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 JUNE 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)
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Delaware 7372 68-0413929
------------------------------- ----------------------------- --------------------
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NO.)
</TABLE>
AremisSoft Corporation
Sentry Office Plaza
216 Haddon Avenue, Suite 607
Westmont, NJ 08108
856-869-0770
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------------------------------------------
Dr. Lycourgos K. Kyprianou
Chairman
AremisSoft Corporation
Sentry Office Plaza
216 Haddon Avenue, Suite 607
Westmont, NJ 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 July 17,
2000 was 15,298,394 shares.
<PAGE>2
AREMISSOFT CORPORATION
INDEX
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PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Balance Sheets as at 3
June 30, 2000 and December 31, 1999
Consolidated Statements of Operations 5
for the three months and six months ended June 30, 2000
and June 30, 1999
Consolidated Statements of Cash Flows 6
for the six months ended June 30, 2000 and June 30, 1999
Notes to Interim Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Item 3: Quantitative and Qualitative disclosures about market risk 15
PART II - OTHER INFORMATION
Item 1--Legal Proceedings 15
Item 2--Changes in Securities and Use of Proceeds 15
Item 3--Defaults upon Senior Securities 15
Item 4--Submission of Matters to a Vote of Security Holders 15
Item 5--Other Information 15
Item 6--Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<PAGE>3
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AREMISSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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AS AT DEC.31 AS AT JUNE 30
1999 2000
-------------- --------------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 13,386 $ 18,932
Accounts receivable, less allowances for doubtful accounts
of $507 at Dec 31,1999 and June 30, 2000 18,115 23,648
Accounts receivable - disposition proceeds 2,592 -
Other receivables 705 959
Inventory 1,603 1,207
Deposits paid on services and maintenance contracts 3,712 2,650
Prepaid expenses and other assets 2,423 1,818
-------------- --------------
Total Current assets 42,536 49,214
============== ==============
Investments 1,803 1,689
Property and equipment, net 1,847 2,003
Purchased and developed software, net of accumulated
Amortization of $5,893 and $6,043 at Dec. 31,1999 and
June 30, 2000 respectively. 948 798
Intangible assets, net of accumulated amortization of $ 11,534
and $13,836 at Dec 31, 1999 and June 30, 2000 respectively 13,810 11,508
-------------- --------------
Total assets 60,944 65,212
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable 6,910 3,959
Accrued payroll taxes 574 614
Accrued value added taxes 1,055 185
Accrued income taxes 6,572 8,452
Current portion of capital lease obligations 24 26
Other accrued expenses 2,371 2,557
Deferred revenue 7,190 6,359
-------------- --------------
Total Current liabilities 24,696 22,152
============== ==============
Capital lease obligations, less current portion 2 78
Total liabilities 24,698 22,230
============== ==============
<PAGE>4
AREMISSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
AS AT DEC.31 AS AT JUNE 30
1999 2000
-------------- --------------
(unaudited)
Stockholders' equity
Series-A convertible preferred stock, par value $0.001; Authorized 2,100 shares;
no shares issued and outstanding Liquidating preference at par value 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 15,298 shares issued and outstanding at Dec. 31,
1999 and June 30, 2000, respectively 15 15
Additional paid-in capital 57,325 57,884
Accumulated deficit (18,921) (12,035)
Accumulated other comprehensive income (2,173) (2,882)
-------------- --------------
Total stockholders' equity 36,246 42,982
============== ==============
Total liabilities and stockholders' equity 60,944 65,212
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>5
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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For three months ended June 30 For six months ended June 30
1999 2000 1999 2000
---------------- ------------- --------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues
Software Licenses 8,890 15,456 14,250 26,593
Maintenance and Services 6,590 10,440 12,864 19,572
Hardware and Other 1,262 1,111 2,740 2,359
---------------- ------------- --------------- --------------
Total revenues 16,742 27,007 29,854 48,524
================ ============= =============== ==============
Cost of revenues
Software Licenses 1,061 1,610 1,777 2,802
