UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File number 000-29793
Artemis International Solutions Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-4023714
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
599 Broadway, New York, NY 10012
(Address of Principal Executive Offices) (Zip Code)
212-651-1731
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of December 31, 2001.
Common Stock 249,121,572
(Class) (Outstanding Shares)
INTRODUCTORY NOTE
This Amendment to the Quarterly Report on Form 10-Q/A amends Item 1 of
Part I of the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001, as filed by the Registrant on November 19, 2001, to restate
the historical stockholders' equity, shares and earnings per share data of
Artemis International Solutions Corporation to give retroactive effect to the
reverse acquisition of the Registrant.
Accordingly, stockholders' equity, shares and related earnings per
share data of the Registrant reflect the retroactive restatement of the reverse
acquisition. As a result the following items have been amended:
Consolidated Statements of Operations:
For the three months ended For the nine months ended
September 30, 2001 September 30, 2001
------------------ ------------------
(In thousands, except per share amounts)
Basic and diluted earnings per share
2001 2000 2001 2000
-------- -------- ---------- ----------
As reported (0.09) (1.17) (0.58) (1.43)
As restated (0.03) (0.01) (0.08) (0.02)
Weighted average common shares used in computing
basic and diluted net loss per share
As reported 82,826 2,150 29,434 2,109
As restated 232,638 199,424 210,505 199,424
Consolidated Balance Sheet:
September 30, 2001 December 31, 2001
------------------ ------------------
Common Stock
As reported 124 23
As restated 249 199
Preferred shares authorized
As reported -- --
As restated 25,000 25,000
Common shares authorized
As reported 150,000 150,000
As restated 500,000 500,000
Additional paid-in-capital
As reported 80,073 74,555
As restated 79,948 74,379
Consolidated Statement of Stockholders' Equity:
Common stock - shares
As reported 123,737 2,242
As restated 249,237 199,424
Common stock - amount
As reported 124 23
As restated 249 199
Capital contribution/Common Stock -
parent company contribution of subsidiary - shares
As reported -- 55
As restated -- --
Capital contribution/Additional Paid-in Capital -
parent company contribution of subsidiary - amount
As reported -- 419
As restated -- 425
Artemis International Solutions Corporation
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
September 30, 2001 and December 31, 2000 1
Consolidated Statements of Operations for
the three and nine months ended September 30, 2001
and September 30, 2000 2
Consolidated Statement of Stockholders
Equity for the nine months ended September 30, 2001 3
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2001 and September 30, 2000 4
Notes to the Consolidated Financial Statements 5-22
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 23-31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 32-33
Item 2. Change in Securities and Use of Proceeds 33
Item 3. Defaults Upon Senior Securities 33
Item 4. Submission of Matters to a Vote of Securities Holders 33
Item 5. Other Information 33
Item 6. Exhibits and Reports on Form 8-K 33
Artemis International Solutions Corporation
Item 1. Financial Statements
Artemis International Solutions Corporation
Consolidated Balance Sheets
September 30, 2001 December 31, 2000
(unaudited)
------------------------ -----------------------
(In thousands, except share amounts)
Assets
Current assets:
Cash $ 6,253 $ 3,200
Trade accounts receivable, less allowance for doubtful accounts of
$278 at September 30, 2001 and $138 at December 31, 2000 15,116 17,369
Accounts receivable-affiliates/distributors 279 1,235
Short-term investments -- 250
Prepaid expenses and other current assets 3,668 2,019
-------- --------
Total current assets 25,316 24,073
Property and equipment, net of depreciation of $4,515 at September 30,
2001 and $4,254 at December 31, 2000 3,823 1,825
Goodwill, net of accumulated amortization of $17,026 at September 30,
2001 and $10,505 at December 31, 2000 18,488 25,009
Other intangible assets, net of amortization of $7,291 at
September 30, 2001 and $2,284 at December 31, 2000 32,735 37,742
Deferred taxes 2,869 2,819
Investment in affiliates and other assets 2,517 1,102
-------- --------
Total assets $ 85,748 $ 92,570
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 6,861 $ 5,088
Accounts payable - parent company -- 2,050
Short-term line of credit 1,025 880
Current portion of long-term debt 1,082 1,770
Deferred revenue 8,407 8,228
Accrued liabilities 11,108 4,035
Accrued taxes 3,403 3,543
Other accrued liabilities 1,261 1,302
-------- --------
Total current liabilities 33,147 26,896
Long-term debt, less current portion 2,593 3,776
Accrued pension and other liabilities 1,058 898
-------- --------
Total liabilities 36,798 31,570
-------- --------
Minority interest -- 95
Stockholders' equity:
Preferred shares, $0.001 par value, 25,000,000 shares authorized,
issued and outstanding (Restated) -- --
Common stock, $0.001 par value, 500,000,000 shares authorized,
249,237,000 and 199,424,000 issued and outstanding, respectively (Restated) 249 199
Investment in stock of parent company -- (2,783)
Additional paid-in capital (Restated) 79,948 74,379
Accumulated deficit (30,575) (11,388)
Accumulated other comprehensive income (loss) (672) 498
-------- --------
Total stockholders' equity 48,950 60,905
-------- --------
Total liabilities and stockholders' equity $ 85,748 $ 92,570
======== ========
See accompanying notes to consolidated financial statements
1
Artemis International Solutions Corporation
Consolidated Statements of Operations
(Unaudited)
(in thousands except, per share amounts)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2001 2000 - 2001 2000
------------ ------------- ------------ ------------
Revenue:
Software $ 2,731 $ 5,959 $ 10,757 $ 13,421
Support 4,382 2,864 12,246 8,636
Services 8,802 3,891 27,373 12,149
------------ ------------- ------------ ------------
