UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 000-29793
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Artemis International Solutions Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 13-4023714
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
599 Broadway
New York, NY 10012
(Address of principal executive (Zip Code)
offices)
(212) 651-1731
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Common Stock, $0.01 par value
------------------------
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 28, 2002, there were 249,124,566 shares of the
Registrant's Common Stock outstanding. The aggregate market value of the Common
Stock held by non-affiliates of the Registrant (based on the $.05 closing price
for the Common Stock on the NASDAQ OTC Market on February 28, 2002) was
approximately $12.5 million.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to
specified portions of the Registrant's definitive Proxy Statement to be issued
in conjunction with the Registrant's 2001 Annual Meeting of Stockholders, which
is expected to be filed not later than 120 days after the Registrant's fiscal
year ended December 31, 2001.
ARTEMIS INTERNATIONAL SOLUTIONS CORPORATION
FORM 10-K
DECEMBER 31, 2001
TABLE OF CONTENTS
Page No.
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Part I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for Registrant's Common Equity And Related
Stockholders Matter 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results 11
Item 8. Financial Statements and Supplementary Data 31
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 63
Part III
Item 10. Directors and Executive Officers of the Registrant 64
Item 11. Executive Compensation 64
Item 12. Security Ownership of Certain Beneficial Owners
and Management 64
Item 13. Certain Relationships and Related Transactions 64
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
of Form 8-K 64
Signatures 65
Exhibit Index 67
2
PART 1
ITEM 1. BUSINESS
General
Opus360 Corporation was incorporated on August 17, 1998, under the laws
of the State of Delaware and on November 20, 2001 changed its name to "Artemis
International Solutions Corporation". In April 2001, Opus360 Corporation and
Proha Plc ("Proha"), a Finnish corporation, entered into a Share Exchange
Agreement (the "Share Exchange Agreement") pursuant to which, upon completion of
the transactions under such agreement (the "Share Exchange Transactions"),
Opus360 Corporation would exchange 80% of its post-transaction outstanding
Common Stock for all of the capital stock of Artemis Acquisition Corporation
("Legacy Artemis"), a Delaware corporation and 19.9% of two Finnish subsidiaries
of Proha, Intellisoft OY and Accountor OY.
As used herein, "Opus360" refers to Artemis International Solutions
Corporation prior to the closing of the Share Exchange Transactions. "Artemis
International" or the "Company" refers to Opus360 Corporation after the closing
of the Share Exchange Transactions and Legacy Artemis refers to Artemis
Acquisition Corporation, the parent corporation of the Artemis business
organization and the entity treated as the accounting aquiror in the Share
Exchange Transactions as more fully described below.
Legacy Artemis is a developer and supplier of comprehensive, project
and resource collaboration application software products and consulting
services, with operations in 27 countries.
On July 27, 1998, Legacy Artemis acquired 100% of the outstanding stock
of Software Productivity Research, Inc. ("SPR") for cash of $3,500,000 and a
note to SPR stockholders in the amount of $3,000,000. The note accrued interest
at the rate of 8.5% annually and was payable in four equal annual installments
with a final maturity date of July 27, 2002. This note was paid in full on
August 24, 2000.
On August 24, 2000, Legacy Artemis was acquired by Proha PLC ("Proha"),
a Finnish corporation.
Subsequent to December 31, 2000, Proha entered into one or more
agreements to contribute its interests in the following entities to the Company
(the "Contributed Businesses"):
- Projektihallinto Proha Oy (now known as Artemis Finland Oy)
("Artemis Finland"), a wholly owned Finnish subsidiary of
Proha. This interest was held by Proha on the date (August 24,
2000) the Company was acquired by Proha.
- Minority interests of 19.9% in each of Accountor Oy and
Intellisoft Oy, two other wholly owned Finnish subsidiaries of
Proha. These interests were held by Proha on the date (August
24, 2000) the Company was acquired by Proha. These companies
are included in the financial results of the Company under the
equity method of accounting.
- Majority interests in Enterprise Management Systems Srl,
Artemis International S.p.A., Solutions International SA,
Artemis International GMBH and Artemis International Sarl.
These majority interests were acquired by Proha as of December
1, 2000. Prior to December 1, 2000, minority interests were
held in each of these entities by Legacy Artemis. After the
purchase of the majority interests on December 1, 2000, each
of these entities was wholly owned through the combined
ownership interest of Proha and Legacy Artemis, except for
Artemis International GMBH, which continued to be owned 43.2%
by entities outside of the parent company controlled group.
Artemis International is one of the leading developers and suppliers of
comprehensive, project and resource collaboration application software products
and consulting services, with over 300,000 application seats in 27 countries.
Artemis International offers a broad selection of high-end software
tools. The Artemis International product offering spans the entire spectrum of
traditional project and resource management tools, including task estimating,
scheduling, budgeting, forecasting, resource analysis, cost analysis reporting,
proactive business alerts and gateways to other enterprise applications. Artemis
International's products estimate, plan, track, and manage business projects and
resources using a comprehensive suite of integrated project and resource
collaboration software solutions, helping clients significantly improve their
ability to execute projects in a timely, controlled manner. Using the Company's
3
products, clients can realize such tangible business benefits as higher project
success rates, reduced cost overruns, quicker product development cycles, and
more cost effective allocation and usage of critical corporate resources.
Market acceptance of Artemis International's products has been
successful in a range of industries, including information systems, application
development, telecommunications, aerospace, pharmaceuticals, oil and gas,
construction and engineering, banking and finance, and manufacturing. Since the
combination of Opus360 Corporation with Legacy Artemis, the Company has extended
and expanded this product line to include a workforce procurement application.
These software solutions and the recent release of Portfolio Director, a fully
Web-enabled, scalable tool that allows executives to manage and review strategic
project initiatives throughout their enterprise, are viewed as natural
extensions of an already robust set of product offerings.
Intellisoft Oy Ltd is a subsidiary of Proha. Intellisoft's Application
Service Provider center provides a hosting, internet connection and date
processing alternative for small and medium-sized customers. Currently
Intellisoft offers 30 applications, some of which are proprietary applications
and some third-party software applications which are integrated as a solution
for entire business processes. The Intellisoft ASP service center has
approximately 100 computer servers and 16 employees.
Accountor Oy is a subsidiary of Proha Group. Accountor is engaged in
offering a range of financial management services to small and medium-sized
businesses. The financial management services includes budgeting, accounting,
general ledger analysis, payroll, purchasing, data management and reporting
using a variety of third party (SAP, Oracle and Microsoft) and proprietary
financial management data warehousing and document management software.
Accountor's ISO9002 certified processes offer clients high level security and
control. Approximately 160 financial specialist personnel are supporting over
500 individual businesses.
Strategy
As a result of global competition, increasingly demanding business
models and advances in information technology, project cycles are shrinking,
budgets are being reduced and work groups are being distributed. Consequently, a
broad range of companies are struggling to better align projects with business
goals, improve methodologies and standards, improve collaboration and project
planning tools and better integrate business systems. In addition, there is a
strong need to exploit the capabilities of the Internet for expanding market
share and improved return on investment.
The Company's business strategy is to expand its market position within
the high-end project and resource collaboration market. Artemis International
will use its twenty-five years of application experience in the project
management discipline to adapt and apply certain new and emerging Internet-based
technologies to solve the project and resource business problems from a new
perspective.
Artemis International will target Global 2000 and middle market
corporations who need to deploy the project management, resource collaboration
and workforce procurement disciplines across their enterprises to hundreds or
even thousands of users. Artemis International's products and services will
offer significant opportunities for businesses to improve their efficiency and
effectiveness.
Artemis International intends to leverage and expand on its current
products' features and architecture to create a project and resource
collaboration dimension that will satisfy businesses' demand to share project
related information across existing corporate systems and the worldwide web.
This strategy will focus vertical markets with an eye to identifying,
penetrating, and dominating specific industry sectors. The IS/IT marketplace is
one of the Company's primary markets based on this sector's projected growth
rates.
The foregoing strategy is supported by internally and externally
sourced consulting services designed to develop and sell "knowledge based"
products that are integrated with the product suite. Integration of these
implementation and after-market consulting offerings with the proprietary
software greatly enhances the value added by the Company.
Products
Artemis International manages its business on a geographic basis and
offers two basic product lines, the Artemis Views product line and the Workforce
Procurement product. In addition, Artemis International has developed an
international consulting organization, characterized by institutionalized
general project management methodologies
4
and best practice procedures to support all offerings. Artemis International
also continues to derive revenue from legacy products of Legacy Artemis that
continue to be used by certain of its existing customers.
Artemis Views
Artemis Views is an integrated suite of cost, schedule and resource
management applications. The product line is offered in a mixture of
client/server and web architecture, which provides extensive web accessibility
and functionality. This product line uses commercially available relational
database management systems as its method for data storage and retrieval.
Artemis Views includes ProjectView, Web GlobalView, CostView, Web TrackView,
Active Alert, ViewPoint and Portfolio Director.
The Artemis Views product line utilizes a powerful 32-bit, SQL-based,
client/server and web architecture which utilizes commercially available SQL
databases for its repository and which can be integrated easily with existing
business applications including popular enterprise resource planning
applications. Artemis Views supports Oracle, Microsoft SQL Server and Sybase
relational databases running on Windows NT, Sun Solaris or HP-UX operating
systems. Artemis Views is currently offered as an integrated suite of products
or as stand-alone components comprised of separate software packages, as
described in greater detail below.
ProjectView
Artemis ProjectView combines multi-user project planning, resource
scheduling, and graphical reporting into a sophisticated software solution.
ProjectView helps to plan, schedule and track the critical deadlines,
activities, resources and budgets used in project management. With ProjectView,
organizations can establish project consistency and improve project visibility
and collaboration across an entire business. Using proven project management
disciplines and processes, ProjectView helps to optimize project durations and
resources to meet project deadlines and budgets. ProjectView also offers a
variety of graphical reporting options to document and analyze a project's
progress.
CostView
Artemis CostView is a powerful application for project and program
forecasting, budgeting and cost planning, control and earned value management
reporting. CostView provides complete project, contract or financial management,
analysis and reporting. Organizations can manage all cost related project and
program information at an enterprise level, using familiar cost planning tools
from a single, graphical Windows based application. Using CostView's full
schedule integration with ProjectView, a customer will have a clear view of
project and program accomplishments, completion costs, cash flow and manpower
requirements.
TrackView and Web TrackView
Artemis TrackView is a simple, yet effective time tracking system
designed to give organizations visibility and understanding of staff activities
around the world. TrackView provides clear, detailed effort tracking through a
Windows application, with an optional web browser-based Internet Explorer
interface for remote, web-based time entry. TrackView allows managers to assign,
approve and track staff activity around the world and consolidate and report on
this information in an easy to understand and meaningful way. When combined with
ProjectView, TrackView helps organizations identify key resources and
activities, update project performance and gain an accurate view of staff
progress and performance. In turn, this enables managers to prevent redundant
effort, set and update realistic project goals and make better business
decisions.
GlobalView
Artemis GlobalView is a unique, fully graphical application for
navigating, analyzing and reporting on Views project, cost and resource
information and providing data through Web access to a customer's employees.
Designed for executives, project managers, financial managers and department
managers, GlobalView delivers point-and-click access to cost, resource and
schedule status of all corporate projects using an intuitive Windows or browser-
based application. With GlobalView, key individuals throughout an organization
can consolidate multiple project data and drill-down through data variables to
access the project information needed to make effective business decisions,
regardless of their project management expertise or understanding of the
underlying software.
5
Portfolio Director
Artemis Portfolio Director is a Web-based, enterprise-level solution
designed to improve executives' ability to align project priorities
strategically relevant to business throughout the enterprise. Portfolio Director
gives Global 2000 companies a means to potentially improve financial performance
by reducing investment risks and cost overruns. Portfolio Director provides an
easy to use web tool for providing sophisticated return-on-investment analysis
of project investments and their alignment to strategic business priorities.
Viewpoint
Artemis Viewpoint is a Web-based, enterprise-level project and resource
collaboration solution designed to improve executives' ability to tactically and
strategically initiate, plan and manage complex projects. Using its enterprise
collaboration capability, the organization's scarce project resources can
collaborate more effectively and efficiently on a common objective under the
exception-based direction of project managers at all levels.
Active Alert
Artemis Active Alert is a database monitoring application that adds
proactive alerts, business rules and trend analysis to the Artemis Views suite
of project and resource collaboration applications. Active Alert monitors the
database to identify incidents or trends that can impact an organization and its
projects. The software then automatically informs individuals via e-mail, mobile
phone, pager, faxes and HTML pages when an event has occurred or an adverse
trend has been identified. Artemis Active Alert removes the need for individuals
to spend time analyzing data for exceptions to the defined norm and makes the
process of managing projects and resources more proactive.
Artemis MSP Gateway
Artemis has developed a set of software tools that seamlessly
integrates Artemis Views with Microsoft Project through the Artemis MSP Gateway.
Using this powerful software tool, clients can manage projects from within a
familiar desktop, while leveraging the specialized capabilities of the Artemis
Views product offering. Artemis MSP Gateway allows Microsoft Project to operate
against the Artemis Views database in a real time mode, which enables the
database to control the data being entered on the Microsoft desktop. In this
way, the client obtains the benefit of Artemis standards and security
capabilities, the power of the Artemis database to assist in the multi-project
management of the operation, and the ability to use a host of other Artemis
value added products. Those products include Active Alert, Web Time Entry,
GlobalView and KnowledgePLAN.
Artemis Consulting
Artemis Consulting is the Professional Services arm of Artemis
International, specializing in project management methodologies and best
practice procedures. Artemis Consulting continues to deliver focused project
management consulting and education services to organizations worldwide across a
diverse range of industries. This includes consulting engagements to assist
organizations with the definition, development and deployment of processes and
systems to support a project driven approach to business management.
Drawing on the consolidated experience of a global network of over 200
consultants specialized in project management, Artemis Consulting has developed
a structured methodology called pm2 (Project Management Methodology) that
provides a logical phased approach to business process improvement. The approach
integrates a broad range of consulting services including:
Needs Analysis Procedures Development
Process Assessment Change Management Services
Implementation Services Education and Training Services
System Integration Services Project Office Services
6
Artemis LINKS
Via internet and intranet technologies, Artemis LINKS enables the total
integration of the organization's project management processes and working
documents with focused, cost-effective e-learning for all project team members.
Artemis LINKS' interactive learning environment also provides a dynamic
knowledge base that enables all members of the organization to submit proposals
for improving corporate project management best practices.
Clients
Artemis provides mission-critical solutions to thousands of clients
worldwide, including Global 2000 companies such as: ABN AMRO Bank N.V., BAE
SYSTEMS, The Boeing Company, Deutsche Bank, Ericsson, First Union National Bank,
The Goldman Sachs Group Inc., The Goodyear Tire and Rubber Company, Lockheed
Martin, Marconi Plc, Nokia, Pfizer Inc., Sun Microsystems Inc., Toshiba, Union
Carbide, and Unisys.
Artemis distributes its products directly to customers in the United
States, United Kingdom, France, Finland, Germany, Italy, Spain, Japan and the
Far East. It also markets through a joint venture and independent distributor
network in other European countries, Scandinavia and Australia/Asia.
Competition
There is intense competition in the project management and
collaboration software marketplace. We compete against industry giants such as
Microsoft and SAP as well as in-house development efforts of companies creating
individualized solutions, as well as other software application vendors offering
point products. Our current independent software vendor competition includes,
among many others, Evolve Software, Inc., Niku Software, Inc. and Primavera
Systems.
Employees
The combined Artemis International operation currently directly employs
approximately 495 persons on a worldwide basis; 150 in the United States, 285 in
the United Kingdom, Scandinavia and Europe, and 60 in Asia. None of our
employees are represented by a labor union or a collective bargaining agreement.
We have not experienced any work stoppages and consider our relations with our
employees to be good.
ITEM 2. PROPERTIES
Artemis International leases all of its United States and international
facilities pursuant to leases that expire between February 28, 2002 and
September 30, 2009. Two of these leases have single renewal options. Artemis
International's corporate headquarters are currently located at 599 Broadway,
New York, New York. The Company also maintains facilities at 6260 Lookout Road,
Boulder Colorado, where the Company occupies approximately 10,500 square feet of
office space under a lease that will expire in August 2003, and various other
locations across the United States, United Kingdom, Europe and Japan. The
Company's facilities comprise a total of 38,000 square feet in the United States
and 28,000 square feet in the UK, Europe and Asia. We believe our current
facilities are sufficient for our needs.
ITEM 3. LEGAL PROCEEDINGS
On April 6, 2001 a lawsuit purporting to be a class action and
captioned Charles Bland vs. Opus360 Corporation, et al., 01 Civ. 2938 (the
"Bland Action") was filed in the United States District Court for the Southern
District of New York. The Bland Action is brought on behalf of a proposed class
of all persons who acquired securities of the Company between April 7, 2000 and
December 6, 2000. Named as defendants in the Bland Action are the Company,
eleven current and former officers and directors of the Company, the
underwriters of the Company's initial public offering and two shareholders (the
"Selling Shareholders") who sold stock in a secondary offering (collectively
with the initial public offering, the "Offering") concurrent with the initial
public offering.
The amended and restated complaint in the Bland Action alleges that,
among other things, the plaintiff and members of the proposed class were damaged
when they acquired securities of the Company because false and
7
misleading information and material omissions in the registration statement
relating to the Offering caused the prices of the Company's securities to be
inflated artificially. It also alleges violations of Sections 11, 12(a)(2), and
15 of the Securities Act of 1933 (the "Securities Act"). Damages in unspecified
amounts and certain rescission rights are sought.
Since the filing of the Bland Action, ten similar putative class
actions (the "Additional Actions" and together with the Bland Action, the
"Actions") also have been filed in the United States District Court for the
Southern District of New York. The Additional Actions are brought on behalf of
all persons who acquired securities of the Company between April 7, 2000 and
March 20, 2001. Named as defendants in the Additional Actions are the Company,
ten current and former officers and directors of the Company, the underwriters
of the Company's initial public offering and the Selling Shareholders. As in the
Bland Action, the complaints in the Additional Actions allege false and
misleading information and material omissions in the registration statement
relating to the Offering in purported violation of Sections 11, 12(a)(2), and 15
of the Securities Act. Damages in unspecified amounts and certain rescission
rights are sought.
On or about June 5, 2001, an action captioned Kenneth Shives, et al. v.
Bank of America Securities LLC, et al., 01 Civ. 4956 (the "Shives Action") was
filed in the United States District Court for the Southern District of New York.
The complaint in the Shives Action asserts claims against the Company, certain
of its present or former officers and directors (collectively, the "Opus360
Defendants"), the Selling Shareholders and the underwriters that managed the
Company's April 2000 Offering, for alleged violations of the federal securities
laws (principally Sections 11, 12(a)(2) and 15 of the Securities Act of 1933,
and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.) The
complaint is based on allegations that the various underwriter defendants
engaged in (and involved other defendants in) a broad scheme to artificially
inflate and maintain the market price of the common stock of various companies
named as defendants (including Opus360), and to cause the named plaintiffs and
other members of the putative class to purchase the stock of those companies at
artificially inflated prices.
On or about July 20, 2001, counsel for the plaintiffs in the Shives
Action and counsel for the Opus360 Defendants and the Selling Shareholders
executed stipulations in which the plaintiffs agreed to drop the Opus360
Defendants and the Selling Shareholders as defendants in the Shives Action and
to dismiss without prejudice the claims asserted in that action against each of
those defendants. Those stipulations were so ordered by the Court on or about
July 24, 2001, and the Opus360 Defendants and the Selling Shareholders are no
longer defendants in the Shives Action.
On October 24, 2001, the Company and all other defendants filed motions
to dismiss the claims in the Bland Action. The Company believes the claims made
in the Actions are without merit and intends to vigorously defend the Actions.
The Company is a party to a number of additional legal claims arising
in the normal course of its business. The Company believes the ultimate
resolution of these claims will not have a material effect on its financial
position, results of operations, or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
8
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock was listed on the NASDAQ National Market ("NASDAQ")
under the symbol "OPUS" from April 4, 2000 until June 29, 2001. Since June 29,
2001, the stock has traded on the Over the Counter Bulletin Board. Effective
November 25, 2001, the trading symbol on the OTC BB was changed to "AISC". At
February 28, 2002, the number of stockholders of record was approximately 1,000.
The following table sets forth the quarterly high and low sales prices per share
as reported for the year ended December 31, 2001.
HIGH LOW
------- -------
First Quarter $ 1.030 $ .0938
Second Quarter $ .4900 $ .0625
Third Quarter $ .1300 $ .0500
Fourth Quarter $ .1000 $ .0400
On February 28, 2002, the last sale price of our Common Stock was $0.05
per share.