Maintenance and Services 2,059 3,248 4,046 6,070
Hardware and Other 884 839 1,921 1,827
Amortization of purchased software and
capitalized software development costs 62 76 124 150
---------------- ------------- --------------- --------------
Total cost of revenues 4,066 5,773 7,868 10,849
================ ============= =============== ==============
Gross profit 12,676 21,234 21,986 37,675
================ ============= =============== ==============
Operating Expenses
Sales and marketing 5,774 9,386 10,639 17,439
Research and development 1,197 2,256 2,661 4,109
General and administrative 1,496 2,915 2,684 5,311
Amortization of intangible assets 88 1,151 176 2,302
---------------- ------------- --------------- --------------
Total operating expenses 8,555 15,708 16,160 29,161
================ ============= =============== ==============
Profit from operations 4,121 5,526 5,826 8,514
================ ============= =============== ==============
Other income
Interest expense, net -341 269 -848 269
Non operating income - - - 131
---------------- ------------- --------------- --------------
Income before income taxes 3,780 5,795 4,978 8,914
================ ============= =============== ==============
Income tax expense 1,247 1,404 1,642 2,028
---------------- ------------- --------------- --------------
Net Income 2,533 4,391 3,336 6,886
================ ============= =============== ==============
Basic net income per share 0.20 0.29 0.28 0.45
Diluted net income per share 0.20 0.26 0.28 0.40
Basic weighted average shares outstanding 12,589 15,298 11,849 15,250
Diluted weighted average shares outstanding 12,604 17,075 11,864 17,168
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>6
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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For six months ended June 30
1999 2000
--------------- -------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 3,336 6,886
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation 615 326
Amortization and write-off of capitalized software and Intangible assets 300 2,452
Changes in assets and liabilities:
Accounts receivable (29) (5,533)
Accounts receivable -disposition proceeds - 2,592
Other receivables (50) (254)
Inventory (303) 396
Deposits paid on services and maintenance contracts 2,556 1,062
Prepaid expenses and other assets (727) 605
Accounts payable (913) (2,951)
Deferred revenue (1,346) (831)
Accrued taxes payable 234 1,050
Other accrued expenses (1,371) 186
--------------- -------------
Net cash provided by operating activities 2,302 5,986
=============== =============
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (996) (482)
Investments - 114
--------------- -------------
Net cash (used in) investing activities (996) (368)
=============== =============
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants and employee stock options 12,868 559
Principal repayments of long-term borrowings (7,622) -
Loan from related party (1,793) -
Principal payments of capital lease obligations-net (16) 102
Short-term demand facility - (24)
--------------- -------------
Net cash provided by financing activities 3,437 637
=============== =============
Net increase in cash and cash equivalents 4,743 6,255
=============== =============
Effect of foreign currency exchange rates on cash and cash equivalents (48) (709)
--------------- -------------
Cash and cash equivalents, at beginning of period 149 13,386
=============== =============
Cash and cash equivalents, at end of period 4,844 18,932
=============== =============
Supplemental disclosure:
Interest paid 848 -
=============== =============
</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 six-month period ended June 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):
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For six Months Ended June 30
1999 2000
------------- -------------
Numerator used for both basic and diluted earnings per share 3,336 6,886
Denominator for basic earnings per share;
Weighted average shares outstanding 11,849 15,250
Denominator for diluted earnings per share:
<PAGE>8
For six Months Ended June 30
1999 2000
------------- -------------
Denominator for basic earnings per share 11,849 15,250
Effect of dilutive securities:
Options and Warrants 15 1,918
------------ ------------
11,864 17,168
============ ============
Basic Earnings per share $0.28 $0.45
Diluted Earnings per share $0.28 $0.40
</TABLE>
4. COMPREHENSIVE INCOME
During June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. The Company
adopted SFAS No. 130 during 1999. Included within accumulated other
comprehensive income are the cumulative amounts for foreign currency translation
adjustments.