Net Revenue 15,915 12,714 50,376 34,206
Cost of revenue:
Software 546 569 1,423 1,210
Support 1,848 1,408 5,547 4,047
Services 5,968 3,106 18,349 8,954
------------ ------------- ------------ ------------
8,362 5,083 25,319 14,211
------------ ------------- ------------ ------------
Gross margin 7,553 7,631 25,057 19,995
Operating expenses
Selling and marketing 4,357 3,128 12,910 8,758
Research and development 3,223 1,887 8,225 5,904
General and administrative 3,202 1,176 7,036 3,551
Amortization expense 3,858 1,899 12,154 3,373
Management fees -- 352 806 1,349
Acquisition costs 363 1,809 363 1,809
------------ ------------- ------------ ------------
15,003 10,251 41,494 24,744
------------ ------------- ------------ ------------
Operating loss (7,450) (2,620) (16,437) (4,749)
Interest expense, net 201 307 537 1,018
Equity in loss of unconsolidated affiliates 55 169
Other (income) expense 11 (125) (54) 103
------------ ------------- ------------ ------------
267 182 652 1,121
------------ ------------- ------------ ------------
Loss before income taxes (7,717) (2,802) (17,089) (5,870)
Income tax expense (benefit) (15) (283) 135 (2,850)
------------ ------------- ------------ ------------
Loss before minority interest (7,702) (2,519) (17,224) (3,020)
Minority interest in earnings of unconsolidated
Subsidiary -- -- (95) --
------------ ------------- ------------ ------------
Net loss $ (7,702) $ (2,519) $ (17,129) $ (3,020)
============ ============= ============ ============
Basic and diluted net loss per share
(Restated) $ (.03) $ (.01) $ (.08) $ (.02)
============ ============= ============ ============
Weighted average common shares used in
computing basic and diluted net
loss per share (Restated) 232,638 199,424 210,505 199,424
============ ============= ============ ============
See accompanying notes to consolidated financial statements
2
Artemis International Solutions Corporation
Consolidated Statement of Stockholders' Equity
September 30, 2001
Restated
(in thousands)
Accumulated
Common Stock Investment in Additional other
--------------------- stock of Parent Paid-in Accumulated comprehensive
Shares Amount Company Capital Deficit Income (Loss) Total
---------- --------- --------------- ---------- ----------- ------------- ------------
Balance December 31, 2000 199,424 199 (2,783) 74,379 (11,388) 498 60,905
Cancellation of stock in parent -- -- 2,783 (2,783) -- -- --
Capital contributions 425 -- -- 425
Net Loss -- -- -- -- (9,429) -- (9,429)
Foreign currency translation
adjustment -- -- -- -- -- (1,271) (1,271)
------------
Comprehensive loss -- -- -- -- -- -- (10,700)
-------- --------- --------------- ---------- ----------- ------------- ------------
Balance June 30, 2001 199,424 199 -- 72,021 (20,817) (773) 50,630
Shares of Opus360 outstanding
prior to reverse acquisition,
deemed acquired 49,813 50 -- 7,927 -- -- 7,977
Distribution of businesses
retained by parent company -- -- -- -- (2,056) -- (2,056)
Net Loss -- -- -- -- (7,702) -- (7,702)
Foreign currency translation
adjustment -- -- -- -- -- 101 101
------------
Comprehensive loss -- -- -- -- -- -- (7,601)
-------- --------- --------------- ---------- ----------- ------------- ------------
Balance September 30, 2001 $249,237 $ 249 $ -- $ 79,948 $ (30,575) $ (672) $ 48,950
======== ========= =============== ========== =========== ============= ============
See accompanying notes to consolidated financial statements
3
Artemis International Solutions Corporation
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
------------------------------------
2001 2000
------------------ ---------------
(In thousands)
Cash flow from operating activities:
Net loss $ (17,129) $ (3,020)
Adjustments to reconcile net income (loss) to net cash provided
Provided by operating activities:
Depreciation and amortization 12,906 2,191
Equity in loss of unconsolidated affiliates 169 -
Deferred income taxes and other (452) (1,033)
Changes in operating assets and liabilities
(Increase) decrease in trade accounts receivable 4,117 (220)
(Increase) decrease in prepaid expenses (1,336) 602
(Increase) decrease in other assets (910) (1,531)
Increase (decrease) in accounts payable (2,070) 902
Increase (decrease) in accrued expenses 1,670 862
Increase (decrease) in accrued wages (204) (58)
Increase (decrease) in deferred revenues (1,843) 92
Increase (decrease) in other liabilities (184) (334)
------------------ ---------------
Net cash used in operating activities (5,266) (1,547)
------------------ ---------------
Cash flow from investing activities:
Capital expenditures, net (552) (502)
Cash provided by former parent contribution of subsidiaries 848 -
Cash provided from acquisitions 13,554 -
------------------ ---------------
Net cash provided by (used in) investing activities 13,850 (502)
------------------ ---------------
Cash flow from financing activities:
Funding from debt and lines of credit 2,747 5,544
Assets retained by parent company (2,056) -
Payments of debt and capital leases (5,360) (5,424)
------------------ ---------------
Net cash used in (provided by) financing activities (4,669) 120
------------------ ---------------
Effect of exchange rate changes on cash (862) 1,195
------------------ ---------------
Net increase (decrease) in cash 3,053 (734)
Cash at the beginning of the period 3,200 1,626
------------------ ---------------
Cash at the end of the period $ 6,253 $ 892
================== ===============
See accompanying notes to consolidated financial statements
4
Artemis International Solutions Corporation
Notes to the Consolidated Financial Statements
(Unaudited)
(all tabular amounts in thousands except per share amounts)
Note 1. Organization and Summary of Accounting Policies
(a) Restatement
This Amendment to the Quarterly Report on Form 10-Q/A amends Item 1 of Part I of
the Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 2001, as filed by the Registrant on November 19, 2001, to restate
stockholders' equity, shares and earnings per share data of Artemis
International Solutions Corporation to give retroactive effect to the reverse
acquisition of the Registrant.