DIVIDEND POLICY
During the nine months ended December 31, 2000, Legacy Artemis paid a
cash dividend of $140,000. We do not anticipate paying any cash dividend in
the foreseeable future. We currently intend to retain future earnings, if any,
to finance operations and the expansion of our business. Any future
determination to pay cash dividends will be at the discretion of our board of
directors and will be dependent upon our financial condition, operating results,
capital requirements, general business conditions, restrictions imposed by
financing arrangements, if any, legal and regulatory restrictions on the payment
of dividends and other factors that our board of directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes to the
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which are included elsewhere in
this report. The consolidated statement of operations data for each of the year
ended December 31, 2001, the nine months ended December 31, 2000, the years
ended March 31, 2000, 1999 and 1998 and the period from February 4, 1997
(inception) to March 31, 1997, and the consolidated balance sheet data as of and
for the years and the periods then ended are derived from our audited
consolidated financial statements, which have been prepared assuming that the
Company will continue as a going concern. As disclosed in Note 1 to the
financial statements, the Company has incurred substantial recurring losses from
operations and may incur losses in the future. These and other factors as
described in Note 1 raise substantial doubt about its ability to continue as a
going concern. Managements' plans in regards to these matters are also described
in Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
9
This information is only a summary and should be read in conjunction
with the financial statements and related notes in Section 8.
From Inception
For the Year For the Nine For the Year For the Year For the Year (February 4, 1997)
Ended Months Ended Ended Ended Ended through
December 31, December 31, March 31, March 31, March 31, March 31,
2001 2000(c)(d) 2000 1999(b) 1998 1997
------------ ------------ ------------ ------------ ------------ ------------------
SUMMARY OF OPERATIONS (A)
(in thousands)
Revenues $ 67,646 $ 34,822 $ 49,303 $ 42,781 $ 37,533 $ 4,236
Operating income (loss) (66,483) (11,398) 42 (265) 628 274
Net income (loss) (59,764) (10,797) 1,060 (1,389) (132) 10
Basic earnings (loss) per share: $ (0.27) $ (0.06) $ 0.01 $ (0.0) $ - $ -
Shares used in computing basic
earnings (loss) per share 220,394 192,221 185,638 185,312 185,312 185,312
Diluted earnings (loss) per share: $ (0.27) $ (0.06) $ 0.01 $ (0.0) $ - $ -
Shares used in computing diluted
earnings (loss) per share 220,394 192,221 188,129 185,312 185,312 185,312
Financial Position
Cash and cash equivalents $ 5,081 $ 3,200 $ 1,199 $ 1,514 $ 4,212 $ 4,283
Working capital (5,785) (2,823) (2,477) (2,911) (1,671) 275
Total assets 40,193 103,488 23,421 24,330 21,172 25,830
Long-term debt, including amounts
due within one year 2,666 5,546 9,384 10,865 6,615 9,226
Total stockholders' equity (deficit) 9,582 60,905 (996) (1,577) 150 183
(a) The financial information provided includes the accounts of Legacy
Artemis and its wholly owned subsidiaries, Artemis Holdings, Inc.,
Artemis International Corporation, Software Productivity Research,
Inc., and Artemis International Corporation Ltd. Also included in the
financial information for the nine months ended December 31, 2000 are
the results of Artemis Finland Oy and the 19.9% minority interest in
Accountor Oy and Intellisoft Oy as of and for the period from August
24, 2000 through December 31, 2000, and the results of Enterprise
Management Systems Srl, Artemis International S.p.A., Solutions
International SA, Artemis International GMBH and Artemis International
Sarl as of and for the month ended December 31, 2000, the date these
business came under common control. As a result of the inclusion of
these entities and the goodwill and other intangible assets recorded as
noted in note (c) below, the total assets of Legacy Artemis has
increased significantly from $23.4 as of March 31, 2000 to $103.5
million as of December 31, 2000.
(b) On July 27, 1998, Legacy Artemis acquired all of the outstanding stock
of Software Productivity Research, Inc. ("SPR") for cash of $3.5
million and a note to SPR stockholders in the amount of $3.0 million.
The note accrued interest at the rate of 8.5% annually and was payable
in four equal installments with a maturity date of July 27, 2002. The
note was paid in full on August 24, 2000.
(c) On August 24, 2000 Proha purchased all of the outstanding stock of
Legacy Artemis. The purchase was structured as a share exchange whereby
Proha issued shares of its publicly traded common stock to Legacy
Artemis's equity holders in exchange for all of Legacy Artemis's stock.
As a result of the transaction Legacy Artemis recorded goodwill of
approximately $30.7 million. Legacy Artemis also recorded approximately
$32.3 million of intangible assets and an expense of $2.3 million
attributed to in-process research and development, which was expensed.
(d) During the nine months ended December 31, 2000, Legacy Artemis paid a
cash dividend of $140,000. No other dividends were declared or paid
since Legacy Artemis's inception.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ARTEMIS INTERNATIONAL SOLUTIONS CORPORATION SHOULD BE READ IN
CONJUNCTION WITH "SELECTED CONSOLIDATED FINANCIAL DATA" AND THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS REPORT. THIS
DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS. THE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS REPORT.
Accounting principles generally accepted in the United States require
in certain circumstances that a company whose shareholders retain the majority
voting interest, governing body and senior management in the combined business
to be treated as the acquiror for financial reporting purposes. As a result of
the Share Exchange Transactions, Proha, the former shareholder of Legacy
Artemis, holds a majority interest in the Company, governing body and senior
management in the combined company. Accordingly, for accounting purposes the
transaction has been treated as a reverse acquisition in which Legacy Artemis is
deemed to have purchased Opus360, although Opus360 remains the legal parent
entity and the registrant for Securities and Exchange Commission ("SEC")
reporting purposes.
The financial statements as of and for the year ended December 31, 2001
are presented on a consolidated basis and on a combined and consolidated basis
for the nine months ended December 31, 2000 and 1999 and the twelve months ended
March 31, 2000.
The consolidated financial statements included herein represent the
historical financial statements of Legacy Artemis, as the accounting acquiror,
and the acquisition of Opus360 has been accounted for under the purchase method
of accounting. The assets acquired and liabilities assumed of Opus360, as the
acquired entity, are recorded at their fair values at July 31, 2001. The excess
of the fair values of the identifiable net assets over the purchase price is
treated as negative goodwill. Negative goodwill is first applied to reduce the
assigned value of identifiable non-current assets other than long-term
investments in marketable securities and deferred tax assets, until those assets
are reduced to zero.
The accounts of Legacy Artemis include its wholly owned subsidiaries:
Artemis Acquisition Corporation, Artemis Holdings, Inc., Artemis International
Corporation, Software Productivity Research, Inc., and Artemis International
Corporation Systems Limited for all periods presented.
Stockholders' equity and earnings per share amounts of Legacy Artemis
have been retroactively restated to reflect the shares issued by Opus360 in
connection with the Share Exchange Agreement for all periods presented. (See
Note 13.)
Each of the Contributed Businesses is reflected as having been
contributed by Proha as of the later of the date Legacy Artemis was acquired by
Proha or the date these interests were under the common control of Legacy Proha
Legacy Artemis' parent. Accordingly, results of Artemis Finland and the 19.9%
minority interests in Accountor Oy and Intellisoft Oy have been included in the
accompanying financial statements since August 24, 2000. The results of the
majority interests in Enterprise Management Systems Srl, Artemis International
S.p.A., Solutions International SA, Artemis International GMBH and Artemis
International Sarl have been included in the accompanying financial statements
as of December 1, 2000.
Artemis considers that the following accounting policies involving the
use of estimates and judgments by management are critical to understanding its
financial statements:
a. Revenue Recognition
The Company's revenue recognition policy generally requires revenue
earned on software arrangements involving multiple elements to be allocated to
each element based on the relative fair market values of each of the elements.
The fair value of an element must be based on vendor-specific objective evidence
("VSOE") of fair value. Software license revenue allocated to a software product
generally is recognized upon delivery of the product or
11
deferred and recognized in future periods to the extent that an arrangement
includes one or more elements that are to be delivered at a future date and for
which VSOE has not been established.
The Company must make judgments to determine whether VSOE has been
establish to support the fair value of each element within a contract and as to
whether any undelivered elements are essential to the functionality of the
software. To the extent VSOE can not be established and or future deliverables
are essential to the functionality the license revenues are deferred over the
contractual period.
b. Valuation of Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price paid over the fair
value of tangible and identifiable intangible net assets acquired in business
combinations. Identifiable intangible assets primarily include intellectual
property, trademarks, and core technology. The lives of Goodwill and other
intangibles requires management to make judgments and estimates regarding the
expected useful life of these assets. To the extent useful lives change due to
developments in new technology or other reasons the Company's amortization
expense would be affected.
The value of the purchased in-process research and development was
determined by estimating the projected net cash flows related to in-process
research and development projects, excluding costs to complete the development
of the technology. These cash flows were discounted back to their net present
value. The discount rate was estimated based on the implied rate of the
transaction, the weighted average cost of capital and the percentage of
completion at the acquisition date. The projected net cash flows from such
projects were based on management's estimates of revenues and operating profits
related to such projects.
Artemis International has adopted the provisions of Statement 141,
Business Combinations, for the July 31, 2001 combination of OPUS360 and Artemis
and will adopt Statement 142, Goodwill and Other Intangible Assets, for periods
after December 15, 2001. Any goodwill and intangible assets determined to have
an indefinite useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue to be
evaluated for impairment in accordance with the appropriate pre-Statement 142
accounting literature until the adoption of Statement 142 on January 1, 2002.
The Company's Goodwill and other Intangibles are evaluated for
impairment using the criteria of SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
The Company has recorded an impairment change based upon the Company's
estimated future cash flows. Estimates of future cash flows are subject to
change. Management has recorded an impairment charge based upon their best
estimate of the future cash flows. Should the future cash flows decrease from
our current projections additional impairment charges could occur.
(c) Recent Accounting Pronouncements
In July 2001, the FASB issued Statement No. 141, Business Combinations,
and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. Statement 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually. Statement 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 144, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of.
Artemis has adopted the provisions of Statement 141 for the July 31,
2001 combination of Opus360 and Artemis and will adopt Statement 142 for
reporting periods after December 15, 2001. Any goodwill and intangible assets
determined to have an indefinite useful life that are acquired in a purchase
business combination completed after June 30, 2001 will not be amortized, but
will continue to be evaluated for impairment in accordance with the appropriate
pre-Statement 142 accounting literature until the adoption of Statement 142 on
January 1, 2002. Statement 141 requires that negative goodwill be allocated on a
pro-rata basis to non-current assets to the extent available with any remainder
recognized as extraordinary gain. In connection with the adoption of Statement
141, the Company applied the provisions of this statement to its acquisition of
OPUS which resulted in the allocation of negative goodwill in the amount of
approximately $10.5 million as a direct reduction of the Company's non-current
assets. The current period income statement impact of this adoption was
approximately $0.6 million. See note 2 to the combined and consolidated
financial statements for a description of the OPUS acquisition.
Statement 141 will require upon adoption of Statement 142, that Artemis
continue to evaluate its existing intangible assets for impairment. Upon
adoption of Statement 142, Artemis will be required to reassess the useful lives
and residual values of all intangible assets acquired in purchase business
combinations, and make any necessary amortization period adjustments by the end
of the first interim period after adoption. To the extent an intangible asset is
identified as having an indefinite useful life, Artemis will be required to test
the intangible asset for impairment in accordance with the provisions of
Statement 142 within the first interim period. Any impairment loss will be
measured as of the date of adoption and recognized as the cumulative effect of a
change in accounting principle in the first interim period. The Company
continues to evaluate what effect, if any, adoption of Statement 142 will have
on its financial position and results of operations.
In August 2001, the Financial Accounting Standards Board, issued
Financial Accounting Standards No. 144, or SFAS 144, Accounting for the
Impairment of Long-Lived Assets. This Statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets, and
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business (as
previously defined in that Opinion). This Statement also amends ARB No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The provisions of
this Statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years, with early application encouraged. The Company does not anticipate that
its evaluation of long-lived assets and long-lived assets to be disposed of for
impairment in accordance with this standard will have a material impact.
12
Results of Operations
The Company has included the following summary of operating results for the
years ended March 31, 2000 and 1999 for comparative purposes as the Legacy
Artemis' year-end was previously March 31 and had changed its year-end to
December 31, during the period ended December 31, 2000 (see note 2 to the
combined and consolidated financial statements).
YEARS ENDED MARCH 31, 2000 AND 1999
SUMMARY OF OPERATING RESULTS
--------------------------------------------------------------------------------
For The Years Ended
----------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
(in thousands)
Revenue:
Software $ 18,297 $ 15,899
Support 11,557 10,186
Services 19,449 16,696
-------- --------
Net revenue 49,303 42,781
Cost of revenue:
Software 1,497 792
Support 5,249 4,392
Services 13,565 10,361
-------- --------
20,311 15,545
-------- --------
Gross profit 28,992 27,236
Operating expenses:
Selling and marketing 11,355 9,380
Research and development 7,895 7,211
General and administrative 4,774 5,982
Amortization expense 2,876 3,025
Management fees 2,050 1,903
-------- --------
28,950 27,501
-------- --------
Operating income (loss) 42 (265)
Non operating expense 1,548 667
-------- --------
Loss before taxes (1,506) (932)
Tax expense (benefit) (2,566) 457
-------- --------
Income (loss) before minority interest 1,060 (1,389)
======== ========
--------------------------------------------------------------------------------
Revenues
Sales for the fiscal year ended March 31, 2000 were $49.3 million
representing an increase of $6.5 million, or 15.2%, from $42.8 million for the
fiscal year ended March 31, 1999. Software license sales increased from $15.9
million in 1999 to $18.3 million in 2000, due largely to more installations of
Legacy Artemis' products. Similarly, support revenues, primarily software
maintenance fees, were up $1.4 million to $11.6 million in 2000 as a function of
increased sales of the new Views product line, particularly in the first nine
months of fiscal year 2000.
13
Consulting revenue increased to $19.4 million, an increase of $2.7 million, or
16.2%, from $16.7 million in 1999. This increase was the result of larger and
longer term consulting engagements completed by Legacy Artemis' direct labor
resources.
Cost of Revenues
The cost of software or license revenue for the year ended March 31,
2000 increased nearly 88% from $0.8 million recorded in 1999. This was primarily
a function of the higher royalties paid to third party software vendors for
sales of their product embedded in Legacy Artemis' solutions. The approximately
30%, or $3.2 million increase in cost of services from $10.4 million in 1999 to
$13.6 million in 2000 reflects the increased use of external consultants to
complete client services engagements, as well as non-billable training expenses
incurred by internal consultants.
Gross Profit
Total gross profit for the fiscal year 2000 was $29.0 million, an
increase of $1.8 million or 7%, from $27.2 million in 1999. Gross profit margin
in 2000 declined from 63.5% in fiscal 1999 to 58.8% due to the larger proportion
of lower margin external consultants used to provide client services.
Operating Expenses
Total operating expenses increased to $29.0 million during fiscal 2000
from $27.5 million in 1999. Overall operating expenses as a percent of revenues
declined to 58.7% from 64.3% in 1999, as Legacy Artemis' sales increased without
corresponding increases in research and development and management fees. General
and administrative expenses and amortization expenses actually decreased from
the prior year. These decreases and the minimal research and development
increases were the result of management's focus on limiting staffing and
reallocating existing human resources. The approximately $2.0 million, or 21%,
increase in sales and marketing expense to $11.4 million in 2000 is attributable
to the reallocation and addition of personnel to this area and launch of a
combined company/product awareness campaign in fiscal year 2000.
Operating Income/(Loss)
As a result of the aforementioned revenue growth and limited cost and
expense growth, operating income improved to breakeven during fiscal 2000 from a
$0.3 million loss in fiscal 1999.
Non-Operating Expenses
Interest expense increased to $0.3 million from $0.9 million in 1999 to
$1.2 million in 2000 because of higher average balances on Legacy Artemis's line
of credit. Higher operating costs in some of Legacy Artemis's minority equity
holdings decreased income slightly, but other expenses, primarily occupancy and
facility charges for Legacy Artemis's Scandinavian operations, increased by
approximately $0.5 million.
Provision for Income Taxes
We recorded a net tax expense of $0.5 million in the year ended March
31, 1999. In the year ended March 31, 2000, utilization of net operating loss
carryforwards and a reduction in the valuation allowance resulted in a net tax
benefit of $2.6 million.
14
NINE MONTHS ENDED DECEMBER 31, 2000 AND 1999
The Company has included the following summary of operating results for the nine
months ended December 31, 2000 and 1999 for comparative purposes as the Legacy
Artemis' year-end was previously March 31 and had changed its year-end to
December 31, during the period ended December 31, 2000 (see note 2 to the
combined and consolidated financial statements).
SUMMARY OF OPERATING RESULTS
--------------------------------------------------------------------------------
For The Nine Months Ended
--------------------------------------
December 31, 2000 December 31, 1999
----------------- -----------------
(Unaudited)
(in thousands)
Revenue:
Software $ 12,134 $ 13,149
Support 9,121 8,657
Services 13,567 14,729
-------- --------
Net revenue 34,822 36,535
Cost of revenue:
Software 1,157 1,112
Support 4,212 3,906
Services 10,170 10,190
-------- --------
15,539 15,208
-------- --------
Gross profit 19,283 21,327
Operating expenses:
Selling and marketing 8,520 8,159
Research and development 8,271 5,835
General and administrative 4,039 3,804
Acquisition costs 1,943
Amortization expense 6,932 1,870
Management fees 976 1,553
-------- --------
30,681 21,221
-------- --------
Operating income (loss) (11,398) 106
Non operating expense 1,023 674
-------- --------
Loss before taxes (12,421) (568)
-------- --------
Tax expense (benefit) (1,691) (58)
-------- --------
Income (loss) before minority interest (10,730) (510)
======== ========
--------------------------------------------------------------------------------
Overview
On August 24, 2000, Proha, a publicly held Finnish company, purchased Legacy
Artemis for approximately $50 million in stock and cash. Subsequent to that
acquisition, Proha contributed its wholly owned subsidiary, Artemis Finland to
Legacy Artemis and purchased majority stakes in Enterprise Management Systems
Srl, Artemis International S.p.A., Solutions International SA, Artemis
International GMBH, and Artemis Sarl which were subsequently transferred to
Legacy Artemis. As a result of the Share Exchange Agreement between Proha and
15
Opus360, 19.9% minority interests in each of Accountor and Intellisoft are to be
transferred to Artemis International. The combined financial statements for the
nine months ended December 31, 2000 include the results of Artemis Finland and
the 19.9% interests in Accountor and Intellisoft from August 24, 2000, as well
as Enterprise Management Systems Srl, Artemis International S.p.A., Solutions
International SA, Artemis International GMBH, and Artemis Sarl from December 1,
2000. These enterprises contributed approximately $3.6 million in total revenue
and $9.4 million in total costs in the nine month period ended December 31,
2000.
Revenue
For the nine months ended December 31, 2000, total revenue was $34.8
million; of which $12.1 million was derived from Software licenses, $9.1 million
from Support or maintenance of existing licenses, and $13.6 million from
consulting Services. Software and Consulting revenues for the December 31, 2000
period were $1.0 and $1.2 million, respectively, less than the comparable levels
for the nine months ended December 31, 1999 due to lowered demand in North
America. These declines were partially offset by an increase of $.5 million in
Support revenues resulting from the higher levels of licensing contracts in the
nine months ended December 31, 2000.
Cost of Revenue
Cost of revenue for the nine months ended December 31, 2000, was $15.5
million, an increase of approximately 2% over cost of revenue for the nine
months ended December 31, 1999. This relatively small increase was largely the
result of the full year impact of additional personnel hired in the prior period
coupled with the 4.7% decrease in revenue created a 3 percentage point decrease
in gross margin as a percent of total revenues. The $0.3 million increase in
Support costs was directly attributable to the increase in Support revenues.
Operating Expenses
Sales and marketing expenses for the nine months ended December 31,
2000 were $8.5 million, an increase of 4% over sales and marketing expenses of
$8.2 million for the similar period ended December 31, 1999. This increase was
primarily attributable to incremental sales and marketing personnel as well as
additional advertising expenses incurred in the most recent period. For the nine
months ended December 31, 2000, product development expenses were $8.3 million,
including a $2.3 million in-process research and development charge for costs
incurred for products which had not reached technical feasibility at August 24,
2000, the date that Legacy Artemis was acquired by Proha. Excluding this charge,
research and development costs in 2000 increased slightly more than 3 percent
due to increased staffing and some salary increases. General and administrative
expenses for the nine months ended December 31, 2000 were $4.0 million, an
increase of 6 % over general and administrative expenses of $3.8 million for the
1999 period. The increase was primarily attributable to an increased number of
employees and associated salaries and benefits, general office expenses, rent
and utilities expenses resulting from the expanded post-acquisition operations.
Amortization expense for the nine months ended December 31, 2000 was $6.9
million, consisting primarily of amortization of the approximately $63 million
of goodwill and intangible assets pushed down as a result of the Proha
acquisition. Depreciation and amortization expense was $3.8 million for the nine
months ended December 31, 1999. Management fees decreased approximately $0.6
million in the nine months ended December 31, 2000 from the comparable prior
period as a result of the change in ownership of Legacy Artemis from Gores to
Proha. This decrease was more than offset by the incremental $1.9 million in
acquisition costs incurred in connection with the Proha acquisition.
