UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 333-58351
AREMISSOFT CORPORATION
---------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 7372 68-0413929
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NO.)
AREMISSOFT CORPORATION
SENTRY OFFICE PLAZA
216 HADDON AVENUE, SUITE 607
WESTMONT, NEW JERSEY 08108
856-869-0770
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROYS POYIADJIS
PRESIDENT & CHIEF EXECUTIVE OFFICER
AREMISSOFT CORPORATION
SENTRY OFFICE PLAZA
216 HADDON AVENUE, SUITE 607
WESTMONT, NEW JERSEY 08108
856-869-0770
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE)
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares outstanding of the Registrant's Common Stock on October 17,
2000 was 16,048,733 shares.
<PAGE> 2
AREMISSOFT CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Balance Sheets as of 3
September 30, 2000 and December 31, 1999
Consolidated Statements of Operations 5
for the three-months and nine-months ended
September 30, 2000 and September 30, 1999
Consolidated Statements of Cash Flows 6
for the nine-months ended September 30, 2000
and September 30, 1999
Notes to Interim Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Item 3: Quantitative and Qualitative disclosures about market risk 16
PART II - OTHER INFORMATION
Item 1--Legal Proceedings 17
Item 2--Changes in Securities and Use of Proceeds 17
Item 3--Defaults upon Senior Securities 17
Item 4--of Matters to a Vote of Security Holders 17
Item 5--Other Information 17
Item 6--Exhibits and Reports on Form 8-K 18
SIGNATURES 19
<PAGE> 3
PART 1-FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AREMISSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31 SEPTEMBER 30
ASSETS 1999 2000
----------- ------------
(unaudited)
Current assets
Cash and cash equivalents $13,386 $35,915
Accounts receivable, less
allowances for doubtful accounts
of $507 at Dec 31,1999 and
September 30, 2000 18,115 27,993
Accounts receivable - disposition proceeds 2,592 -
Other receivables 705 932
Inventory 1,603 1,168
Deposits paid on services and
maintenance contracts 3,712 3,752
Prepaid expenses and other assets 2,423 2,955
Total Current Assets 42,536 72,715
Investments 1,803 1,652
Property and equipment, net 1,847 2,035
Purchased and developed software, net
of accumulated Amortization of $5,893
and $6,115 at Dec. 31,1999 and
September 30, 2000 respectively. 948 726
Intangible assets, net of accumulated
amortization of $11,534 and $14,987
at Dec 31, 1999 and September 30, 2000
respectively 13,810 10,357
Total assets 60,944 87,485
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable 6,910 2,812
Accrued payroll taxes 574 1,102
Accrued value added taxes 1,055 593
Accrued income taxes 6,572 10,385
Current portion of capital lease obligations 24 10
Other accrued expenses 2,371 1,642
Deferred revenue 7,190 5,900
Total Current liabilities 24,696 22,444
Capital lease obligations,
less current portion 2 83
Total liabilities 24,698 22,527
Stockholders' equity
Series-A convertible preferred stock,
par value $0.001; authorized 2,100
shares; and no shares issued and
outstanding liquidating preference
at par value
<PAGE> 4
AREMISSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31 SEPTEMBER 30
1999 2000
----------- ------------
(unaudited)
Series-B convertible preferred stock,
par value $0.001; authorized 3,500
shares ; no shares issued and
outstanding, liquidating preference
at par value
Common stock, par value $0.001; authorized
85,000 shares; 15,193 and 15,477 shares
issued and outstanding at Dec.31, 1999
and September 30, 2000, respectively 15 16
Additional paid-in capital 57,325 71,261
Accumulated deficit (18,921) (3,171)
Accumulated other comprehensive income (2,173) (3,148)
Total stockholders' equity 36,246 64,958
Total liabilities and stockholders'
equity (deficit) 60,944 87,485
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 5
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
For three months ended For nine months ended
September 30 September 30
1999 2000 1999 2000
- ---- ---- ---- ----
Revenues
Software Licenses 11,071 17,577 25,321 44,170
Maintenance and Services 8,486 12,909 21,350 32,481
Hardware and Other 721 1,235 3,461 3,594
Total revenues 20,278 31,721 50,132 80,245
Cost of revenues
Software Licenses 1,373 1,911 3,150 4,713
Maintenance and Services 2,732 3,735 6,778 9,805
Hardware and Other 566 859 2,487 2,686
Amortization of purchased
software
and capitalized software
development
costs 58 72 182 222
Total cost of revenues 4,729 6,577 12,597 17,426
Gross profit 15,549 25,144 37,535 62,819
Operating Expenses
Sales and marketing 7,329 10,725 17,968 28,164
Research and development 1,205 2,371 3,866 6,480
General and administrative 1,773 2,558 4,457 7,869
Amortization of intangible
assets 88 1,151 264 3,453