Accordingly, stockholders' equity, shares and related earnings per share data of
the Registrant reflect the retroactive restatement of the reverse acquisition.
As a result the following items have been amended:
Consolidated Statements of Operations:
For the three months ended For the nine months ended
September 30, 2001 September 30, 2001
------------------ ------------------
(In thousands, except per share amounts)
Basic and diluted earnings per share
2001 2000 2001 2000
-------- -------- ---------- ----------
As reported (0.09) (1.17) (0.58) (1.43)
As restated (0.03) (0.01) (0.08) (0.02)
Weighted average common shares used in computing
basic and diluted net loss per share
As reported 82,826 2,150 29,434 2,109
As restated 232,638 199,424 210,505 199,424
Consolidated Balance Sheet:
September 30, 2001 December 31, 2001
------------------ ------------------
Common Stock
As reported 124 23
As restated 249 199
Preferred shares authorized
As reported - -
As restated 25,000 25,000
Common shares authorized
As reported 150,000 150,000
5
As restated 500,000 500,000
Additional paid-in-capital
As reported 80,073 74,555
As restated 79,948 74,379
Consolidated Statement of Stockholders' Equity:
Common stock - shares
As reported 123,737 2,242
As restated 249,237 199,424
Common stock - amount
As reported 124 23
As restated 249 199
Capital contribution/Common Stock - parent company
contribution of subsidiary - shares
As reported - 55
As restated - -
Capital contribution/Additional Paid-in Capital -
parent company contribution of subsidiary - amount
As reported - 419
As restated - 425
(b) 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,
6
with operations in 27 countries and pro forma revenues of $76.8 million for the
year ended December 31, 2000.
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.
- Two entities, PMSoft Korea, Ltd. and JST Investments Pte Ltd.,
purchased by Proha on January 3, 2001, were subsequently
contributed by Proha to Legacy Artemis.
7
(c) Basis of Presentation
Generally accepted accounting principles 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 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.
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 10.)
The acquisitions of PMSoft Korea, Ltd. and JST Investments Pte Ltd.
were not material, either individually or collectively, to the Company's
consolidated financial statements taken as a whole. The Consolidated Statements
of Operations reflect the results of these companies' operations since
acquisition.
Each of the other 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 effectively under the common control of
Legacy Artemis. 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.
All material intercompany transactions and balances have been
eliminated in consolidation.
The unaudited consolidated financial statements have been prepared by
the Company in accordance with generally accepted accounting principles and
reflect all adjustments (all of which are normal and recurring in nature) that,
in the opinion of management, are necessary for a fair presentation of the
interim periods presented. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected for any
subsequent quarters or for the entire year ending December 31, 2001. These
interim
8
financial statements should be read with reference to the audited financial
statements of Legacy Artemis appearing in the definitive Proxy Statement filed
with the SEC on November 6, 2001.
(d) Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and 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.
(e) 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 assets 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. Since the Company's inception through
September 30, 2001, no impairment losses have been identified.
(f) Translation of Foreign Currencies
Assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at the end of the period exchange rates, and revenues and expenses are
translated at average rates prevailing during the period. Translation
adjustments are included as a component of stockholders' equity. Foreign
currency transaction gains and losses are included in results of operations.
Note 2. Comprehensive Loss
The components of comprehensive loss, net of taxes, were as follows:
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
----------------- ------------- ----------------- -------------
Net loss $ (7,702) $ (2,519) $ (17,129) $ (3,020)
Other comprehensive income (loss)
Foreign currency translation 101 (315) (1,170) (1,114)
----------------- ------------- ----------------- -------------
Comprehensive loss $ (7,601) $ (2,834) $ (18,299) $ (4,134)
================= ============= ================= =============
Note 3. Acquisitions
On July 31, 2001, Opus360 acquired all of the capital stock of Legacy Artemis in
exchange for 73,938,702 shares of its common stock delivered on July 31, 2001
and 125,484,858 shares of its common stock delivered on November 20, 2001.
Accordingly, Artemis International's authorized and outstanding shares in the
amount of 500,000,000 and 199,424,000, respectively, and their related values
9
give retroactive effect to Opus360's authorized shares at November 20, 2001, the
shares held by Proha upon completion of the two-step acquisition on November 20,
2001, and the 49,813,000 outstanding shares of Opus 360 on July 31, 2001, the
transaction date, as if such shares had been acquired by Legacy Artemis and
authorized and outstanding at the beginning of the periods shown. 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, under the
purchase method of accounting. The excess of the fair values of the identifiable
net assets over the purchase price was treated as negative goodwill. Negative
goodwill was 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 were reduced to zero.
