for example, upon exercise of an option or warrant. In computing the
percentage ownership of any person, the number of shares is deemed to include
the amount of shares beneficially owned by such person, and only that person, by
reason of such acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in the following table does not necessarily
reflect the person's actual voting power at any particular date.
The percentage of beneficial ownership for the following table is based on
15,201,595 shares of common stock outstanding as of March 14, 2000 and
18,001,595 shares of common stock outstanding after the completion of this
offering.
Unless otherwise indicated, the address for each listed stockholder is: c/o
AremisSoft Corporation, Goldsworth House, Denton Way, Woking, Surrey GU21 3LG,
United Kingdom. To our knowledge, except as indicated in the footnotes to this
table or pursuant to applicable community property laws, the persons named in
the table have sole voting and investment power with respect to the shares of
common stock indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING NUMBER AFTER THE OFFERING
---------------------- OF SHARES --------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT
------------------------ ---------- -------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
Dr. Lycourgos K. Kyprianou(1)......... 7,637,379 48.90 -0- 7,637,379 41.47
Info-quest S.A.(2).................... 7,220,713 47.50 -0- 7,220,713 40.11
AL. Pantou 25
Athens 17671 Greece
Roys Poyiadjis(3)..................... 1,162,953 7.46 200,000 962,953 5.24
Michael A. Tymvios.................... 10,000 * -0- 10,000 *
Noel R. Voice......................... 35,000 * -0- 35,000 *
M.C. Mathews.......................... 35,000 * -0- 35,000 *
Dann V. Angeloff...................... 40,000 * -0- 40,000 *
George H. Ellis....................... 25,000 * -0- 25,000 *
H. Tate Holt.......................... 20,000 * -0- 20,000 *
All directors and executive officers
as a group (8 persons).............. 8,965,332 55.54 200,000 8,765,332 46.28
</TABLE>
- ---------------
(1) Represents shares held by LK Global (Holdings) N.V., for which Dr. Kyprianou
has sole voting and investment power, and includes 3,732,923 shares held by
Info-quest S.A. which is a party to a voting agreement with LK Global
Holdings N.V. and Dr. Kyprianou.
(2) Includes 3,487,790 shares held by LK Global (Holdings) N.V., which is a
party to a voting agreement with Info-quest.
(3) Represents shares held by Onyx Capital, Inc. for which Mr. Poyiadjis has
sole voting and investment power.
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<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our certificate of incorporation provides for authorized capital stock of
100,000,000 shares, consisting of 85,000,000 shares of common stock, $.001 par
value per share, and 15,000,000 shares of preferred stock, $.001 par value per
share. As of March 14, 2000, there were 15,201,595 shares of common stock issued
and outstanding held by 105 stockholders of record and there were no shares of
preferred stock outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders and do not have
preemptive rights. Our certificate of incorporation does not provide for
cumulative voting for the election of directors. Subject to preferences that may
be applicable to any then outstanding preferred stock, holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared by
the board of directors out of funds legally available therefor. All outstanding
shares of common stock are, and the common stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable. In the event
of any liquidation, dissolution or winding up of our affairs, the holders of
common stock will be entitled to share ratably in our assets remaining after the
payment or provision for payment of all of our debts and obligations and
liquidation payments to holders of outstanding shares of preferred stock.
Holders of common stock have no preemptive or conversion rights or other
subscription rights and there are no redemption or sinking fund provisions
applicable to the common stock.
PREFERRED STOCK
Our certificate of incorporation authorizes 15,000,000 shares of
undesignated preferred stock, none of which is currently outstanding. The board
of directors has the authority, without further action by the stockholders, to
issue from time to time the preferred stock in one or more series and to fix the
number of shares, designations, preferences, powers and relative participating,
optional or other special rights and the qualifications or restrictions thereof.
The preferences, powers, rights and restrictions of different series of
preferred stock may differ with respect to dividend rates, amounts payable on
liquidation, voting rights, conversion rights, redemption provisions, sinking
fund provisions and other matters. The issuance of preferred stock could reduce
the amount of earnings and assets available for distribution to holders of
common stock or affect adversely the rights and powers, including voting rights,
of the holders of common stock, and may have the effect of delaying, deferring
or preventing a change in control. We have no present plan to issue any shares
of preferred stock.
WARRANTS AND OPTIONS
As of March 14, 2000, we had warrants outstanding to purchase an aggregate
of 42,354 shares of our common stock at an exercise price of $8.56 per share.
The warrants are immediately exercisable, expire on April 10, 2000 and were
issued in payment of finder's fees in connection with our private placement of
preferred stock in October 1997. The number of shares issuable upon exercise of
the warrants is subject to adjustment in the event of dividends and other
distributions, issuances of convertible securities and stock splits, stock
dividends and similar events.
As of March 14, 2000, we also had warrants outstanding to purchase up to
330,000 shares of common stock at an exercise price of $7.50 per share. The
warrants are exercisable beginning April 27, 2000, expire on April 22, 2003 and
were issued to Roth Capital Partners, Inc., formerly known as Cruttenden Roth
Incorporated, in connection with our initial public offering. The number of
shares and the exercise price are subject to adjustment in some circumstances to
prevent dilution. These warrants are nontransferable for a period of one year
beginning April 22, 1999, except under limited circumstances.
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<PAGE> 56
As of March 14, 2000, we had options outstanding to purchase 2,963,800
shares of our common stock and had reserved 86,200 shares of our common stock
for future grants.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Provisions of our certificate of incorporation and bylaws summarized in the
following paragraphs may have the effect of discouraging a future takeover
attempt that is not approved by our board of directors but that individual
stockholders may deem to be in their best interests or by which stockholders may
receive a substantial premium for their shares over then current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have an opportunity to do so. Such provisions will also make the removal
of our board of directors or management more difficult.
Preferred Stock
Our board of directors has the authority to authorize issuance of shares of
preferred stock and to determine the terms of any one or more series of
preferred stock, including voting rights, conversion rates and liquidation
preferences. As a result of the ability to fix voting rights for a series of
preferred stock, our board of directors has the power, consistent with its
fiduciary duty, to issue a series of preferred stock to persons friendly to
management in order to attempt to block a merger or other transaction by which a
third party seeks control, and thereby assist management in retaining our
position.
Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors
Our bylaws require that a stockholder give no fewer than 60 nor greater
than 90 days advance written notice with regard to the nomination of candidates
for election as directors and with regard to other matters to be brought before
our annual meeting of stockholders. Although our bylaws do not give the board of
directors any power to approve or disapprove stockholder nominations for the
election of directors or of any other business desired by stockholders to be
conducted at an annual or any other meeting, our bylaws may have the effect of
precluding a nomination for the election of directors or precluding the conduct
of business at a particular annual meeting if the proper procedures are not
followed which may also discourage or deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or otherwise attempt
to obtain control, even if the conduct of the solicitation or attempt might be
beneficial to us and our stockholders.
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law that
generally prohibits a Delaware corporation from engaging in any of a broad range
of business combinations with any interested stockholder, as defined below, for
a period of three years following the time that the stockholder became an
interested stockholder, unless:
- before that time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder,
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer, or
55
<PAGE> 57
- at or after such time, the business combination is approved by the board
of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
For purposes of Section 203 of the Delaware General Corporation Law, an
"interested stockholder" is defined as any person that is:
- the owner of 15% or more of the outstanding voting stock of the
corporation, or
- an affiliate or associate of the corporation who was the owner of 15% or
more of the outstanding voting stock of the corporation at any time
within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
Section 203 of the Delaware General Corporation Law may have the effect of
delaying, deterring or preventing a change in control without further action by
our stockholders.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for the common stock is Olde Monmouth
Stock Transfer Co., Inc., Atlantic Highlands, New Jersey.
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<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon the completion of this offering, we will have issued and outstanding
18,001,595 shares of common stock (18,451,595 if the underwriters'
over-allotment option is exercised in full). The shares of common stock sold in
this offering will be freely tradable by persons other than our affiliates
without restriction under the Securities Act of 1933.
RESTRICTED SECURITIES
As of March 14, 2000, approximately 2,951,420 shares were "restricted
securities" within the meaning of Rule 144 under the Securities Act. These
shares may not be sold in the absence of registration under the Securities Act
of 1933 unless an exemption from registration is available. Of those shares,
approximately 702,061 are eligible for resale under Rule 144(k).
REGISTRATION RIGHTS
As of March 14, 2000, the holders of approximately 5,606,179 shares of
common stock, or their permitted transferees, have the right to require us to
register their shares, plus up to 372,354 additional shares that may be acquired
upon exercise of outstanding warrants. After these shares become registered,
they will become freely tradable, without restriction, under the Securities Act
(except for shares purchased by our affiliates).
RULE 144
In general, under Rule 144 as currently in effect, if one year has elapsed
since the date of acquisition of restricted securities, a person would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
- 1% of the number of then outstanding shares of our common stock, or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange
Commission.
Sales under Rule 144 are also subject to manner of sales provisions, notice
requirements and the availability of current public information.
RULE 144(k)
Under Rule 144(k), if two years have elapsed since the date of acquisition
of restricted securities from us or any of our affiliates and the acquirer or
subsequent holder thereof is deemed not to have been an affiliate at any time
during the 90 days preceding a sale, a person would be entitled to sell such
shares in the public market under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, notice requirements and the availability
of current public information requirements. An "affiliate" of an entity is a
person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with such entity and may include
officers and directors, principal stockholders and stockholders with special
relationships.
LOCK-UP AGREEMENTS
Our officers and directors, the selling stockholder and other of our
stockholders have signed lock-up agreements under which they agreed not to
dispose of or hedge any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock for a period of 90 days after
the date of this prospectus. Dispositions can be made sooner with the prior
written consent of Salomon Smith Barney Inc.
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<PAGE> 59
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we and the selling stockholder have agreed to sell to each
underwriter, the number of shares set forth opposite the name of the
underwriter.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Salomon Smith Barney Inc. ..................................
SG Cowen Securities Corporation.............................
William Blair & Company, L.L.C..............................
Roth Capital Partners, Inc..................................
---------
Total............................................. 3,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of various legal matters by counsel and to other conditions. The
underwriters are obligated to purchase all the shares, other than those covered
by the over-allotment option described below, if they purchase any of the
shares.
The underwriters, for whom Salomon Smith Barney Inc., SG Cowen Securities
Corporation, William Blair & Company, L.L.C. and Roth Capital Partners, Inc. are
acting as representatives, propose to offer some of the shares directly to the
public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and the
dealers may reallow, a concession not in excess of $ per share on sales to
other dealers. If all of the shares are not sold at the initial offering price,
the underwriters may change the public offering price and the other selling
terms.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 450,000 additional shares of
common stock at the public offering price less the underwriting discount. The
underwriters may exercise the option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent the
option is exercised, each underwriter will be obligated, subject to various
conditions, to purchase a number of additional shares approximately
proportionate to that underwriter's initial purchase commitment.