Operating Income (Loss)
In the nine month period ended December 31, 2000, the Legacy Artemis
incurred an $11.4 million loss versus a $0.1 million gain in the corresponding
period of 1999. This change was the result of the aforementioned increased
amortization, acquisition and other operating expenses combines with a $1.7
million decline in total revenue.
Non-Operating Expenses
Non-operating expenses in the nine months ended December 31, 2000
increased by $0.3 million to $1.0 million from $0.7 million in the nine month
period ended December 31, 1999 primarily because of higher interest expense
occasioned by higher borrowings and higher interest rates.
16
Provision for Income Taxes
The tax benefit for the nine months ended December 31, 2000 increased
by $1.6 million to $1.7 million as a result the higher pre-tax loss, partially
offset by pushdown of the in process research and development charge and a $0.6
million foreign tax differential.
17
YEARS ENDED DECEMBER 31, 2001 AND 2000
The Company has included the following summary of operating results for the
years ended December 31, 2001 and 2000 for comparative purposes as the Legacy
Artemis' year-end was previously March 31 and had changed its year-end to
December 31, during the period ended December 31, 2000 (see note 2 to the
combined and consolidated financial statements).
SUMMARY OF OPERATING RESULTS
--------------------------------------------------------------------------------
For The Years Ended
-------------------------------------
December 31, 2001 December 31, 2000
----------------- -----------------
(Unaudited)
(in thousands)
Revenue:
Software $ 15,105 $ 17,282
Support 15,512 12,021
Services 37,029 18,288
--------- ---------
Net revenue 67,646 47,591
Cost of revenue:
Software 2,522 1,543
Support 6,705 5,555
Services 23,870 13,545
--------- ---------
33,097 20,643
--------- ---------
Gross profit 34,529 26,948
Operating expenses:
Selling and marketing 16,782 11,713
Research and development 9,894 10,330
General and administrative 10,879 5,010
Acquisition costs 409 1,943
Amortization expense 18,832 7,940
Impairment charge 43,430 -
Management fees 806 1,471
--------- ---------
101,032 38,407
--------- ---------
Operating income (loss) (66,483) (11,457)
Non operating expense 3,046 1,897
--------- ---------
Loss before taxes (69,529) (13,356)
Tax expense (benefit) (9,670) (4,198)
--------- ---------
Income (loss) before minority interest (59,859) (9,158)
========= =========
--------------------------------------------------------------------------------
Overview
On August 24, 2000, Proha, a publicly held Finnish company, purchased
Legacy Artemis for approximately $50 million in stock and cash. Subsequent to
that acquisition, Proha contributed its wholly owned subsidiary, Artemis Finland
to Legacy Artemis and purchased majority stakes in Enterprise Management Systems
Srl, Artemis International S.p.A., Solutions International SA, Artemis
International GMBH, and Artemis Sarl which were subsequently transferred to
Legacy Artemis. As a result of the Share Exchange Agreement between Proha and
18
Opus360, 19.9% minority interests in each of Accountor and Intellisoft were
transferred to Artemis International. The combined financial statements for the
year ended December 31, 2000 include the results of Artemis Finland and the
19.9% interests in Accountor and Intellisoft from August 24, 2000, as well as
Enterprise Management Systems Srl, Artemis International S.p.A., Solutions
International SA, Artemis International GMBH, and Artemis Sarl from December 1,
2000. The consolidated financial statements for the twelve months ended December
31, 2001 include all of these entities, plus PMSoft Korea Ltd., and JST
Investments Pte Ltd. from January 3, 2001. The businesses contributed on August
24, 2000, December 1, 2000 and January 3, 2001; Enterprise Management Systems
Srl, Artemis International S.p.A., Solutions International SA, Artemis
International GMBH, Artemis Sarl, PMSoft Korea Ltd., and JST Investments Pte
Ltd. are referred to as the Proha Contributed Businesses.
Revenue
For the year ended December 31, 2001, total revenue was $67.6 million,
of which $15.1 million was derived from Software Licenses, $15.5 million for
Support and $37.0 million from consulting Services to licensed clients. Software
revenues for the year ended December 31, 2001 declined to $15.1 million from
$17.3 million in the year ended December 31, 2000, largely as a result of two
large licensing agreements in fiscal year 2000 that were not repeated in the
current year. Support Revenue increased 29%, or $3.5 million, as a result of the
full year inclusion of the Contributed Businesses' maintenance revenues.
Services Revenues increased 102%, or $18.7 million, not only because of these
Contributed Businesses, but also because of several large follow-on consulting
assignments with clients who had licensed our products in prior periods. Total
revenues for the Contributed Businesses were approximately $25.5 million and
$3.6 million in the years ended December 31, 2001 and 2000, respectively.
Cost of Revenue
The total Cost of Revenue for the year ended December 31, 2001 was
$33.1 million, $12.5 million or 61% more than that experienced in the year ended
December 31, 2000. The majority of this increase was a function of the over 102%
increase in Services revenues and the corresponding increase in related
personnel costs of services. However, the addition of Contributed Businesses
increased the Cost of Software Sales and Cost of Support at a greater rate than
their respective revenues. Overall gross margins declined from 57% in fiscal
year 2000 to 51% in fiscal year 2001, as a function of the extended organization
and the significantly higher percentage of lower margin consulting Services
Revenues recorded in 2001. The Contributed Businesses recorded $ 14.0 million
total Costs of Sales in the year ended December 31, 2001, and $1.6 million in
the year ended December 31, 2000.
Operating Expenses
Sales and Marketing. Sales and marketing expenses for the year ended
December 31, 2001 were $16.8 million, an increase of 44% over sales and
marketing expenses of $11.7 million for the year ended December 31, 2000. This
increase was primarily attributable to incremental marketing and advertising
expenses incurred in the Contributed Businesses, only partially offset by
reduced advertising expenses in North America.
Product Development. For the year ended December 31, 2001, product
development expenses were $9.9 million, approximately 24% greater than those
incurred in the twelve months ended December 31, 2000, excluding the $2.3
million in-process research and development charge incurred as part of the Proha
purchase of Artemis. This increase reflected some growth in Legacy Artemis
research staffing and the July 31, 2001 addition of the Opus360 costs.
General and Administrative. General and administrative expenses
increased $5.8 million or 117% for the year ended December 31, 2001 from the
comparable period ending December 31, 2000. The increase was primarily
attributable to the additional employees and associated salaries and benefits in
the Contributed Companies. Full year rent and utilities expenses also increased
as a result of the additional office locations. In addition to the
infrastructure costs incurred with the full year impact of the Contributed
Businesses and the Opus360 July 2001 business combination, increased office
rental and insurance costs contributed to increased overhead.
Combined operating expenses for the Contributed Companies was $16.4
million in 2001 versus $2.0 million in 2000.
Amortization. The pushdown of the Goodwill and Intangible valuations
resulting from the Proha acquisition of Legacy Artemis added a combined total of
over $80.9 million in long-lived assets to the Legacy Artemis balance sheet.
Intangible asset values were based on assessments of the continuing client base,
costs
19
avoided with the addition of trained personnel and the intellectual property
acquired. $18.8 million in amortization expense was recorded during the year
ended December 31, 2001. This was slightly more than two times total
amortization expense for the year ended December 31, 2000.
Management Fees and Acquisition Costs. Management fees incurred prior
to the July 31, 2001 merger of Legacy Artemis and Opus360 and the acquisition
costs expensed in conjunction with that merger were $.8 million and $.4 million,
respectively, in the year ended December 31, 2001. Management fees were not
incurred after July 31, 2000. The $1.5 million and $1.9 million of management
fees and acquisition costs incurred in 2000 reflect the Proha acquisition of
Legacy Artemis, and approximately $1.0 million in management fees paid to Gores
Technology, the former parent of Legacy Artemis.
Impairment Charges
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, requires impairment losses to be
recorded on long-lived assets used in operations, including goodwill, when
indicators of impairment are present and the undiscounted future cash flows,
estimated to be generated by those assets are less than the assets' carrying
value. If such assets are impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the asset exceeds the fair market
value of the assets. Assets to be disposed of are reported at the lower of the
carrying value or fair market value, less cost to sell.
At the close of its 2001 fiscal year, the Company evaluated the
carrying values of its combined goodwill and intangible assets. An impairment
charge of $43.4 million has been recorded in the year ending December 31, 2001.
Specifically, the significant decline in business activity generally and
software license revenues following the terrorist attacks on New York City and
Washington, DC as well as the Company's fourth quarter operating and cash flow
losses required an adjustment to the carrying value of the Company's long-lived
assets. Using discounted cash flow projections of expected returns from these
assets, the Company has determined that the carrying value of its goodwill and
intangible assets should be reduced to approximately $14.8 million.
Non-Operating Expenses
Interest expense in the year ended December 31, 2001 decreased $0.6
million from $1.5 million in the year ended December 31, 2000 because the
Company was able to decrease its borrowings as a result of the cash acquired in
the Opus360 combination with Legacy Artemis. Higher operating losses in
unconsolidated subsidiaries for the year ended December 31, 2001 as well as the
spin off of one subsidiary and the shut down of another joint venture increased
other non-operating expense from $0.4 million to $2.0 million.
Provision for Income Taxes
The Company recorded a net tax benefit $9.7 million in the year ended
December 31, 2001, or more than twice the benefit recognize in the year ended
December 31, 2000 primarily because of the higher pre-tax losses incurred, only
partially offset by the net effect of permanent and temporary differences and an
increase in the valuation allowance in the current year. In both years, deferred
tax liabilities established with the push down of goodwill and intangible assets
resulting from the Proha acquisition of Legacy Artemis were reduced as a result
of amortization and the impairment charge recorded during the fourth quarter of
fiscal year 2001. The reduction in the deferred tax liabilities during the
year-ended December 31, 2001 resulted in a deferred tax benefit for the year
ended December 31, 2001.
Liquidity and Capital Resources
Artemis has funded operations through cash generated by operations,
acquisitions and loans from Foothill Capital, Proha Plc. and two local banks.
Legacy Artemis combined operations with Opus360, which changed its name to
Artemis International Solutions Corporation on July 31, 2001, which provided the
combined entities with working capital of approximately $6.6 million. At
December 31, 2001, Artemis International had a cash balance of $5.1 million, an
increase of $1.9 million from the $3.2 million balance at December 31, 2000.
Working capital at December 31, 2001 and 2000 was negative $5.8 and negative
$2.8, respectively. At December 31, 2001, total debt outstanding had been
reduced from $6.4 million at December 31, 2000 to $3.7 million.
Cash used in operating activities for the year ended December 31, 2001
was $8.6 million, primarily due to our net loss of $59.8 million, adjusted for
various non-cash charges including the impairment charge, depreciation and
amortization, and changes in operating assets and liabilities, including changes
in our accounts receivable,
20
accounts payable and accrued expenses. Cash provided by operating activities for
the nine months ended December 31, 2000 totaled $3.3 million. We have
restructured our expense base to match a conservative projection of cash
generation in the coming year through more focused marketing and development,
better workforce utilization and a reduction in general and administrative
expenses.
Cash provided by investing activities for the year ended December 31,
2001 totaled $14.7 million, primarily a function of the Opus360 business
combination in July 2001. We used $2.7 million of these funds to repay
outstanding debt. For the nine months ended December 31, 2000, cash from Proha's
Contributed Companies and the sale of Proha stock was used to retire debt and
purchase capital equipment.
The Company's continued existence is dependent upon several factors
including the Company's ability to sell and successfully implement its software
solutions. The Company has experienced net losses in both the year ended
December 31, 2001 and the nine months ended December 31, 2000. At December 31,
2001, the Company has an accumulated deficit of $71.2 million and its current
liabilities exceeded current assets by $5.8 million. The Company may not be able
to achieve the level of sales or contain its costs sufficiently to generate
sufficient cash flow to fund its operations. These factors raise substantial
doubt about the Company's ability to continue as a going concern. See
independent auditors' report and note 1 to the consolidated financial
statements.
Under the terms of a $1.8 million note payable, the Company is
committed to make equal monthly principal reduction payments up to and until
August 2003. Cash requirements through the end of fiscal year 2002 are primarily
to fund operations at approximately the same levels as fiscal year 2001. In the
future, we may need to raise additional funds through public or private
financings, or other arrangements to fund our operations or potential
acquisitions, if any. We currently have no plans to affect any other offerings.
We cannot assure you that any financings or other arrangements will be available
in amounts or on terms acceptable to us or at all and any new financings or
other arrangements could place operating or other restrictions on us. The
Company's inability to raise capital when needed could seriously harm the growth
of the business and results of operations.
The Company's near and long-term operating strategies focus on
promoting its new and existing software and services to increase its revenue and
cash flow while better positioning the Company to compete under current market
conditions. The Company has also tasked its operating units to achieve a five
percent year over year reduction in operating expenses. In addition, in the
fourth quarter of fiscal year 2001, the Company took a number of actions to
reduce on-going costs, including deferring development, marketing and sales
support for its Workforce Procurement and Workforce Management product lines.
Additionally, all operations were tasked to achieve a five percent
year-over-year reduction in operating expenses. Worldwide staffing levels were
reduced approximately 7 percent in support of this effort. At December 31, 2001,
the Company had unused credit lines of up to $2.7 subject to maintaining certain
receivables' aging and levels. At December 31, 2001, the Company's capacity
based on these measures was approximately $1.8 million. Management feels that
they have sufficient flexibility in fixed, semi-fixed and variable costs to fund
its operations for the foreseeable future with the aforementioned sources of
funds to continue as a going concern.
The Company's consolidated financial statements has been prepared
assuming that the Company will continue as a going concern based upon
management's plans discussed above. Accordingly, the consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
A summary of our future contractual obligations and commercial
commitments as of December 31, 2001 is as follows:
Less than After
Total 1 year 2 - 3 years 4 - 5 years 5 years
------------------------------------------------------------------------------------------------------------------------
Long-term debt $ 2,666 $ 1,245 $ 1,396 $ 25 $ -
Operating leases 8,118 4,251 3,651 216 -
------------------------------------------------------------------------------------------------------------------------
Total contractual cash obligations $ 10,784 $ 5,496 $ 5,047 $ 241 $ -
------------------------------------------------------------------------------------------------------------------------
Prior to August 2000, Legacy Artemis had entered into a management
agreement with Gores Technology Group ("Gores".) The management agreement called
for Gores to provide certain management services to Legacy Artemis. In August
2000, Legacy Artemis entered into a management agreement with Proha pursuant to
which Proha is required to provide certain management services to Legacy
Artemis. Management fees incurred and paid for the years ended December 31, 2001
and March 31 2000 and the nine months ended December 2000 and December 31, 1999
were approximately $0.8 million, $2.0 million, $1.0 million and $1.6 million,
respectively. On August 24, 2000, Legacy Artemis terminated the agreement with
Gores in conjunction with its acquisition by Proha. In connection with the Share
Exchange Agreement, the management agreement with Proha was terminated.
At December 31, 2001 and 2000, the Company had other receivables and
payables of $.2 and $.4 million and $0.0 and $2.0 million, respectively, to
Proha, who holds approximately 80% of the Company's outstanding Common Stock.
At December 31 2001 and 2000, the Company maintained the following
equity holdings in joint ventures which are accounted for under the equity
method, with the exception of Scandinavia and the Netherlands which are
accounted for under the cost method. The Company records its equity interest in
losses first to the investment balance, then against loans or advances.
21
Qualitative and Quantitive Disclosure About Market Risk
At December 31, 2001, the majority of our cash balances were held
primarily in the form of short- term highly liquid investment grade money market
funds of major financial institutions. Due to the short-term nature of our
investments and the fact that they are marked to market daily, we believe that
we are not subject to any material interest or market rate risks.
The Company utilizes lines of credit to fund operational cash needs.
The Company's outstanding balance under its lines of credit at December 31, 2001
was approximately $3.7 million. The weighted average interest rate for the
Company's lines of credit during 2001 was 10.19%. The Company will pay an
aggregate amount of $1.3 million, including interest, under its declining
balance load with Foothill, which matures in August 2003.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
THE OCCURRENCE OF ANY OF THE FOLLOWING RISKS COULD MATERIALLY AND ADVERSELY
AFFECT OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS. IN THAT CASE,
THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU MIGHT LOSE ALL OR
PART OF YOUR INVESTMENT.
WE HAVE A RECENT HISTORY OF NET LOSSES, AND SUBSTANTIAL ACCUMULATED DEFICIT.
The Company's continued existence is dependent upon several factors
including the Company's ability to sell and successfully implement its software
solutions. The Company has experienced net losses in both the year ended
December 31, 2001 and the nine months ended December 31, 2000. At December 31,
2001, the Company has an accumulated deficit of $71.2 million and its current
liabilities exceeded current assets by $5.8 million. The Company may not be able
to achieve the level of sales or contain its costs sufficiently to generate
sufficient cash flow to fund its operations.
THE CURRENT ECONOMIC DOWNTURN HAS IMPACTED DEMAND FOR OUR PRODUCTS AND SERVICES
AND MAY ADVERSELY AFFECT FUTURE REVENUE.
Recent economic indicators, including gross domestic product
figures, reflect a slowdown in economic activity in the United States and Europe
from prior periods. Many reports have indicated an even more significant decline
in spending by corporations in the area of information technology, the overall
market in which we participate. While we cannot specifically correlate the
impact of macro-economic conditions on our sales activities, we believe that the
economic conditions have resulted in decreased demand in our target market, and
in particular, have increased the average length of our sales cycles and
decreased the size of our license transactions. To the extent that the current
downturn continues or increases in severity, or results in a similar downturn
worldwide, we believe demand for our products and services, and therefore future
revenue, will be reduced. Even if the current downturn improves, we cannot
assure you that corporations will increase their information technology spending
or that we will be able to maintain or improve revenue levels.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, AND IF
OUR FUTURE RESULTS ARE BELOW THE EXPECTATIONS OF INVESTORS, THE PRICE OF
OUR COMMON STOCK WOULD LIKELY DECLINE FURTHER.
Our operating results have in the past and could in the future vary
significantly from quarter to quarter. Our quarterly operating results are
likely to be particularly affected by the number of customers licensing our
products during any quarter and the size of such licensing transactions. Other
factors that could affect our quarterly operating results include:
our ability to attract new customers and retain and sell
additional products and services to current customers;
the announcement or introduction of new products or services
by us or our competitors;
changes in the pricing of our products and services or those
of our competitors;
variability in the mix of our product and services revenue in
any quarter; and
the amount and timing of operating expenses and capital
expenditures relating to the business.
22
Due to these and other factors, we believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of our future performance. It is possible that, in
some future periods, our revenue performance, expense levels, cash usage or
other operating results will be below the expectations of investors. If this
occurs, the price of our common stock might further decline.
OUR SALES CYCLE IS LENGTHY, WHICH COULD DELAY THE GROWTH OF OUR REVENUES AND
INCREASE OUR EXPENDITURES.
Our software and services are complex, and include some newer products
and services that have only recently been released commercially. We may face
significant delays in acceptance of our newer products and services. We will not
be able to recognize any revenue during the period in which a potential customer
evaluates whether or not to use these products and/or services, a period which
could extend for 3 to 6 months and beyond. The decision of a customer to use any
of our products or services may be expensive, time consuming and complex and may
require a customer to make a significant commitment of resources. As a result,
we will have to expend valuable time and resources to educate interested persons
at all levels in these organizations on the use and benefits of our products and
services. Our expenditure of substantial time and resources to persuade
customers to use our products and services or an unexpectedly long sales and
implementation cycle for them will have a negative impact on the timing of our
revenues.
IMPLEMENTATION OF OUR PRODUCTS IS DIFFICULT, COSTLY AND TIME-CONSUMING, AND
CUSTOMERS COULD BECOME DISSATISFIED IF THE IMPLEMENTATION REQUIRES MORE
TIME, EXPENSE OR PERSONNEL THAN EXPECTED.
Implementation of our products may be difficult, costly and
time-consuming. Because we are one of the first companies to offer an
applications suite for services organizations, many customers will be facing
these implementation issues for the first time in the context of our software.
Customers could become dissatisfied with our products if implementation requires
more time, expense or personnel than they expected. Additionally, our losses
could increase if, for customer satisfaction and reputational reasons, we do not
bill our customers for time and expenses we incur in connection with these
implementation issues, which would adversely affect our operating results.
As part of the implementation, our products must integrate with many of
our customers' existing computer systems and software programs. Integrating with
a number of computer systems and software programs can be time-consuming and
expensive and could lead to customer dissatisfaction and increased expenses.
NEW CUSTOMERS MAY NOT ACCEPT OUR SOFTWARE AND SERVICES.
Before making any commitment to use our software and services,
potential users will likely consider a wide range of issues, including service
benefits, integration with legacy systems, potential capacity, functionality and
reliability. Prospective users will generally need to change established project
and resource management practices and operate their businesses in new ways.