The purchase price was determined using the number of shares
attributable to the Opus360 interest in the combined post merger entity and the
five day average closing price of Opus360 common stock on April 11, 2001 and the
two days preceding and following April 11, 2001, the date the terms were agreed
by the parties and announced to the public.
Outstanding shares prior to Share Exchange Transaction 49,857
Average closing price $0.20
Market value $9,971
Value issued to acquiror per Share Exchange $7,977
Agreement(approx.80%) 747
Acquisition costs $8,724
Total purchase consideration
Fair value of net assets acquired $17,674
-------
Excess of fair market value of net assets acquired over
market value $8,950
=======
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:
10
Cash $13,555
Prepaid expenses and other current assets 1,269
Property, plant and equipment 7,481
Other assets
Purchased software 2,036
Capitalized software 2,214
Other assets 782
-------
Subtotal 5,032
-------
Total assets 27,337
Current liabilities (9,594)
Other liabilities (69)
-------
Net assets $17,674
=======
The excess of the fair market value of the net assets acquired over the
purchase price is negative goodwill. SFAS No. 141, "Business Combinations"
provides that all business combinations initiated after June 30, 2001 must be
accounted for using the purchase method. Negative goodwill, the amount by which
the sum of the fair market values of the assets acquired and liabilities assumed
exceeds the acquisition cost, must be allocated as a proportionate reduction in
the basis of certain acquired assets.
The negative goodwill of approximately $9.0 million has been allocated
proportionately as follows:
Property and equipment $5,350
Other assets 3,600
------
$8,950
======
Pro forma information:
The following unaudited pro forma combined condensed financial data
combine the historical 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 three and nine months ending September 30, 2001 and 2000,
respectively reflect the transaction as if it had occurred on January 1, 2000.
The report of KPMG LLP on the December 31, 2000 consolidated financial
statement for Opus360 contained an explanatory paragraph that stated Opus360 has
incurred substantial recurring losses from operations and expects to incur
substantial losses in the near future. These factors raise substantial doubts
about its ability to continue as a going concern. The combined condensed
financial data do not include any adjustments that might result from the outcome
of this uncertainty. The information should be read together with our historical
financial statements and related notes contained in the annual reports and other
information the Company has filed with the SEC.
11
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------------- ----------------------------------
2001 2000 2001 2000
---------------- --------------- --------------- -----------------
(in thousands except, per share amounts)
Revenue $ 15,950 $ 21,673 $ 52,138 $ 57,594
Net loss $(13,584) (17,154) $(44,633) (55,442)
Loss per share $ (0.05) $ (0.07) $ (0.18) $ (0.22)
Opus360's results of operations at July 31, 2001 has been adjusted to
reflect the pro forma adjustments required to eliminate an impairment charge of
approximately $23 million for the impairment of goodwill and the impairment of
computer equipment. In addition the amortization of deferred compensation has
been eliminated as the Company's deferred compensation was written off in
connection with its acquisition by Legacy Artemis, and depreciation of
amortization of property and equipment and intangibles have been adjusted to
reflect the write-down of non-current assets for the allocation of negative
goodwill.
On January 3, 2001, Proha purchased two entities, PMSoft Korea, Ltd.
and JST Investments Pte Ltd. and subsequently contributed these entities to
Legacy Artemis in exchange for 53,871 shares of Legacy Artemis's Series A Common
Stock. These acquisitions were not material, either individually or
collectively, to the Company's consolidated financial statements taken as a
whole. The Consolidated Statements of Operations reflect the results of these
companies' operations since acquisition.
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's equity holders in exchange for all of Legacy Artemis's 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.
As a result of the transaction, Legacy Artemis recorded goodwill of
approximately $18.7 million with a corresponding increase in additional paid-in
capital. Legacy Artemis also recorded approximately $32.3 million of intangible
assets and $2.2 million of in-process research and development. The pro forma
information above includes an adjustment to record the amortization of goodwill
as if the acquisition had occurred at January 1, 2000.
Note 4. Accounts Receivable, net:
At September 30, 2001 and December 31, 2000 the breakdown of accounts
receivable was as follows:
12
September 30, December 31,
2001 2000
------- -------
Billed receivables $13,512 $15,651
Unbilled receivables 1,882 1,856
------- -------
15,394 17,507
Less allowance for doubtful receivables (278) (138)
------- -------
Net Trade Accounts Receivable $15,116 $17,369
======= =======
Changes in the allowance for doubtful receivables were as follows:
September 30, December 31,
2001 2000
------- -------
Beginning balance $ (138) $ 0
Provision for doubtful receivables (178) (138)
Write-offs 38 0
------ -------
Ending balance $ (278) $ (138)
====== =======
Note 5. Lines of Credit
In February 2000 and June 2000, the Company borrowed $1.1 million and
$0.7 million, respectively, as part of a $1.8 million equipment line of credit
(the "Facility") with a bank. The annual interest rate on the Facility is equal
to the bank prime rate plus 1.25%. The Company has an outstanding balance under
the Facility at September 30, 2001 of $0.8 million with an interest rate of
prime plus 1.25%. The rate at September 30, 2001 was 8.75% per annum. The
Company is in compliance with the debt covenants of the Facility.
Foothill Capital has extended a combination of Note Payable and a Line
of Credit totaling approximately $4.2 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. At September 30, 2001, $2.4 million
was drawn under the Foothill Facility.