We, our officers and directors, the selling stockholder and other of our
stockholders have agreed that, for a period of 90 days from the date of this
prospectus, they will not, without the prior written consent of Salomon Smith
Barney Inc., dispose of or hedge any of our shares of common stock or any
securities convertible into or exchangeable for shares of common stock. Salomon
Smith Barney Inc. in its sole discretion may release any of the securities
subject to these lock-up agreements at any time without notice.
Our common stock is quoted on the Nasdaq National Market under the symbol
"AREM".
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us and the selling stockholder in connection with
this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares of common
stock.
<TABLE>
<CAPTION>
PAID BY US PAID BY SELLING STOCKHOLDER
--------------------------- ----------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per share............................ $ $ $ $
Total................................ $ $ $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of common stock in the open
market after the distribution has been completed in order to cover syndicate
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<PAGE> 60
short positions. Stabilizing transactions consist of bids or purchases of common
stock made for the purpose of preventing or retarding a decline in the market
price of the common stock while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
In addition, in connection with this offering, certain of the underwriters
(and selling group members) may engage in passive market making transactions in
the common stock on the Nasdaq National Market, prior to the pricing and
completion of the offering. Passive market making consists of displaying bids on
the Nasdaq National Market no higher than the bid prices of independent market
makers and making purchases at prices no higher than those independent bids and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the common stock during a specified period and
must be discontinued when such limit is reached. Passive market making may cause
the price of the common stock to be higher than the price that otherwise would
exist in the open market in the absence of such transactions. If passive market
making is commenced, it may be discontinued at any time.
We estimate that the total expenses we will incur in connection with this
offering, not including the underwriting discount, will be approximately
$766,000. No expenses will be borne by the selling stockholder.
We and the selling stockholder have agreed to indemnify the underwriters
against various liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be required to make in
respect of any of those liabilities.
Roth Capital Partners, formerly known as Cruttenden Roth Incorporated,
acted as underwriter of our initial public offering. In connection with the
initial public offering, we issued to Roth Capital Partners warrants to purchase
330,000 shares of our common stock at an exercise price of $7.50 per share.
LEGAL MATTERS
The validity of the shares of common stock offered hereby and other legal
matters in connection with this offering will be passed upon for us by Bartel
Eng Linn & Schroder, Sacramento, California. Legal matters in connection with
this offering will be passed upon for the underwriters by Weil, Gotshal & Manges
LLP, New York, New York.
EXPERTS
Our consolidated financial statements as of December 31, 1998 and 1999, and
for each of the three years in the period ended December 31, 1999, appearing in
this prospectus and in the registration statement, have been audited by Pannell
Kerr Forster, chartered accountants, independent auditors, as set forth in their
report thereon appearing elsewhere herein and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of e-nnovations.com as of December
31, 1998 and 1999, and for each of the three years in the period ended December
31, 1999, appearing in this prospectus and in the registration statement, have
been audited by Pannell Kerr Forster, chartered accountants, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
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<PAGE> 61
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the
common stock offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in the
registration statement or the exhibits and schedules to the registration
statement. For further information with respect to us and the common stock
offered by us in this offering, we refer you to the registration statement and
the exhibits and schedules filed as part of the registration statement.
Statements made in this prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. We refer you in each
instance to a copy of the exhibit or schedule for a more complete description of
the matter involved. Each such statement is qualified in all respects by such
reference to such exhibit. The registration statement and the exhibits and
schedules may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material, when filed, may also be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a web site (address http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. We are
subject to the informational requirements of the Exchange Act of 1934 and file
reports and other information with the Commission in accordance with the
Commission's rules. Such reports and other information may be inspected and
copied at the public reference facilities and regional offices of the Commission
referred to above.
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<PAGE> 62
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AREMISSOFT CORPORATION
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficit)................................................. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
E-NNOVATIONS.COM
Independent Auditors' Report................................ F-21
Consolidated Balance Sheets................................. F-22
Consolidated Statements of Operations....................... F-23
Consolidated Statements of Changes in Stockholders'
Equity.................................................... F-24
Consolidated Statements of Cash Flows....................... F-25
Notes to Consolidated Financial Statements.................. F-26
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................... F-29
</TABLE>
F-1
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
AremisSoft Corporation
We have audited the accompanying consolidated balance sheets of AremisSoft
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about 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 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AremisSoft
Corporation at December 31, 1999 and 1998, and the consolidated results of its
operations and its consolidated cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ PANNELL KERR FORSTER
London, England
March 2, 2000
F-2
<PAGE> 64
AREMISSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 149 $13,386
Accounts receivable, less allowances for doubtful accounts
of $639 and $507 at December 31, 1998 and 1999,
respectively.............................................. 16,166 18,115
Accounts receivable -- disposition proceeds................. -- 2,592
Other receivables........................................... 903 705
Inventory................................................... 787 1,603
Deposits paid on service and maintenance contracts.......... 3,531 3,712
Prepaid expenses and other assets........................... 1,135 2,423
------- -------
Total current assets:............................. 22,671 42,536
------- -------
Loan receivable -- related party........................... 1,886 --
Investments................................................. -- 1,803
Property and equipment, net................................. 1,774 1,847
Purchased and developed software, net of accumulated
amortization of $6,075 and $5,893 at December 31, 1998 and
1999, respectively........................................ 1,284 948
Intangible assets, net of accumulated amortization of
$13,036 and $11,534 at December 31, 1998 and 1999,
respectively.............................................. 337 13,810
------- -------
Total assets...................................... $27,952 $60,944
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................ $ 3,669 $ 6,910
Accrued payroll taxes....................................... 586 574
Accrued value added taxes................................... 1,649 1,055
Accrued income taxes........................................ 2,059 6,572
Current portion of capital lease obligations................ 55 24
Other accrued expenses...................................... 2,946 2,371
Bank loans and short-term demand facility................... 15,530 --
Deferred revenue............................................ 6,693 7,190
------- -------
Total current liabilities......................... 33,187 24,696
------- -------
Loan and accrued interest payable-related party............. 1,781 --
Capital lease obligations, less current portion............. 93 2
------- -------
Total liabilities................................. 35,061 24,698
------- -------
Stockholders' equity (deficit):
Series-A convertible preferred stock, par value $0.001:
authorized 2,100 shares; no shares issued and outstanding
at December 31, 1998 and 1999, respectively............... -- --
Series-B convertible preferred stock, par value $0.001:
authorized 3,500 shares; no shares issued and outstanding
at December 31, 1998 and 1999, respectively............... -- --
Common stock, par value $0.001: authorized 85,000 shares;
10,000 and 15,193 shares issued and outstanding at
December 31, 1998 and 1999, respectively.................. 10 15
Additional paid-in capital.................................. 27,107 57,325
Accumulated deficit......................................... (32,201) (18,921)
Accumulated other comprehensive income (loss)............... (2,025) (2,173)
------- -------
Total stockholders' equity (deficit).............. (7,109) 36,246
------- -------
Total liabilities and stockholders' equity...... $27,952 $60,944
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 65
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Software licenses......................................... $ 17,024 $26,416 $37,224
Maintenance and services.................................. 18,990 21,680 30,435
Hardware and other........................................ 6,360 4,525 5,727
-------- ------- -------
Total revenues....................................... 42,374 52,621 73,386
Cost of revenues:
Software licenses......................................... 2,079 2,654 4,468
Maintenance and services.................................. 5,377 5,319 8,620
Hardware and other........................................ 5,147 2,817 3,625
Amortization of purchased software and capitalized
software development costs............................. 70 265 298
-------- ------- -------
Total cost of revenues............................... 12,673 11,055 17,011
-------- ------- -------
Gross profit................................................ 29,701 41,566 56,375
Operating expenses:
Sales and marketing....................................... 17,834 21,594 25,518
Research and development.................................. 6,233 6,207 5,916
General and administrative................................ 5,227 4,868 7,108
Write-off of offering costs............................... -- 1,592 --
Amortization of intangible assets......................... 97 74 --
Profit on disposition of subsidiary....................... -- -- (42)
-------- ------- -------
Total operating expenses............................. 29,391 34,335 38,500
-------- ------- -------
Profit from operations...................................... 310 7,231 17,875
Other income (expense):
Interest expense, net..................................... 1,895 2,030 661
-------- ------- -------
Income (loss) before income taxes........................... (1,585) 5,201 17,214
Income tax expense.......................................... 35 2,026 5,097
-------- ------- -------
Income (loss) after taxes before extraordinary item......... (1,620) 3,175 12,117
Extraordinary item -- gain on debt forgiveness.............. -- -- 1,163
-------- ------- -------
Net income (loss)........................................... $ (1,620) $ 3,175 $13,280
======== ======= =======
Basic earnings (loss) per share before extraordinary item... $ (0.21) $ 0.35 $ 0.95
======== ======= =======
Diluted earnings (loss) per share before extraordinary
item...................................................... $ (0.21) $ 0.35 $ 0.90
======== ======= =======
Basic earnings (loss) per share after extraordinary item.... $ (0.21) $ 0.35 $ 1.04
======== ======= =======
Diluted earnings (loss) per share after extraordinary
item...................................................... $ (0.21) $ 0.35 $ 0.99
======== ======= =======
Basic weighted average shares outstanding................... 7,518 9,120 12,762
Diluted weighted average shares outstanding................. 7,518 9,135 13,434
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 66
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER STOCKHOLDERS'
--------------- --------------- PAID-IN ACCUMULATED COMPREHENSIVE EQUITY COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS) (DEFICIT) INCOME (LOSS)
------ ------ ------ ------ ---------- ----------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1996........... -- $ -- 7,504 $ 8 $11,364 $(33,756) $(2,719) $(25,103) $(18,042)
Issuance of common
stock in connection
with the
acquisition of the
net assets of
Juno............... -- -- 65 -- -- -- -- -- --
Issuance of Series A
preferred stock,
net of costs of
$609............... 1,137 1 -- -- 6,403 -- -- 6,404 --
Net loss............. -- -- -- -- -- (1,620) -- (1,620) (1,620)
Currency translation
adjustment......... -- -- -- -- -- -- 785 785 785
------ ---- ------ --- ------- -------- ------- -------- --------
Balance at December
31, 1997........... 1,137 1 7,569 8 17,767 (35,376) (1,934) (19,534) (835)
Issuance of common
stock, net of costs
of $1,046.......... -- -- 1,294 1 9,340 -- -- 9,341 --
Conversion of
preferred stock
into common
stock.............. (1,137) (1) 1,137 1 -- -- -- -- --