Total operating expenses 10,395 16,805 26,555 45,966
Profit from operations 5,154 8,339 10,980 16,853
Other income (expense)
Interest income (expense), net -290 307 -1,138 576
Gain on disposition, net - 2,192 - 2,192
Non-operating income - - - 131
Income before income taxes 4,864 10,838 9,842 19,752
Income tax expense 1,605 1,974 3,247 4,002
Net Income 3,259 8,864 6,595 15,750
Basic net income per share 0.24 0.57 0.55 1.03
Diluted net income per share 0.23 0.51 0.54 0.91
Basic weighted average shares
outstanding 13,530 15,477 12,038 15,326
Diluted weighted average shares
outstanding 14,200 17,345 12,335 17,227
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 6
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C> <C>
For nine months ended September 30
1999 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 6,595 15,750
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 979 487
Amortization and write-off of capitalized software and
Intangible assets 446 3,675
Foreign currency translation - 151
Gain on disposition, net - (2,192)
Changes in assets and liabilities (net of disposition):
Accounts receivable (1,580) (10,470)
Accounts receivable -disposition proceeds - 2,592
Other receivables (553) (227)
Inventory 76 302
Deposits paid on service and maintenance contract 2,586 816
Prepaid expenses and other assets (1,078) (643)
Accounts payable (807) (4,098)
Deferred revenue (1,900) (1,290)
Accrued taxes payable 1,837 3,879
Other accrued expenses (2,491) (714)
Net cash provided by operating activities 4,110 8,018
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,060) (848)
Proceeds from disposition - 3,330
Net cash provided (used) by investing activities (1,060) 2,482
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants and employee stock options 937
Net proceeds from issuance of stock 12,868 12,000
Principal repayments of long-term borrowings (7,622) -
Loan from related party (1,793) -
Principal payments of capital lease obligations-net (26) 67
Net cash provided by financing activities 3,427 13,004
Effect of foreign currency exchange rates on cash and cash
equivalents (89) (975)
Net increase(decrease) in cash & cash equivalents 6,388 22,529
Cash and cash equivalents, at beginning of period 149 13,386
Cash and cash equivalents, at end of period 6,537 35,915
Supplemental disclosure:
Interest paid 1,138 -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 7
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements and notes thereto
have been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission. Interim results of operations for the
three-month and nine-month period ended September 30, 2000 are not necessarily
indicative of operating results for the full fiscal year.
In the opinion of management, all adjustments consisting of normal recurring
entries necessary for the fair presentation of the consolidated financial
position, results of operations, and changes in cash flows for the periods
presented have been included. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
2. FOREIGN CURRENCY TRANSLATION
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 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.
3. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
Three months ended Nine months ended
September September
1999 2000 1999 2000
---- ---- ---- ----
Numerator used for basic 3,259 8,864 6,595 15,750
earnings per share
Weighted average shares 13,530 15,477 12,038 15,326
outstanding
Basic Earnings per share $0.24 $0.57 $0.55 $1.03
<PAGE> 8
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Nine months ended
September September
1999 2000 1999 2000
------ ------ ------ ------
Numerator used for diluted earning per share 3,269 8,864 6,595 15,750
Denominator for diluted earnings per share:
Weighted average shares outstanding 13,530 15,477 12,038 15,326
Effect of dilutive securities:
Options and Warrants 670 1,868 297 1,901
Totals 14,200 17,345 12,335 17,227
Diluted Earnings per share $0.23 $0.51 $0.54 $0.91
</TABLE>
4. COMPREHENSIVE INCOME
The Company follows the provisions of the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") which
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. Included
within accumulated other comprehensive income are the cumulative amounts for
foreign currency translation adjustments.
comprehensive income for the nine-months ended September 30, 1999 and 2000 are
as follows
(in thousands)
1999 2000
---- ----
Net income $ 6,595 $ 15,750
Foreign currency translation adjustments (89) (975)
-------- ---------
Comprehensive income $ 6,506 $ 14,775
-------- ---------
5. SEGMENT REPORTING INFORMATION
The Company has adopted SFAS 131 "Disclosure about Segments of an Enterprise and
Related Information" 1999, which changes the way the Company reports certain
information about its operating segments.