Comprehensive income for the six months ended June 30, 1999 and 2000 are as
follows (in thousands)
1999 2000
------- -------
Net income $ 3,336 $ 6,886
Foreign currency translation adjustments (48) (709)
------- -------
Comprehensive income $ 3,288 $ 6,177
------- -------
5. SEGMENT REPORTING INFORMATION
The Company has adopted SFAS 131 "Disclosure about Segments of an Enterprise and
Related Information" during 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.
Within each industry, the Company has adopted 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.
<PAGE>9
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:
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MANUFACTURING HEALTHCARE HOSPITALITY CONSTRUCTION OTHER TOTAL
Segmental analysis for the six
months ended June 30, 2000
Revenues from external customers 16,307 11,684 12,711 3,919 3,903 48,524
Depreciation and amortization 537 562 546 115 1,018 2,778
Profit (loss) from operations 4,511 1,464 1,858 564 117 8,514
Total segment assets 29,216 14,926 15,801 2,779 2,490 65,212
Segmental analysis for the six
months ended June 30, 1999
Revenues from external customers $1,123 $29,854
$9,823 $8,716 $7,761 $2,431
Depreciation and amortization 177 180 38 335 915
185
Profit (loss) from operations 3,261 1,101 (446) 5,826
1,587 323
Total segment assets 13,886 7,284 7,539 1,342 1,242 31,293
</TABLE>
The following table represents revenue by country based on country of customer
domicile and long-lived assets by country on the location of the assets.
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Revenues Long-Lived Assets
----------------------------- -----------------------------
June 30,1999 June 30, 2000 June 30,1999 June 30, 2000
------------- -------------- ------------- -------------
United Kingdom 17,432 19,297 2,383 1,921
Rest of Europe 7,355 16,147 449 402
United States 1,178 1,502 120 91
Asia 1,035 4,261 514 13,571
Rest of World 2,944 7,317 10 13
29,854 48,524 3,476 15,998
------------- -------------- ------------- -------------
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6. INVESTMENTS
Investments comprise an approximate 7,64% percent interest in 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 June
30, 2000, the value of the Company's investment approximated $77 million.
<PAGE>10
Item 2: MANAGEMENT' 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 the Company's
financial position, business strategy, and plans of 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 "Risk Factors" in the Company's prospectus included in
its registration statement on Form S-1, SEC File No. 333-58351, all of which are
incorporated herein by reference. The Company's 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 the Company's ability to control or predict.
Readers of this report are cautioned not to put undue reliance on any
forward-looking statement. The Company undertakes no obligation to publicly
update these forward looking statements, whether as a result of new information,
future events or otherwise.
OVERVIEW
AremisSoft develops, markets, implements and supports 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.
<PAGE>11
In the past six years, the Company has 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, the Company successfully acquired and
integrated the operations of eleven businesses, which were principally operating
in the United Kingdom. In each acquisition, the Company sought to reduce
expenses, rejuvenate the existing products of the acquired business and
transition the customers to products that utilize the Aremis Architecture. The
Company's software development and support facility in India provides the
Company access to highly-skilled technical personnel who are responsible for
rejuvenating the acquired products and developing new products in a
cost-effective manner.
The Company's objective is to be a leading provider of enterprise-wide
applications software in the Targeted Markets. The Company's strategy for
achieving this objective includes (i) targeting mid-sized organizations,
including divisions and business units of larger companies, (ii) focusing on
strategic markets, (iii) leveraging the Company's cost-efficient India
operations, (iv) capitalizing on the Company's investment in the Aremis
Architecture, (v) expanding the Company's marketing, sales, support and service
capabilities and (vi) acquiring related software businesses, products or
technologies.
RESULTS OF OPERATIONS
Revenues
Total revenues increased 61.3% to $27.0 million for the three months ended June
30, 2000 from $16.7 million for the three months ended June 30, 1999. For the
six months ended June 30,2000, the total revenue increased 62.5% to $48.5
million from $29.9 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 $ 1.6
million and $2.8 million for the three months and six months ended June 30,
2000. The effect of the e-nnovations.com acquisition on revenues is mainly
reflected in the six months ended June 30, 2000 since the acquisition of
e-nnovations.com was recorded in AremisSoft books in December 1999.