Net income........... -- -- -- -- -- 3,175 -- 3,175 3,175
Currency translation
adjustment......... -- -- -- -- -- -- (91) (91) (91)
------ ---- ------ --- ------- -------- ------- -------- --------
Balance at December
31, 1998........... -- -- 10,000 10 27,107 (32,201) (2,025) (7,109) 3,084
Issuance of common
stock in connection
with public and
private issuance,
net of costs of
$3,878............. -- -- 5,130 5 29,681 -- -- 29,686 --
Issuance of common
stock in connection
with the conversion
of a promissory
note............... -- -- 63 -- 537 -- -- 537 --
Net income........... -- -- -- -- -- 13,280 -- 13,280 13,280
Currency translation
adjustment......... -- -- -- -- -- -- (148) (148) (148)
------ ---- ------ --- ------- -------- ------- -------- --------
Balance at December
31, 1999........... -- $ -- 15,193 $15 $57,325 $(18,921) $(2,173) $ 36,246 $ 13,132
====== ==== ====== === ======= ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 67
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $(1,620) $ 3,175 $13,280
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation.............................................. 977 695 1,093
Amortization of capitalized software and intangible
assets.................................................. 167 339 298
Gain on disposition of subsidiary......................... -- -- (42)
Extraordinary item........................................ -- -- (1,163)
Changes in assets and liabilities, net of acquisitions and
dispositions:
Accounts receivable....................................... 2,933 (6,602) (6,477)
Other receivables......................................... (461) (226) (129)
Inventory................................................. 163 295 (723)
Deposits paid on service and maintenance contracts........ -- (3,531) (283)
Prepaid expenses and other assets......................... (2,595) 1,059 (1,210)
Accounts payable.......................................... 788 (622) 3,867
Deferred revenue.......................................... (5,726) 937 692
Accrued taxes payable..................................... 1,242 (647) 4,298
Other accrued expenses.................................... 103 (1,611) (447)
------- ------- -------
Net cash provided by (used in) operating activities..... (4,029) (6,739) 13,054
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment......................... (684) (373) (1,355)
Capitalized software development costs...................... (515) (325) --
Loan to related party (net)................................. -- (1,886) (1,781)
Payment for acquisition, net of cash acquired............... -- -- (14,537)
Proceeds from disposal of property and equipment............ 228 4 82
------- ------- -------
Net cash used in investing activities................... (971) (2,580) (17,591)
------- ------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock......................... 6,404 9,341 30,223
Principal payments of long-term borrowings.................. (2,040) (2,850) (9,204)
Long-term borrowing......................................... 33 511 --
Loan from related party..................................... -- 1,781 1,886
Principal payments of capital lease obligations............. (55) (30) (61)
Short-term demand facility.................................. 186 372 (4,705)
------- ------- -------
Net cash provided by financing activities............... 4,528 9,125 18,139
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (472) (194) 13,602
Effect of foreign currency exchange rates on cash and cash
equivalents............................................... (156) 104 (365)
Cash and cash equivalents, at beginning of year............. 867 239 149
------- ------- -------
Cash and cash equivalents, at end of year................... $ 239 $ 149 $13,386
======= ======= =======
Supplemental disclosure:
Interest paid........................................... $ 1,900 $ 2,188 $ 1,390
Assets acquired under capital leases.................... $ 138 $ 34 $ --
Investment acquired in connection with disposition of
subsidiary............................................ $ -- $ -- $ 1,803
Conversation of promissory note and accrued interest
into 62,759 shares of common stock.................... $ -- $ -- $ 537
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 68
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
AremisSoft Corporation ("AremisSoft") develops, markets, implements and
supports enterprise-wide applications software targeted to mid-sized
organizations in the manufacturing, healthcare, hospitality and construction
industries.
Organization and Basis of Presentation
In October 1997, AremisSoft, under its previous name of Juno Acquisitions,
Inc., a Nevada corporation ("Juno"), entered into a Plan and Agreement of
Reorganization (the "Plan") with LK Global Information Systems, B.V. ("LK
Global"), a company incorporated in The Netherlands. Under the terms of the
Plan, Juno acquired all of the issued and outstanding common stock of LK Global
in exchange for 7,503,920 shares of its common stock (the "1997 Acquisition").
Prior to the 1997 Acquisition, Juno had no significant operations.
LK Global was accounted for as the acquirer and as the surviving accounting
entity because the former stockholder of LK Global received approximately 99% of
the voting rights in the combined corporation. The shares issued by Juno have
been accounted for as if those shares comprised the historical share capital of
LK Global. The outstanding capital stock of Juno, at the date of the 1997
Acquisition, has been accounted for as shares issued by LK Global to acquire the
net assets of Juno.
Because LK Global is the accounting survivor, the financial statements
presented for all periods are those of LK Global and its subsidiaries
(collectively, the "Company") with a change in name to AremisSoft Corporation
shortly after the 1997 reorganization. All inter-company accounts and
transactions are eliminated in consolidation.
During 1999, AremisSoft reincorporated in Delaware. As a result of this
reincorporation, shareholders of the Nevada corporation have effectively become
shareholders of the newly formed Delaware corporation.
Revenue Recognition
The Company derives its revenue primarily from software licenses,
maintenance and service contracts and hardware sales. Software license revenues
are mainly derived from the licensing and service of industry-specific software
applications, primarily the sale of upgrades to existing customers. Maintenance
and service contract revenues are primarily derived from ongoing support of
installed software, and training, consulting and implementation services.
Hardware sales revenues are primarily derived from the sale of third-party
hardware to customers requiring turnkey solutions.
Software license revenues consist of sales of software licenses which, for
periods subsequent to December 31, 1997, are recognized in accordance with the
American Institute of Certified Public Accountants' Statement of Position
("SOP") 97-2, "Software Revenue Recognition." Under SOP 97-2, software license
revenues are recognized upon execution of a contract and delivery of software,
provided that the license fee is fixed and determinable, no significant
production, modification or customization of the software is required and
collection is considered probable by management. When contracts do require
significant production, modification or customization of software, the Company
recognizes revenue under the percentage of completion method. During 1999,
software license revenues were recognized in accordance with SOP 97-2, as
modified by SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition
with respect to Certain Transactions." The Company believes it is in compliance
with SOP 97-2, as modified by SOP 98-9.
F-7
<PAGE> 69
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also enters into arrangements with customers to use multiple
copies of software products under site license agreements. If all other criteria
for recognition of revenue are met, revenue is recognized upon delivery of the
product.
Product sales to distributors are not recognized until the products have
been shipped to the end-user. Maintenance contract revenues are recognized
ratably over the life of the contract. Service contract revenues are recognized
in accordance with the terms of the contract and add-on hardware sales revenues
are recognized when the hardware is shipped to the customer. The Company does
not enter into sales contracts, either for direct sales or with distributors,
which include provisions for rights of return. In addition, the Company does not
enter into price protection agreements or inventory balancing agreements with
distributors.
Fees earned during 1999 from contracts accounted for under the percentage
of completion method amounted to approximately $10.2 million, while billed and
unpaid receivables due under these contracts amounted to approximately $2.0
million at December 31, 1999. Fees earned during 1998 from contracts accounted
for under the percentage of completion method amounted to approximately $9.2
million, while billed and unpaid receivables due under these contracts amounted
to approximately $5.0 million at December 31, 1998. These contracts involved
substantial modification and customization of the Company's core software,
Aremis 4.0 architecture, in industries where the Company did not have a fully
developed "off the shelf" software product to offer the customer. These
contracts typically provide for defined milestone objectives with payment when
the milestone is achieved and the customer has accepted delivery. There were no
amounts included in accounts receivable relating to unbilled amounts or
retainage. Prior to 1998, the Company did not receive any revenues from
agreements which required contract accounting.
Foreign Currency
The functional currency of the Company and its United Kingdom subsidiaries
is the British pound. The functional currencies of the other subsidiaries are
their local currencies.
For reporting purposes, the financial statements are presented in United
States dollars and in accordance with Statement of Financial Accounting Standard
No. 52, "Foreign Currency Translation". The consolidated balance sheets are
translated into United States dollars at the exchange rates prevailing at the
balance sheet dates and the statements of operations and cash flows at the
average exchange rates for the relevant periods. Gains and losses resulting from
translation are included as a component of accumulated other comprehensive
income (loss).
Net gains and losses resulting from foreign exchange transactions are
included in the consolidated statements of operations.
International Operations
The Company currently has operations in the United Kingdom, the United
States, Argentina, Mexico, India, Ireland, Bulgaria and Cyprus and independent
distributors in 14 additional countries. A significant portion of the Company's
revenues are received in currencies other than the United States dollar (the
currency into which the Company's historical financial statements have been
translated), primarily British pounds. As a result, a portion of the Company's
sales are subject to certain risks, including adverse developments in the
foreign political and economic environment, trade barriers, managing foreign
operations and potentially adverse tax consequences. There can be no assurance
that any of these factors will not have a material adverse effect on the
Company's financial condition or results of operations in the future.
F-8
<PAGE> 70
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents
Cash equivalents consist of highly liquid investments with insignificant
interest rate risk and a maturity date of three months or less when purchased.
They are carried at cost which approximates fair value.
Inventory
Inventory is comprised of finished goods held for resale and maintenance
parts. Finished goods held for resale are stated at the lower of cost or net
realizable value. Cost is determined on a first-in first-out basis, and includes
all direct costs incurred and attributable production overheads. Net realizable
value is based on estimated selling price net of completion and disposal costs.
Maintenance parts are valued at cost and are depreciated over a three-year
period.
Purchased and Developed Software
The Company capitalizes the qualifying costs of developing its software
products. Capitalization of such costs requires that technological feasibility
has been established. The Company defines the establishment of technological
feasibility as the completion of all planning, designing, coding and testing
activities that are necessary to establish products that meet design
specifications, including functions, features and technical performance
requirements. In most instances the Company may arrange for customer testing and
considers the customers' feedback in determining if feasibility is established.
Development costs incurred prior to the establishment of technological
feasibility are expensed as incurred. When the software is fully documented and
available for unrestricted sale, capitalization of development costs ceases, and
amortization commences and is computed on a product-by-product basis, based on
either a straight-line basis over the economic life of the product or the ratio
of current gross revenues to the total of current and anticipated future gross
revenues, whichever is greater.
The Company capitalizes as purchased software the costs associated with
software products either purchased from other companies for resale or developed
by other companies under contract with the Company. The cost of the software is
amortized on the same basis as capitalized software development costs. The
amortization period is re-evaluated quarterly with respect to certain external
factors including, but not limited to, technological feasibility, anticipated
future gross revenues, estimated economic life and changes in software and
hardware technologies.
The establishment of technological feasibility and the ongoing assessment
of recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, technological feasibility, anticipated future gross revenues,
estimated economic life and changes in software and hardware technologies.
