All the rumors shot down at once:
Wednesday May 16, 9:25 am Eastern Time
Press Release
AremisSoft Corrects False and Misleading Information Circulated by Short Sellers
NEW YORK--(BUSINESS WIRE)--May 16, 2001--AremisSoft Corporation (NASDAQ: AREM - news), a leading international supplier of enterprise-wide software and Internet-enabled solutions for the manufacturing, hospitality, healthcare and construction industries, today announced that, in the interest of full and fair disclosure, the Company is responding to the circulation of a specious anonymous ``short report'' and other spurious and unsubstantiated rumors the Company believes are being disseminated by short sellers in an apparent attempt to create fear and uncertainty in the Company's shareholder base and to depress the price of the Company's shares.
Unlike legitimate analysis, all of this deceitful information is shrouded in anonymity and fraught with innuendo and veiled insinuation designed to cast aspersions upon the integrity of the Company and its management. We stand by our track record of 9 consecutive quarters of profitable financial performance, exceeding analyst estimates in a challenging economy and volatile stock market where many of our peers have experienced downturns in their business and future prospects. We believe our revenue recognition policies are ``conservative'' by industry standards and our financial reports are fully compliant with US GAAP and SEC accounting rules. All of our recent acquisitions, we believe, will be accretive to our future earnings and, in that respect, have been structured to maximize shareholder value.
We believe that this response is in the best interest of our shareholders, employees, and the financial community, all of whom have encouraged us to respond by public press release. In an effort to set the record straight, we have summarized the assertions made in the anonymous ``short report'' and have set forth the Company's response to these assertions. We have not republished the ``short report'' because we believe the overall content is false, misleading, and defamatory. We believe that our characterization of the assertions are essentially accurate and in this press release we have attempted to provide what we believe to be the true state of the facts in rebuttal to the assertions. For convenience, we have listed the assertions in the relative order in which they appear in the report without prioritizing the gravity of the assertion. For the sake of clarity and the avoidance of doubt, we believe the substance of the whole report is false and misleading in its presentation and content. In this context, we have the following rebuttal:
Assertion: The report asserts that prior to 1998, AremisSoft was primarily a health care company. Fact: This assertion is false. Prior to its IPO in 1999, AremisSoft was a diversified enterprise solution provider in the manufacturing, hospitality, healthcare and construction industries and the segment information is available in the IPO prospectus. This diversification among four vertical markets distinguishes AremisSoft from the vast majority of its peers.
Assertion: The report asserts that AremisSoft merged into Juno Acquisitions in order to gain a US listing Fact: This assertion is false. AremisSoft merged into Juno Acquisitions in order to change its domicile from the Netherlands to the United States in preparation for an IPO. Our stock was listed on NASDAQ in April 1999 after our IPO.
Assertion: The report asserts that Barclay's Bank called a loan for the Company's predecessor LK Global Information Systems BV. Fact: This assertion is false. Barclay' never called an AremisSoft loan and worked with the Company as part of the 1999 IPO. The Company used part of the proceeds from its IPO to repay some of these loans and all of the remaining loans from Barclays were repaid Q4:2000 -- ahead of schedule and at a discount.
Assertion: The report asserts that the merchant bank Alpha Capital Ltd., which Co-CEO Roys Poyiadjis joined, is mentioned in a news story regarding a $700,000 financing for a mining company on the Vancouver stock exchange. The Vancouver stock exchange has had its share of questionable transactions or suspicions therein. Fact: From the information provided, Roys Poyiadjis is unfamiliar with the financing asserted in the report. Roys Poyiadjis founded Alpha Capital Ltd. and he was never personally involved with any Vancouver mining company. Alpha Capital had other partners, but without specific information on the identity of the ``mining company'' involved, all he can say is that he was not involved and has no knowledge of his firm, Alpha Capital, being involved in a $700,000 financing of a mining company on the Vancouver Stock Exchange.
Assertion: The report implies a relationship between AremisSoft and a series of companies founded or run by individuals of Greek descent which have either been a penny stock or have run afoul of the SEC. Fact: This assertion is at best misleading. None of the companies or individuals of Greek descent identified as having SEC regulatory problems have a direct or indirect relationship with the Company. This assertion borders on the ridiculous and appears to be a racially motivated slur.
Assertion: The report implies that AremisSoft's Executive Vice President of Corporate Development owned stock in Fourth Shift Corporation, an acquisition target, prior to its acquisition by AremisSoft. Fact: This implication is false. AremisSoft's Executive Vice President of Corporate Development did not own any stock in Fourth Shift Corporation while employed at AremisSoft.