Software license revenues increased 73.9% to $15.5 million for the three months
ended June 30, 2000 from $8.9 million for the three months ended June 30, 1999.
For the six months ended June 30,2000, the software license revenue increased
86.6% to $26.6 million from $14.3 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 the Company's Aremis 4.0 products,
and price increases. As a percentage of total revenues, license revenues
increased to 57.2% for the three months ended June 30, 2000 from 53.1% for the
period ended June 30, 1999. For the six- months ended June 30, 2000 as a
percentage of total revenue, license revenue increased to 54.8% from 47.7%
during the comparable period in 1999.
Maintenance and service contract revenues increased 58.4% to $10.4 million for
the three months ended June 30, 2000 from $6.6 million for the three months
ended June 30, 1999. For the six months ended June 30,2000, the maintenance
revenue increased 52.2% to $19.6 million from $12.9 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 38.7% for three months ended June 30, 2000 from 39.4% for the
period ended June 30, 1999. For the six- months ended June 30, 2000 as a
percentage of total revenue, maintenance revenue decreased to 40.3% from 43.1%
during the comparable period in 1999.
<PAGE>12
Hardware and other revenues decreased 12.0% to $ 1.1 million for the three month
ended June 30, 2000 from $1.3 million for the three month ended June 30, 1999.
For the six months ended June 30,2000, the hardware and other revenue decreased
13.9% to $2.4 million from $2.7 million during the comparable period in 1999. As
a percentage of total revenues, hardware and other revenues decreased to 4.1%
for the three months ended June 30, 2000 from 7.5% for the three months ended
June 30, 1999. For the six months ended June 30, 2000, as a percentage of total
revenue hardware and other revenue decreased to 4.9% from 9.2% for the
comparable period in 1999, reflecting the Company's strategy to reduce the sale
and installation of lower margin third-party hardware.
Cost of Revenues
Cost of revenues increased 42.0 % to $5.8 million for the three months ended
June 30, 2000 from $4.1 million for the three months ended June 30, 1999. For
the six months ended June 30, 2000, the total cost of revenue increased 37.9% to
$10.8 million from $7.9 million during the comparable period in 1999. As a
percentage of total revenues, cost of revenues decreased to 21.4% for the three
month ended June 30, 2000 from 24.3% for the three months ended June 30, 1999.
For the six months ended June 30, 2000, as a percentage of total revenue, cost
of revenue decreased to 22.4% from 26.4% 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 June 30, 2000 and $0.8 million for the six-months ended June
30, 2000.
Software license cost increased 51.8% to $1.6 million for the three months ended
June 30, 2000 from $1.1 million for the three months ended June 30, 1999. For
the six months ended June 30, 2000, the software license cost increased 57.7% to
$2.8 million from $1.8 million during the comparable period in 1999. This
increase is primarily due to the growth in the number of installed customers and
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 6.3% for the
period ended June, 1999. For the six months ended June 30, 2000, as a percentage
of total revenue, license cost decreased to 5.8% from 6.0% during the comparable
period in 1999.
Maintenance and service contract cost increased 57.7% to $3.2 million for the
three months ended June 30, 2000 from $2.1 million for the three months ended
June 30, 1999. For the six months ended June 30, 2000, the maintenance and
service contract cost increased 50.0% to $6.1 million from $4.0 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 12.0% for
three months ended June 30, 2000 from 12.3% for 1999. For the six months ended
June 30, 2000, as a percentage of total revenue, maintenance and service
contract cost decreased to 12.5% from 13.6% during the comparable period in
1999.
Hardware and other cost decreased 5.0 % to $0.8 million for the three month
ended June 30, 2000 from $0.9 million for the three month ended June 30, 1999.