Realization of capitalized software costs is subject to the Company's ability to
market its software products in the future and generate cash flows sufficient to
support future operations.
Intangible Assets
Goodwill and other intangible assets consisting of customer lists and
management employment agreements related to acquired businesses are being
amortized over periods of three to five years. Amortization of intangibles
amounted to $97,000, $74,000 and $0 for the years ended December 31, 1997, 1998
and 1999 respectively.
F-9
<PAGE> 71
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment is recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Leasehold improvements.................. shorter of the lease term or economic
life
Fixtures and equipment.................. three to five years
Motor vehicles.......................... four years
</TABLE>
Impairment of Long-lived Assets
In the event that facts and circumstances indicate that the carrying value
of an asset may be impaired, an evaluation of recoverability would be performed.
If an evaluation is required, the estimated fair market value of the asset would
be compared to the asset's carrying value to determine if a write-down to the
lower of carrying value or market value is required.
Offering Costs
In July 1998, the Company filed an S-1 Registration Statement in connection
with an initial public offering ("IPO") of its common stock. As a result of a
delay in the registration process, the Company wrote off approximately $1.6
million in offering costs in 1998. Offering costs incurred in 1999 were
capitalized and have been offset against the proceeds from the offering.
Accounting for Stock Based Compensation
Employee stock options are accounted for under Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" (APB 25), which
requires recognition of expense when the option price is less than the fair
value of the stock at the date of grant.
The Company generally awards options for a fixed number of shares at an
option price equal to the fair value at the date of grant. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standard (SFAS) No. 123 "Accounting for Stock-Based Compensation" (SFAS 123).
Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to net operating
loss carryforwards and differences between the financial statement carrying
amounts of existing assets and liabilities, and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax assets are
recorded at their estimated realizable value.
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.
F-10
<PAGE> 72
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain estimates used by management are particularly susceptible to
significant changes, such as the recoverability and amortization periods of
purchased and developed software and intangible assets. Management believes that
the estimates used are adequate based on the information currently available.
Net Income (Loss) Per Common Share
SFAS No. 128 "Earnings per share" requires the presentation of basic and
diluted earnings per share. Basic net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of shares of common
stock outstanding for the period. The diluted net income (loss) per share data
is computed using the weighted average number of shares of common stock
outstanding plus the dilutive effects of common stock equivalents.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998 1999
------- ------ -------
<S> <C> <C> <C>
Numerator used for basic and diluted earnings (loss) per
share:
Income (loss) before extraordinary item................... $(1,620) $3,175 $12,117
Extraordinary item........................................ -- -- 1,163
------- ------ -------
Net income (loss)......................................... $(1,620) $3,175 $13,280
======= ====== =======
Denominator for basic earnings (loss) per share:
Weighted average shares outstanding....................... 7,518 9,120 12,762
======= ====== =======
Denominator for diluted earnings (loss) per share:
Denominator for basic earnings (loss) per share........... 7,518 9,120 12,762
Effect of dilutive securities:
Warrants and options................................... -- 15 672
------- ------ -------
Weighted average shares outstanding....................... 7,518 9,135 13,434
======= ====== =======
Basic earnings (loss) per share:
Before extraordinary item................................... $ (0.21) $ 0.35 $ 0.95
Extraordinary item.......................................... -- -- 0.09
------- ------ -------
After extraordinary item.................................... $ (0.21) $ 0.35 $ 1.04
======= ====== =======
Diluted earnings (loss) per share:
Before extraordinary item................................... $ (0.21) $ 0.35 $ 0.90
Extraordinary item.......................................... -- -- 0.09
------- ------ -------
After extraordinary item.................................... $ (0.21) $ 0.35 $ 0.99
======= ====== =======
</TABLE>
Fair Value of Financial Instruments
In the opinion of management the carrying amounts for the Company's
financial instruments which include cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses approximate fair values.
Estimates are not necessarily indicative of the amounts which could be
realized or would be paid in a current market exchange. The effect of using
different market assumptions and/or estimation methodologies may be material to
the estimated fair value amount.
F-11
<PAGE> 73
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1999
---- ------
<S> <C> <C>
Finished goods held for resale.............................. $287 $1,321
Maintenance parts........................................... 500 282
---- ------
$787 $1,603
==== ======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Fixtures and equipment................................... $ 5,652 $ 5,833
Motor vehicles........................................... 360 81
Leasehold improvements................................... 288 280
------- -------
6,300 6,194
Less accumulated depreciation............................ (4,526) (4,347)
------- -------
$ 1,774 $ 1,847
======= =======
</TABLE>
At December 31, 1998 and 1999, the Company held property and equipment with
a net book value of $98,000 and $27,000, respectively, under capital leases.
Depreciation expense was $977,000, $695,000 and $1,093,000 for the years
ended December 31, 1997, 1998 and 1999, respectively.
4. BANK LOANS PAYABLE
Bank loans payable at December 31, 1998, all of which is collateralized and
fully guaranteed, consists of the following (in thousands):
Description
<TABLE>
<S> <C>
Loan payable to bank, interest payable quarterly at 3% over
bank base rate, principal due in monthly installments of
$10....................................................... $ 187
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR plus 1/16% associated costs, principal due
in quarterly installments of $146......................... 1,019
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR plus 1/16% associated costs, principal due
in quarterly installments of $85.......................... 768
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR inclusive of associated costs, principal
due in quarterly installments of $119..................... 714
Loan payable to bank, interest payable monthly at 4% over
Sterling LIBOR plus variable associated funding costs,
averaging 1/32% in 1998, principal due in equal annual
installments of $1,872.................................... 7,487
Loan payable to bank, interest payable at 12% per annum..... 35
Short term demand facility -- bears interest at the lending
banks base rate plus the applicable margin................ 5,320
-------
Total............................................. $15,530
=======
</TABLE>
F-12
<PAGE> 74
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1999 all of the above loans were repaid primarily from the proceeds
of the Company's initial public offering. Management negotiated a settlement
with the lender whereby approximately $1,163,000 (net of tax) of principal
indebtedness was forgiven. This amount has been reflected as an extraordinary
item in the accompanying consolidated statement of operations. The lending
bank's base rate ranged between 6.25% and 7.5% and Sterling LIBOR ranged between
6.6% and 7.9% during the year ended December 31, 1999.
5. ACQUISITIONS AND DISPOSITIONS
Acquisition
In December 1999, the Company acquired all the issued and outstanding
common stock of e-nnovations.com in exchange for approximately $14.5 million in
cash. The acquisition has been accounted for using the purchase method of
accounting. The operations of e-nnovations.com are included in the accompanying
consolidated financial statements from the date of acquisition. e-nnovations.com
is an Internet software solutions provider. The excess of purchase price over
net assets acquired amounted to approximately $13.8 million and has been
temporarily allocated to goodwill. Management is currently evaluating the
allocation of goodwill to certain identifiable intangible assets. Amortization
of goodwill and identifiable intangible assets are expected to be provided on a
straight line basis over three years. Amortization expense in 1999 was not
material.
The aggregate estimated fair value of the assets and liabilities of the
acquired business and the aggregate consideration paid is as follows (in
thousands):
<TABLE>
<S> <C>
Net current assets (including cash of $2).................. $ 603
Property and equipment..................................... 126
Intangible assets.......................................... 13,810
-------
$14,539
=======
Consideration paid:
Cash consideration......................................... $14,539
</TABLE>
Disposition
In October 1999, the Company disposed of its Cyprus operations in exchange
for approximately $2.6 million in cash to be received in 2000 and approximately
4 million shares of common stock (representing a 9.5% interest) in
GlobalSoft.com. GlobalSoft.com is a software development company with operations
in Cyprus and Eastern Europe. GlobalSoft.com was formed in 1999 by the
acquisition of AremisSoft (Cyprus) Ltd as well as six other unrelated Cyprus
entities. The Company's CEO is also the chairman of the board of GlobalSoft.com.
A summary of the exchange transactions is as follows (in thousands):
<TABLE>
<S> <C> <C>
Net assets disposed off.................................... $4,353
Estimated fair value of shares of GlobalSoft.com(1)........ $1,803
Cash to be received........................................ 2,592
------
4,395
------
Gain on disposal........................................... $ 42
======
</TABLE>
- ---------------
(1) The value of the GlobalSoft.com shares at the date of acquisition was
estimated at $0.45 per share based upon similar sales of GlobalSoft.com
common stock to third parties. At December 31, 1999, the Company accounts
for this investment under the cost method.
F-13
<PAGE> 75
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Cyprus operations included in the accompanying 1998 and 1999
consolidated statements of operations are as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1998 1999
----- -----
<S> <C> <C>
Revenues.................................................... $ 810 $ 669
Net income.................................................. 285 286
Basic earnings per share.................................... 0.03 0.02
Diluted earnings per share.................................. 0.03 0.02
</TABLE>
The following unaudited pro forma results of operations for the year ended
December 31, 1999 assume that the acquisition of e-nnovations.com and
disposition of Cyprus had occurred on January 1, 1999 (in thousands, except per
share amounts):
<TABLE>
<S> <C>
Revenues.................................................... $75,633
Net income.................................................. 8,776
Basic earnings per share after extraordinary item........... 0.69
Diluted earnings per share after extraordinary item......... 0.65
</TABLE>
The unaudited pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition and disposition had occurred on
January 1, 1999, nor is it indicative of future operating results.
6. CAPITAL LEASE OBLIGATIONS
The Company has entered into various non-cancellable capital lease
agreements for items of property and equipment. Annual payments for the years
ending December 31, 2000 and 2001 are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $27
2001........................................................ 3
---
30
Less amount representing interest........................... 4
---
26
Less current portion........................................ 24
---
$ 2
===
</TABLE>
F-14
<PAGE> 76
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS
Operating Leases
The Company leases office space, equipment and motor vehicles under
non-cancellable operating leases which expire on various dates through 2012. As
of December 31, 1999 required future minimum rentals to be paid are as follows
(in thousands):
<TABLE>
<S> <C>
2000........................................................ $1,201
2001........................................................ 797
2002........................................................ 626
2003........................................................ 421
2004........................................................ 378
Thereafter.................................................. 2,831
------
$6,254
======
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999 amounted
to approximately $1.9 million, $2.0 million and $1.4 million, respectively.
Registration rights
In connection with the private placement to third party investors of the
Company's common stock and convertible notes in 1998, the investors were granted
registration rights. Pursuant to their registration rights, the holders thereof
may require the Company to register under the Securities Act all or a portion of
their shares at the Company's expense. In addition, if the Company proposes to
register any of its securities either for its own account or the account of
others these investors are entitled to include their shares in the registration
at the Company's expense.