Assertion: The report asserts that AremisSoft sold stock to a mysterious organization - Acqua Wellington North American Equities Fund, Ltd., which had made investments in questionable companies in the past. Fact: Acqua Wellington North American Equities Fund, Ltd., is a highly respected fund, which has been instrumental in financing technology and biotechnology companies. Whether Acqua Wellington North American Equities Fund, Ltd., made poor investment in some of its portfolio companies in the past is irrelevant to the investment it made in AremisSoft. The shares sold to Acqua Wellington North American Equities Fund, Ltd. was a straight-forward sale of common stock at a reasonable discount to the current market price.
Assertion: The report asserts that AremisSoft sold stock to 1st View Limited, which has one straw man director possibly implying some impropriety. Fact: This assertion is false and misleading. As far as we know, 1st View Limited is a private investment firm interested in the Company and its business strategy. As one would expect, cash consideration was paid against delivery of the shares in a transaction registered with the SEC on our Form S-3 shelf offering.
Assertion: The report asserts that Lycourgos Kyprianou, AremisSoft Co-CEO, is the Chairman and primary stockholder in GlobalSoft, a minority owned subsidiary over which we have recently negotiated an option to purchase control. Fact: This assertion is partially false and entirely misleading. GlobalSoft was created from the consolidation of several software companies in Cyprus, including the Cyprus divisions the Company divested in 1999. As part of the divestiture, the Company's Board of Directors asked Lycourgos Kyprianou, the Company's then CEO and Chairman of the Board, to serve as the non-executive Chairman of the Board of GlobalSoft in order to monitor the Company's continuing investment in GlobalSoft. Lycourgos Kyprianou owns no stock in GlobalSoft. However, AremisSoft owns 11.34 million shares of GlobalSoft and Lycourgos Kyprianou owns 3.78 million shares of AremisSoft.
Assertion: The report asserts that investigations apparently are ongoing by the Cyprus SEC of Lycourgos Kyprianou related to hyping of GlobalSoft stock. Fact: This assertion is entirely false. Lycourgos Kyprianou has never been under investigation by the Cyprus SEC.
Assertion: The report asserts that AremisSoft must be trying to confuse investors by using the phrases software sales and application software licenses without differentiating them. Fact: This assertion is entirely misleading. There is no difference in this distinction and the only person who appears to be confused is the author of the anonymous report.
Assertion: The report assets that generally contracts, such as the Bulgarian Healthcare contract, would contain a large amount of hardware and infrastructure, such as servers, routers, etc, thus implying that the revenue breakdown in the income statement is disingenuous. Fact: This is a false assertion and misleading in the context of the Bulgarian contract. In concurrence with broad industry practice, this system contract does not involve hardware components. All hardware is supplied by a third party. This is why hardware revenue does not increase in subsequent quarters.
Assertion: The report asserts that it is a strange proclamation that Insyst Electronics, whom AremisSoft previously received a $9.2 million contract from, is a strategic partner and supplier of the hardware. Fact: We see nothing strange about this proclamation. Insyst Electronics is an excellent partner who AremisSoft successfully partnered with on several enterprise system transactions resulting in a previously announced $9.2 million contract. Furthermore, Insyst Electronics was instrumental in identifying the Bulgarian health care opportunity.
Assertion: The report asserts that Assen Koinov, President of Insyst Electronics, was identified as the future CEO of AremisSoft Bulgaria via a local Bulgaria news story. He was indicted by a US federal grand jury for smuggling computer equipment into Bulgaria in 1984 while employed by a Bulgarian state enterprise. Fact: This assertion is partially false and entirely misleading. Vasco Kolev is the head of AremisSoft Bulgaria. Assen Koinov never worked for AremisSoft. Furthermore, our sources indicate that all charges against Mr. Koinov were dropped without prosecution, and Insyst Electronics currently does business with the US Embassy and Coca Cola in Bulgaria. Mr. Koinov travels frequently to the US.
Assertion: The report asserts that AremisSof's Executive Vice President, Paul Bloom, refused to discuss Assen Koinov's current role with AremisSoft with the author of the anonymous report. Fact: This is a false statement. The anonymous report was published before Mr. Bloom had the opportunity to respond to any questions posed by the author. After the report was published, Mr. Bloom clarified that Assen Koinov had no role with AremisSoft.