Because some of our products and services represent new, Internet-based
approaches for most organizations, those persons responsible for the use or
approval of our products and services for our customers will be addressing many
new technical and project management issues for the first time. If our newer
products and services are not attractive to potential customers, we will fail to
generate significant new revenues from these newer products and services. In
addition, if systems integrators fail to adopt and support our products and
services as project and resource management tools, our ability to reach our
target customers in this market may be diminished.
IF WE ARE UNABLE TO INTRODUCE NEW PRODUCTS OR PRODUCT ENHANCEMENTS ON A
TIMELY BASIS, OR IF THE MARKET DOES NOT ACCEPT THESE PRODUCTS OR
PRODUCT ENHANCEMENTS, OUR BUSINESS WILL SUFFER.
The market for certain of our products and services is new and the
markets for all of our products and services are likely to change rapidly. Our
future success will depend on our ability to anticipate changing customer
requirements effectively and in a timely manner and to offer products and
services that meet these demands. The development of new or enhanced software
products and services is a complex and uncertain process. We may experience
design, development, testing and other difficulties that could delay or prevent
the introduction of new products or product enhancements and could increase
research and development costs. Further, we may experience delays in market
acceptance of new products or product enhancements as we engage in marketing and
education of our user base regarding the advantages and system requirements for
the new products and services and as customers evaluate the advantages and
disadvantages of upgrading to our new products or services.
23
WE DEPEND ON IMPLEMENTATION, MARKETING AND TECHNOLOGY RELATIONSHIPS; IF
OUR CURRENT AND FUTURE RELATIONSHIPS ARE NOT SUCCESSFUL, OUR BUSINESS
MIGHT BE HARMED.
We rely on implementation, marketing and technology
relationships with a variety of companies. These implementation, marketing and
technology relationships include relationships with consulting firms; and
third-party vendors of software, such as BEA, Cognos, Intraspect, Changepoint,
Concur, Microsoft and Oracle, whose products or technologies, such as reporting
engines, search engines, application servers, databases and operating systems,
we incorporate into or integrate with our products.
We depend on these companies to recommend our products to customers,
promote our products, provide our direct sales force with customer leads and
provide enhanced functionality to our products. Some of these relationships are
not documented in writing, or are governed by agreements that can be terminated
by either party with little or no penalty or prior notice and do not provide for
minimum payments to us. Companies with which we have an implementation,
marketing or technology relationship may promote products or services of several
different companies, including, in some cases, products or services that compete
with our products and services. These companies may not devote adequate
resources to selling or promoting our products and services. We may not be able
to maintain these relationships or enter into additional relationships in the
future.
WE MAY NOT BECOME PROFITABLE IF WE ARE UNABLE TO ADAPT OUR BUSINESS MODEL TO
CHANGES IN OUR MARKET.
If we are unable to anticipate changes in the market for project and
resource management software and services, we may not be able to expand our
business or successfully compete with other companies. Our current business
model depends upon continuing to enhance and expand our project management and
collaboration solutions. We may be required to further adapt our business model
in response to additional changes in the professional services automation
market, or if our current business model is not successful.
THERE IS COMPETITION IN OUR MARKET, WHICH COULD MAKE IT DIFFICULT TO ATTRACT
CUSTOMERS, CAUSE US TO REDUCE PRICES AND RESULT IN REDUCED GROSS
MARGINS OR LOSS OF MARKET SHARE.
The market for our products and services is competitive, dynamic and
subject to frequent technological changes. We expect the intensity of
competition and the pace of change to increase in the future. Our products
compete with products that have been developed by potential customers' in-house
developers and IT departments and by a number of competitors offering products
and services that vary in functionality. These include:
enterprise resource planning software companies such as
Oracle, Peoplesoft, SAP and Siebel Systems;
developers of project management software; and
developers of professional services automation software.
A number of companies offer products that provide some of the
functionality of our products. We do not believe that any one company has a
dominant position in our market as a whole. However, we may not be able to
maintain our competitive position against current or potential competitors,
especially those with significantly greater financial, marketing, service,
support, technical and other resources. Competitors with greater resources may
be able to undertake more extensive marketing campaigns, adopt more aggressive
pricing policies and make more attractive offers to potential employees,
distributors, resellers or other strategic partners. We expect additional
competition from other established and emerging companies as the market for our
software continues to develop. We may not be able to compete successfully
against current and future competitors.
IF WE FAIL TO MANAGE OUR GROWTH, OUR REVENUES MAY NOT INCREASE. WE MAY INCUR
ADDITIONAL LOSSES.
Our expansion has placed, and will continue to place, significant
strains on our infrastructure, management, internal controls and financial
systems. Our personnel, systems, procedures and controls may be inadequate to
support our future operations. In order to accommodate growth of our business,
we will need to hire, train and retain appropriate personnel to manage our
operations. We will also need to ensure that our financial and management
controls, reporting systems and operating systems keep pace with growth of our
business. We may encounter difficulties in developing and implementing required
new systems. If we are unable to manage our growth effectively and maintain the
quality of our products and services, our business may suffer.
24
IF WE ARE UNABLE TO HIRE AND RETAIN HIGHLY SKILLED PERSONNEL, WE WILL NOT
BE ABLE TO GROW AND TO COMPETE EFFECTIVELY.
Our future success will depend to a significant extent on our ability
to attract and retain senior management, experienced sales and marketing
personnel, software developers, qualified engineers and other highly skilled
personnel. Competition for these highly skilled employees is intense. We may
experience difficulty from time to time in hiring the personnel necessary to
support the growth of our business.
ANY ACQUISITIONS OF TECHNOLOGIES, PRODUCTS OR BUSINESSES THAT WE MAKE MAY
NOT BE SUCCESSFUL, MAY CAUSE US TO INCUR SUBSTANTIAL ADDITIONAL COSTS,
AND MAY REQUIRE US TO INCUR INDEBTEDNESS OR TO ISSUE DEBT OR EQUITY
SECURITIES ON TERMS THAT MAY NOT BE ATTRACTIVE.
As part of our business strategy, we have in the recent past acquired
or invested in technologies, products or businesses that were expected to be
complementary to our business and may be complementary in the future. The
process of integrating any future acquisitions could involve substantial risks
for us, including:
unforeseen operating difficulties and expenditures;
difficulties in assimilation of acquired personnel,
operations, technologies and products;
the need to manage a significantly larger and more
geographically-dispersed business;
amortization of large amounts of goodwill and other intangible
assets;
the diversion of management's attention away from ongoing
development of our business or other business concerns;
the risks of loss of employees of an acquired business,
including employees who may have been instrumental to the
success or growth of that business; and
the use of substantial amounts of our available cash or
financial resources to consummate the acquisition.
We may never achieve the benefits that we expect from the combination
of the Opus360 and Legacy Artemis businesses or that we might anticipate from
any future acquisition. If we make future acquisitions, we may issue shares of
our capital stock that dilute other stockholders, incur debt, assume significant
liabilities or create additional expenses related to amortizing goodwill and
other intangible assets, any of which might reduce our reported earnings and
cause our stock price to decline. Any financing that we might need for future
acquisitions may only be available to us on terms that materially dilute
existing shareholders, restrict our business or impose costs on us that would
reduce our net income or increase our net losses.
INTERNATIONAL ACTIVITIES EXPOSE US TO ADDITIONAL OPERATIONAL CHALLENGES THAT WE
MIGHT NOT OTHERWISE FACE.
In the year ended December 31, 2001, international revenue represented
approximately 60% of total revenue. As we operate internationally, we are
exposed to operational challenges that we would not face if we conducted our
operations only in the United States. These include:
currency exchange rate fluctuations, particularly if we sell
our products in denominations other than U.S. dollars;
longer sales cycles in international markets;
seasonal fluctuations in purchasing patterns in other
countries, particularly declining sales during summer months
in European markets;
tariffs, export controls and other trade barriers;
difficulties in collecting accounts receivable in foreign
countries;
the burdens of complying with a wide variety of foreign laws;
reduced protection for intellectual property rights in some
countries, particularly in Asia; and
25
the need to develop internationalized versions of our products
and marketing and sales materials.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATIONS AND LEGAL
UNCERTAINTIES AFFECTING THE INTERNET, WHICH COULD INCREASE OUR EXPENSES
OR LIMIT THE SCOPE OF OUR OPERATIONS.
Legal uncertainties and new regulations relating to the use of the
Internet could increase our cost of doing business, prevent us from delivering
our products and services over the Internet or slow the growth of our business.
To date, governmental regulations have not materially restricted use of the
Internet in our markets. However, the legal and regulatory environment relating
to the Internet is uncertain and may change. In addition to new laws and
regulations being adopted, existing laws may be applied to the Internet. New and
existing laws may cover issues, which include:
- user privacy;
- civil rights and employment claims;
- consumer protection;
- libel and defamation;
- copyright, trademark and patent infringement;
- pricing controls;
- characteristics and quality of products and services;
- sales and other taxes; and
- other claims based on the nature and content of Internet
materials.
In addition, any imposition of state sales and use taxes imposed on the
products and services sold over the Internet may decrease demand for products
and services that we sell over the Internet. The U.S. Congress has passed
legislation, which limits the ability of states to impose any new taxes on
Internet-based transactions. If Congress does not renew this legislation, any
subsequent imposition of state taxes on Internet-based transactions could limit
the demand for our services or increase our expenses.
DEFECTS IN OUR PRODUCTS COULD RESULT IN LOSS OF OR DELAY IN REVENUE, FAILURE TO
ACHIEVE MARKET ACCEPTANCE AND INCREASED COSTS.
Products as complex as those we offer or are developing frequently
contain undetected defects or errors. Despite internal testing and testing by
our customers or potential customers, defects or errors may occur in our
existing or future products and services. From time to time in the past,
versions of our software that have been delivered to customers have contained
errors. In the future, if we are not able to detect and correct errors prior to
release, we may experience a loss of or delay in revenue, failure to achieve
market acceptance and increased costs to correct errors, any of which could
significantly harm our business.
Defects or errors could also result in tort or warranty claims.
Warranty disclaimers and liability limitation clauses in our customer agreements
may not be enforceable. Furthermore, our errors and omissions insurance may not
adequately cover us for claims. If a court were to refuse to enforce the
liability-limiting provisions of our contracts for any reason, or if liabilities
arose that were not contractually limited or adequately covered by insurance,
our business could be harmed.
WE MAY EXPERIENCE REDUCED REVENUE AND HARM TO OUR REPUTATION IF ANY SYSTEM
FAILURES RESULT IN UNEXPECTED NETWORK INTERRUPTIONS.
Any system failure that we may experience, including network, software
or hardware failures, that causes an interruption in the delivery of our
products and services or a decrease in responsiveness of our services could
result in reduced use of our services and damage to our reputation. Our servers
and software must be able to accommodate a high volume of traffic by
organizations and individual users. There can be no assurance, however, that our
systems will be able to accommodate our growth. We rely on third-party Internet
service providers to provide our clients with access to our Internet-based
services. We have experienced on several occasions service interruptions as a
result of systems
26
failures by these Internet service providers, which have lasted between four to
eight hours. We believe that these interruptions will occur from time to time in
the future. In addition, from time to time the speed of our system has been
reduced as a result of increased traffic through our Internet service provider.
We may not be able to expand and adapt our network infrastructure at a pace that
will be commensurate with the additional traffic increases that we anticipate
will occur.
IF WE FAIL TO PROTECT OUR PATENTS, COPYRIGHTS OR OTHER INTELLECTUAL
PROPERTY RIGHTS, OTHER PARTIES COULD APPROPRIATE OUR PROPRIETARY
PROPERTIES, INCLUDING OUR TECHNOLOGY.
The technology and software we have developed which underlies our
products and services is important to us. We do not have any patents relating to
our technology and software and patents we apply for in the future may be
successfully challenged. In general, to protect our proprietary technology and
software, we rely on a combination of contractual provisions, confidentiality
procedures and trade secrets. The unauthorized reproduction or other
misappropriation of our intellectual property, including the technology on which
our products and services are based, could enable third parties to benefit from
our intellectual property without paying us. If this were to occur, our revenues
would be reduced, and our competitors may be able to compete with us more
effectively. The steps we have taken to protect our proprietary rights in our
intellectual property may not be adequate to deter misappropriation of their
use. We may not be able to detect unauthorized use of our intellectual property
or take appropriate steps to enforce our intellectual property rights. In
addition, the validity, enforceability and scope of protection of intellectual
property in Internet-related industries, is uncertain and still evolving. If we
resort to legal proceedings to enforce our intellectual property rights, the
proceedings could be burdensome and expensive.
THIRD PARTIES MIGHT BRING INFRINGEMENT CLAIMS AGAINST US OR OUR CUSTOMERS THAT
COULD HARM OUR BUSINESS.
In recent years, there has been significant litigation in the United
States involving patents and other intellectual property rights, particularly in
the software industry. We could become subject to intellectual property
infringement claims as the number of our competitors grows and our products and
services increasingly overlap with competitive offerings. In addition, as part
of our product licenses, we agree to indemnify our customers against claims that
our products infringe upon the intellectual property rights of others. These
claims, even if not meritorious, could be expensive and divert management's
attention from operating our business. We could incur substantial costs in
defending ourselves and our customers against infringement claims. If we become
liable to third parties for infringement of their intellectual property rights,
we could be required to pay a substantial damage award and to develop
non-infringing technology, obtain one or more licenses for us and our customers
from third parties or cease selling the products that contain the infringing
intellectual property. We may be unable to develop non-infringing technology or
obtain a license at a reasonable cost, or at all.
WE MAY NOT BE ABLE TO ACCESS THIRD PARTY TECHNOLOGY, WHICH WE DEPEND UPON
TO CONDUCT OUR BUSINESS AND AS A RESULT WE COULD EXPERIENCE DELAYS IN
THE DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS AND SERVICES OR
ENHANCEMENTS OF EXISTING PRODUCTS AND SERVICES.
If we lose the ability to access third party technology which we use,
are unable to gain access to additional products or are unable to integrate new
technology with our existing systems, we could experience delays in our
development and introduction of new products and services and related
improvements or enhancements until equivalent or replacement technology can be
accessed, if available, or developed internally, if feasible. If we experience
these delays, our revenues could be substantially reduced. We license technology
that is incorporated into our products and services from third parties. In light
of the rapidly evolving nature of technology, we may increasingly need to rely
on technology licensed to us by other vendors, including providers of
development tools that will enable us to quickly adapt our technology to new
products and services. Technology from our current or other vendors may not
continue to be available to us on commercially reasonable terms, or at all.
DUE TO THE LOW TRADING PRICE OF OUR COMMON STOCK OVER RECENT PERIODS, OUR
COMMON STOCK TRADES ON THE OVER-THE-COUNTER BULLETIN BOARD.
Effective June 29, 2001, our Common Stock was delisted from the NASDAQ
National Market and now trades on the Over-the-Counter Bulletin Board (Symbol
AISC.OB). The Over-the-Counter Bulletin Board is generally considered to be a
less efficient market than the established exchanges or the NASDAQ markets.
While we anticipate seeking to be relisted on the NASDAQ National Market at some
time in the future, it is impossible at this time to predict when, if ever such
application will be made or whether such application will be successful.
27
AS A RESULT OF THE SHARE EXCHANGE AGREEMENT, PROHA EFFECTIVELY CONTROLS ARTEMIS
INTERNATIONAL. THIS WILL LIMIT YOUR ABILITY TO INFLUENCE
CORPORATE MATTERS.
As of November 20, 2001 Proha beneficially owns approximately 80% of
our Common Stock. As a result, Proha controls the outcome of any corporate
transaction or other matter submitted to Artemis International stockholders for
approval, including share exchanges, consolidations and the sale of all or
substantially all of Artemis International's assets, and also could prevent or
cause a change in control. The interests of Proha may differ from the interests
of Artemis International's other stockholders. In addition, third parties may be
discouraged from making a tender offer or bid to acquire Artemis International
because of this concentration of ownership.
THE MARKET PRICE FOR OUR COMMON STOCK IS VOLATILE AND COULD RESULT IN A DECLINE
IN THE VALUE OF YOUR INVESTMENT.
The market price of our common stock, like that of many other
technology companies, is extremely volatile. The value of your investment in our
common stock could decline due to the impact of any of the following factors
upon the market price of our common stock:
variation in our quarterly operating results, including our
inability to increase revenues;
announcements of new product or service offerings by us or our
competitors;
announcement of new customer relationships by us or our
competitors;
changes in market valuations of comparable companies;
additions to, or departures of, our executive officers; and
conditions and trends in the Internet and electronic commerce
industries.
Further, the stock exchanges and markets have experienced substantial
price and volume fluctuations. These fluctuations have particularly affected the
market prices of equity securities of many technology companies and have often
been unrelated or disproportionate to the operating performance of these
companies.
WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE
CAPITAL NEEDS.
We believe that cash from operations and existing cash will be
sufficient to meet our working capital and expense requirements for at least the
next twelve months. However, we may need to raise additional funds in order to
fund our business, expand our sales activities, develop new or enhance existing
products and respond to competitive pressures. As of December 31, 2001, we had
cash and cash equivalents of $5.1 million. As of that date, we had certain
letters of credit secured by various assets of the Company. Additional financing
may not be available on terms favorable to us, or at all. If we issue additional
equity securities, stockholders may experience additional dilution or the new
equity securities may have rights, preferences or privileges senior to those of
the then existing holders of our common stock.
YOU WILL EXPERIENCE DILUTION IF WE RAISE ADDITIONAL FUNDS THROUGH THE
ISSUANCE OF ADDITIONAL EQUITY OR CONVERTIBLE DEBT SECURITIES.
If we raise additional funds through the issuance of equity securities
or convertible debt securities, you will experience dilution of your percentage
ownership of our company. This dilution may be substantial. In addition, these
securities may have powers, preferences and rights that are preferential to the
holders of our common stock and may limit our ability to pay dividends on our
common stock.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements, and the related notes
thereto, of Artemis International Solutions and the Report of Independent
Auditors are filed as a part of this Form 10-K.
PAGE
NUMBER
Independent Auditors' Reports and Reports of Independent Auditors 32
Combined and Consolidated Balance Sheets as of December 31, 2001 and 2000 37
Combined and Consolidated Statements of Operations for years ended December 31,
2001 and March 31, 2000 and the nine months ended
December 31, 2000 and 1999 (unaudited) 38
Combined and Consolidated Statements of Stockholders' Equity for years ended
December 31, 2001 and March 31, 2000 and the nine months ended
December 31, 2000 and 1999 (unaudited) 39
Combined and Consolidated Statements of Cash Flows for years ended December 31,
2001 and March 31, 2000 and the nine months ended
December 31, 2000 and 1999 (unaudited) 40
Notes to Combined and Consolidated Financial Statements 41-63
29
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
of Artemis International Solutions Corporation:
We have audited the accompanying consolidated balance sheet of Artemis
International Solutions Corporation and subsidiaries (the Company) as of
December 31, 2001 and the related consolidated statements of operations,
stockholders' equity (deficit) and comprehensive income (loss), and cash flows
for the year then ended. The consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Artemis
International Solutions and subsidiaries as of December 31, 2001, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As disclosed in Note
1 to the financial statements, the Company has incurred substantial recurring
losses from operations and at December 31, 2001 the Company's current
liabilities exceeded current assets by $5.8 million. These factors as described
in Note 1 raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regards to these matters are also described
in Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
As discussed in Note 1 to the consolidated financial statements, in
2001 the Company changed its method of accounting for business combinations.
/s/ KPMG LLP
New York, New York
April 10, 2002
30
Report of Independent Auditors
Board of Directors
Artemis International Solutions Corporation:
We have audited the accompanying consolidated balance sheet of Artemis
International Solutions Corporation (formerly Artemis International Corporation)
as of December 31, 2000 and the related consolidated statements of operations,
stockholders' equity (deficit), and comprehensive income (loss) and cash flows
for the year ended March 31, 2000 and the nine months ended December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the financial statements of
Projektihallinto Proha Oy, a combined entity under common control, whose
statements reflect total assets of $8,947,000 as of December 31, 2000 and total
revenues of $1,928,000 for the period from August 24, 2000 (date of affiliation
with the combined companies) through December 31, 2000. We did not audit the
financial statements of Artemis International S.p.A., a combined entity under
common control, which statements reflect total assets of $3,602,000 as of
December 31, 2000 and total revenues of $495,000 for the period from December 1,
2000 (date of affiliation with combined companies) through December 31, 2000. We
did not audit the financial statements of Intellisoft Oy and Accountor Oy, two
separately held equity investments of the Company, for which the investments are
recorded at $109,000 as of December 31, 2000 and equity in earnings of
affiliates were $137,000 for the period from August 24, 2000 (date of
affiliation with combined companies) through December 31, 2000. Those statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to data included for these entities, is based
solely on the reports of the other auditors.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors,
the combined and consolidated financial statements referred to above present
fairly, in all material respects, the combined and consolidated financial
position of Artemis International Solutions Corporation at December 31, 2000,
and the combined and consolidated results of its operations and its cash flows
for the year ended March 31, 2000 and the nine months ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Denver, Colorado
June 29, 2001
31
INDEPENDENT AUDITORS REPORT
To the Board of Directors of Proha Oyj
We have audited the accompanying combined profit and loss accounts for the
period of August 24, 2000 to December 31, 2000 as well as the combined cash
flows and the combined balance sheets as of December 31, 2000 representing an
aggregation of financial information from the individual companies and
operations of the Finnish Project Management business ("the PPOY Businesses") as
defined in note 2 to the financial statements. These combined financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Finland and in the United States. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the PPOY Businesses as
of December 31, 2000, and the results of their combined operations during the
period of August 24, 2000 to December 31, 2000 on the basis described in note 2,
in conformity with generally accepted accounting principles in Finland.