Employment Agreements
The Company has entered into employment agreements with its Chief Executive
Officer (CEO) and its President which expire on June 1, 2001. Each of the
employment agreements may be terminated by the Company or the employee without
cause (as defined in the employment agreements) upon 30 days notice, or for
cause without notice. Under the terms of the CEO's employment agreement, he is
entitled to minimum annual compensation of $350,000 in 2000 and $400,000 in
2001. Under the terms of the President's employment agreement, he is entitled to
minimum annual compensation of $300,000 in 2000 and $350,000 in 2001. Under
their employment agreements, each is entitled to receive a severance benefit
equal to one times annual compensation if terminated without cause and 2.99
times his annual compensation if terminated without cause within 180 days after
a "change in control" (as defined). The CEO and the President are also entitled
to bonuses (estimated at $600,000 in 1999) based on a bonus plan adopted by the
compensation committee at its December 1999 meeting.
During the third and fourth quarters of 1998, the Company's president made
loans to the Company in the aggregate principal amount of approximately $1.7
million. The loans were reflected in a promissory note dated December 31, 1998,
bearing interest at the rate of LIBOR plus 2% per annum and was repaid in 1999.
In May 1998, the Company loaned $2.6 million to its CEO, which was
evidenced by a promissory note in order to provide temporary liquidity to the
CEO. The loan accrued interest at the rate of LIBOR plus 2% per annum and was
repaid in November 1999.
F-15
<PAGE> 77
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Benefit Plans
The Company has various defined contribution retirement plans for qualified
employees. Contributions made under the plans were $328,000, $311,000 and
$115,000 in 1997, 1998 and 1999, respectively.
8. INCOME TAX
The Company's principal subsidiaries are not resident in the United States
for tax purposes. Income (loss) from operations before income taxes and
extraordinary items included the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
US income (loss)...................................... $ (103) $(1,917) $ (816)
Foreign income (loss)................................. (1,482) 7,118 18,030
------- ------- -------
$(1,585) $ 5,201 $17,214
======= ======= =======
The provision for income taxes was estimated as
follows:
Income taxes estimated to be payable (refundable)
currently
US Federal.......................................... $ 23 $ 963 $ (519)
US state and local.................................. 11 (1) 6
Foreign............................................. 1 1,064 5,610
------- ------- -------
$ 35 $ 2,026 $ 5,097
======= ======= =======
</TABLE>
A reconciliation of the provision for income taxes compared with the
amounts at the US federal statutory rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ------ ------
<S> <C> <C> <C>
Tax at statutory rate..................................... $(539) $1,769 $5,853
Differences in tax rates.................................. 48 (9) (627)
Non-deductible expenses................................... 733 499 841
Valuation allowance on operating loss..................... (207) 147 (496)
Prior years over accrued and other........................ -- (380) (474)
----- ------ ------
Income tax expense $ 35 $2,026 $5,097
===== ====== ======
</TABLE>
The Company's deferred tax assets as of December 31, 1998 and 1999
primarily consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Loss carry forwards......................................... $ 3,083 $ 2,523
Equipment................................................... 675 806
Other....................................................... 290 223
------- -------
4,048 3,552
Valuation allowance......................................... (4,048) (3,552)
------- -------
Total deferred tax assets................................. $ -- $ --
======= =======
</TABLE>
F-16
<PAGE> 78
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Estimated net operating loss carryforwards at December 31, 1999 and their
expiration dates are shown below:
<TABLE>
<CAPTION>
EXPIRATION NET OPERATING
COUNTRY OF JURISDICTION DATES LOSS
----------------------- ------------- -------------
<S> <C> <C>
United Kingdom........................................... No expiration $8,410
United States............................................ 2005-2018 $ 76
</TABLE>
The Company has recorded a valuation allowance to offset the entire
deferred tax asset where it is more likely than not that the asset will not be
realized.
The Indian government, as a means of encouraging foreign investment,
provides significant tax incentives and exemptions to regulatory restrictions.
Certain of these benefits that directly affect the Company include, among
others, tax holidays (temporary exemptions from taxation on operating income)
and liberalized import and export duties. The current tax holiday to which the
Company is subject expires in 2001. To be eligible for certain of these tax
benefits, the Company must continue to meet certain conditions such as continued
operation in a qualifying software technology park and export sales of at least
75% of inventory turnover. A failure to meet such conditions could result in the
cancellation of the benefits or a requirement to pay damages in an amount to be
determined by the Indian government and customs duty on plant, machinery,
equipment, raw materials, components and consumables. With respect to duties,
subject to certain conditions, goods, raw materials and components for
production imported by the Company's offices in India are exempt from the levy
of a customs duty. No assurances can be given that such tax benefits will be
continued in the future or at their current levels.
9. STOCKHOLDERS' EQUITY
Stock Split
In 1999, the Board of Directors approved a 1.711772-for-1 reverse stock
split of issued and outstanding common shares. All shares, per share and warrant
information in the accompanying financial statements has been restated to
reflect the effect of the split.
Common and Preferred Stock
During 1999, the Company completed an initial public offering of its common
stock and sold additional shares in a private placement whereby 5,130,000 shares
of common stock were issued in exchange for approximately $30.2 million in cash,
net of issuance costs. The private placement occurred in October 1999 and
resulted in $17.6 million in proceeds through the issuance of 1.6 million shares
to a related entity. This related entity also acquired an additional 1.2 million
shares of the Company's common stock from an entity controlled by the Company's
CEO. At December 31, 1999, this related entity owned over 20% of the Company's
outstanding stock.
The Company is authorized to issue 85,000,000 shares of common stock, par
value $0.001 per share, and 15,000,000 shares of preferred stock, par value
$0.001 per share, two series of which have been designated as follows: 2,100,000
shares of Series A convertible preferred stock and 3,500,000 shares of Series B
convertible preferred stock.
The Company's Series A and Series B convertible preferred stock rank pari
passu except with respect to the right to receive dividends. In respect of
dividends, Series A holders are entitled to a non-cumulative cash dividend of
$0.40 per share per annum and Series B holders are entitled to a non-cumulative
cash dividend of $0.50 per share per annum, each commencing on September 1,
1998. In a liquidation, the preferred stock ranks in preference to the common
stock as to repayment of par value, and ratably with the common stock
thereafter.
F-17
<PAGE> 79
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The preferred stock is convertible at the rate of one share of preferred
stock for one share of common stock at the option of the holder. The preferred
stock is not redeemable. There are provisions to protect the preferred holders
from dilution in events such as subdivision or combination of the common stock,
the payment of stock dividends or distributions of other securities or other
reclassifications, exchanges or substitutions. The preferred stock votes with
the common stock on an as-converted basis.
On October 10, 1997, in connection with the Plan and Agreement of
Reorganization referred to in note 1, the Company offered its Series A
convertible preferred stock in a private placement. As a result of the private
placement 1,137,000 shares of the Series A convertible preferred stock were
issued and the Company received proceeds of approximately $6.4 million (net of
costs of $609,000), including shares issued to various parties in lieu of
commissions and finders' fees related to the private placement. In June 1998,
all of the outstanding Series A preferred stock was converted into common stock.
Upon conversion, all holders of the Company's Series A convertible preferred
stock waived their right to receive dividends as described above. At December
31, 1998 and 1999 there were no preferred shares outstanding.
Warrants
In connection with the issuance of its Series A convertible preferred
stock, the Company issued warrants to purchase an aggregate of 51,117 shares of
common stock. The warrants were issued in payment of finders' fees in connection
with the offering. Such warrants have an exercise price of $8.56 per share, are
assignable and expire on April 10, 2000. At the time of issuance management
determined that the value of the warrants was not material to the financial
statements.
During 1999 the Company issued warrants to purchase up to 330,000 shares of
common stock at an exercise price of $7.50 per share to the underwriters of the
April 1999 IPO. The warrants are exercisable beginning April 27, 2000 and expire
on April 22, 2003.
Convertible Promissory Note
In December 1998, the Company executed a convertible promissory note (the
"Note") in the principal amount of $500,000, which bears interest at the rate of
8% per annum. The Note was issued, and the proceeds received, in January 1999.
The Note converts into shares of the Company's common stock, at the option of
the holder at $8.56 per share. These securities were sold to one accredited
investor and a fee of 10% of the principal amount of the Note was paid as a
finder's fee. Management has evaluated the Note's beneficial conversion feature
and determined that its value was not be material to the basic financial
statements. In December 1999, the promissory note and accrued interest thereon
was converted into 62,759 shares.
Stock Option Plan
In October 1997, the Company adopted the "1998 Stock Option Plan", which
provides for awards in the form of options, including incentive stock options
("ISOs") and non-statutory stock options ("NSOs"). Employees, directors,
consultants and advisors of the Company will be eligible for the grant of NSOs,
while only employees will be eligible for the grant of ISOs. Options will have a
term of up to ten years from the date of grant. In addition, the Company granted
options outside the 1998 Stock Option Plan. As of December 31, 1999, there were
2,213,000 options to purchase common stock outstanding.
F-18
<PAGE> 80
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option activity during 1999, and related
information follows:
<TABLE>
<CAPTION>
1999
---------------------------------
NUMBER OF WEIGHTED
OPTIONS AVERAGE EXERCISE
(IN THOUSANDS) PRICE
-------------- ----------------
<S> <C> <C>
Outstanding at the beginning of year.............. -- --
Granted........................................... 2,213 $7.96
Outstanding at the end of year.................... 2,213 $7.96
Exercisable at end of year........................ 802 $9.08
</TABLE>
The exercise price of options outstanding as of December 31, 1999 ranged
from $5 to $14. The weighted average remaining contractual life of those options
is 4.5 years.
Options granted under the stock option plan are accounted for under APB 25,
and since options have been granted at prices equal to the fair value of the
Company's common stock on the date of grant, no compensation has been recognized
for the option grants. Had compensation cost for the plan been determined based
upon estimated fair value of the options at the grant dates consistent with FASB
123, pro forma net income after extraordinary item would have been approximately
$8.1 million or $0.64 per share-basic and $0.61 per share-diluted. The weighted
average fair value of options granted during 1999 is estimated to be $3.73 per
option assuming the following: no dividend yield, risk free interest rate of 6%,
an expected term of the option of 3 years, and an expected weighted average
volatility of 44%.
10. SEGMENT REPORTING INFORMATION
The Company develops markets, implements and supports enterprise-wide
applications software targeted at mid-sized organizations mainly in the
manufacturing, healthcare, hospitality, and construction industries. Management
considers each industry to be a reportable segment, with each industry
representing a strategic business that offers products and services to various
customers. These industries are managed separately because each requires
different product and marketing strategies.