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.
<PAGE> 9
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.
Summarized financial information concerning the Company's reportable segments is
shown in the following table.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
MANUFACTURING HEALTHCARE HOSPITALITY CONSTRUCTION OTHER TOTAL
------------- ---------- ----------- ------------ ----- -----
Segmental analysis for the
nine months ended
September 30, 2000
Revenues from external
customers 28,291 18,407 22,547 6,345 4,655 80,245
Depreciation and amortization 1,058 878 960 223 1,043 4,162
Profit (loss) from operations 7,997 2,595 4,516 1,263 482 16,853
Total Segment assets 39,761 16,624 23,901 4,349 2,850 87,485
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
MANUFACTURING HEALTHCARE HOSPITALITY CONSTRUCTION OTHER TOTAL
------------- ---------- ----------- ------------ ----- -----
Segmental analysis for the
nine months ended
September 30, 1999
Revenues from external
customers 16,461 13,842 13,199 3,715 2,915 50,132
Depreciation and
amortization 280 294 284 64 503 1,425
Profit (loss) from
operations 5,713 2,042 2,984 552 -311 10,980
Total Segment assets 15,089 8,237 8,381 1,547 1,282 34,536
</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.
Revenues Long-Lived Assets
Sep. 30, 1999 Sep. 30, 2000 Sep. 30, 1999 Sep. 30, 2000
------------- ------------- ------------- -------------
United Kingdom 28,581 25,940 1,833 1,774
Rest of Europe 11,646 29,052 605 371
United States 1,972 2,534 117 84
Asia 1,872 11,044 463 12,530
Rest of World 6,061 11,675 12 11
50,132 80,245 3,030 14,770
<PAGE> 10
6. INVESTMENTS
Investments comprise an approximate 8.93% interest in LK GlobalSoft.com, an
entity whose common stock began trading on the Cyprus stock exchange in April
2000. The Company's ability to liquidate this investment and realize all profits
on a short-term basis is restricted due to certain governmental regulations in
Cyprus. Management has determined that this investment does meet the criteria of
a marketable equity security as defined by Statement of Financial Accounting
Standards No. 115 Accounting for Certain Investments in Debt and Equity
Securities, and, therefore, records it on the cost basis of accounting. Based
upon the trading price of Global's common stock on the Cyprus exchange at
September 30, 2000, the value of the Company's investment approximated $98
million.
7. DISPOSITION
On September 6, 2000, the Company sold its UK Healthcare business to Torex
Health Limited ("Torex"), a UK based information technology solution provider to
the healthcare and retail markets. The transaction was structured as a sale of
certain assets and the assumption of certain liabilities in exchange for a net
cash consideration of $3.3 million. Under the agreement the Company transferred
24 UK Healthcare employees to Torex and retained all of its Healthcare software
intellectual property, licensing it to Torex for the operation of the UK
Healthcare business. The transaction failed to meet the "significance" test set
forth in Instruction 4 of Item 2 of Form 8-K.
In connection with this transaction, the Company realized a gain on disposition
of $2.2 million. The gain represents the difference between the selling price
and the net assets disposed of plus disposition related expenses.
The operations of the U.K. Healthcare business included in the accompanying
interim financial statements are not material.
8. SUBSEQUENT EVENT
On October 18, 2000, the Company completed the purchase of assets and assumption
of certain liabilities in connection with the acquisition of the United States
hospitality business of Verso Technologies, Inc. ("Verso"), formerly known as
Eltrax Systems, Inc. In addition, the Company completed the acquisition of
Verso's Norwegian hospitality business and signed an agreement to acquire the
remainder of Verso's international hospitality business. Total purchase
consideration is expected to approximate $10 million.
<PAGE> 11
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995. The following Management's Discussion
and Analysis of Financial Condition and Results of Operations should be read in
conjunction with the Notes to the Condensed Consolidated Financial Statements
included in Part I, Item 1, of this report. All statements, other than
historical facts, included in the following discussion regarding our financial
position, business strategy, and plans of our management for future operations
are "forward-looking statements." These statements are based on management's
beliefs and assumptions, and on information currently available to management.