Generally accepted accounting principles in Finland vary in certain significant
respects from generally accepted accounting principles in the United States.
Application of generally accepted accounting principles in the United States
would have affected results of operations for the period of August 24, 2000, to
December 31, 2000 and capital and reserves as of December 31, 2000, to the
extent summarized in note 22 to the combined financial statements.
Helsinki, July 2, 2001
KPMG WIDERTOY AB
Reino Tikkanen
Authorized Public Account
32
INDEPENDENT AUDITORS REPORT
To the Board of Directors of Proha Oyj
We have audited the accompanying combined profit and loss accounts for
the period of August 24, 2000 to December 31, 2000 as well as the combined cash
flows and the combined balance sheets as of December 31, 2000 representing an
aggregation of financial information from the individual companies and
operations of the Financial Management ("the FM Businesses") as defined in note
2 to the financial statements. These combined financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Finland and in the United States. These standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined financial position of the FM
Businesses as of December 31, 2000, and the results of their combined operations
during the period of August 24, 2000 to December 31, 2000 on the basis described
in note 2, in conformity with generally accepted accounting principles in
Finland.
Generally accepted accounting principles in Finland vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations for the period of August 24,
2000, to December 31, 2000 and capital and reserves as of December 31, 2000, to
the extent summarized in note 21 to the combined financial statements.
Helsinki, July 2, 2001
KPMG WIDERI OY AB
Reino Tikkanen
Authorized Public Account
33
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
of Artemis International S.p.A.
1. We have audited the accompanying reporting package of Artemis
International S.p.A. as of and for the one month period ended 31
December 2000. This reporting package is the responsibility of the
Company's management. Our responsibility is to express an opinion on
this reporting package based on our audit.
2. We conducted our audit in accordance with auditing standards generally
accepted in the United States. These standards require that we plan and
perform the audit to obtain reasonable assessment about whether the
financial statements are free of material misstatement. An audit
includes examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides reasonable basis for
our opinion.
3. The accompanying reporting package has been prepared in conformity with
the accounting instructions of Artemis International Corporation, the
Company's parent, for use in preparing its consolidated financial
statements. These instructions required to prepare the reporting
package adopting accounting policies generally accepted in the United
States. These instructions, which do not require presentation of
footnote disclosure and a statement of cash flows, differ however from
accounting principles generally accepted in the Unites States.
Accordingly, the accompanying reporting package is not intended to
present the Artemis International S.p.A.'s financial position, results
of operations, and cash flows in accordance with accounting principles
generally accepted in the United States.
4. The Company, in accordance with the Italian accounting practices,
accounts for financial leases booking in the profit and loss as lease
fees, the lease installments paid in the period without recording into
the fixed assets the cost of the lease goods and without recording
within liabilities the financial obligation toward the lease company.
Had the Company accounted financial leases in accordance with Fas 13,
fixed assets net of accumulated depreciation would have been euros 175
thousand higher, prepaid expenses euros 18 thousand lower, debts for
financial leases euros 111 thousand higher, net equity at 31 December
2000 euros 46 thousand higher and no effect on the profit and loss.
5. In our opinion, the reporting package referred to above except for
matter described in paragraph four, has been prepared for the purpose
described in paragraph three, in all material respects, in conformity
with the accounting instructions of Artemis International Corporation.
31 May 2001 K.P.M.G. S.p.A.
Orazio Vagnessi
Director of Audits
34
Artemis International Solutions Corporation
Item 1. Financial Statements
Artemis International Solutions Corporation
Combined and Consolidated Balance Sheets
(Consolidated) (Combined and Consolidated)
December 31, 2001 December 31, 2000
(In thousands, except share amounts)
Assets
Current assets:
Cash $ 5,081 $ 3,200
Trade accounts receivable, less allowance for doubtful
accounts of $223 at December 31, 2001 and $138 at
December 31, 2000 13,088 17,369
Other accounts receivable 952 1,235
Short-term investments - 250
Prepaid expenses 2,528 1,864
Other current assets 268 155
--------- ---------
Total current assets 21,917 24,073
Property and equipment, net of accumulated depreciation of $5,194
at December 31, 2001 and $4,254 at December 31, 2000 2,725 1,825
Goodwill, net of accumulated amortization of $12,464 at
December 31, 2000 - 38,746
Other intangible assets, net of amortization and writeoffs
of $25,286 at December 31, 2001 and $2,284 at December 31, 2000 14,755 37,742
Investment in affiliates and other assets 796 1,102
--------- ---------
Total assets $ 40,193 $ 103,488
========= =========
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 5,262 $ 5,088
Accounts payable - parent company 30 2,050
Short-term line of credit 1,062 880
Current portion of long-term debt 1,245 1,770
Deferred revenue 7,471 8,228
Accrued liabilities 5,954 4,035
Accrued taxes 6,059 3,543
Other accrued liabilities and reserves 619 1,302
--------- ---------
Total current liabilities 27,702 26,896
Deferred taxes 547 10,918
Long-term debt, less current portion 1,421 3,776
Accrued pension and other liabilities 941 898
--------- ---------
Total liabilities 30,611 42,488
--------- ---------
Minority interest - 95
Stockholders' equity:
Preferred shares, $0.001 par value, 25,000,000 shares authorized - -
Common stock, $0.001 par value, 500,000,000 shares authorized,
249,124,566 and 199,423,560 issued and outstanding, respectively 249 199
Investment in stock of parent company - (2,783)
Additional paid-in capital 79,948 74,379
Accumulated deficit (71,152) (11,388)
Accumulated other comprehensive income 537 498
--------- ---------
Total stockholders' equity 9,582 60,905
--------- ---------
Total liabilities and stockholders' equity $ 40,193 $ 103,488
========= =========
See accompanying notes to combined and consolidated financial statements
35
Artemis International Solutions Corporation
Combined and Consolidated Statements of Operations
(in thousands except, per share amounts)
For The Years Ended For the Nine Months Ended
------------------------------------ -------------------------------------
December 31,
December 31, 1999
December 31, 2001 March 31, 2000 2000 (unaudited)
-------------------- -------------- ------------------ ----------------
Revenue:
Software $ 15,105 $ 18,297 $ 12,134 $ 13,149
Support 15,512 11,557 9,121 8,657
Services 37,029 19,449 13,567 14,729
------------------ -------------- ------------------ -----------------
Total Revenue 67,646 49,303 34,822 36,535
Cost of revenue:
Software 2,522 1,497 1,157 1,112
Support 6,705 5,249 4,212 3,906
Services 23,870 13,565 10,170 10,190
------------------ -------------- ------------------ -----------------
33,097 20,311 15,539 15,208
------------------ -------------- ------------------ -----------------
Gross margin 34,549 28,992 19,283 21,327
Operating expenses
Selling and marketing 16,782 11,356 8,520 8,159
Research and development 9,894 7,894 8,271 5,835
General and administrative 10,879 4,774 4,039 3,804
Amortization expense 18,832 2,876 6,932 1,870
Impairment charge 43,430 - - -
Management fees 806 2,050 976 1,553
Acquisition costs 409 - 1,943 -
------------------ -------------- ------------------ -----------------
101,032 28,950 30,681 21,221
------------------ -------------- ------------------ -----------------
Operating (loss) income (66,483) 42 (11,398) 106
Interest expense, net 826 1,151 801 498
Equity in loss of unconsolidated
affiliates 866 (165) (30) (135)
Other expense 1,176 562 252 311
Foreign exchange loss 178 - - -
------------------ -------------- ------------------ -----------------
3,046 1,548 1,023 674
------------------ -------------- ------------------ -----------------
Loss before income taxes (69,529) (1,506) (12,421) (568)
Income tax expense (benefit) (9,670) (2,566) (1,691) (58)
------------------ -------------- ------------------ -----------------
Income (loss) before minority interest (59,859) 1,060 (10,730) (510)
Minority interest in (earnings) losses
of unconsolidated subsidiary 95 - (67) -
------------------ -------------- ------------------ -----------------
Net income (loss) $ (59,764) $ 1,060 $ (10,797) $ (510)
================== ============== ================== =================
Net income (loss) per share:
Basic $ (0.27) $ 0.01 $ (0.06) $ (0.00)
Diluted $ (0.27) $ 0.01 $ (0.06) $ (0.00)
Weighted average common shares used in
computing net income (loss) per share:
Basic 220,394 185,638 192,221 185,283
Diluted 220,394 188,129 192,221 185,283
See accompanying notes to combined and consolidated financial statements
36
Artemis International Solutions Corporation
Combined and Consolidated Statements of Stockholders' Equity (Deficit) and
Comprehensive Income (Loss)
December 31, 2001
(in thousands)
Investment Accumulated
in Stock of Additional Other
Series A Common Stock Parent Paid-in Accumulated Comprehensive
Shares Amount Company Capital Deficit Income (Loss) Total
--------------- -------- ----------- ---------- ------------ -------------- --------------
BALANCE MARCH 31, 1999 185,312 185 - (85) (1,511) (166) (1,577)
Exercise of stock options 326 - - 4 - - 4
Net income - - - - 1,060 - 1,060
Foreign currency translation adjustment - - - - - (483) (483)
---------------
Comprehensive income - - - - - - 577
--------------- -------- ----------- ---------- ------------ -------------- --------------
BALANCE MARCH 31, 2000 185,639 185 - (81) (451) (649) (996)
Contribution of Proha shares - - (3,787) 3,787 - - -
Sale of Proha shares - - 1,004 518 - - 1,522
Exercise of stock options/warrants 9,784 10 - 309 - - 319
Stock bonuses 4,002 4 - 597 - - 601
Capital contribution-expenses paid by
shareholder - - - 329 - - 329
Capital contribution-push-down purchase
accounting - - - 68,920 - - 68,920
Cash dividends - - - - (140) - (140)
Net loss - - - (10,797) - (10,797)
Foreign currency translation adjustment - - - - 1,147 1,147
---------------
Comprehensive loss - - - - - (9,650)
--------------- -------- ----------- ---------- ------------ -------------- --------------
BALANCE DECEMBER 31, 2000 199,424 199 (2,783) 74,379 (11,388) 498 60,905
Cancellation of stock in Proha - - 2,783 (2,783) - - -
Capital contributions-Proha - - - 425 - - 425
Shares of Opus360 outstanding prior to
reverse acquisition deemed acquired 49,701 50 - 7,927 - - 7,977
Net Loss - - - - (59,764) - (59,764)
Foreign currency translation adjustment - - - - - 39 39
---------------
Comprehensive loss (59,725)
--------------- -------- ----------- ---------- ------------ -------------- --------------
BALANCE DECEMBER 31, 2001 249,125 249 - 79,948 (71,152) 537 9,582
=============== ======== =========== ========== ============ ============== ===============
See accompanying notes to combined and consolidated financial statements
37
Artemis International Solutions Corporation
Combined and Consolidated Statements of Cash Flows
For The Years Ended For the Nine Months Ended
----------------------------------------------------------------------------
December 31,
December 31, 2001 March 31, 2000 December 31, 2000 1999 (unaudited)
--------------------- ----------------- ------------------- ----------------
Cash flow from operating activities:
Net loss $ (59,764) $ 1,060 $ (10,797) $ (510)
Adjustments to reconcile net income (loss) to
net cash provided provided by operating
activities:
Depreciation and amortization 22,380 3,444 7,613 3,756
Minority interest (95) - 67 -
Capital contribution-expenses paid by
shareholder - - 329 -
Issuance of stock bonuses to officer and
other employees - - 601 -
Equity in loss of unconsolidated affiliates (866) - - -
Deferred income taxes and other (10,371) (2,607) (1,057) (333)
Loss on impaired assets 43,430 - - -
Push-down of in-process research and
development - - 2,326 -
Changes in operating assets and liabilities - -
(Increase) decrease in accounts
receivable 5,472 (372) 627 (208)
(Increase) decrease in prepaid expenses
and other assets (527) 46 (29) (568)
Increase (decrease) in accounts payable
and other liabilities (5,450) (155) 2,452 49
Increase (decrease) in deferred revenues (2,779) (276) 1,145 (961)
--------------------- ----------------- ------------------- ----------------
Net cash provided by (used in) operating activities (8,570) 1,140 3,277 1,225
--------------------- ----------------- ------------------- ----------------
Cash flow from investing activities:
Capital expenditures, net (841) (588) (627) (533)
Increase in short-term investments - - (24) -
Cash provided by former parent contribution of
subsidiaries 1,048 - 1,477 -
Cash provided from acquisitions 14,535 - - -
Investment in affiliates - (114) 146 138
--------------------- ----------------- ------------------- ----------------
Net cash provided by (used in) investing activities 14,742 (702) 972 (395)
--------------------- ----------------- ------------------- ----------------
Cash flow from financing activities:
Proceeds from sale of parent company stock, net
of tax - - 1,522 -
Proceeds from exercise of stock options and
warrants - - 319 3
Funding from debt and lines of credit 2,747 4,623 411 32
Parent company dividends - - (140) -
Payments of debt and capital leases (6,496) (4,897) (4,104) (200)
Capital Contributions - 4 - -
--------------------- ----------------- ------------------- ----------------
Net cash used in (provided by) financing activities (3,749) (270) (1,992) (165)
--------------------- ----------------- ------------------- ----------------
Effect of exchange rate changes on cash (542) (483) (256) (554)
--------------------- ----------------- ------------------- ----------------
Net increase (decrease) in cash 1,881 (315) 2,001 111
Cash at the beginning of the period 3,200 1,514 1,199 1,514
--------------------- ----------------- ------------------- ----------------
Cash at the end of the period $ 5,081 $ 1,199 $ 3,200 $ 1,625
===================== ================= =================== ================
See accompanying notes to combined and consolidated financial statements
38
Artemis International Solutions Corporation
Notes to the Combined and Consolidated Financial Statements
(all tabular amounts in thousands except per share amounts)
NOTE 1. ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
(a) Organization and Description of Business
Opus360 Corporation was incorporated on August 17, 1998, under the laws
of the State of Delaware and on November 20, 2001 changed its name to "Artemis
International Solutions Corporation". In April 2001, Opus360 Corporation and
Proha Plc ("Proha"), a Finnish corporation, entered into a Share Exchange
Agreement (the "Share Exchange Agreement") pursuant to which, upon completion of
the transactions contemplated under such agreement (the "Share Exchange
Transactions"), Opus360 Corporation would exchange 80% of its post-transaction
outstanding Common Stock for all of the capital stock of Artemis Acquisition
Corporation ("Legacy Artemis"), a Delaware corporation and 19.9% of two Finnish
subsidiaries of Proha, Intellisoft OY and Accountor OY.
As used herein, "Opus360" refers to Opus360 Corporation prior to the
closing of the Share Exchange Transactions, "Artemis International" or the
"Company" refers to Opus360 Corporation after the closing of the Share Exchange
Transactions and Legacy Artemis refers to Artemis Acquisition Corporation, the
parent corporation of the Artemis business organization and the entity treated
as the accounting aquiror in the Share Exchange Transactions as more fully
described below.
Legacy Artemis is a developer and supplier of comprehensive, project
and resource collaboration application software products and consulting
services, with operations in 27 countries.
On July 27, 1998, Legacy Artemis acquired 100% of the outstanding stock
of Software Productivity Research, Inc. ("SPR") for cash of $3,500,000 and a
note to SPR stockholders in the amount of $3,000,000. The note accrued interest
at the rate of 8.5% annually and was payable in four equal annual installments
with a final maturity date of July 27, 2002. This note was paid in full on
August 24, 2000.
On August 24, 2000, Legacy Artemis was acquired by Proha PLC ("Proha"),
a Finnish corporation.
Subsequent to December 31, 2000, Proha entered into one or more
agreements to contribute its interests in the following entities to Legacy
Artemis (the "Contributed Businesses"):
- Projektihallinto Proha Oy (now known as Artemis Finland Oy)
("Artemis Finland"), a wholly owned Finnish subsidiary of
Proha. This interest was held by Proha on the date (August 24,
2000) that Legacy Artemis was acquired by Proha and accounted
for under the purchase method of accounting.
- Minority interests of 19.9% in each of Accountor Oy and
Intellisoft Oy, two other wholly owned Finnish subsidiaries of
Proha. Proha held these interests on the date (August 24,
2000) that Legacy Artemis was acquired by Proha. These
companies are included in the financial results of the Company
under the equity method of accounting.
- Majority interests in Enterprise Management Systems Srl,
Artemis International S.p.A., Solutions International SA,
Artemis International GMBH and Artemis International Sarl.
These majority interests were acquired by Proha as of December
1, 2000. Prior to December 1, 2000, Legacy Artemis held
minority interests in each of these entities, and they were
accounted for under the equity method. After the purchase of
the majority interests on December 1, 2000, each of these
entities was wholly owned through the combined ownership
interest of Proha and Legacy Artemis, except for Artemis
International GMBH, which continued to be owned 43.2% by
entities outside of the parent company controlled group.
- Each of the Contributed Businesses is reflected as having been
contributed by Proha as of the later of the date Legacy
Artemis was acquired by Proha or the date these interests were
under the control of Proha, Legacy Artemis' parent.
Accordingly, results of Artemis Finland and the 19.9%
39
minority interests in Accountor Oy and Intellisoft Oy have
been included in the accompanying financial statements since
August 24, 2000. The results of the majority interests in
Enterprise Management Systems Srl, Artemis International
S.p.A., Solutions International SA, Artemis International GMBH
and Artemis International Sarl have been included in the
accompanying financial statements as of December 1, 2000.
- The financial statements as of and for the year ended December
31, 2001 are presented on a consolidated basis and on a
combined and consolidated basis for the nine months ended
December 31, 2000 and 1999 and the twelve months ended March
31, 2000.
(b) Basis of Presentation
Accounting principles generally accepted in the United States require
in certain circumstances that a company whose shareholders retain the majority
voting interest, governing body and senior management in the combined business
to be treated as the acquiror for financial reporting purposes. As a result of
the Share Exchange Transactions, Proha, the former shareholder of Legacy
Artemis, will hold a majority interest in the Company, governing body and senior
management in the combined company. Accordingly, for accounting purposes the
transaction has been treated as a reverse acquisition in which Legacy Artemis is
deemed to have purchased Opus360, although Opus360 (which changed its name to
Artemis International Solutions Corporation on November 20, 2001) remains the
legal parent entity and the registrant for Securities and Exchange Commission
("SEC") reporting purposes.
The consolidated financial statements included herein represent the
historical financial statements of Legacy Artemis, as the accounting acquiror,
and the acquisition of Opus360 has been accounted for under the purchase method
of accounting. The assets acquired and liabilities assumed of Opus360, as the
acquired entity, are recorded at their fair values at July 31, 2001. The excess
of the fair values of the identifiable net assets over the purchase price is
treated as negative goodwill. Negative goodwill is first applied to reduce the
assigned value of identifiable non-current assets other than long-term
investments in marketable securities and deferred tax assets, until those assets
are reduced to zero. The accounts of Legacy Artemis include its wholly owned
subsidiaries: Artemis Acquisition Corporation, Artemis Holdings, Inc., Artemis
International Corporation, Software Productivity Research, Inc., and Artemis
International Corporation Systems Limited for all periods presented.
The Company's continued existence is dependent upon several factors
including the Company's ability to sell and successfully implement its software
solutions. The Company has experienced net losses in both the year ended
December 31, 2001 and the nine months ended December 31, 2000. At December 31,
2001, the Company has an accumulated deficit of $71.2 million and its current
liabilities exceeded current assets by $5.8 million. The Company may not be able
to achieve the level of sales or contain its costs sufficiently to generate
sufficient cash flow to fund its operations. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
Under the terms of a $1.8 million note payable, the Company is
committed to make equal monthly principal reduction payments up to and until
August 2003. Cash requirements through the end of fiscal year 2002 are primarily
to fund operations at approximately the same levels as fiscal year 2001. In the
future, the Company may need to raise additional funds through public or private
financings, or other arrangements to fund our operations or potential
acquisitions, if any. The Company currently has no plans to affect any other
offerings. The Company cannot be assured that any financings or other
arrangements will be available in amounts or on terms acceptable to the Company
or at all and any new financings or other arrangements could place operating or
other restrictions on the Company. The Company's inability to raise capital when
needed could seriously harm the growth of the business and results of
operations.