Within each industry, the Company has adopted a tailored sales and
marketing strategy. This strategy includes advertisements in leading trade
publications, participation in trade shows and sponsorship of user groups. In
addition, the Company has developed corporate sales and marketing materials as
well as general financial and technical materials that are distributed to each
of the Company's subsidiaries for inclusion in their sales materials, thereby
promoting a consistent portrayal of the Company's image and products. The
Company markets its products primarily through a direct sales force in each of
the industries. In the manufacturing and hospitality industries, the Company
also relies, to a limited extent, on distributors to sell the Company's
products.
The accounting policies adopted by each industry are the same as those
described in the summary of significant accounting policies. Management
evaluates performance based on profit (loss) from operations before interest and
income taxes.
F-19
<PAGE> 81
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information concerning the Company's reportable
segments is shown in the following table:
SEGMENTAL ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MANUFACTURING HEALTHCARE HOSPITALITY CONSTRUCTION OTHER TOTAL
------------- ---------- ----------- ------------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers....................... $9,587 $18,909 $10,190 $3,318 $ 370 $42,374
Depreciation and amortization..... 258 318 167 59 342 1,144
Profit (loss) from operations..... 182 325 322 231 (750) 310
Total segment assets.............. 4,105 4,250 4,129 749 4,009 17,242
</TABLE>
SEGMENTAL ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MANUFACTURING HEALTHCARE HOSPITALITY CONSTRUCTION OTHER TOTAL
------------- ---------- ----------- ------------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers....................... $16,635 $15,990 $13,799 $4,421 $1,776 $52,621
Depreciation and amortization..... 189 216 207 43 379 1,034
Profit (loss) from operations..... 3,993 1,461 1,914 429 (566) 7,231
Total segment assets.............. 12,514 6,682 6,337 1,301 1,118 27,952
</TABLE>
SEGMENTAL ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
MANUFACTURING HEALTHCARE HOSPITALITY CONSTRUCTION OTHER TOTAL
------------- ---------- ----------- ------------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers...................... $25,485 $19,988 $19,180 $5,305 $ 3,428 $73,386
Depreciation and amortization.... 321 352 328 74 316 1,391
Profit (loss) from operations.... 8,913 3,454 4,943 928 (363) 17,875
Total segment assets............. 17,950 13,434 13,706 3,375 12,479 60,944
</TABLE>
The following table represents revenue by country based on country of
customer domicile and long-lived assets by country based on the location of the
assets:
<TABLE>
<CAPTION>
REVENUE LONG-LIVED ASSETS
--------------------------- -------------------------
YEAR ENDED DECEMBER 31, DECEMBER 31,
--------------------------- -------------------------
1997 1998 1999 1997 1998 1999
------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
United Kingdom...................... $39,057 $31,100 $25,779 $1,649 $2,008 $ 1,645
Rest of Europe...................... 1,002 13,069 32,073 1,109 577 400
United States....................... 1,840 1,517 2,272 107 111 105
Asia................................ 475 1,800 3,719 752 687 16,243
Rest of world....................... -- 5,135 9,543 20 12 15
------- ------- ------- ------ ------ -------
$42,374 $52,621 $73,386 $3,637 $3,395 $18,408
======= ======= ======= ====== ====== =======
</TABLE>
11. SUBSEQUENT EVENT
Proposed Public Offering
The Company plans to file a registration statement with the Securities and
Exchange Commission for the sale of 2,800,000 shares of common stock (excluding
the underwriters' over-allotment option).
F-20
<PAGE> 82
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
e-nnovations.com Pvt Ltd
We have audited the accompanying consolidated balance sheets of
e-nnovations.com Pvt Ltd as of December 31, 1998 and 1999, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997, 1998
and 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about 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 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
e-nnovations.com Pvt Ltd at December 31, 1998 and 1999, and the consolidated
results of its operations and its consolidated cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ PANNELL KERR FORSTER
Nicosia, Cyprus
March 3, 2000
F-21
<PAGE> 83
E-NNOVATIONS.COM PVT LTD
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 24,600 $ 2,137
Accounts receivable, less allowances for doubtful
accounts............................................... 250,182 400,098
Other receivables......................................... 33,813 --
Inventory................................................. 92,871 115,050
Prepaid expenses and other assets......................... 72,893 113,484
-------- --------
Total current assets.............................. 474,359 630,769
-------- --------
Property and equipment, net................................. 34,914 126,125
-------- --------
Total assets...................................... $509,273 $756,894
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 48,155 $ 9,354
Deferred revenue.......................................... 24,976 --
Bank loans and short-term demand facility................. 28,374 --
-------- --------
Total current liabilities......................... 101,505 9,354
-------- --------
Long-term debt.............................................. 64,492 --
-------- --------
Total liabilities................................. 165,997 9,354
======== ========
Stockholders' equity:
Share capital............................................. 244 244
Additional paid up capital................................ 58,617 58,617
Accumulated reserves...................................... 284,415 688,679
-------- --------
Total stockholders' equity........................ 343,276 747,540
-------- --------
Total liabilities and stockholders' equity........ $509,273 $756,894
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE> 84
E-NNOVATIONS.COM PVT LTD
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Software licenses................................... $ 323,793 $720,276 $2,342,527
Maintenance and services............................ 94,299 152,496 233,802
Hardware and other.................................. 37,257 68,496 482,714
---------- -------- ----------
Total revenues.............................. 455,349 941,268 3,059,043
Cost of revenues:
Software licenses................................... 93,000 162,329 728,804
Maintenance and services............................ 57,672 84,458 167,132
Hardware and other.................................. 18,593 32,381 416,413
---------- -------- ----------
Total cost of revenues...................... 169,265 279,168 1,312,349
---------- -------- ----------
Gross profit:
Software licenses................................... 230,793 557,947 1,613,723
Maintenance and services............................ 36,627 68,038 66,670
Hardware and other.................................. 18,664 36,115 66,301
---------- -------- ----------
Total gross profit.......................... 286,084 662,100 1,746,694
Operating expenses:
Sales and marketing................................. 83,330 62,942 218,961
Research and development............................ 124,742 224,167 985,949
General and administrative.......................... 49,906 63,811 137,520
---------- -------- ----------
Total operating expenses.................... 257,978 350,920 1,342,430
---------- -------- ----------
Profit from operations................................ 28,106 311,180 404,264
Other income (expenses):
Interest income..................................... -- -- --
Interest expenses................................... (5,376) (9,111) --
---------- -------- ----------
Income before income taxes............................ 22,730 302,069 404,264
Income tax expense.................................... -- -- --
---------- -------- ----------
Net income............................................ $ 22,730 $302,069 $ 404,264
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE> 85
E-NNOVATIONS.COM PVT LTD
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARE CAPITAL TOTAL
---------------- ADDITIONAL ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAID UP CAPITAL RESERVES EQUITY
------ ------ --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996....... 105 $244 $58,617 $(40,384) $ 18,477
Net income....................... -- -- -- 22,730 22,730
--- ---- ------- -------- --------
Balance at December 31, 1997....... 105 244 58,617 (17,654) 41,207
Net income....................... -- -- -- 302,069 302,069
--- ---- ------- -------- --------
Balance at December 31, 1998....... 105 244 58,617 284,415 343,276
Net income....................... -- -- -- 404,264 404,264
--- ---- ------- -------- --------
Balance at December 31, 1999....... 105 $244 $58,617 $688,679 $747,540
=== ==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE> 86
E-NNOVATIONS.COM PVT LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 22,730 $302,069 $ 404,264
Adjustments to reconcile net income to cash provided by
(used in) operating activities
Depreciation............................................ 14,203 16,415 62,318
Changes in assets and liabilities:
Increase in current assets........................... (81,999) (344,417) (178,873)
Increase in current liabilities...................... 36,383 44,925 (92,151)
-------- -------- ---------
Net cash provided by (used in) operating
activities...................................... (8,683) 18,992 195,558
Cash flows from investing activities:
Purchases of property and equipment....................... (26,496) (23,970) (153,529)
-------- -------- ---------
Net cash used in investing activities.............. (26,496) (23,970) (153,529)
Cash flows from financing activities:
Proceeds (repayment) of loan.............................. 33,256 31,236 (64,492)
-------- -------- ---------
Net cash provided by (used in) financing
activities...................................... 33,256 31,236 (64,492)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents...... (1,923) 26,258 (22,463)
Effect of foreign currency exchange rates on cash and cash
equivalents............................................. -- -- --
Cash and cash equivalents, at beginning of the year..... 265 (1,658) 24,600
-------- -------- ---------
Cash and cash equivalents, at end of the year........... $ (1,658) $ 24,600 $ 2,137
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE> 87
E-NNOVATIONS.COM PVT LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
e-nnovations.com Pvt Ltd (the "Company") is an Internet software solutions
provider and it develops, markets, implements and supports enterprise-wide
applications software targeted to mid-sized organizations.
Organization and Basis of Presentation
The financial statements have been prepared under the historical cost
convention, in accordance with the generally accepted accounting principles in
the United States.
All expenses are accounted for on accrual basis.
Revenue Recognition
The Company derives its revenue primarily from software licenses,
maintenance and service contracts and hardware sales. Software license revenues
are mainly derived from the licensing and service of industry-specific software
applications, primarily the sale of upgrades to existing customers. Maintenance
and service contract revenues are primarily derived from ongoing support of
installed software, and training, consulting and implementation services.
Hardware sales revenues are primarily derived from the sale of third-party
hardware to customers requiring turnkey solutions.
Software license revenues consist of sales of software licenses which, for
periods subsequent to December 31, 1997, are recognized in accordance with the
American Institute of Certified Public Accountants' Statement of Position
("SOP") 97-2, "Software Revenue Recognition." Under SOP 97-2, software license
revenues are recognized upon execution of a contract and delivery of software,
provided that the license fee is fixed and determinable, no significant
production, modification or customization of the software is required and
collection is considered probable by management. When contracts do require
significant production, modification or customization of software, the Company
recognizes revenue under the percentage of completion method. In 1999, software
license revenues were recognized in accordance with SOP 97-2, as modified by SOP
98-9, "Modification of SOP 97-2, Software Revenue Recognition with respect to
Certain Transactions." The Company believes it is currently in compliance with
SOP 97-2, as modified by SOP 98-9.
Foreign Currency
The functional currency of the Company and its subsidiaries is the Indian
Rupee. For reporting purposes, the financial statements are presented in United
States dollars and in accordance with Statement of Financial Accounting Standard
No. 52, "Foreign Currency Translation".
Net gains and losses resulting from foreign exchange transactions are
included in the consolidated statements of operations.
Cash Equivalents
Cash equivalents consist of highly liquid investments with insignificant
interest rate risk and a maturity date of three months or less when purchased.
They are carried at cost, which approximates fair value.