Forward looking statements include, but are not limited to, statements in which
words such as "expect", "anticipate", "intend", "plan", "believe", "estimate",
"consider", or similar expressions are used. Forward-looking statements are not
guarantees of future performance. They involve risks, uncertainties, and
assumptions, including the risks discussed under Item 3 below and in the section
entitled "Risk Factors" in the prospectus, and supplements to our registration
statement on Form S-3, SEC File No. 333-31768, all of which are incorporated
herein by reference. Our actual results and stockholder values may differ
materially from those anticipated or expressed in these forward-looking
statements. Many of the factors that will determine these results and values are
beyond our ability to control or predict. We caution readers of this report not
to put undue reliance on any forward-looking statement. We undertake no
obligation to publicly update these forward looking statements, whether as a
result of new information, future events or otherwise.
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. As of September 30, 2000, we licensed our
software applications to more than 6,000 customers in over twenty countries and
had 680 full time employees.
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 the past six years, we have experienced rapid growth, both internally and
through acquisitions, with revenues increasing from $6.4 million in 1994 to
$73.4 million in 1999. During this period, we successfully acquired and
integrated the operations of eleven businesses, which were principally operating
in the United Kingdom. In each acquisition, we sought to reduce expenses,
rejuvenate the existing products of the acquired business and transition the
customers to products that utilize our Aremis Architecture. Our software
development and support facility in India provides us access to highly-skilled
technical personnel who are responsible for rejuvenating the acquired products
and developing new products in a cost-effective manner.
<PAGE> 12
Our objective is to be a leading provider of enterprise-wide applications
software in the manufacturing, healthcare, hospitality and construction
industries. Our strategy for achieving this objective includes targeting
mid-sized organizations, including divisions and business units of larger
companies, focusing on strategic markets, leveraging our cost-efficient India
operations, capitalizing on our investment in the Aremis Architecture, expanding
our marketing, sales, support and service capabilities and acquiring related
software businesses, products or technologies.
RESULTS OF OPERATIONS
Revenues
Total revenues increased 56.4% to $31.7 million for the three-months ended
September 30, 2000 from $20.3 million for the three-months ended September 30,
1999. For the nine-months ended September 30, 2000, the total revenue increased
60.1% to $80.2 million from $50.1 million during the comparable period in 1999.
This increase was due to higher software license revenues as a result of an
increase in the sale of higher margin licenses, and associated maintenance and
service contract revenues and also the effect of additional revenue of
e-nnovations.com of $ 1.5 million and $4.3 million for the three-months and
nine-months ended September 30, 2000. The effect of the e-nnovations.com
acquisition on revenues is mainly reflected in the nine-months ended September
30, 2000 since the acquisition of e-nnovations.com was recorded in December
1999.
Software license revenues increased 58.8% to $17.6 million for the three-months
ended September 30, 2000 from $11.1 million for the three-months ended September
30, 1999. For the nine-months ended September 30, 2000, the software license
revenue increased 74.4% to $44.2 million from $25.3 million during the
comparable period in 1999. This increase is primarily due to the growth in the
number of installed customers, increased sales of licenses for Aremis 4.0
products, and price increases. As a percentage of total revenues, license
revenues increased to 55.4% for the three-months ended September 30, 2000 from
54.6% for the period ended September 30, 1999. For the nine-months ended
September 30, 2000 as a percentage of total revenue, license revenue increased
to 55.0% from 50.5% during the comparable period in 1999.
Maintenance and service contract revenues increased 52.1% to $12.9 million for
the three-months ended September 30, 2000 from $8.5 million for the three-months
ended September 30, 1999. For the nine-months ended September 30, 2000, the
maintenance revenue increased 52.1% to $32.5 million from $21.4 million during
the comparable period in 1999. This increase is primarily due to 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
decreased to 40.7% for three-months ended September 30, 2000 from 41.9% for the
period ended September 30, 1999. For the nine-months ended September 30, 2000 as
a percentage of total revenue, maintenance revenue decreased to 40.5% from 42.6%
during the comparable period in 1999.