13
September 30, December 31
2001 2000
---------------------- ---------------------
Note payable, line of credit, due to Foothills $ 2,431 $ 5,325
Capital Corporation. Interest rate of prime plus
2.00% (11.5% at December 31, 2000 and 9.5% at
September 30, 2001).
Note payable to Proha Plc. Interest rate of 4% per 390
annun which is payable on demand.
Other long-term debt. A bank facility bearing 48
interest of 9% per annun payable in arrears at the
end of each month.
Silicon Valley Bank line of credit facility. 806
Interest rate of prime plus 1.25% (8.75% at
September 30, 2001).
---------------------- ---------------------
Total 3,675 5,325
Less current portion of long term debt 1,082 1,770
---------------------- ---------------------
Long term debt, less current portion $2,593 $3,555
---------------------- ---------------------
Interest paid was approximately $0.5 million and $1.0 million for the
nine months ended September 30, 2001 and 2000, respectively.
Note 6. Commitments
Advertising Agreements:
The Company remains contractually obligated for advertising commitments
entered into by Opus360 prior to the combination of Legacy Artemis and Opus360
on July 31, 2001.
The Company has to purchase an aggregate of $6.3 million in advertising
from various media companies and their affiliated Internet sites through
September 2002. Approximately $3.6 million of the advertising commitment is
contingent on the delivery of a specified number of monthly impressions, which
if not delivered can result in a termination of the commitment. As of September
30, 2001, the Company has purchased and expensed $4.0 million of the $6.3
million advertising commitment.
Leases:
The Company leases certain facilities and equipment under noncancelable
operating lease agreements. Rent expense for the nine months ended September 30,
2001 and 2000 was approximately $2.2 million and $2.1 million, respectively.
14
Future minimum rental commitments for the operating leases are as
follows:
(Three months ended December 31, 2001)
2001 $ 494
2002 1,578
2003 1,204
2004 317
2005 42
-----------
Total lease payments $3,635
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):
Three months ended
September 30,
2001 2000
---------- --------
Numerator:
Net loss $ (7,702) $ (2,519)
========= ========
Denominator:
Basic and diluted loss per share weighted
average shares 232,638 199,424
========= ========
Basic and diluted net loss per share $ (.03) $ (.01)
========= ========
Nine months ended
September 30,
2001 2000
----------- --------
Numerator:
Net loss $ (17,129) $ (3,020)
========== ========
Denominator:
Basic and diluted loss per share weighted
average shares 210,505 199,424
========== ========
Basic and diluted net loss per share $ (.08) $ (.02)
========== ========
Diluted net loss for the three and nine months ended September 30, 2001
does not include the effect of options and warrants to purchase 15,540,848
shares of common stock.
Basic and diluted loss per share are computed by retroactively
restating the shares outstanding by assuming that the aggregate amount of
199,423,560 shares issued to Proha in two tranches in connection with the
consummation of the transactions contemplated under the Share Exchange Agreement
have been outstanding for all periods presented. 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 include
49,813,000 shares that were issued and outstanding to the former shareholders of
Opus360 from the date of the first closing in connection with the acquisition on
July 31, 2001.
15
Note 8: Segment and Geographic Information
The Company's chief operating decision maker reviews financial
information presented on a country basis, accompanied by 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 "Training and Consulting" revenues are classified below
as Services revenue and the "Software License Sales and Other Recurring
Services" is now classified separately as Software revenue and Support revenue.
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.
The following table presents information about the Company's operations
by geographic area for the three and nine months ended September 30, 2001 and
2000.
16
For the Three and Nine Months Ended September 30, 2001 (in thousands):
Three Months Ended September 30, 2001
US UK Japan France Germany Italy Finland Asia Elimination Total
-------------------------------------------------------------------------------------------------------------
Revenue
Software $ 735 $ 581 $ 446 $ 94 $ 393 $ 286 $ 353 $ 77 $ (234) $ 2,731
Support 1,475 796 759 497 330 196 511 48 (230) 4,382
Services 5,117 666 478 724 232 815 426 380 (36) 8,802
-------------------------------------------------------------------------------------------------------------
Total Revenue 7,327 2,043 1,683 1,315 955 1,297 1,290 505 (500) 15,915
-------------------------------------------------------------------------------------------------------------
Cost of revenue:
Software 63 3 154 51 22 3 220 30 - 546
Support 533 339 567 187 84 5 111 22 - 1,848
Services 3,110 363 513 792 245 136 628 181 - 5,968
-------------------------------------------------------------------------------------------------------------
Total cost of revenue 3,706 705 1,234 1,030 351 144 959 233 - 8,362
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Operating income $ (5,644) $ (218) $ (111) $ (296) $ 85 $ 190 $ (937) $ (19) $ (500) $ (7,450)
-------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2001
US UK Japan France Germany Italy Finland Asia Elimination Total
-------------------------------------------------------------------------------------------------------------
Revenue
Software $ 3,309 $2,569 $1,133 $1,189 $ 750 $1,133 $ 1,249 $ 293 $ (868) $ 10,757
Support 4,389 2,315 1,773 1,554 967 562 1,314 184 (812) 12,246
Services 13,420 2,223 2,201 2,598 657 2,991 2,294 1,195 (206) 27,373
-------------------------------------------------------------------------------------------------------------
Total Revenue 21,118 7,107 5,107 5,341 2,374 4,686 4,857 1,672 (1,886) 50,376