The Company's near and long-term operating strategies focus on
promoting its new and existing software and services to increase its revenue and
cash flow while better positioning the Company to compete under current market
conditions. The Company has also tasked its operating units to achieve a five
percent year over year reduction in operating expenses. In addition, in the
fourth quarter of fiscal year 2001, the Company took a number of actions to
reduce on-going costs, including deferring development, marketing and sales
support for its Workforce Procurement and Workforce Management product lines.
Additionally, all operations were tasked to achieve a five percent
year-over-year reduction in operating expenses. Worldwide staffing levels were
reduced approximately 7 percent in support of this effort. At December 31, 2001,
the Company had unused credit lines of up to $2.7 subject to maintaining certain
receivables' aging and levels. At December 31, 2001, the Company's capacity
based on these measures was approximately $1.8 million. Management feels that
they have sufficient flexibility in fixed, semi-
40
fixed and variable costs to fund its operations for the foreseeable future with
the aforementioned sources of funds to continue as a going concern.
The Company's consolidated financial statements has been prepared
assuming that the Company will continue as a going concern based upon
management's plans discussed above. Accordingly, the consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
All material intercompany transactions and balances have been
eliminated in consolidation.
The statement of operations for the nine months ended December 31, 1999
presented in the consolidated financial statements are unaudited, are presented
for comparative purposes and have been prepared by the Company in accordance
with accounting principles generally accepted in the United States. They reflect
all normal and recurring adjustments that, in the opinion of management, are
necessary for a fair presentation of the periods presented.
(c) Reclassifications and restatements
Certain prior period information has been reclassified to conform to
the current period presentation.
The financial statements of Legacy Artemis as of and for the nine
months ended December 31, 2000 have been adjusted to give effect to the deferred
tax liability resulting from the recording of non-deductible identifiable
intangible assets related to the acquisition of Legacy Artemis by Proha on
August 24, 2000 and the contribution of businesses to Legacy Artemis on December
1, 2000. This adjustment, which was not previously reflected in the financial
statements of Legacy Artemis as of and for the nine months ended December 31,
2000, resulted in an increase in net goodwill and deferred tax liabilities as of
December 31, 2000 of $13.7 million. The amortization of this additional goodwill
resulted in an increase in amortization expense which was offset by an increase
in the deferred income tax benefit of $1.1 million related to the reduction in
the deferred tax liabilities as a result of the amortization of the identifiable
intangible assets for the nine months ended December 31, 2000. The adjustment
had no effect on stockholders' equity, working capital, net loss or basic and
diluted net loss per share for the nine months ended December 31, 2000.
Stockholders' equity and earnings per share amounts of Legacy Artemis
have been retroactively restated to reflect the shares issued by Opus360 in
connection with the Share Exchange Agreement for all periods presented. (See
Note 13)
(d) Principles of Consolidation
The financial statements include the accounts of Artemis International
Solutions Corporation and its subsidiaries. Intercompany transactions and
balances have been eliminated. Equity investments in which Artemis owns at least
20% of the voting securities, or exercises significant influence over, either
individually or in concert with its parent, Proha, are accounted for using the
equity method. Investments in which the Company owns less than 20% and is not
able to exercise significant influence over the investee, are accounted for
under the cost method of accounting.
(e) Use of Estimates
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions regarding revenue recognition and the recoverability
of goodwill and intangible assets that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
(f) Revenue Recognition
The Company has adopted Statement of Position, or SOP, 97-2, Software
Revenue Recognition, which supersedes SOP 91-1, Software Revenue Recognition, as
well as SOP, 98-9, Modification of SOP 97-2, Software Revenue Recognition, with
Respect to Certain Transactions, which amends SOP 97-2 and supercedes SOP 98-4.
SOP 97-2, as amended, generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair market values of each of the elements. The fair value of an
element must be based on vendor-specific objective evidence ("VSOE") of fair
value. Software license revenue allocated to a software product generally is
recognized upon delivery of the product or deferred and recognized in
41
future periods to the extent that an arrangement includes one or more elements
that are to be delivered at a future date and for which VSOE has not been
established. Services revenue is recognized as the service is performed assuming
that sufficient evidence exist to determine the fair value of the services.
Maintenance and support revenue is recognized ratably over the maintenance term.
If evidence of fair value does not exist for all elements of a license agreement
and future maintenance and support or Postcontract Customer Support ("PCS") is
the only undelivered element, then all revenue for the license arrangement is
recognized ratably over the term of the agreement as license revenue. If
evidence of fair value of all undelivered elements exists but evidence does not
exist for one or more delivered elements, then revenue is recognized using the
residual method. Under the residual method, the fair value of the undelivered
elements is deferred and the remaining portion of the arrangement fee is
recognized as revenue.
(g) Cost of Revenues
Cost of software revenue reflects primarily the manufacture expense and
royalties to third party developers which are recognized generally upon delivery
of the product or future periods to the extent that an arrangement includes one
or more elements that are to be delivered at a future date and for which VSOE
has not been established.
Cost of support includes salaries paid to employees who provide first
and second level support to clients and consultants which are recognized as the
service are performed.
The costs incurred for implementation, customer support and training of
the Company's clients using internal or external resources are recorded as cost
of services revenue which are recognized as the services are performed.
(h) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the lesser of the
estimated useful lives of the related assets, generally ranging from three to
five years, or the shorter lease term if applicable. Gains and losses on
disposals are included in income at amounts equal to the difference between the
net book value of the disposed assets and the proceeds received upon disposal.
Expenditures for replacements and leasehold improvements are capitalized, while
expenditures for maintenance and repairs are charged against earnings as
incurred.
(i) Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price paid over the fair
value of tangible and identifiable intangible net assets acquired in business
combinations. Identifiable intangible assets primarily include intellectual
property, trademarks, and core technology. In addition, goodwill of $30.7
million resulting from the acquisition of the Legacy Artemis by Proha on August
24, 2000 has been pushed down to the financial statements of Legacy Artemis,
with an offsetting increase in additional paid-in capital. Identifiable
intangible assets of $32.3 million resulting from the acquisition of the Company
by Proha on August 24, 2000 has also been pushed down to Legacy Artemis, with an
offsetting increase in additional paid-in capital. In addition, $2.3 million of
the purchase price consisted of in-process research and development existing at
August 24, 2000 that has been pushed down to Legacy Artemis' financial
statements, and has been reflected in research and development expenses in the
accompanying statement of operations for the nine months ended December 31,
2000. Goodwill and intangible assets of $10.2 million and $7.7 million,
respectively, were recorded during the nine months ended December 31, 2000 as a
result of the contribution by Proha to the Company of Proha's interests in
Projektihallinto Proha Oy, Enterprise Management Systems Srl, Artemis
International S.p.A., Solutions International SA, Artemis International GMBH and
Artemis International Sarl.
The value of the purchased in-process research and development was
determined by estimating the projected net cash flows related to in-process
research and development projects, excluding costs to complete the development
of the technology. These cash flows were discounted back to their net present
value. The discount rate was estimated based on the implied rate of the
transaction, the weighted average cost of capital and the percentage of
completion at the acquisition date. The projected net cash flows from such
projects were based on management's estimates of revenues and operating profits
related to such projects.
At the date the Company was acquired by Proha, the Company had two
projects in development: Release 5 of the Company's Views product line and
Portfolio Director. Neither of these projects was considered to have reached
42
technological feasibility at the acquisition date. A $2.3 million charge for
in-process research and development was included in Research and Development
expense for the period ending December 31, 2000.
Total identifiable intangible assets, net of accumulated amortization
at December 31, 2001 and 2000 were as follows:
December 31, December 31,
2001 2000
------- -------
Customer base $9,163 $25,662
Current technologies 5,592 7,116
In-place work force - 4,964
------- -------
$14,755 $37,742
======= =======
Goodwill and other intangible assets are stated net of accumulated amortization
and are amortized on a straight-line basis over their expected useful lives of
five years. During the years ended December 31, 2001 and March 31, 2000 and the
nine months ended December 31, 2000 and December 31, 1999 approximately $18.8
million, $2.9 million, $6.9 million and $1.9 million, respectively, of goodwill
and intangible assets were amortized.
(j) Impairment of Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. SFAS No. 121 requires impairment losses to be recorded on
long-lived assets used in operations, including goodwill, when indicators of
impairment are present and the undiscounted future cash flows, estimated to be
generated by those assets are less than the assets' carrying value. If such
assets are impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the asset exceeds the fair market value of the
assets. Assets to be disposed of are reported at the lower of the carrying value
or fair market value, less cost to sell.
During the fourth quarter of 2001, the Company evaluated the carrying
values of its goodwill and intangible assets. An impairment charge of $43.4
million has been recorded in the year ending December 31, 2001. Specifically,
the significant decline in business activity generally and software license
revenues following the terrorist attacks on New York City and Washington, DC as
well as the Company's fourth quarter period operating and cash flow losses
required an adjustment to the carrying value of AISC's long-lived assets. Using
discounted cash flow projections of expected returns from these assets, the
Company has determined that the carrying value of its goodwill and intangible
assets should be reduced to approximately $14.8 million.
(k) Translation of Foreign Currencies
Artemis uses the U.S. dollar as it functional currency. Assets and
liabilities of foreign subsidiaries are translated into U.S. dollars at year-end
exchange rates, and revenues and expenses are translated at average rates
prevailing during the year. In accordance with SFAS 52, Translation of Foreign
Currencies, translation adjustments are included as a component of stockholders'
equity. Foreign currency remeasurement gains and losses are included in results
of operations, and were not material for any period presented.
(l) Income Taxes
The Company accounts for income taxes under the provisions of SFAS No.
109, Accounting for Income Taxes. SFAS No. 109 requires recognition of deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates for the year in which the differences are
expected to reverse (See Note 9).
43
(m) Stock Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, permits entities
to recognize as expense over the vesting period the fair value of all
equity-based awards on the date of grant. Alternatively, SFAS No. 123 allows
entities to apply the provisions of Accounting Principles Board ("APB") Opinion
No. 25 and provide pro forma net earnings (loss) disclosures for employee stock
option grants as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to apply the provisions of APB Opinion No. 25
as amended by FASB interpretation No. 44, Accounting for Certain Transactions
Involving Stock Compensation - An Interpretation of APB Opinion No. 25 (FIN 44).
(n) Segment Information
The Company discloses information regarding segments in accordance with
SFAS No. 131 Disclosure about Segments of an Enterprise and Related Information.
SFAS No. 131 establishes standards for reporting of financial information about
operating segments in annual financial statements and requires reporting
selected information about operating segments in interim financial reports (See
Note 10).
(o) Comprehensive Income
The Company reports comprehensive income in accordance with SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 establishes rules for the
reporting and display of comprehensive income and its components. SFAS No. 130
requires unrealized holding gains and losses, net of related tax effects, on
available for sale securities to be included in other comprehensive income until
realized. Translation gains or losses are included in comprehensive income. The
Company had approximately $1.1 million of comprehensive loss for the unaudited
nine-month period ended December 31, 1999.
(p) Postemployment Benefits
The Company records postemployment benefits in accordance with SFAS No.
87, Employers' Accounting for Pensions. The Company discloses postemployment
benefits in accordance with SFAS No. 132, Employers' Accounting for
Postemployment Benefits. SFAS No. 132 establishes standards for employers who
provide benefits to former or inactive employees after employment but before
retirement. Postemployment benefits include, but are not limited to, salary
continuation, supplemental employment benefits and disability related benefits.
At December 31, 2001 and December 31, 2000, the Company recognized obligations
to provide postemployment benefits to former employees of approximately $0.3
million and $0.4 million, respectively.
(q) Basic and Diluted Net Loss per Share
The Company calculates earnings per share in accordance with SFAS No.
128, Computation of Earnings Per Share. Accordingly, basic net loss per share
excludes dilution for potentially dilutive securities and is computed by
dividing net loss available to common shareholders by the weighted average
number of common shares outstanding for the period.
(r) Software Development Costs
The costs incurred to develop computer software products to be sold or
otherwise marketed are charged to expense until technological feasibility of the
product has been established. Once technological feasibility of related software
products has been established, computer software development costs are
capitalized and reported at the lower of amortized cost or net realizable value.
When a product is ready for general release, its capitalized costs are amortized
using the straight-line method of amortization over a period not to exceed three
years. Company management believes that technological feasibility is not
established until a beta version of the product exists. Historically, costs
incurred during the period from when a beta version is available until general
release have not been material. Accordingly, during the years ended March 31,
2000 and December 31, 2001 and the nine months ended December 31, 2000, no
software costs have been capitalized.
44
(s) Recent Accounting Pronouncements
In July 2001, the FASB issued Statement No. 141, Business Combinations,
and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. Statement 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually. Statement 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 144, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of.
Artemis has adopted the provisions of Statement 141 for the July 31,
2001 combination of Opus360 and Artemis and will adopt Statement 142 for
reporting periods after December 15, 2001. Any goodwill and intangible assets
determined to have an indefinite useful life that are acquired in a purchase
business combination completed after June 30, 2001 will not be amortized, but
will continue to be evaluated for impairment in accordance with the appropriate
pre-Statement 142 accounting literature until the adoption of Statement 142 on
January 1, 2002. Statement 141 requires that negative goodwill be allocated on a
pro-rata basis to non-current assets to the extent available with any remainder
recognized as extraordinary gain. In connection with the adoption of Statement
141, the Company applied the provisions of this statement to its acquisition of
OPUS which resulted in the allocation of negative goodwill in the amount of
approximately $10.5 million as a direct reduction of the Company's non-current
assets. The current period income statement impact of this adoption was
approximately $0.6 million. See note 2 to the combined and consolidated
financial statements for a description of the OPUS acquisition.
Statement 141 will require upon adoption of Statement 142, that Artemis
continue to evaluate its existing intangible assets for impairment. Upon
adoption of Statement 142, Artemis will be required to reassess the useful lives
and residual values of all intangible assets acquired in purchase business
combinations, and make any necessary amortization period adjustments by the end
of the first interim period after adoption. To the extent an intangible asset is
identified as having an indefinite useful life, Artemis will be required to test
the intangible asset for impairment in accordance with the provisions of
Statement 142 within the first interim period. Any impairment loss will be
measured as of the date of adoption and recognized as the cumulative effect of a
change in accounting principle in the first interim period. The Company
continues to evaluate what effect, if any, adoption of Statement 142 will have
on its financial position and results of operations.
In August 2001, the Financial Accounting Standards Board, issued
Financial Accounting Standards No. 144, or SFAS 144, Accounting for the
Impairment of Long-Lived Assets. This Statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets, and
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business (as
previously defined in that Opinion). This Statement also amends ARB No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The provisions of
this Statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years, with early application encouraged. The Company does not anticipate that
its evaluation of long-lived assets and long-lived assets to be disposed of for
impairment in accordance with this standard will have a material impact.
NOTE 2. ACQUISITIONS
In April 2001, Opus360 and Proha Plc ("Proha"), a Finnish corporation,
entered into a Share Exchange Agreement ("Agreement") pursuant to which, upon
completion of the transactions contemplated under the agreement, Opus360 would
exchange 80% of its authorized common stock for all the capital stock of Artemis
Acquisition Corporation ("Legacy Artemis"), a Delaware corporation and 19.9% of
two Finnish subsidiaries of Proha, Intellisoft OY and Accountor OY.
The transaction was structured in two steps since the number of
authorized Opus360 shares needed to be increased to allow for the issuance of a
total amount of 199 million new shares to Proha in satisfaction of the 80%
requirement. Despite its two step structure, the transaction was accounted for
upon the consummation of the first
45
closing because Proha gained a majority controlling interest and the voting
agreements discussed below effectively "locked in" the second step.
In connection with the Share Exchange Agreement, Proha entered into two
voting agreements, one with Ari Horowitz and one with Opus360. Pursuant to these
agreements, Ari Horowitz agreed among other things to cause all of his 3,333,351
shares of Opus360 common stock to be cast in favor of the second closing. Also,
Proha has agreed among other things to cause all its 73,938,702 shares of
Opus360's common stock to be cast in favor of the second closing.
As a result of the agreements, there were commitments to vote in favor
of the second closing representing approximately 62.44% of the outstanding
common stock. Accordingly, the transaction was not treated as a step acquisition
since Proha obtained a majority controlling and voting interest upon
consummation of the first closing.
On July 31, 2001, Opus360 consummated the first phase of the
transaction contemplated by the Share Exchange Agreement. In connection with
this Agreement, the OPUS360 acquired all of the capital stock of Legacy Artemis,
a wholly owned subsidiary of Proha, in exchange for approximately 74 million
shares of the Opus360's common stock. As a result of this exchange, Proha
obtained a controlling ownership and management interest in Opus360.
Accordingly, the transaction was accounted for as a reverse acquisition with
Legacy Artemis treated as the accounting acquirer and accounted for under the
purchase method of accounting in accordance with the provisions of SFAS 141. The
second closing was completed November 20, 2001 by Opus360's filing of a
Definitive Proxy Statement with the SEC containing the required disclosures and
financial information of the combined and consolidated companies. At the second
closing, Opus360 delivered approximately 125 million additional shares of the
Opus360's common stock in return for the delivery by Proha of 19.9% of the
outstanding shares of the two Proha subsidiaries. Upon completion of the second
closing, Proha owns approximately 80% of the post-transaction outstanding common
stock of the Company.
The purchase price was determined using 80% of the market value (market
capitalization) of Opus360's interest in the combined post business combination
entity, using the five day average closing share price of the Opus 360 common
stock for the two days prior to, the day of, and the two days subsequent to the
announcement and approval of the transaction, April 11, 2001. The assets
acquired and liabilities assumed from Opus360, as the acquired entity, were
recorded at their fair values at July 31, 2001.
46
The excess of the fair values of the identifiable net assets over the
purchase price was treated as negative goodwill. Negative goodwill was applied
to reduce the assigned value of non-current assets.
Purchase
Price Allocation
Outstanding shares prior to Share Exchange Transaction.................................. 49,857
Average closing price................................................................... $0.20
Market value............................................................................ $9,971
Market value issued to acquiror per Share Exchange Agreement (80%) $7,977
Fair value of net assets acquired....................................................... $19,224
Excess of fair market value of net assets acquired over market value $11,247
Less acquisition costs 747
Negative goodwill allocated............................................................. $10,500
=================
The book value of net assets acquired at July 31, 2001 approximates
fair market value as the current assets and liabilities are liquid in nature
and the other long-term assets principally relate to recently acquired
computer equipment and software. Fair market value of net assets acquired
principally consisted of the following:
Cash..................................................................................... $13,555
Prepaid expenses and other current assets................................................ 1,269
Property, plant and equipment............................................................ 7,631
Other assets
Purchased software...................................................... 2,036
Capitalized software.................................................... 2,214
Other assets............................................................ 782
---------------
Subtotal 5,032
---------------
Total assets............................................................................. 27,487
Current liabilities...................................................................... (8,194)
Other liabilities........................................................................ (69)
-----------------
Net assets............................................................................... $19,224
=================
Purchase Price Allocation:
Negative goodwill of approximately $10.5 million has been allocated on a
pro-rata basis to property and equipment ($6.3 million), purchased software
($1.5 million), capitalized software ($1.9 million) and other asset ($0.6
million).
Pro forma information:
The following unaudited pro forma combined condensed financial data
combine the historical combined and consolidated statements of operations of
Legacy Artemis and Opus360, giving effect to the Share Exchange Transaction
using the purchase method of accounting. The historical statements of operations
for Legacy Artemis and Opus360 have been adjusted to conform the pro-forma
financial statement presentation of the combined companies. The pro forma
combined condensed financial data for the years ended December 31, 2001 and 2000
and the nine month period ended December 31, 2000, respectively reflect the
transaction as if it had occurred on January 1, 2000.
For the Year Ended For the Year Ended
December 31, 2001 December 31, 2000
Revenue 69,372 77,858
Net Loss (80,956) (71,905)
Loss per Share ($0.32) ($0.29)
47
On August 24, 2000 Proha purchased all of the outstanding stock of
Legacy Artemis. The purchase was structured as a share exchange whereby Proha
issued shares of its publicly traded (Helsinki Exchange) common stock to Legacy
Artemis' equity holders in exchange for all of Legacy Artemis' stock. The
purchase price was $50 million, less post-closing adjustments of approximately
$6 million. The amount of the purchase price adjustments was determined
subsequent to the effective date of the transaction, and as a result, Legacy
Artemis' former shareholders were required to contribute to Legacy Artemis
$6,011,000 of the Proha stock. These contributions have been recorded on a net
of taxes basis, as additional paid-in capital and as an offsetting reduction in
stockholders' equity, similar to treasury stock, as an investment in the stock
of the parent company. Subsequent to the receipt of the Proha shares, Legacy
Artemis sold a portion of these shares, resulting in a gain of $518,000, net of
taxes of $304,000, which has been recorded as additional paid-in capital. At
December 31, 2000, the Company held 392,036 shares of Proha, recorded at
$2,783,000, net of deferred income taxes of $1,634,000. In 2001, the Company's
parent, Proha cancelled these shares, which were treated as a reduction of
additional paid in capital.