For the six months ended June 30, 2000, the hardware and other cost decreased
4.9% to $1.8 million from $1.9 million during the comparable period in 1999. As
a percentage of total revenues, hardware and other cost decreased to 3.1% for
the three months ended June 30, 2000 from 5.3% for the three months ended June
30, 1999. For the six months ended June 30, 2000, as a percentage of total
revenue, hardware and other cost decreased to 3.8% from 6.4% during the
comparable period in 1999 reflecting the Company's strategy to reduce the sale
and installation of lower margin third-party hardware.
<PAGE>13
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.
The Company's sales and marketing expenses increased 62.6% to $9.4 million for
the three months ended June 30, 2000 from $5.8 million for the three months
ended June 30, 1999. For the six months ended June 30, 2000, the sales and
marketing cost increased 64.0% to $17.4 million from $10.6 million during the
comparable period in 1999, 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 increased to 34.8% for three months ended
June 30, 2000, from 34.5% for the three months ended June 30, 1999. For the six
months ended June 30, 2000, as a percentage of total revenue, sales and
marketing cost increased to 35.9% from 35.6% during the comparable period in
1999, primarily due to increased efficiencies in the company's sales and
marketing operations.
Research and Development
The Company's Research and development expenses increased 88.5% to $2.3 million
for the period ended June 30, 2000 from $ 1.2 million for the three months ended
June 30, 1999. For the six months ended June 30, 2000, the research and
development cost increased 54.4% to $4.1 million from $2.7 million during the
comparable period in 1999. As a percentage of total revenues, research and
development expenses increased to 8.4% for the three months ended June 30, 2000
from 7.2% for the three months ended June 30, 1999. For the six months ended
June 30, 2000, as a percentage of total revenue, research and development cost
decreased to 8.5% from 8.9% during the comparable period in 1999.
General and Administrative
General and administrative expenses increased 94.9% to $2.9 million for the
three months ended June 30, 2000 from $1.5 million for the three months ended
June 30, 1999. For the six months ended June 30, 2000, general and
administrative expenses increased 97.9% to $5.3 million from $2.7 million during
the comparable period in 1999. As a percentage of total revenues, general and
administrative expenses increased to 10.8% for the three months ended June 30,
2000 from 8.9% for the three months ended June 30, 1999. The increase was
primarily due to increase in operational and geographical activities compared to
the previous period and a write-off of $0.55 million in offering expenses
related to the Company's follow-on offering which has been indefinitely
postponed due to market conditions. For the six months ended June 30, 2000, as a
percentage of total revenue, general and administrative expenses increased to
11.0% from 9.0% during the comparable period in 1999.
Amortization of Intangible assets
Amortization of intangible assets increased to $1.2 million for the three months
ended June 30, 2000 from approximately $88,000 for the three months ended June
30, 1999. For the six months ended June 30, 2000, the amortization of intangible
assets increased to $2.3 million from approximately $176,000 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.
<PAGE>14
Net Interest Expense
Net interest expense reflects interest on the Company's credit facilities, as
reduced by interest income on cash balances. Net interest expense was $0.0
million for the three months ended June 30, 2000 as compared to $0.3 million for
the three months ended June 30, 1999. For the six months ended June 30, 2000,
the net interest expense was $0.0 million as compared to an interest expense of
$0.8 million during the comparable period in 1999.
The Company received approximately $0.3 million net interest from deposits
during the six months ended June 30, 2000.
Income Tax Provision
The provision for income taxes for the three months ended June 30, 2000
increased to $1.4 million compared to $1.2 million for the three months ended
June 30, 1999. For the six months ended June 30, 2000 the provision for income
tax was $2.0 million as compared to $1.6 million for the comparable period in
1999. The increase in the provision for income taxes resulted from the increase
in the Company's profitability in 2000. The company's effective tax rate was
assumed to be 20%.
Recoverability of the deferred tax asset derived mainly from operating loss
carry forwards in the United Kingdom has been reviewed at June 30, 2000, and
although certain subsidiaries generated taxable income in the year ending June
30, 2000, no assurances can be given 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
The Company has funded its operations since inception primarily through
borrowings under bank credit facilities, private placements of equity securities
and equity contributions by its principal stockholder. As of June 30, 2000, the
Company had $18.9 million of cash and cash equivalents. The Company had a
working capital surplus of $ 27.1 million as of June 30, 2000.