-------------------------------------------------------------------------------------------------------------
Cost of revenue:
Software 169 187 284 120 41 28 514 80 - 1,423
Support 1,705 927 1,351 636 246 308 257 117 - 5,547
Services 8,067 1,228 1,636 2,439 669 1,632 2,056 622 - 18,349
-------------------------------------------------------------------------------------------------------------
Total cost of revenue 9,941 2,342 3,271 3,195 956 1,968 2,827 819 - 25,319
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Operating income $(13,427) $ (194) $ (235) $ 251 $ 1 $1,098 $(2,070) $ 25 $ (1,886) $(16,437)
-------------------------------------------------------------------------------------------------------------
For the Three and Nine Months Ended September 30, 2000 (in thousands):
Three Months Ended September 30, 2000
US UK Japan France Germany Italy Finland Asia Elimination Total
-------------------------------------------------------------------------------------------------------------
Revenue
Software $ 4,040 $1,898 $ 683 $ - $ - $ - $ - $ - $ (662) $ 5,959
Support 1,405 826 633 - - - - - - 2,864
Services 1,954 798 1,139 - - - - - - 3,891
-------------------------------------------------------------------------------------------------------------
Total Revenue 7,399 3,522 2,455 - - - - - (662) 12,714
-------------------------------------------------------------------------------------------------------------
Cost of revenue:
Software 369 11 189 - - - - - - 569
Support 583 312 513 - - - - - - 1,408
Services 1,543 715 848 - - - - - - 3,106
-------------------------------------------------------------------------------------------------------------
Total cost of revenue 2,495 1,038 1,550 - - - - - - 5,083
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Operating income $ (2,942) $ 159 $ 163 $ - $ - $ - $ - $ - - $ (2,620)
-------------------------------------------------------------------------------------------------------------
17
Nine Months Ended September 30, 2000
US UK Japan France Germany Italy Finland Asia Elimination Total
-------------------------------------------------------------------------------------------------------------
Revenue
Software $ 8,292 $3,763 $2,028 $ - $ - $ - $ - $ - $ (662) $ 13,421
Support 4,146 2,651 1,839 - - - - - - 8,636
Services 6,105 2,550 3,494 - - - - - - 12,149
-------------------------------------------------------------------------------------------------------------
Total Revenue 18,543 8,964 7,361 - - - - - (662) 34,206
-------------------------------------------------------------------------------------------------------------
Cost of revenue:
Software 639 68 503 - - - - - - 1,210
Support 1,671 1,073 1,303 - - - - - - 4,047
Services 4,102 1,952 2,900 - - - - - - 8,954
-------------------------------------------------------------------------------------------------------------
Total cost of revenue 6,412 3,093 4,706 - - - - - - 14,211
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Operating income $ (5,650) $ 419 $ 482 $ - $ - $ - $ - $ - $ (4,749)
-------------------------------------------------------------------------------------------------------------
September 30, December 31,
2001 2000
------------------- -----------------
Identifiable Assets
USA 90,740 79,614
United Kingdom 9,658 9,997
Japan 3,071 3,492
France 2,577 4,180
Other 12,168 15,429
Eliminations (32,466) (20,142)
------------------- -----------------
Consolidated 85,748 92,570
------------------- -----------------
Note 9. 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 were approximately $352,000 for the
three months ended September 30, 2000 and approximately $806,000 and $1,349,000
for the nine months ended September 30, 2001 and 2000, 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 September 30, 2001 and December 31, 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:
18
September 30, 2001:
(In thousands) Total Net Income Total Artemis
Percent Investment Revenue (Loss) Assets Receivable
----------------------------------------------------------------------------------------
Scandinavia 9.9% 44 3,114 (22) 2,125 218
Australia 0.0% - - - - -
Netherlands 7.6% 66 2,291 (30) 1,290 50
Finland 19.9% 248 919 (52) 316 -
Changepoint Germany 40.0% 15 33 (762) 49 304
Changepoint France 40.0% 3 529 (181) 570 340
Other - 427
CSC Guarantee - (472)
----------- ----------
376 867
=========== ==========
December 31, 2000
Total Net Income Total Artemis
Percent Investment Revenue (Loss) Assets Receivable
----------------------------------------------------------------------------------------
Scandinavia 9.9% $ - $3,306 $(129) $2,056 $ 95
Australia 0.0% 318
Singapore 49.0% 549 2,027 91 1,669 365
Netherlands 7.6% 67 2,618 (49) 1,670 65
Finland 19.9% 219 1,692 (683) 4,324 -
Other - (36) - - 867
CSC Guarantee - - - - (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. The
Changepoint Germany and France joint ventures were entered into on January 3,
2001. The Finnish minority equity holdings was contributed to Legacy Artemis on
August 24, 2000 by Proha and is accounted for under the equity method as the
Company exercises significant influence over these the investment. 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.
Note 10. Stockholders' Equity
Proha contributed various subsidiaries, valued at $0.4 million to
Legacy Artemis on January 3, 2001. During the six months ended June 30, 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 six months
ended June 30, 2001, Legacy Artemis reported a net loss of approximately $9.4
million and a foreign currency translation adjustment of approximately $(1.3)
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
19
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 September 30, 2001 of approximately 249 million is therefore comprised
of the historical Opus360 50 million shares and the additional 200 million
shares issued in connection with the acquisition.
The consolidated financial statements as of December 31, 2000 and June
30, 2001 included the combination of certain businesses under common control.