F-26
<PAGE> 88
E-NNOVATIONS.COM PVT LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventory
Inventory is comprised of finished goods held for resale and maintenance
parts. Finished goods held for resale are stated at the lower of cost or net
realizable value. Cost is determined on a first-in first-out basis, and includes
all direct costs incurred and attributable production overheads. Net realizable
value is based on estimated selling price net of completion and disposal costs.
Maintenance parts are valued at cost and are depreciated over a three-year
period.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Leasehold improvements............... shorter of the lease term or economic
life
Fixtures and equipment............... three to five years
Motor vehicles....................... four years
</TABLE>
Impairment of Long-lived Assets
In the event that facts and circumstances indicate that the carrying value
of an asset may be impaired, an evaluation of recoverability would be performed.
If an evaluation is required, the estimated fair market value of the asset would
be compared to the asset's carrying value to determine if a write-down to the
lower of carrying value or market value is required.
Income Taxes
The Indian government, as a means of encouraging exports, provides
significant tax incentives and exemptions. Certain of these benefits that
directly affect the Company include, among others, tax holidays (temporary
exemptions from taxation on operating income) and liberalized import and export
duties.
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 these estimates.
2. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
Finished goods held for resale.............................. $79 $ 81
Maintenance parts........................................... 14 34
--- ----
$93 $115
=== ====
</TABLE>
F-27
<PAGE> 89
E-NNOVATIONS.COM PVT LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
Fixtures and equipment...................................... $158 $303
Motor vehicles.............................................. -- 8
---- ----
158 311
Less accumulated depreciation............................... 123 185
---- ----
$ 35 $126
==== ====
</TABLE>
Depreciation expense was $14, $16 and $62 for the years ended December 31,
1997, 1998 and 1999, respectively.
4. SEGMENT REPORTING INFORMATION
The following table represents revenue by country based on country of
customer domicile and long-lived assets by country based on the location of the
assets:
<TABLE>
<CAPTION>
REVENUE LONG-LIVED ASSETS
-------------------------------- ----------------------------
YEAR ENDED DECEMBER 31, DECEMBER 31,
-------------------------------- ----------------------------
1997 1998 1999 1997 1998 1999
-------- -------- ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Europe..................... $268,491 $470,634 $ 764,761 $ 2,105 $ 5,237 $ 25,225
Asia....................... 119,503 329,444 1,835,426 25,254 29,677 100,900
Rest of world.............. 67,355 141,190 458,856 -- -- --
-------- -------- ---------- ------- ------- --------
$455,349 $941,268 $3,059,043 $27,359 $34,914 $126,125
======== ======== ========== ======= ======= ========
</TABLE>
F-28
<PAGE> 90
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information for
AremisSoft Corporation (the "Company") set forth below gives effect to the
acquisition of e-nnovations.com Pvt Ltd ("e-nnovations.com"). The historical
financial information set forth below has been derived from, and is qualified by
reference to, the financial statements of the Company and e-nnovations.com and
should be read in conjunction with those financial statements and the notes
thereto included elsewhere herein. The unaudited pro forma condensed combined
financial information presents the combined results of operations of the
companies for the year ended December 31, 1999, giving effect to the Company's
acquisition of e-nnovations.com as if such acquisition had been consummated as
of January 1, 1999 under the purchase method of accounting. The information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The unaudited pro forma
condensed combined financial information does not purport to represent what the
consolidated results of operations or financial condition of the Company would
actually have been if the e-nnovations.com acquisition had in fact occurred on
January 1, 1999 nor does it purport to be indicative of the consolidated results
of operations or financial condition of the Company that may be achieved in the
future.
F-29
<PAGE> 91
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------
PRO FORMA PRO FORMA
AREMISSOFT E-NNOVATIONS.COM COMBINED ADJUSTMENTS COMBINED
---------- ---------------- -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses...................... $37,224 $2,343 $39,567 $ (109) $39,458
Maintenance and services............... 30,435 234 30,669 (11) 30,658
Hardware and other..................... 5,727 483 6,210 (23) 6,187
------- ------ ------- ------- -------
Total revenues............... 73,386 3,059 76,445 (143) 76,302
------- ------ ------- ------- -------
Cost of revenues:
Software licenses...................... 4,468 729 5,197 (79) 5,118
Maintenance and services............... 8,620 167 8,787 (8) 8,779
Hardware and other..................... 3,625 416 4,041 (20) 4,021
Amortization of purchased software and
capitalized software development
cost................................. 298 -- 298 -- 298
------- ------ ------- ------- -------
Total cost of revenues....... 17,011 1,312 18,323 (107) 18,216
------- ------ ------- ------- -------
Gross profit........................... 56,375 1,747 58,122 (36) 58,086
------- ------ ------- ------- -------
Operating expenses:
Sales and marketing.................... 25,518 219 25,737 (10) 25,727
Research and development............... 5,916 986 6,902 -- 6,902
General and administrative............. 7,108 137 7,245 (6) 7,239
Profit on disposition of subsidiary.... (42) -- (42) -- (42)
Amortization of intangible assets...... -- -- -- 4,603 4,603
------- ------ ------- ------- -------
Total operating expenses..... 38,500 1,342 39,842 4,587 44,429
------- ------ ------- ------- -------
Profit from operations................. 17,875 404 18,279 (4,622) 13,657
Other income (expense):
Interest expense, net................ 661 -- 661 -- 661
------- ------ ------- ------- -------
Income before income taxes............. 17,214 404 17,618 (4,622) 12,996
Income tax expense..................... 5,097 -- 5,097 -- 5,097
------- ------ ------- ------- -------
Income after taxes before extraordinary
item................................. 12,117 404 12,521 (4,622) 7,899
Extraordinary item-gain on debt
forgiveness....................... 1,163 -- 1,163 -- 1,163
------- ------ ------- ------- -------
Net income............................. $13,280 $ 404 $13,684 $(4,622) $ 9,062
======= ====== ======= ======= =======
Basic earnings per share before
extraordinary item................... $0.95 $0.62
======= =======
Diluted earnings per share before
extraordinary item................... $0.90 $0.59
======= =======
Basic earnings per share after
extraordinary item................... $1.04 $0.71
======= =======
Diluted earnings per share after
extraordinary item................... $0.99 $0.68
======= =======
Basic weighted average shares
outstanding.......................... 12,762 12,762
Diluted weighted average shares
outstanding.......................... 13,405 13,405
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
condensed combined financial information.
F-30
<PAGE> 92
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
In December 1999, the Company acquired all the issued and outstanding
common stock of e-nnovations.com in exchange for approximately $14.5 million in
cash. The acquisition has been accounted for using the purchase method of
accounting. The operations of e-nnovations.com are included in the historical
consolidated financial statements of the Company from the date of acquisition.
The excess of purchase price over net assets acquired amounted to approximately
$13.8 million and has been temporarily allocated to goodwill. Management is
currently evaluating the allocation of goodwill to certain identifiable
intangible assets. Amortization of goodwill and identifiable intangible assets
is being provided on a straight line basis over three years. An adjustment has
been made to the unaudited pro forma condensed combined financial information to
record $4,603,000 of amortization expense in 1999.
The accompanying historical financial statements of the Company include the
operations of e-nnovations.com from December 17, 1999, the date of acquisition.
The accompanying historical financial information of e-nnovations.com reflect
the operations of e-nnovations.com for the full 1999 year. Accordingly, a pro
forma adjustment has been made to exclude 14 days of operations of
e-nnovations.com included in both entities historical figures.
F-31
<PAGE> 93
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 SHARES
AREMISSOFT CORPORATION
COMMON STOCK
AREMISSOFT LOGO
------------
PROSPECTUS
, 2000
------------
SALOMON SMITH BARNEY
SG COWEN
WILLIAM BLAIR & COMPANY
ROTH CAPITAL PARTNERS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by us in
connection with the issuance and distribution of the securities being registered
hereunder. No expenses will be borne by the selling stockholder. All of the
amounts shown are estimates, except for the SEC registration fee and the NASD
fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 35,465
NASD fee.................................................... 13,934
Printing and engraving expenses............................. 250,000
Accounting fees and expenses................................ 200,000
Legal fees and expenses..................................... 250,000
Transfer agent and registrar fees........................... 3,000
Miscellaneous............................................... 13,601
--------
Total.................................................. $766,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our certificate of incorporation contains provisions eliminating or
limiting director liability to us and our stockholders for monetary damages
arising from acts or omissions in the capacity as a director. The provisions do
not, however, eliminate the personal liability of a director for any breach of a
director's duty of loyalty to us or our stockholders, for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law or for any transaction from which the director derived an improper personal
benefit. In addition, these provisions do not eliminate personal liability,
under a negligence standard, for violations of Delaware statutory provisions
concerning unlawful dividends or stock repurchases or redemptions. This
provision offers persons who serve on our board of directors protection against
awards of monetary damages resulting from breaches of their duty of care, except
as discussed above. As a result, our ability or our stockholders' ability to
successfully prosecute an action against a director for breach of his or her
duty of care is limited. However, the provision does not affect the availability
of equitable remedies such as an injunction or rescission based upon a
director's breach of his duty of care.
Our certificate of incorporation and bylaws also provide that we will
indemnify our directors and officers to the fullest extent permitted by
applicable law, subject to limited exceptions against liabilities arising by
reason of their status or services as an officer or director.
We have entered into separate indemnification agreements with our directors
and some of our officers that require us to, among other things, advance
expenses as a result of any proceeding against them and to which they could be
indemnified. We may, from time to time, agree to provide similar indemnification
to our employees and agents.
The employment agreements with Dr. Kyprianou and Mr. Poyiadjis also provide
that we will indemnify these individuals for any losses, costs, damages or
expenses incurred as a direct consequence of the discharge of their duties or by
reason of their status as our agents.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since February 1997, we have sold and issued the following securities:
In December 1998, we issued a convertible promissory note to an
accredited investor in the principal amount of $500,000 which bears
interest at the rate of 8% per annum. The note converts into shares of our
common stock, at the option of the holder, at $8.56 per share. The
securities were
II-1
<PAGE> 95
sold to one accredited investor and a fee of 10% of the principal amount of
the note was paid as a finder's fee. We relied on the exemption from
registration contained in Section 4(2) of the Securities Act. On December
5, 1999, the investor converted the note into 62,759 shares of our common
stock.
In March 1999, we changed our corporate domicile from Nevada to
Delaware pursuant to a merger agreement. In connection with the merger, the
board of directors declared a 1.711772-for-one reverse stock split prior to
the effectiveness of the merger. Pursuant to the merger agreement, each
outstanding share of common stock and option and warrant to purchase common
stock of our predecessor automatically became one share of our common stock
and an option or warrant to purchase our common stock, and the corporate
existence of our predecessor ceased. We relied on the exemption from
registration contained in Rule 145(a)(2) of the Securities Act.