The Company believes that the existing cash and cash equivalents will be
sufficient to meet the Company's working capital and currently planned
expenditure requirements for the next 6 months. The Company may, from time to
time, consider acquisitions of complementary businesses, products or
technologies, which may require additional financing. In addition, continued
growth in the Company's business may, from time to time, require additional
capital. No assurances can be given that additional capital will be available to
the Company 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 the Company's stockholders.
The Company had an operating cash flow surplus of $6.0 million for the six
months ended June 30, 2000 compared to a surplus of $2.3 million for the
comparable period in 1999. This surplus was primarily due to operating profits
and a decrease in accounts receivable - disposition proceeds, partially offset
by an increase in trade accounts receivable, and a decrease in accounts payable
and deferred revenue. Operating cash flow is affected by seasonality, among
other factors.
<PAGE>15
Accounts receivable increased to $23.6 million for June 30, 2000 from $16.2
million for June 30, 1999. Accounts receivable as at December 31, 1999 was $
18.1 million. The average days sales outstanding was approximately 89 days for
the period June 30, 2000 compared to 98 days for the period ending June 30,
1999. The increase in accounts receivable was due to increases in the sales for
the period. The decrease in average sales days outstanding reflects the higher
collection rate of accounts receivable.
Accrued taxes increased from $4.5 million at June 30, 1999 to approximately $9.3
million at June 30, 2000. The increase was primarily due to increases in income
taxes due to higher profits.
The Company utilized cash for investing activities of $0.4 million for the six
months ended June 30, 2000 primarily resulting from purchases of property and
equipment, marginally offset by exchange losses in Company's investments. Cash
used for investing activities for the six months ended June 30, 1999 was $1.0
million.
Net Cash provided by financing activities was approximately $0.6 million and
$3.4 million for the six months ended June 30, 2000 and June 30, 1999
respectively. For the six months ended June 30, 2000 cash provided by financing
activities resulted from proceeds received from the exercise of warrants and
employee stock options and an increase in capital lease obligations.
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. The
Company's products either include or have been upgraded to include the Euro and
the Company does not believe that the Euro conversion has had or will have a
material adverse effect on its business. Because the Company's critical internal
systems have been modified to accommodate a conversion to the Euro, the Company
believes it is 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 the Company's business is conducted in currencies other
than the United States dollar. As a result, the Company is subject to exposure
from movements in foreign currency exchange rates. The Company does not
currently engage in hedging transactions designed to manage currency fluctuation
risks.
Interest Rate Sensitivity
The Company's exposure related to adverse movements in interest rates is
primarily derived from the variable rate on the Company's credit facilities.
Interest rates on the Company's 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 the
Company's interest expense. At June 30, 2000 the company had no borrowings
outstanding under its credit facilities.
<PAGE>16
PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
None
Item 2: CHANGES IN SECURITIES AND USE OF PROCEEDS.
The Company issued 8,764 shares at $ 8.56 and 96,799 shares at $5.0 in
connection with the exercise of warrants and employee stock option during the
six months ended June 30, 2000. Consequently, the Company received $ 0.6 million
from the proceeds of the warrants and employee stock options. The Company has
deposited the proceeds.
Item 3: DEFAULTS UPON SENIOR SECURITIES.
None
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
Item 5: OTHER INFORMATION
None
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
None
<PAGE>17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunder duly authorized, in the City of Sacramento, State of
California on July 2000.
AREMISSOFT CORPORATION,
a Delaware Corporation
Date: August , 2000
/s/ DR. LYCOURGOS K KYPRIANOU
------------------------------
Dr. Lycourgos K Kyprianou,
Chairman of the Board
/s/ MICHAEL TYMVIOS
------------------------------
Michael Tymvios,
Chief Financial Officer