As a result of the transaction and adjustment of approximately $15
million of additional goodwill related to the effect of the deferred tax
liability resulting from the recording of non-deductible identifiable intangible
assets related to the transaction (note 1c), Legacy Artemis recorded goodwill of
approximately $33.5 million with a corresponding increase in additional paid-in
capital. Legacy Artemis also recorded approximately $32.3 million of intangible
assets and $2.3 million of in-process research and development.
NOTE 3. ACCOUNTS RECEIVABLE, NET:
At December 31 2001 and 2000 the breakdown of accounts receivable was
as follows:
December 31, 2001 December 31, 2000
----------------- -----------------
Billed trade receivables $ 13,311 $ 17,507
Less allowance for doubtful receivables (223) (138)
---------------- ----------------
Net Trade Accounts Receivable $ 13,088 $ 17,369
================ ================
Changes in the allowance for doubtful receivables were as follows:
Year ended Nine Months Ended
December 31, 2001 December 31, 2000
----------------- -----------------
Beginning balance $ (138) $ (143)
Provision for doubtful receivables (140) (31)
Write-offs 55 36
---------------- -----------------
Ending balance $ (223) $ (138)
================ =================
48
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
December 31, December 31,
2001 2000
------- -------
Computer hardware and software $ 5,452 $ 4,115
Computer software 1,598 902
Leasehold improvements 354 281
Furniture and fixtures 409 692
Other 108 89
------- -------
7,921 6,079
Less accumulated depreciation (5,194) (4,254)
------- -------
Total $ 2,725 $ 1,825
======= =======
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is determined using the straight-line method of the
estimated useful lives of the various asset classes. Useful lives of computer
hardware and software, leasehold improvements, and furniture and fixtures are
three years, five years and five years, respectively.
NOTE 5. DEBT
Foothill Capital has extended a combination of Note Payable and a Line
of Credit totaling approximately $4.5 million (the "Foothill Facility"). This
combined facility bears interest at the prime rate plus 2%, but not less than
9%, and is due in full on August 1, 2003. Borrowings under the Foothill Facility
are secured by Foothill's security interest in the Company's accounts
receivable, equipment, general intangibles, inventories, negotiable collateral,
and any other assets that come into the possession of the Company. Borrowings
under the Line of Credit are subject to maintenance of certain covenants
including minimum current ratio, tangible net worth, trailing twelve month
Earnings Before Interest, Taxes, Depreciation and Amortization, coverage of
interest and principal payments and capital expenditure limitations. At December
31, 2001, Foothill had waived any of the covenants that were not in compliance
for one quarter. The absolute level of borrowings under the Line of Credit is
limited by the level and quality of accounts receivable. At December 31, 2001,
there was $1.8 million drawn under the Note Payable portion of the Foothill
Facility.
At December 31, 2001, Bank Societe Generale term loan due through
December 31, 2003, was not in compliance with certain covenants of its overdraft
facility. The Bank has waived these requirements for a period of twelve months.
49
December 31, December 31,
2001 2000
------------ ------------
Note payable, line of credit, due to Foothills Capital Corporation. Interest rate
of prime plus 2.00% (11.5% at December 31, 2000 and 9% at December 31, 2001) $ 1,766 $ 5,325
Note payable to Proha Plc. Interest rate of 4% annually which is payable on
demand 423 -
Finland government installment loans, average effective interest rate of 4.19%
payable through September 25, 2006 161 221
Bank Societe Generale term loan due through December 31, 2003, average effective
interest rate of 4.32% for 2001 173 -
Other short term liabilities 143 -
------- -------
Total 2,666 5,546
Less: current portion of long term debt (1,245) (1,770)
------- -------
Long term debt, less current portion $ 1,421 $ 3,776
------- -------
Interest paid for the twelve months ended December 31 2001 and March 31, 2000
and the nine months ended December 31, 2000 and December 31, 1999 was
approximately $0.8 million, $1.0 million, $0.9 million and $0.5 million,
respectively.
NOTE 6. COMMITMENTS
Leases:
The Company leases certain facilities and equipment under
non-cancelable operating lease agreements. Rent expense for the twelve months
ended December 31 2001, March 31, 2000 and the nine months ended December 31,
2000 and 1999 was approximately $3.2 million, $2.0 million, $2.1 million and
$1.7, respectively.
Future minimum rental commitments for the operating leases are as
follows:
2002........................................................ $4,251
2003........................................................ 2,938
2004........................................................ 713
2005........................................................ 169
2006........................................................ 47
-------
Total lease payments........................................ $8,118
50
NOTE 7. BASIC AND DILUTED NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
For The Years Ended For the Nine Months Ended
December 31, December 31,
December 31, 2001 March 31, 2000 2000 1999
----------------- -------------- ------------ ------------
Numerator:
Net income (loss) $ (59,764) $ 1,060 $ (10,797) $ (510)
=========== ========= ========= =========
Denominator:
Basic income (loss) per share weighted
average shares 220,394 185,638 192,221 185,283
=========== ========= ========= =========
Dilutive effect of options and warrants - 2,491 - -
Diluted income (loss) per share weighted
average shares 220,394 188,129 192,221 185,283
=========== ========= ========= =========
Basic and diluted net income (loss) per
share (0.27) 0.01 (0.06) (0.00)
=========== ========= ========= =========
Diluted net loss for the twelve months ended December 31, 2001 and the
nine months ended December 31, 2000 does not include the effect of options and
warrants to purchase 15,714,000 and 150,665,000 shares of common stock,
respectively, since their effect would be anti-dilutive.
Basic and diluted loss per share for all periods are computed by
retroactively restating the shares outstanding at the assumed exchange rate for
shares issued to Proha in two tranches in connection with the transactions
contemplated under the Share Exchange Agreement. The 199,423,560 shares reflect
the issuance to Proha of 73,938,702 shares on July 31, 2001 and of 125,484,858
shares on November 20, 2001. The weighted average shares outstanding for the
year ended December 31, 2001 include 49,701,000 shares that were issued and
outstanding to the former shareholders of Opus360 from the date of the first
closing on July 31, 2001.
NOTE 8. BENEFIT PLANS
The Company has a defined contribution plan ("the Plan") which
qualifies under section 401(k) of the Internal Revenue Code of 1986, as amended
(the "Code"). The Plan covers all U.S. employees. Employees may contribute up to
15% of their annual compensation. Employer contributions vest to the
participants incrementally over a period of five years. Company contributions to
the Plan during the years ended December 31, 2001 and March 31, 2000, the nine
months ended December 31, 2000 and December 31, 1999 approximated $.1 million in
all four periods.
The Company has a defined benefit pension plan covering employees of
its United Kingdom subsidiary. Company contributions are determined based upon a
percentage, as determined by an actuary, of an eligible employee's annual
salary. Company contributions to the Plan during the years ended December 31,
2001 and March 31, 2000, the nine months ended December 31, 2000 and December
31, 1999 were $.1, $.2, $.1, and $.5 million, respectively.
Net defined benefit pension cost included the following components:
Year ended Nine Months Ended Year Ended
December 31, 2001 December 31, 2000 March 31, 2000
------------------ ----------------- --------------
Service cost (benefits earned during the year)..... $ 180 $ 169 $ 265
Interest cost on projected benefit obligation...... 320 232 297
Expected return on plan assets..................... (374) (260) (346)
Unrecognized net gain.............................. - - -
----------- ---------- ------------
Net pension cost................................... $ 126 $ 141 $ 216
=========== ========== ============
51
The assumptions used for the March 31, 2000, December 31, 2001 and the
December 31, 2000 defined benefit plan were a discount rate of 6%, increase in
future compensation levels of 5%, and an expected annual rate of return on plan
assets of 8%.
The funded status of the defined benefit plan was as follows:
December 31, 2001 December 31, 2000
----------------- -----------------
Projected benefit obligation........ $ (5,022) $ (5,399)
Plan assets at fair value........... 4,167 4,493
Company contributions............... 149 115
Participant contributions........... 120 102
Benefits paid....................... (30) (12)
Unrecognized loss................... 260 311
--------- --------
Funded status....................... $ (356) $ (390)
========= =========
NOTE 9. INCOME TAXES
Deferred income tax balances reflect the tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The components
of the deferred tax provision, which arise from temporary differences between
financial and tax reporting, are presented below:
For the Year For the Nine Months For the Year
Ended December 31, Ended December 31, Ended March 31,
2001 2000 2000
-------------------- -------------------- ------------------
Current $ 702 $ (634) $ 41
Deferred taxes (10,372) (1,057) (2,607)
-------- -------- --------
Total benefit $ (9,670) $ (1,691) $ (2,566)
======== ======== ========
The difference between the total expected tax expense (benefit) (using the
statutory rate of 34%) and tax expense for the year ended December 31, 2001 and
the nine months ended December 31, 2000 is accounted for as follows (in
thousands):
For the Year For the Nine Months For the Year
Ended December 31, Ended December 31, Ended March 31,
2001 2000 2000
---------------------- -------------------- --------------------
Expected federal income tax benefit
at statutory rate of 34% $ (23,460) $ (4,223) $ (517)
Effect of permanent differences 11,550 955 730
State income tax (benefit) expense net of federal
benefit (1,248) (107) 94
Push down of in-process research and development
for which no benefit was received - 790 -
Utilization of foreign loss carryforwards - - (659)
Acquired temporary differences (6,646) - -
Other 489 191 (311)
Change in valuation allowance 9,380 101 (1,614)
Foreign tax differential 265 602 (289)
---------------------- -------------------- --------------------
Income tax benefit $ (9,670) $ (1,691) $ (2,566)
====================== ==================== ====================
52
Loss before income taxes is as follows:
For the Year For the Nine Months For the Year
Ended December 31, Ended December 31, Ended March 31,
2001 2000 2000
---------------------- -------------------- ---------------------
Domestic $ (63,325) $ (11,318) $ (2,307)
Foreign (6,204) (1,103) 801
---------------------- -------------------- ---------------------
Total loss before income taxes and minority
interest $ (69,529) $ (12,421) $ (1,506)
====================== ==================== =====================
The components of the net accumulated deferred income taxes
assets/(liabilities) as of December 31, 2001 and 2000 are as follows:
December 31, December 31,
2001 2000
---------------------- --------------------
Deferred Tax Assets:
Net Operating Loss $ 8,850 $ 807
Stock option expense 2,129 -
Accumulated depreciation 1,160 1,177
Accumulated amortization 981 -
Expenses based on issue of stock options 752 -
Allowance for doubtful accounts 449 17
Accrued expenses 326 258
Deferred maintenance revenue 1 1
Accrued bonuses 6 -
Accrued vacation 16 14
Other - 20
---------------------- --------------------
Deferred Tax Assets 14,670 2,294
Deferred Tax Liabilities (5,543) (12,918)
Valuation Allowance (9,674) (294)
---------------------- --------------------
Net deferred tax liability $ (547) $ (10,918)
====================== ====================
Income taxes paid for the twelve months ended December 31 2001 and March 31,
2000 and the nine months ended December 31, 2000 and December 31, 1999 were less
than $0.1 million for each of the reporting periods.
NOTE 10: SEGMENT AND GEOGRAPHIC INFORMATION
The Company's chief operating decision maker reviews on a country
basis, revenue and cost of revenue based upon the nature of the services, for
purposes of assessing financial performance and making operating decisions. The
Company has changed its segment reporting in the current period to align its
segment reporting with how management operates its businesses. Previously the
Company reported its segments as "Training and Consulting" and "Software License
Sales and Other Recurring Services." The Company is principally engaged in the
design, development, marketing, licensing and support of integrated project and
resource collaboration solutions operating on a diverse range of hardware
platforms and operating systems.
53
The following table presents information about the Company's operations
by geographic area for the twelve months ended December 31, 2001 and March 31,
2000 and nine months ended December 31, 2000 and December 31, 1999:
Twelve Months Ended December 31, 2001
US UK Japan France Germany Italy Finland Asia Elimination Total
-------------------------------------------------------------------------------------------------------
Revenue
Software $ 3,795 $ 3,528 $ 1,875 $ 2,007 $ 925 $ 1,681 $ 2,054 $ 341 $ (1,101) $ 15,105
Support 5,814 3,173 1,907 2,131 952 767 1,621 143 (996) 15,512
Services 16,974 2,954 3,465 3,673 1,325 4,020 3,702 1,153 (237) 37,029
-------------------------------------------------------------------------------------------------------
Total Revenue $ 26,583 $ 9,655 $ 7,247 $ 7,811 $ 3,202 $ 6,468 $ 7,377 $ 1,637 $ (2,334) $ 67,646
Cost of revenue:
Software $ 179 $ 281 $ 767 $ 317 $ 43 $ 55 $ 819 $ 61 - $ 2,522
Support 2,195 1,204 1,586 812 - 520 409 (21) - 6,705
Services 10,339 1,576 2,273 3,426 51 2,966 2,814 425 - 23,870
-------------------------------------------------------------------------------------------------------
Total cost of revenue $ 12,713 3,061 $ 4,626 $ 4,555 $ 94 $ 3,541 $ 4,042 $ 465 - $ 33,097
-------------------------------------------------------------------------------------------------------
Operating income (loss) $(63,680) $ 96 $ 62 $ 724 $ (161) $ 1,705 $ (2,202) $ (693) $ (2,234) $(66,483)
-------------------------------------------------------------------------------------------------------
Nine Months Ended December 31, 2000
US UK Japan France Germany Italy Finland Asia Elimination Total
-------------------------------------------------------------------------------------------------------
Revenue
Software $ 5,994 $ 3,223 $ 1,865 $ 329 $ 170 $ 173 $ 560 - $ (180) $ 12,134
Support 4,314 2,558 1,709 160 127 52 362 - (161) 9,121
Services 6,515 2,418 2,997 343 60 270 1,006 - (42) 13,567
-------------------------------------------------------------------------------------------------------
Total Revenue $ 16,823 $ 8,199 $ 6,571 $ 832 $ 357 $ 495 $ 1,928 $ - $ (383) $ 34,822
Cost of revenue:
Software $ 405 $ 10 $ 639 $ (39) $ (43) $ 47 $ 138 - - $ 1,157
Support 1,649 985 1,366 60 30 38 84 - - 4,212
Services 4,494 2,123 2,294 320 52 209 678 - - 10,170
-------------------------------------------------------------------------------------------------------
Total cost of revenue $ 6,548 $ 3,118 $ 4,299 $ 341 $ 39 $ 294 $ 900 $ - $- $ 15,539
-------------------------------------------------------------------------------------------------------
Operating income (loss) $(11,297) $ 415 $ 127 $ 185 $ 183 $ 106 $ (734) $ - $ (383) $(11,398)
-------------------------------------------------------------------------------------------------------
Twelve Months Ended March 31, 2000
US UK Japan France Germany Italy Finland Asia Elimination Total
----------------------------------------------------------------------------------------------------
Revenue
Software $ 10,243 $ 4,810 $ 3,244 $ - $ - $ - $ - $ - $ - $ 18,297
Support 5,469 3,810 2,278 - - - - - - 11,557
Services 10,244 3,501 5,704 - - - - - - 19,449
-------------------------------------------------------------------------------------------------------
Total Revenue $ 25,956 $ 12,121 $ 11,226 $ - $ - $ - $ - $ - $ - $ 49,303
Cost of revenue:
Software $ 754 $ 189 $ 554 $ - $ - $ - $ - $ - $ - $ 1,497
Support 2,219 1,544 1,486 - - - - - - 5,249
Services 6,062 2,180 5,323 - - - - - - 13,565
-------------------------------------------------------------------------------------------------------
Total cost of revenue $ 9,035 $ 3,913 $ 7,363 $ - $ - $ - $ - $ - $ - $ 20,311
-------------------------------------------------------------------------------------------------------
Operating income (loss) $ (2,522) $ 1,793 $ 771 $ - $ - $ - $ - $ - $ - $ 42
-------------------------------------------------------------------------------------------------------
54
Nine Months Ended December 31, 1999
(unaudited)
US UK Japan France Germany Italy Finland Asia Elimination Total
----------------------------------------------------------------------------------------------------
Revenue
Software $ 6,973 $ 3,852 $ 2,324 $ - $ - $ - $ - $ - $ - $ 13,149
Support 4,165 2,847 1,645 - - - - - - 8,657
Services 7,952 2,527 4,250 - - - - - - 14,729
----------------------------------------------------------------------------------------------------
Total Revenue $ 19,090 $ 9,226 $ 8,219 $ - $ - $ - $ - $ - $ - $ 36,535
Cost of revenue:
Software $ 576 $ 133 $ 403 $ - $ - $ - $ - $ - $ - $ 1,112
Support 1,657 1,163 1,086 - - - - - - 3,906
Services 4,678 1,595 3,917 - - - - - - 10,190
----------------------------------------------------------------------------------------------------
Total cost of revenue $ 6,911 $ 2,891 $ 5,406 $ - $ - $ - $ - $ - $ - $ 15,208
----------------------------------------------------------------------------------------------------
Operating income (loss) $ (1,759) $ 1,347 $ 518 $ - $ - $ - $ - $ - $ - $ 106
----------------------------------------------------------------------------------------------------
December 31, December 31,
2001 2000
------------------ ------------------
Identifiable Assets
USA (including corporate) $ 47,271 $ 87,892
United Kingdom 5,458 9,997
Japan 2,892 3,492
France 3,246 5,275
Other 8,779 16,976
Eliminations (27,453) (20,144)
------------------ ------------------
Consolidated $40,193 $103,488
------------------ ------------------
NOTE 11. RELATED PARTY TRANSACTIONS
Prior to August 2000, Legacy Artemis had entered into a management
agreement with Gores Technology Group ("Gores".) The management agreement called
for Gores to provide certain management services to Legacy Artemis. In August
2000, Legacy Artemis entered into a management agreement with Proha pursuant to
which Proha is required to provide certain management services to Legacy
Artemis. Management fees incurred and paid for the years ended December 31, 2001
and March 31 2000 and the nine months ended December 2000 and December 31, 1999
were approximately $0.8 million, $2.0 million, $1.0 million and $1.6 million,
respectively. On August 24, 2000, Legacy Artemis terminated the agreement with
Gores in conjunction with its acquisition by Proha. In connection with the Share
Exchange Agreement, the management agreement with Proha was terminated.
At December 31, 2001 and 2000, the Company had other receivables and
payables of $.2 and $.4 million and $0.0 and $2.0 million, respectively, to
Proha, who holds approximately 80% of the Company's outstanding Common Stock.
At December 31 2001 and 2000, the Company maintained the following
equity holdings in joint ventures which are accounted for under the equity
method, with the exception of Scandinavia and the Netherlands which are
accounted for under the cost method. The Company records its equity interest in
losses first to the investment balance, then against loans or advances.
(See Note 11)
55
December 31,2001:
Total Net Income Total Artemis
Percent Investment Revenue (Loss) Assets Receivable
------------- -------------- ------------ -------------- ------------- --------------
Metier Scandinavia AS (Norway) 9.9% $ 44 $ 3,035 $ 415 $ 3,536 $ 233
Metier International Holdings BV
(Holland) 19.0% 121 3,517 110 1,325 89
Accountor Oy & Intellisoft Oy 19.9% 168 5,222 (396) 1,671 -
DA Management Solutions 29.0% 4 - - - -
Changepoint France 40.0% - 626 (863) 763 394
Other 0% 353
-------------- --------------
$ 337 $ 1,069
============== ==============
December 31, 2000
Total Net Income Total Artemis
Percent Investment Revenue (Loss) Assets Receivable
--------------------------------------------------------------------------------------
Metier Scandinavia AS (Norway) 9.9% $ - $ 3,306 $ (129) $ 2,056 $ 95
Metyor Solutions Ltd. 0.0% - - - - 318
PMSoft Asia Pte Ltd. (Singapore) 49.0% 549 2,027 91 1,669 365
Metier International Holdings BV
(Holland) 7.6% 67 2,618 (49) 1,670 65
Accountor Oy & Intellisoft Oy 19.9% 219 1,692 (683) 4,324 -
Other 0% (36) - - - 867
CSC Guarantee 0% - - - - (475)
-------------- --------------
$ 799 $ 1,235
============== ==============
The interests in Scandinavia and the Netherlands were the result of
investments by Proha and contributed to Legacy Artemis on August 24, 2000. A
Joint venture investment in Changepoint France was entered into on January 3,
2001, and is accounted for under the equity method of accounting. The Finnish
minority equity holdings was contributed to Legacy Artemis on August 24, 2000 by
Proha. The Singapore investment was contributed to Legacy Artemis by Proha on
January 3, 2001 and is included in the Company's financial statements thereafter
as a wholly owned subsidiary.
12. CONCENTRATION OF CREDIT RISK
In the year ended December 31, 2001, two clients accounted for
approximately 12 and 9 percent of Total Revenue. At December 31, 2001, these
same two clients accounted for approximately 5 and 6 percent of gross accounts
receivable. Trade accounts receivable, net of the allowance for doubtful
accounts, due from customers in various countries at December 31, 2001 and 2000
are as follows:
December 31, December 31,
2001 2000
---- ----
United States.............................. $2,908 $4,759
United Kingdom............................. 805 1,280
Japan...................................... 2,056 2,473
France..................................... 1,998 3,090
Germany.................................... 320 1,624
Italy...................................... 3,484 2,683
Finland.................................... 1,104 1,261
Other countries............................ 413 199
------- -------
Total trade receivables, net $13,088 $17,369
======= =======
56
The Company and its subsidiaries generally do not require collateral
from their customers. The Company's provision for doubtful accounts was $0.2
million for the year ended December 31, 2001, and approximately $0.1 million for
the year ended March 31, 2000, and less than $.1 million for the nine months
ended December 31, 2000.