Hardware and other revenues increased 71.3% to $ 1.2 million for the
three-months ended September 30, 2000 from $0.7 million for the three-months
ended September 30, 1999. For the nine-months ended September 30, 2000, the
hardware and other revenue increased 3.9% to $ 3.6 million from $3.5 million
during the comparable period in 1999. As a percentage of total revenues,
hardware and other revenues increased to 3.9% for the three-months ended
September 30, 2000 from 3.6% for the three-months ended September 30, 1999. For
the nine-months ended September 30, 2000, as a percentage of total revenue
hardware and other revenue decreased to 4.5% from 6.9% for the comparable period
in 1999, reflecting our strategy to reduce the sale and installation of lower
margin third-party hardware.
<PAGE> 13
Cost of Revenues
Cost of revenues increased 39.1 % to $6.6 million for the three-months ended
September 30, 2000 from $4.8 million for the three-months ended September 30,
1999. For the nine-months ended September 30, 2000, the total cost of revenue
increased 38.3% to $17.4 million from $12.6 million during the comparable period
in 1999. As a percentage of total revenues, cost of revenues decreased to 20.7%
for the three-months ended September 30, 2000 from 23.3% for the three-months
ended September 30, 1999. For the nine-months ended September 30, 2000, as a
percentage of total revenue, cost of revenue decreased to 21.7% from 25.1%
during the comparable period in 1999. The effect of e-nnovations.com on the cost
of revenue is $ 0.5 million for the three-months ended September 30, 2000 and
$1.3 million for the nine-months ended September 30, 2000.
Software license cost increased 39.2% to $1.9 million for the three-months ended
September 30, 2000 from $1.4 million for the three-months ended September 30,
1999. For the nine-months ended September 30, 2000, the software license cost
increased 49.6% to $4.7 million from $3.2 million during the comparable period
in 1999. This increase is primarily due to the growth in the number of installed
customers, increased sales of licenses for the Company's Aremis 4.0 products. As
a percentage of total revenues, license cost decreased to 6.0% from 6.8% for the
period ended September 30, 1999. For the nine-months ended September 30, 2000,
as a percentage of total revenue, license cost decreased to 5.9% from 6.3%
during the comparable period in 1999.
Maintenance and service contract cost increased 36.7% to $3.7 million for the
three-months ended September 30, 2000 from $2.7 million for the three-months
ended September 30, 1999. For the nine-months ended September 30, 2000, the
maintenance and service contract cost increased 44.7% to $9.8 million from $6.8
million during the comparable period in 1999. This is due to 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 cost decreased to
11.8% for three-months ended September 30, 2000 from 13.5% for 1999. For the
nine-months ended September 30, 2000, as a percentage of total revenue,
maintenance and service contract cost decreased to 12.2% from 13.5% during the
comparable period in 1999.
Hardware and other cost increased 51.8 % to $0.9 million for the three-months
ended September 30, 2000 from $0.6 million for the three-months ended September
30, 1999. For the nine-months ended September 30, 2000, the hardware and other
cost increased 8.0% to $2.7 million from $2.5 million during the comparable
period in 1999. As a percentage of total revenues, hardware and other cost
decreased to 2.7% for the three-months ended September 30, 2000 from 2.8% for
the three-months ended September 30, 1999. For the nine-months ended September
30, 2000, as a percentage of total revenue, hardware and other cost decreased to
3.4% from 5.0% during the comparable period in 1999 reflecting our strategy to
reduce the sale and installation of lower margin third-party hardware.
Sales and Marketing
Sales and Marketing expense consist primarily of expenses related to sales and
marketing personnel, advertising, promotion, trade shows participation and
public relations.
Our sales and marketing expenses increased 46.3% to $10.7 million for the
three-months ended September 30, 2000 from $7.3 million for the three-months
ended September 30, 1999. For the nine-months ended September 30, 2000, the
sales and marketing cost increased 56.7% to $28.2 million from $18.0 million
during the comparable period in 1999, primarily due to the expansion of sales
and marketing activities principally in the United States, Asia and Europe. As a
percentage of total revenues, sales and marketing expenses decreased to 33.8%
for three-months ended September 30, 2000, from 36.1% for the three-months ended
September 30, 1999. For the nine-months ended September 30, 2000, as a
percentage of total revenue, sales and marketing cost decreased to 35.1% from
35.8% during the comparable period in 1999, primarily due to increased
efficiencies in our sales and marketing operations.