Assertion: There was no increase in quarterly revenue in the healthcare vertical market segment after the contract was announced possibly casting doubt on the contract. However, AremisSoft sold its UK Healthcare business, so Q4 healthcare revenue should not increase sequentially. Fact: This assertion is entirely misleading. The UK healthcare business declined substantially in 2000, as indicated to the public and to analysts. This is why the Company sold it and why there was no significant increase in 2000 healthcare revenue despite the Bulgarian Healthcare Contract. The Q4 sequential healthcare revenue increased despite a sequential decline in revenue contribution from the Bulgarian Healthcare Contract and absence of UK healthcare revenue due to new emerging market transactions as disclosed in the Q4:2000 earnings press release.
Assertion: The report asserts that AremisSoft incorrectly stated UK revenue for the first three quarters of 1999 as part of its geographic supplemental information disclosures in the 10Qs. The Company made no response to this information and did not file an amendment with the SEC. Fact: This assertion is misleading. While the unaudited geographical supplemental information disclosed in a footnote to AremisSoft's Q3 Form 10-Q reported revenue of the Company's UK division as including revenue of the divisions subsidiaries in other parts of the world, this revenue was reclassified as attributable to other geographical regions as part of the Company's 1999 audited financial statements. The attribution of revenue to an incorrect geographical region did not effect the Company's income statement or balance sheet and was considered a normal adjustment which occurs during the audit process. The author of the report published the report prior to giving the Company an opportunity to respond and the assertion that the Company made no response is entirely false.
Assertion: The report asserts that AremisSoft acquired the declining Eltrax hospitality business for substantially less than Sulcus paid for a collection of companies several years previously, demonstrating a desire to purchase revenues with little regard for growth or profitability. Fact: This assertion is false and misleading. The Eltrax Hospitality business was purchased as a foundation acquisition as part of a strategic plan to expand our worldwide hospitality business. We believe this acquisition accelerated our penetration of the US market by several years at a very reasonable price of approximately one times maintenance revenue. This strategy in no way supports the assertion that we desired to purchase revenues with little regard for growth or profitability.
Assertion: The report asserts that AremisSoft has been writing off the whole purchase price of acquisitions to help manage earnings and ``maintain some semblance of profitability.'' Fact: This assertion is entirely false. AremisSoft scrupulously follows the relevant accounting rules and has never written off an acquisition. This fact is transparent from our published financials, which were available to the author prior to completing his work.
Since the appearance of the anonymous ``Short Report,'' we have conducted an investigation and have developed the following information and belief:
-- David Scially of West Highland Capital, a San Francisco area hedge
fund, which at one time had a short position in the Company's
shares, was one of the authors of the report.
-- Martin Svanda, a stock broker with of Van Kasper Wells Fargo, had
received the report from David Scially. The General Manager of the
Van Kasper Wells Fargo Los Angeles office, Al Lavery, positively
confirmed receiving the report from West Highland Capital.
-- Martin Svanda is a retail stock broker who has specialized in
short selling for approximately the past five years. We have a
copy of an e-mail from Martin Svanda to a potential client
discussing two short prospects other than the Company.
-- Subsequently we learned from West Highland Capital that the short
report was indeed completed on March 14, 2001, prior to any
opportunity for the Company to give meaningful input into the
content of the report.
The Company is aware that inaccurate and unsubstantiated information is being circulated by the concerted efforts of short sellers with the intent to create fear and uncertainty among the Company's shareholders. These persons have not contacted the Company for an explanation or clarification of these rumors and, we believe, have a desire to remain anonymous. In order to provide accurate information to the source of these rumors and in the interest of full and fair disclosure, the Company is asking all of its shareholders who are contacted by these persons to determine their identity and to contact the Company (paul.bloom@aremissoft.com) with the following information:
1. The name and phone number of the person disseminating
information on the Company and its business;
2. The nature and content of the information disseminated; and
3. The date and time of contact.
The Company continues to be committed to its business strategy with a view towards maximizing shareholder value and reiterates its confidence in the Company's future prospects.
About AremisSoft Corporation
AremisSoft develops, markets, implements and supports enterprise-wide applications software targeted at mid-sized organizations in the manufacturing, healthcare, hospitality and construction industries. The Company's software products help streamline and enhance an organization's ability to manage and execute mission-critical functions such as accounting, purchasing, manufacturing, customer service and sales and marketing. AremisSoft reported total revenue of $123.6 million for the twelve months ended December 31, 2000 and pro forma net income of $29.2 million for the same period. AremisSoft has approximately 860 employees, with sales in over 20 countries and a customer base in excess of 7,300. The Company also operates a software development and support facility in India, with over 325 employees, which provides significant organizational efficiencies and cost advantages in software development and support. |