In April 1999, we issued a warrant to purchase 330,000 shares of our
common stock with an exercise price of $7.50 per share to Roth Capital
Partners, Inc., formerly known as Cruttenden Roth Incorporated, the
underwriter for our initial public offering.
From September 1999 to February 2000, we granted to our officers and
directors non-qualified stock options to purchase an aggregate of 1,610,000
shares.
From April 1999 to February 2000, we granted an aggregate of 1,278,800
shares of our common stock to our employees, officers and directors under
our 1998 Stock Option Plan.
In October 1999, we issued 1,600,000 shares of our common stock to
Info-quest, a Greek corporation, for an aggregate purchase price of
$17,600,000.
The sales and issuances of the shares of common stock and options and
warrants to purchase common stock since March 1999 were made by us in reliance
upon the exemptions from registration provided under Section 4(2) of the
Securities Act. The offers and sales were made to accredited investors as
defined in Rule 501(a) under the Securities Act, no general solicitation was
made by us or any person acting in our behalf; the securities sold were subject
to transfer restrictions, and the certificates for those shares contained an
appropriate legend stating that they had not been registered under the
Securities Act and may not be offered or sold absent registration or pursuant to
an exemption therefrom.
II-2
<PAGE> 96
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Unless otherwise noted, the following exhibits are filed with this
registration statement.
(a) EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Agreement of Merger between the Registrant and AremisSoft
Corporation, a Nevada corporation dated March 5, 1999(1)
2.2 Plan and Agreement of Reorganization between AremisSoft
Corporation, a Nevada corporation and LK Global Information
Systems, B.V.(1)
2.3 Addendum to the Plan and Agreement of Reorganization between
AremisSoft Corporation, a Nevada corporation and LK Global
Information Systems, B.V.(1)
3.1 Certificate of Incorporation of the Registrant(1)
3.2 Bylaws of the Registrant(1)
4.1 Specimen Common Stock Certificate(1)
4.2 Form of Warrant to purchase Common Stock(1)
5.1 Opinion of Bartel Eng Linn & Schroder*
10.1 1998 Stock Option Plan(1)
10.2 Form of Incentive Stock Option Agreement(1)
10.3 Form of Nonqualified Stock Option Agreement(1)
10.4 Employment Agreement with Dr. Lycourgos K. Kyprianou,
Chairman of the Board and Chief Executive Officer(3)
10.5 Employment Agreement with Roys Poyiadjis, President and Vice
Chairman of the Board(3)
10.6 Indemnification Agreement between the Registrant and Dr.
Lycourgos K. Kyprianou(1)
10.7 Indemnification Agreement between the Registrant and Roys
Poyiadjis(1)
10.8 Convertible Promissory Note made by the Registrant in favor
of Arthur Sterling and Marie Sterling(1)
10.9 Registration Rights Agreement between the Registrant and Dr.
Lycourgos K. Kyprianou(1)
10.10 Registration Rights Agreement between the Registrant and
Roys Poyiadjis(1)
10.11 Form of Registration Rights Agreement between the Registrant
and investors in the Registrant's October 1997 private
placement(1)
10.12 Form of Registration Rights Agreement between the Registrant
and investors in the Registrant's February 1998 private
placement(1)
10.13 Stock Purchase Agreement between the Registrant and
Info-quest SA(3)
10.14 Contracts between the Registrant and the National Health
Insurance Fund of Bulgaria(3)
10.15 Share Purchase Agreement between the Registrant and
e-nnovations.com(2)
21.1 Subsidiaries of the Registrant(3)
23.1 Consent of Bartel Eng Linn & Schroder contained in Exhibit
5.1*
23.2 Consents of Pannell Kerr Forster, chartered accountants
24.1 Power of Attorney (included on signature pages)(3)
27.1 Financial Data Schedule(3)
</TABLE>
- ---------------
* To be filed by amendment.
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (No. 333-58351)
(2) Incorporated by reference to the Registrant's Form 8-K filed on December 29,
1999
(3) Previously filed
II-3
<PAGE> 97
(B) FINANCIAL STATEMENT SCHEDULES.
Report of Pannell Kerr Forster, Independent Auditors, on Schedule
II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the undersigned registrant pursuant to the foregoing provisions, or otherwise,
the undersigned registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
undersigned registrant of expenses incurred or paid by a director, officer, or
controlling person of the undersigned registrant in the successful defense of
any action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
undersigned registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time the Commission declared it effective;
and
(2) For determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunder duly authorized, in New York City, New York, on March
15, 2000.
AREMISSOFT CORPORATION,
a Delaware Corporation
/s/ ROYS POYIADJIS*
--------------------------------------
Dr. Lycourgos K. Kyprianou,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE DATE
--------- ----
<S> <C>
/s/ ROYS POYIADJIS* March 15, 2000
- -----------------------------------------------------
Dr. Lycourgos K. Kyprianou,
Chairman of the Board and
Chief Executive Officer
/s/ ROYS POYIADJIS March 15, 2000
- -----------------------------------------------------
Roys Poyiadjis,
President and Vice Chairman of the Board
/s/ ROYS POYIADJIS* March 15, 2000
- -----------------------------------------------------
Michael Tymvios,
Chief Financial Officer
/s/ ROYS POYIADJIS* March 15, 2000
- -----------------------------------------------------
Dann V. Angeloff,
Director
/s/ ROYS POYIADJIS* March 15, 2000
- -----------------------------------------------------
George H. Ellis,
Director
/s/ ROYS POYIADJIS* March 15, 2000
- -----------------------------------------------------
H. Tate Holt,
Director
/s/ ROYS POYIADJIS* March 15, 2000
- -----------------------------------------------------
Noel Voice,
Director
</TABLE>
II-5
<PAGE> 99
<TABLE>
<CAPTION>
SIGNATURE DATE
--------- ----
<S> <C>
/s/ ROYS POYIADJIS* March 15, 2000
- -----------------------------------------------------
M.C. Mathews,
Director
/s/ ROYS POYIADJIS* March 15, 2000
- -----------------------------------------------------
Theodoros Fessas,
Director
/s/ ROYS POYIADJIS* March 15, 2000
- -----------------------------------------------------
George Papadopoulos,
Director
/s/ ROYS POYIADJIS* March 15, 2000
- -----------------------------------------------------
John Malamas,
Director
</TABLE>
* By power of attorney dated March 5, 2000
II-6
<PAGE> 100
REPORT OF PANNELL KERR FORSTER, INDEPENDENT AUDITORS, ON SCHEDULE II
We have audited the consolidated financial statements of AremisSoft
Corporation as of December 31, 1999 and 1998, and for each of the three years in
the period ended December 31, 1999 and have issued our report thereon dated
March 2, 2000 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedules listed in Item 16(b) of this
Registration Statement. These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ PANNELL KERR FORSTER
London, England
March 5, 2000
<PAGE> 101
SCHEDULE II
AREMISSOFT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADD ITEMS
CHARGED TO
BALANCE AT COSTS AND EXCHANGE BALANCE AT
DESCRIPTION BEGINNING OF PERIOD EXPENSES DIFFERENCES DEDUCTIONS END OF PERIOD
----------- ------------------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful accounts.... $484 $560 $(16) $ 57 $971
Year ended December 31, 1998
Allowance for doubtful accounts.... 971 110 10 452 639
Year ended December 31, 1999
Allowance for doubtful accounts.... 639 652 19 765 507
</TABLE>
<PAGE> 102
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Agreement of Merger between the Registrant and AremisSoft
Corporation, a Nevada corporation dated March 5, 1999(1)
2.2 Plan and Agreement of Reorganization between AremisSoft
Corporation, a Nevada corporation and LK Global Information
Systems, B.V.(1)
2.3 Addendum to the Plan and Agreement of Reorganization between
AremisSoft Corporation, a Nevada corporation and LK Global
Information Systems, B.V.(1)
3.1 Certificate of Incorporation of the Registrant(1)
3.2 Bylaws of the Registrant(1)
4.1 Specimen Common Stock Certificate(1)
4.2 Form of Warrant to purchase Common Stock(1)
5.1 Opinion of Bartel Eng Linn & Schroder*
10.1 1998 Stock Option Plan(1)
10.2 Form of Incentive Stock Option Agreement(1)
10.3 Form of Nonqualified Stock Option Agreement(1)
10.4 Employment Agreement with Dr. Lycourgos K. Kyprianou,
Chairman of the Board and Chief Executive Officer(3)
10.5 Employment Agreement with Roys Poyiadjis, President and Vice
Chairman of the Board(3)
10.6 Indemnification Agreement between the Registrant and Dr.
Lycourgos K. Kyprianou(1)
10.7 Indemnification Agreement between the Registrant and Roys
Poyiadjis(1)
10.8 Convertible Promissory Note made by the Registrant in favor
of Arthur Sterling and Marie Sterling(1)
10.9 Registration Rights Agreement between the Registrant and Dr.
Lycourgos K. Kyprianou(1)
10.10 Registration Rights Agreement between the Registrant and
Roys Poyiadjis(1)
10.11 Form of Registration Rights Agreement between the Registrant
and investors in the Registrant's October 1997 private
placement(1)
10.12 Form of Registration Rights Agreement between the Registrant
and investors in the Registrant's February 1998 private
placement(1)
10.13 Stock Purchase Agreement between the Registrant and
Info-quest SA(3)
10.14 Contracts between the Registrant and the National Health
Insurance Fund of Bulgaria(3)
10.15 Share Purchase Agreement between the Registrant and
e-nnovations.com(2)
21.1 Subsidiaries of the Registrant(3)
23.1 Consent of Bartel Eng Linn & Schroder contained in Exhibit
5.1*
23.2 Consents of Pannell Kerr Forster, chartered accountants
24.1 Power of Attorney (included on signature pages)(3)
27.1 Financial Data Schedule(3)
</TABLE>
- ---------------
* To be filed by amendment.
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (No. 333-58351)
(2) Incorporated by reference to the Registrant's Form 8-K filed on December 29,
1999
(3) Previously filed
<PAGE> 1
Exhibit 23.2
CONSENT OF PANNELL KERR FORSTER, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our reports dated March 2, 2000 and March 5, 2000, in
Pre-Effective Amendment No. 1 to the Registration Statement (Form S-1) and
related Prospectus of AremisSoft Corporation for the registration of shares of
its common stock.
/s/ Pannell Kerr Forster
London, England
March 15, 2000
<PAGE> 2
Exhibit 23.2
CONSENT OF PANNELL KERR FORSTER, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our reports dated March 3, 2000, in the Registration Statement
(Form S-1) and related Prospectus of AremisSoft Corporation for the registration
of shares of its common stock.
/s/ Pannell Kerr Forster
Nicosia, Cyprus
March 3, 2000