<PAGE> 14
Research and Development
Our research and development expenses increased 96.8% to $2.4 million for the
period ended September 30, 2000 from $ 1.2 million for the three-months ended
September 30, 1999. For the nine-months ended September 30, 2000, the research
and development cost increased 67.6% to $6.5 million from $3.9 million during
the comparable period in 1999. As a percentage of total revenues, research and
development expenses increased to 7.5% for the three-months ended September 30,
2000 from 5.9% for the three-months ended September 30, 1999. For the
nine-months ended September 30, 2000, as a percentage of total revenue, research
and development cost increased to 8.1% from 7.7% during the comparable period in
1999.
General and Administrative
General and administrative expenses increased 44.3% to $2.6 million for the
three-months ended September 30, 2000 from $1.8 million for the three-months
ended September 30, 1999. For the nine-months ended September 30, 2000, the
general and administrative expenses increased 76.6% to $7.9 million from $4.5
million during the comparable period in 1999. As a percentage of total revenues,
general and administrative expenses decreased to 8.1% for the three-months ended
September 30, 2000 from 8.7% for the three-months ended September 30, 1999. For
the nine-months ended September 30, 2000, as a percentage of total revenue,
general and administrative expenses increased to 9.8% from 8.9% during the
comparable period in 1999. The increase was primarily due to increase in
operational and geographical activities compared to the previous period and a
write off in 2nd quarter of $0.55 million in offering expenses related to our
follow-on offering which has been indefinitely postponed due to market
conditions.
Amortization of Intangible Assets
Amortization of intangible assets increased to $1.2 million for the three-months
ended September 30, 2000 from approximately $88,000 for the three-months ended
September 30, 1999. For the nine-months ended September 30, 2000, the
amortization of intangible assets increased to $3.5 million from approximately
$264,000 during the comparable period in 1999. The increase in amortization of
intangible assets is due to the goodwill recorded on the acquisition of
e-nnovations.com in December 1999.
Net Interest Income Expense
Net interest income expense reflects interest on our credit facilities, as
reduced by interest income on cash balances. Net interest income was $0.3
million for the three-months ended September 30, 2000 as compared to a $0.3
million net interest expense for the three-months ended September 30, 1999. For
the nine-months ended September 30, 2000, the net interest income was $0.6
million as compared to a net interest expense of $1.1 million during the
comparable period in 1999.
Gain On Disposition
During the three months ended September 30, 2000, we realized a $2.2 million
gain on the sale of our UK Healthcare division.
<PAGE> 15
Income Tax Provision
There is a provision for income taxes for the three-months ended September 30,
2000 of $2.0 million. There was a provision for income taxes for $1.6 million
for the three-months ended September 30, 1999. For the nine-months ended
September 30, 2000 there was a provision for income tax for $4.0 million as
compared to $3.2 million during the comparable period in 1999. The increase in
income taxes resulted from the increase in the Company's profitability in 2000.
The company's effective tax rate was assumed at 20%.
Recoverability of the deferred tax asset derived mainly from operating loss
carry forwards in the United Kingdom has been reviewed at September 30, 2000,
and although certain subsidiaries generated taxable income in the year ending
September 30, 2000, we cannot assure you that the level of taxable income will
be sustained at an adequate level in the appropriate subsidiaries. It must
therefore be considered more likely than not that the deferred tax benefit will
not be recognized at this stage.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations since inception primarily through borrowings under
bank credit facilities, private placements of equity securities and equity
contributions by our principal stockholder. In September 2000, we offered
474,871 shares of our common stock to Acqua Wellington North American Equities
Fund Ltd. The net proceeds received by us from the sale of shares of common
stock was approximately $12 million. As of September 30, 2000, we had $35.9
million of cash and cash equivalents. We had a working capital surplus of $ 50.3
million as of September 30, 2000.
We believe that the existing cash and cash equivalents, will be sufficient to
meet our working capital and currently planned expenditure requirements for the
next three months. 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. No assurances can be given 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 $8.0 million for the nine-months ended
September 30, 2000 compared to a surplus of $4.1 million for the comparable
period in 1999. This surplus was primarily due to operating profits and a
decrease in accounts receivable - disposition proceeds and an increase in
accrued taxes partially offset by increase in trade accounts receivable,
decrease in accounts payable and deferred revenue. Operating cash flow is
affected by seasonality, among other factors.
Accounts receivable increased to $28.0 million for September 30, 2000 from $17.7
million for September 30, 1999. Accounts receivable as at December 31, 1999 was
$ 18.1 million. The average days sales outstanding was approximately 81 days for
the both periods ending September 30, 2000 and September 30, 1999.