Upon the consummation of the Share Exchange Transaction on July 31, 2001, the
legal transfer of the interest in the assets was completed. Pursuant to the
Share Exchange Agreement, certain assets with a book value of $2.1 million
included in the consolidated balance sheet as of December 31, 2000 and June 30,
2001 were retained by Proha. For the three months ended September 30, 2001, the
Company reported a net loss of $7.7 million and a foreign currency translation
adjustment of approximately $0.1 million.
Stock Options:
Legacy Artemis historically had issued options to purchase its stock to
employees and others. All such options were exercised, cancelled or expired
prior to the consummation of the Share Exchange Transactions. 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, as although 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 Opus360 which are still
issued and outstanding.
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 September 30, 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.
Note 11. Subsequent Events
On November 6, 2001, the Company filed a definitive Proxy Statement
with the SEC. The proxy solicited stockholder approval at a special meeting to
be held on November 20, 2001 of two proposals: (1) to amend our restated
certificate of incorporation to increase the number of authorized shares of
common stock of the Company from 150,000,000 to 500,000,000; and (2) to amend
our restated certificate of incorporation to change the name of the Company from
"Opus360 Corporation" to "Artemis International Solutions Corporation."
20
In connection with the Share Exchange Agreement, Proha entered into a
voting agreement (as amended, the "First Voting Agreement"), dated as of April
11, 2001 with Ari Horowitz. Pursuant to the First Voting Agreement, Ari Horowitz
has agreed among other things to cause all of his 3,333,351 shares of our Common
Stock to be cast in favor of proposal numbers 1 and 2.
In addition to the First Voting Agreement, and in connection with the
amendment to the Share Exchange Agreement, Proha entered into a voting agreement
(the "Second Voting Agreement"), dated as of July 31, 2001 with Ari Horowitz.
Pursuant to the Second Voting Agreement, Proha has agreed among other things to
cause all of its 73,938,702 shares of our Common Stock to be cast in favor of
proposal numbers 1 and 2.
As a result of both the First Voting Agreement and the Second Voting
Agreement, there are commitments outstanding representing approximately 62.44%
of the outstanding shares of our Common Stock to vote in favor or proposal
numbers 1 and 2. Because both proposal numbers 1 and 2 only require a majority
vote of our outstanding Common Stock and pursuant to the First Voting Agreement
and Second Voting Agreement, there are currently enough votes committed to
approve both proposal numbers 1 and 2.
On November 20, 2001 the Company passed resolutions 1 and 2 and as a
result has increased the authorized shares issued and outstanding as well as
changed its name to Artemis International Solutions Corporation. All share
amounts have been retroactively restated to reflect the issuance of all shares
in connection with the Share Exchange Agreement.
Note 12. Contingencies
As of September 30, 2001, the Company had granted options to purchase
approximately 97,125 shares of its common stock to its former FreeAgent e.office
employees, which may not have complied with certain federal and state securities
laws. On October 15, 2001, the Company paid to these former FreeAgent e.office
employees approximately $0.1 million, including interest, in exchange for all of
the unexercised options issued to these FreeAgent e.office employees at 20% of
the option exercise price multiplied by the number of shares subject to such
options, plus interest at the rate of 10% per year from the date of issuance
until October 15, 2001.
Acceptance of the Company's payment will terminate a purchaser's right
to rescind a sale of stock, which was not registered as may have been required.
Accordingly, if any FreeAgent e.office employees reject the payment, the Company
may continue to be contingently liable for the purchase price of these options,
which may not have been issued in compliance with applicable securities laws.
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
21
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"), two shareholders (the "Selling Shareholders") who sold stock in a
secondary offering 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, 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.
22
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Act of 1934, as amended. Such statements are based
upon current expectations that involve risks and uncertainties. Any statements
contained herein that are not statements of historical facts may be deemed to be
forward-looking statements. For example, words such as "may", "will", "should",
"estimates", "predicts", "potential", "continue", "strategy", "believes",
"expects", "anticipates", "plans", "intends", and similar expressions are
intended to identify forward-looking statements. Our actual results and the
timing of certain events may differ significantly from the results discussed in
the forward-looking statements. Important factors that could cause actual
results to differ materially from those expressed or implied by these
forward-looking statements are detailed in the documents filed by the Company
with the Securities and Exchange Commission including but not limited to those
discussed under the caption "Risk Factors" in our definitive Proxy Statement
filed with the SEC on November 6, 2001.
Overview
In April 2001, the Company entered into a Share Exchange Agreement
with Proha whereby approximately 80% of the ultimate shares outstanding after
the merger would be issued to Proha in exchange for shares of Artemis and
certain other subsidiaries of Proha. The transaction was structured in two
steps since the number of authorized Opus360 shares needed to be increased to
satisfy the 80% requirement. Despite the two step structure, the transaction
was accounted for upon the consummation of the first closing because a
majority controlling interest and voting agreements resulting from the first
closing constituted effective control.
On July 31, 2001, the Company consummated the first phase of a
transaction contemplated by the Share Exchange Agreement in connection with
which the Company exchanged approximately 74 million shares of its Common Stock
for all outstanding shares of Legacy Artemis. Generally accepted accounting
principles 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 transaction contemplated by the Share Exchange
Agreement, 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 will be 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 reporting purposes.
Legacy Artemis is a developer and supplier of comprehensive, project
management application software products and consulting services. Founded in
1976, Legacy Artemis has a history of leadership in the project and resource
collaboration market. Legacy Artemis's products estimate, plan, track, and
manage business projects using a comprehensive suite of integrated project and
resource collaboration software solutions. These products help clients
significantly improve their ability to execute projects in a timely, controlled
manner. Using these 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 Legacy Artemis's products has been successful in a
wide range of vertical industries including information systems, application
development, telecommunications, aerospace, pharmaceuticals, oil and gas,
23
construction and engineering, banking and finance, and manufacturing.