NOTE 13. STOCKHOLDERS' EQUITY
Proha contributed various subsidiaries, valued at $0.4 million to
Legacy Artemis on January 3, 2001. During the year ended December 31, 2001,
Proha cancelled shares it had issued to Legacy Artemis, resulting in a decrease
of approximately $2.8 million in additional paid in capital. For the year ended
December 31, 2001, Legacy Artemis reported a net loss of approximately $59.8
million.
On July 31, 2001, the date Opus360 was acquired by Legacy Artemis,
Opus360 had approximately 50 million shares of common stock outstanding.
Although the transaction is treated for accounting purposes as a reverse
acquisition in which Legacy Artemis is deemed to have purchased Opus360, Opus360
remains the legal parent entity. Stockholders' equity has been retroactively
restated to reflect the shares issued by Opus360 in connection with the Share
Exchange Agreement. The retroactively restated shares reflect the combined
amount of shares issued to Proha in connection with both the first tranche of
approximately 74 million and the second tranche of approximately 125 million
totaling approximately 199 million. The shares newly issued by Opus360 were
valued at approximately $8.0 million and represented the purchase price. The
Company's aggregate common shares outstanding on a retroactively restated basis
at December 31, 2001 of approximately 249 million is therefore comprised of the
historical Opus360 50 million shares and the additional 199 million shares
issued in connection with the acquisition. (See Notes 1 and 2.)
Warrants:
At December 31, 2001, the Company had 5,531,250 warrants outstanding to
Lucent as compensation for its continuing advice and support to the Company on
matters pertaining to employment of workforce procurement and workforce
management solutions in the technology industries at an exercise price of $.74.
These warrants will expire on December 3, 2003. Diluted net loss per share for
the year ended December 31, 2001 does not include the impact of these warrants
as they would be anti-dilutive.
Stock Options:
Legacy Artemis historically had issued options to purchase its Series A
and B common stock to employees and others. All such options were exercised,
cancelled or expired prior to the consummation of the Share Exchange
Transactions. The Series A options which had vested at the acquisition date were
exercised and exchanged for shares of Proha in conjunction with Proha's
acquisition of the Company on August 24, 2000. In lieu of their right to
purchase the Company's stock at the time of the acquisition, the vested Series B
option holders were provided cash payments of approximately $74,000, which is
included in the Company's acquisition costs for the nine months ended December
31, 2000.
The stock options issued by Opus360 prior to the consummation of the
Share Exchange Transactions, and the option plans under which most of such
options were issued, continue in full force and effect, even though Legacy
Artemis is the acquiror for accounting purposes in the Share Exchange
Transactions, Opus360 as a legal entity survived the consummation of such
transaction. The following description of the Company's stock option plans
reflects the stock option plans of Legacy Artemis prior to the merger with
Opus360, and the status of the following Artemis' plans after July 31, 2001.
In March 2000, the Company adopted the (1) 2000 Stock Option Plan (the
"2000 Plan"), which provides for the granting of non-qualified and incentive
stock options to employees, board members and advisors (2) the 2000 Non-Employee
Directors' Plan (the "Non-Employee Directors Plan"), which provides for
automatic, non-discretionary grants, of non-qualified stock options to
non-employee board members, as defined, and (3) the 2000 Employee Stock Purchase
Plan (the "ESPP"), which permits eligible employees to acquire, through payroll
deductions, shares of the Company's common stock. The 2000 Plan and the
Non-Employee Directors Plan authorize the granting of up to 10.0 million and up
to 1.1 million options, respectively, and provide for option terms not to exceed
ten years. The ESPP authorizes the issuance of up to 2.8 million shares to
participating employees. The Company's 1998 Stock Option Plan authorized the
granting of up to 6.2 million options and provided for option terms not to
exceed ten years. During the quarter ended December 31 2001, the Company granted
3,083,000 options with exercise prices ranging from $0.08 to $0.09. The exercise
price was equal to the fair market value on the date of grant.
57
On August 21, 2000, the Board of Directors of Proha authorized 975,000
options to be issued to key personnel of Legacy Artemis, each with an option
price which was re-priced to 1.35 euros (post-split) per share as of April 1,
2001. The options vest equally over a three-year period commencing December 1,
2000. The total number of options granted and outstanding to key personnel as of
December 31, 2000 was 350,175.
On August 21, 2000, the Board of Directors of Proha authorized a
maximum of 1,000,000 shares to be allocated to the eligible employees of Legacy
Artemis for purchase under an Employee Offering. The subscription period for
this plan ended November 30, 2000. The stock was offered at a price of 2.44
euros (post-split). The total number of shares purchased by employees of the
Company was 48,750.
The following transactions occurred with respect to the Company's stock
option plans (in thousands, except the weighted average exercise price):
Weighted Weighted
Series A Average Series B Average
Options Exercise Price Options Exercise Price
------- -------------- ------- --------------
Outstanding, March 31, 1999 8,005 $0.06 - -
Granted - - 161,555 $0.002
Cancelled (385) $0.001 (21,815) $0.002
Exercised (326) $0.001 - -
Outstanding, March 31, 2000 7,294 $0.07 139,740 $0.002
Granted - - - -
Cancelled (1,097) $0.15 (139,740) $0.002
Exercised (6,197) $0.05 - -
Outstanding, December 31, 2000 - - - -
Assumed Opus360 9,441 $2.04
Granted 5,062 $0.29
Cancelled (4,385) $2.93
Exercised - -
Outstanding, December 31, 2001 10,118 $3.99
====== =====
58
The following table summarizes information concerning outstanding
options at December 31, 2001 (share amounts in thousands):
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Price Outstanding Contractual Life Exercise Price Outstanding Exercise Price
-------------- ----------- ---------------- -------------- ----------- --------------
$0.0000 - $1.1000 4,805 7.7 $0.25 1,743 $0.41
$1.1001 - $2.2000 413 7.6 $1.67 340 $1.72
$2.2001 - $3.3000 650 5.8 $2.78 400 $2.80
$3.3001 - $4.4000 950 7.1 $3.79 437 $3.79
$4.4001 - $5.5000 27 3.9 $4.89 25 $4.88
$5.5001 - $6.6000 0 0 $0.00 0 $0.00
$6.6001 - $7.7000 11 8 $7.29 5 $7.29
$7.7001 - $8.8000 112 7.9 $8.04 73 $8.06
$8.8001 - $9.9000 565 8.1 $9.11 296 $9.11
$9.9001 - $11.000 2,585 7.7 $10.37 1,402 $10.31
--------------- ---------
10,118 4,721
=============== =========
Had compensation cost been determined in accordance with SFAS No. 123
for all of the Company's stock-based compensation plans, the pro forma amounts
of the Company's net loss and net loss per share would have been as follows for
the years ended December 31, 2001 and March 31, 2000 and the nine months ended
December 31, 2000 (in thousands, except per share amounts):
For the Year For the Year For the Nine Months
Ended December 31, Ended March 31, Ended December 31,
2001 2000 2000
-------------------- ----------------- ---------------------
Number of Options 10,118 147,034 -
Net Income (loss) $ (59,764) $ 1,060 $ (10,797)
Options Expense $ (3,298) - -
Pro Forma Income (Loss) $ (62,972) $ 1,060 $ (10,797)
Reported Earnings per share $ (0.27) $ 0.01 $ (0.06)
Pro Forma Earnings per share $ (0.29) $ 0.01 $ (0.06)
Weighted average shares - diluted 220,394 188,129 192,221
For the years ended December 31, 2001 and March 31, 2000 and the nine
months ended December 31, 2000, the fair value of each option was estimated on
the date of grant using the fair value method of SFAS No. 123, and the following
assumptions:
December 31, March 31, December 31,
2001 2000 2000
----- ---- ------
Average risk-free interest rate 4.5% 6.0% 6.0%
Dividend yield 0.0% 0.0% 0.0%
Average life 5 years 3 years 3 years
59
14. CONTINGENCIES/LITIGATION
On April 6, 2001 a lawsuit purporting to be a class action and
captioned Charles Bland vs. Opus360 Corporation, et al., 01 Civ. 2938 (the
"Bland Action") was filed in the United States District Court for the Southern
District of New York. The Bland Action is brought on behalf of a proposed class
of all persons who acquired securities of the Company between April 7, 2000 and
December 6, 2000. Named as defendants in the Bland Action are the Company,
eleven current and former officers and directors of the Company, the
underwriters of the Company's initial public offering and two shareholders (the
"Selling Shareholders") who sold stock in a secondary offering (collectively
with the initial public offering, the "Offering") concurrent with the initial
public offering.
The amended and restated complaint in the Bland Action alleges that,
among other things, the plaintiff and members of the proposed class were damaged
when they acquired securities of the Company because false and misleading
information and material omissions in the registration statement relating to the
Offering caused the prices of the Company's securities to be inflated
artificially. It also alleges violations of Sections 11, 12(a)(2), and 15 of the
Securities Act of 1933 (the "Securities Act"). Damages in unspecified amounts
and certain rescission rights are sought.
Since the filing of the Bland Action, ten similar putative class
actions (the "Additional Actions" and together with the Bland Action, the
"Actions") also have been filed in the United States District Court for the
Southern District of New York. The Additional Actions are brought on behalf of
all persons who acquired securities of the Company between April 7, 2000 and
March 20, 2001. Named as defendants in the Additional Actions are the Company,
ten current and former officers and directors of the Company, the underwriters
of the Company's initial public offering and the Selling Shareholders. As in the
Bland Action, the complaints in the Additional Actions allege false and
misleading information and material omissions in the registration statement
relating to the Offering in purported violation of Sections 11, 12(a)(2), and 15
of the Securities Act. Damages in unspecified amounts and certain rescission
rights are sought.
On or about June 5, 2001, an action captioned Kenneth Shives, et al. v.
Bank of America Securities LLC, et al., 01 Civ. 4956 (the "Shives Action") was
filed in the United States District Court for the Southern District of New York.
The complaint in the Shives Action asserts claims against the Company, certain
of its present or former officers and directors (collectively, the "Opus360
Defendants"), the Selling Shareholders and the underwriters that managed the
Company's April 2000 Offering, for alleged violations of the federal securities
laws (principally Sections 11, 12(a)(2) and 15 of the Securities Act of 1933,
and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.) The
complaint is based on allegations that the various underwriter defendants
engaged in (and involved other defendants in) a broad scheme to artificially
inflate and maintain the market price of the common stock of various companies
named as defendants (including Opus360), and to cause the named plaintiffs and
other members of the putative class to purchase the stock of those companies at
artificially inflated prices.
On or about July 20, 2001, counsel for the plaintiffs in the Shives
Action and counsel for the Opus360 Defendants and the Selling Shareholders
executed stipulations in which the plaintiffs agreed to drop the Opus360
Defendants and the Selling Shareholders as defendants in the Shives Action and
to dismiss without prejudice the claims asserted in that action against each of
those defendants. Those stipulations were so ordered by the Court on or about
July 24, 2001, and the Opus360 Defendants and the Selling Shareholders are no
longer defendants in the Shives Action.
On October 24, 2001, the Company and all other defendants filed motions
to dismiss the claims in the Bland Action. The Company believes the claims made
in the Actions are without merit and intends to vigorously defend the Actions.
The Company is a party to a number of additional legal claims arising
in the normal course of its business. The Company believes the ultimate
resolution of these claims will not have a material effect on its financial
position, results of operations, or cash flows.
60
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Three Months Ended
(in thousands)
December 31, September 30, June 30, March 31,
2001 2001 2001 2001
------------------------ ----------------------------------------------- -----------------------
Revenue $ 17,269 $ 15,915 $ 16,922 $ 17,540
Net Income (Loss) (42,635) (7,702) (4,627) (4,800)
Basic and diluted net loss per
share $ (0.17) $ (0.03) $ (0.02) $ (0.02)
Weighted average shares used
in computing basic and
net loss per share 249,125 232,638 199,424(1) 199,424(1)
December 31, September 30, June 30, March 31,
2000 2000 2000 2000
------------------------ ----------------------------------------------- -----------------------
Revenue $ 13,385 $ 12,714 $ 8,724 $ 12,768
Net Income (loss) (6,207) (2,519) (2,071) 1,570
Basic and diluted net loss per
share $ (0.03) $ (0.01) $ (0.01) $ 0.01
Weighted average shares used
in computing basic net income
(loss) per share 199,424(1) 191,331(1) 185,638(1) 185,638(1)
Weighted average shares used
in computing diluted net
(loss) per share 199,424(1) 191,331(1) 185,638(1) 188,129(1)
(1) The weighted average shares outstanding have been retroactively restated
giving effect to the Legacy Artemis and Opus 360 combination (See Note 13).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
61
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the end
of the Company's fiscal year for information concerning directors and executive
officers and compliance with Section 16(a) of the Exchange Act, which
information is incorporated herein by reference in response to this item.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the end
of the Company's fiscal year for information concerning executive compensation,
which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the end
of the Company's fiscal year for information concerning security ownership of
each person known by the Company to own beneficially more than 5% of the
Company's outstanding shares of Common Stock, of each director of the Company
and all executive officers and directors as a group, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the end
of the Company's fiscal year for information concerning certain relationships
and related transactions, which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Combined and Consolidated Financial Statements: See Index to
Combined and Consolidated Financial Statements at Item 8 on
page 29 of this report.
(2) Exhibits are incorporated herein by reference or are filed
with this report as indicated on the Exhibit Index included
herewith and commencing on page 57 of this report (numbered in
accordance with Item 601 of Regulation S-K).
(3) Combined and Consolidated schedules have been omitted since
they are either not required, not applicable or the
information is otherwise included.
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be
signed on its behalf by the undersigned who is duly authorized, in the City of
New York, State of New York on this 12th day of April, 2002.
ARTEMIS INTERNATIONAL SOLUTIONS CORPORATION
By: /s/ MICHAEL RUSERT
--------------------------
Chief Executive Officer
(Principal Executive Officer)
ARTEMIS INTERNATIONAL SOLUTIONS CORPORATION
By: /s/ PETER SCHWARTZ
------------------------------
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael Rusert and Peter Schwartz, and
each of them, his true and lawful attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with Exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE Date
--------- ----- ----
/s/ MICHAEL RUSERT Chief Executive and Operating
------------------ Officer, Director April 12, 2002
Michael Rusert
/s/ JAMES CANNAVINO Chairman of the Board of
------------------- Directors April 12, 2002
James Cannavino
/s/ KLAUS CAWEN
-------------------
Klaus Cawen Director April 12, 2002
/s/ ALEC GORES
-------------------
Alec Gores Director April 12, 2002
/s/ ARI HOROWITZ
-------------------
Ari Horowitz Director April 12, 2002
/s/ OLAF ODMAN
-------------------
Olaf Odman Director April 12, 2002
63
/s/PEKKA PERE
-------------------
Pekka Pere Director April 12, 2002
/s/STEVE YAGER
-------------------
Steve Yager Director April 12, 2002
64
EXHIBIT INDEX
Exhibit No. Description
3.1* Certificate of Incorporation of the Company.
3.1A* Certificate of Merger dated January 19, 2000 relating to the acquisition of Ithority
Corporation.
3.1B* Certificate of Merger dated February 24, 2000 relating to the acquisition of PeopleMover,
Inc.
3.1C* Certificate of Amendment to Certificate of Incorporation.
3.2* Amended and Restated Certificate of Incorporation of the Company.
3.3* Bylaws of the Company.
3.4* Amended Bylaws of the Company.
4.1* Certificate for Shares.
10.1* Lease Agreement dated August 10, 1999, between the Company and Samson Associates, LLC as
amended.
10.2* Modification and Extension of Lease dated August 6, 1999, between the Company and Royal
Realty Corp.
10.3* Employment Agreement dated April 1, 1999, between the Company and Ari B. Horowitz.
10.3A* Amendment to Employment Agreement of Ari B. Horowitz dated September 2, 1999.
10.4* Amended and Restated Employment Agreement dated March 6, 2000, between the Company and
Carlos B. Cashman.
10.5* Loan and Security Agreement dated May 19, 1999, between Silicon Valley Bank and the
Company.
10.6* Loan and Security Agreement dated August 17, 1999, between Silicon Valley Bank and the
Company.
10.7* Amended and Restated Registration Rights Agreement dated March 16, 2000, among the
Company and the Security holders parties thereto.
10.8* The Company's 1998 Stock Option Plan.
10.9*+ Letter Agreement dated October 15, 1999, between the Company and J.P. Morgan Corporation.
10.10*+ Letter Agreement dated November 21, 1999, between the Company and CareerPath.com, Inc.
10.11* Standard Form of FreeAgent e.office services agreement.
10.12* Series A Securities Purchase Agreement dated December 24, 1998, among the Company and the
signatories thereto.
10.13* Series B Securities Purchase Agreement dated September 3, 1999, among the Company and the
purchasers of the Series B Convertible Preferred Stock.
10.14* Agreement and Plan of Merger dated May 27, 1999, among the Company, The Churchill Benefit
Corporation, William Bahr and Churchill Acquisition Corp.
10.15* Agreement and Plan of Merger dated January 30, 2000 among the Company, Opus PM
Acquisition Corp., PeopleMover, Inc. and the other parties thereto.
10.16* Agreement and Plan of Merger dated January 19, 2000 among the Company, Ithority
Corporation and the other parties thereto.
10.17* Asset Purchase Agreement dated as of January 12, 2000 among Brainstorm Interactive, Inc.,
the Company and the other parties thereto.
10.18* Escrow Agreement dated as of February 24, 2000 among the Company, Suntrust Bank and
James L. Jonassen and Ali Behnam.
10.19* Escrow and Pledge Agreement dated as of January 19, 2000 among SunTrust Bank, the Company
and the other parties thereto.
10.20* Amended and Restated Employment Agreement dated February 2, 2000, between the Company and
Richard S. Miller.
10.21* Agreement between The Churchill Benefit Corporation and Automatic Data Processing.
10.22* Employment Agreement dated February 29, 2000, between the Company and Allen Berger.
10.23* Strategic Partner Registration Rights Agreement dated February 7, 2000 between the
Company and Lucent Technologies Inc.
10.24* The Company's 2000 Stock Option Plan.
10.25* The Company's 2000 Stock Option Plan for Non-Employee Directors.
10.26* The Company's 2000 Employee Stock Purchase Plan.
10.27* Registration Rights Agreement dated February 24, 2000 between the Company and the PM
Security holders.
10.28* PeopleMover, Inc. 1999 Stock Incentive Plan.
10.29* Stock Purchase Agreement dated February 28, 2000, between the Company and Dell USA L.P.
65
10.30* Form of Strategic Partner Registration Rights Agreement dated _______________ between the
Company and Dell USA L.P.
10.31* Employment Agreement dated as of March 23, 2000 between the Company and Dr. Ram
Chillarege.
10.32* Non-Statutory Option Agreement dated as of March 23, 2000 by and between the Company and
Dr. Ram Chillarege.
10.33* Amended and Restated Non-Statutory Option Agreement dated as of February 2, 2000 by and
between the Company and Richard S. Miller.
10.34* Promissory Note of Richard S. Miller.
10.34A Amended and Restated Promissory Note of Richard S. Miller dated November 21, 2000
10.35* Pledge Agreement between Company and Richard S. Miller.
10.35A Amended and Restated Pledge Agreement dated as of November 21, 2000 between Company and
Richard S. Miller
10.36* Form of Agreement between the Company and the FreeAgent e.office employee.
10.37 Employment Agreement dated March 13, 2000 between the Company and Richard McCann
(Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q dated March
31, 2000)
10.38 Employment Agreement dated May 2, 2000 between the Company and Mary Anne Walk
(Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q dated
June 30, 2000)
10.39 Employment Agreement dated May 15, 2000 between the Company and Wendy Reveri
(Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q dated
June 30, 2000)
10.40 Employment Agreement dated June 12, 2000 between the Company and Jeanne Murphy
(Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q dated
June 30, 2000)
10.41 Employment Agreement dated September 7, 2000 between the Company and Peter Schwartz
(Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q dated
December 31 2000)
10.42 Employment Agreement dated January 30, 2000 between PeopleMover, Inc. and Patrick S. Moore
10.43 Assignment and First Amendment to Employment Agreement dated as of December 13, 2000
among PeopleMover, Inc., the Company and Patrick S. Moore
21.1 Subsidiaries of the Company.
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
-----------
* Incorporated by reference to our Registration Statement on Form S-1,
Registration No. 333-93185.
+ We have been granted confidential treatment of certain provisions of this
exhibit pursuant to Rule 406 of the Securities Act of 1933. The entire
agreement has been filed separately with the Securities and Exchange
Commission.