Accrued taxes increased from $6.1 million at September 30, 1999 to approximately
$12.1 million at September 30, 2000. The increase was primarily due to increase
in income tax of company due to higher profits.
Net cash provided by investing activities was approximately $2.4 million for the
nine months ended September 30, 2000 primarily resulting from the $3.3 million
cash proceeds from our sale of the U.K. healthcare division offset by $0.9
million in purchases of property and equipment.
Net cash provided by financing activities was approximately $13.0 million and
$3.4 million for the nine-months ended September 30, 2000 and September 30, 1999
respectively. For the nine-months ended September 30, 2000 cash provided by
financing activities resulted from proceeds received from the sale of common
stock and exercise of warrants and employee stock options and increase in
capital lease obligations.
<PAGE> 16
On September 6, 2000, we sold our UK healthcare division to Torex, a UK based
information technology solution provider to the healthcare and retail markets.
The transaction was structured as a sale of certain assets and the assumption of
certain liabilities in exchange for a net cash consideration of $3.3 million.
This gain was offset by certain acquisition costs primarily relating to stock
options granted to certain of our 24 UK healthcare employees who were
transferred to Torex as part of the disposition. In connection with this
transaction, we realized a net gain on disposition of $2.2 million.
On October 18, 2000, we completed the purchase of assets and assumption of
certain liabilities in connection with the acquisition of the United States
hospitality business of Verso Technologies, Inc. ("Verso"), formerly known as
Eltrax Systems, Inc. In addition, we completed the acquisition of Verso's
Norwegian hospitality business and signed an agreement to acquire the remainder
of Verso's international hospitality business. The total purchase consideration
is expected to approximate $10 million.
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 a material adverse effect
on our business. Because the critical internal systems have been modified to
accommodate a conversion to the Euro, we believe we are adequately prepared in
the event the United Kingdom converts to the Euro in the future.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Rates
A significant portion of our business is conducted in currencies other than the
United States dollar. As a result, we are subject to exposure from movements in
foreign currency exchange rates. We do not currently engage in hedging
transactions designed to manage currency fluctuation risks.
Interest Rate Sensitivity
Our exposure related to adverse movements in interest rates is primarily derived
from the variable rate on our credit facilities. Interest rates on our credit
facilities range from either Sterling LIBOR plus 3% to Sterling LIBOR plus 4% or
the lending bank's base rate plus the applicable margin. Increases in Sterling
LIBOR result in increases in our interest expense. At September 30, 2000, we had
no borrowings outstanding under our credit facilities.
<PAGE> 17
PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
None
Item 2: CHANGES IN SECURITIES AND USE OF PROCEEDS.
We issued 474,871 shares of our common stock at $ 25.27 per share, 8,764 shares
at $ 8.56 per share in connection with exercise of warrants and 172,267 shares
at $5.00 per share in connection with the exercise of employee stock options
during the nine-months ended September 30, 2000. Consequently, we received
approximately $ 13.0 million.
Item 3: DEFAULTS UPON SENIOR SECURITIES.
None
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
Item 5: OTHER INFORMATION
On September 6, 2000, we sold our UK healthcare division to Torex. The
transaction was structured as a sale of certain assets and the assumption of
certain liabilities in exchange for a net cash consideration of $3.3 million.
Under the terms of the sale, Torex acquired approximately 500 UK healthcare
customers, primarily physician groups and a perpetual license to the related UK
healthcare software. We retained all of the intellectual property rights to the
software.
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 10.17 Agreement for the Sale and Purchase of Business and Assets
between AremisSoft (UK) PLC and Torex Health Limited.
Exhibit 10.18 Agreement For The Purchase And Sale Of Assets Between AremisSoft
Corporation, a Delaware corporation, as Purchaser, Eltrax
Systems, Inc., a Minnesota corporation, and Eltrax Hospitality
Group, Inc., a Georgia corporation, as Seller.
Exhibit 10.19 Agreement between Acqua Wellington North American Equities
Fund, Ltd. and AremisSoft Corporation, a Delaware corporation.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AREMISSOFT CORPORATION,
a Delaware Corporation
Date: _______________ _______________________________
Roys Poyiadjis
President and Chief Executive Officer
Date: _______________ _______________________________
Michael Tymvios
Chief Financial Officer