On August 24, 2000, Proha, a publicly held Finnish company, purchased
Legacy Artemis for approximately $50 million in stock and cash. Subsequent to
this 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
Opus360, 19.9% minority interests in each of Accountor and Intellisoft are to be
transferred to Artemis International. The audited combined financial statements
reflect the results of Artemis Finland and the 19.9% interests in Accountor and
Intellisoft from August 24, 2000, Enterprise Management Systems Srl, Artemis
International S.p.A., Solutions International SA, Artemis International GMBH,
and Artemis Sarl from December 1, 2000, and PMSoft Korea Ltd., and JST
Investments Pte Ltd. from January 3, 2001, the respective dates each of these
businesses became under common control. The businesses contributed on 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. In February 2000, Legacy Artemis elected to
change its fiscal year from March 31 to December 31 to coincide with that of
Proha.
Results of Operations
Three Months Ended September 30, 2001 and 2000
Revenue
For the quarter ended September 30, 2001, total Revenue was $15.9
million, an increase of 25% from total revenue of $12.7 million for the quarter
ended September 30, 2000. This increase is largely attributable to the addition
of the Contributed Businesses that had combined revenues of $5.4 million for the
three months ended September 30, 2001. Proha contributed these enterprises in
the period from August 24, 2000 to January 2001. These additional operations
helped Services Revenues to more than double from the $3.9 million for the
quarter ending September 30, 2000 to $8.8 million for the quarter ending
September 30, 2001. Support Revenues, benefiting from the expanded maintenance
base, also increased approximately 34%, from $2.9 million to $4.4 million. The
$3.3 million decrease in Software License Revenues reflects a particularly
strong September 2000 quarter and fewer new client sales in the most recent
quarter. The entities that are included in both the three months ended September
30, 2001 and September 30, 2000 had revenues of approximately $10.5 million and
$12.7 million, respectively.
Cost of Revenue
Cost of revenue for the quarter ended September 30, 2001
increased to $8.4 million, an increase of $3.3 million or 65% from the $5.1
million for the quarter ended September 30, 2000. The change was primarily a
function of the increased third party consulting costs associated with the
increased consulting revenues. Cost of Software Revenue was essentially flat
despite decreasing software sales because of fixed third party royalty payments.
The Contributed Businesses had combined cost of revenue of $2.7 million for the
three months ended September 30, 2001. The entities that are included in both
the three months ended September 30, 2001 and September 30, 2000 had cost of
revenues of approximately $5.7 million and $5.1 million, respectively.
24
Gross Profit
Total gross profit for the quarter ended September 30, 2001 was $7.6
million, almost unchanged from the $7.6 million for the quarter ended September
30, 2000. Gross profit margin for the 2001 period declined to 48% from 60% for
the three months in 2000 due to the substantial reduction in higher margin
software revenues.
Operating Expenses
Operating expenses for the quarter ended September 30, 2001 were $15.0
million, an increase of $4.8 million or 46% from the $10.3 million for the
quarter ending September 30, 2000. Operating expenses for the quarter ended
September 30, 2001 included approximately $2.1 million of operating expenses
from Opus360, which was combined with Legacy Artemis on July 31, 2001, and $3.6
million of operating expenses from the Contributed Businesses. These companies
including Opus360 were not included in operating expenses for the quarter ended
September 30, 2000.
Selling and marketing: Selling and marketing expenses for the quarter
ended September 30, 2001 were $4.4 million, an increase of $1.3 million or 39%
from the $3.1 million for the quarter ended September 30, 2000. The increase in
selling and marketing expenses resulted from the inclusion of the Contributed
Businesses which had combined selling and marketing expenses of $2.1 million for
the three months ended September 30, 2001.
Research and development: Research and development expenses for the
quarter ended September 30, 2001 were $3.2 million, an increase of $1.3 million
or 70% from the $1.9 million for the quarter ended September 30, 2000. The
increase in research and development expenses resulted from the combination of
the Company with Legacy Artemis. Research and development cost also increased as
the Company continued to launch new products and upgrade existing products
during the quarter. The Contributed Businesses had combined research and
development expenses of $0.2 million for the three months ended September 30,
2001.
General and administrative: General and administrative expenses for the
quarter ended September 30, 2001 were $3.6 million, an increase of $2.4 million
or 203% from the $1.2 million for the quarter ended September 30, 2000. The
increase in general and administrative expenses resulted from the combination of
the Company with Legacy Artemis. The combined group has increased its overhead
as a result of an increase in its facilities and personnel resulting from the
combination. The Contributed Businesses had combined general and administrative
expenses of $0.7 million for the three months ended September 30, 2001.
Amortization: Amortization expense consists of the amortization of
goodwill resulting from the acquisition of Legacy Artemis by Proha Plc in August
of 2000. Amortization expense for the quarter ended September 30, 2001 was $3.9
million, an increase of $2.0 million or 103% from the quarter ended September
30, 2000. The current quarter includes amortization for three months compared to
only approximately one and one-half months in the quarter ended September 30,
2000. The Contributed Businesses had combined amortization of $0.7 million for
the three months ended September 30, 2001.
Management fees: The Company incurred no management fees in the quarter
ended September 30, 2001 since previously existing management agreements were
terminated when the Company and Legacy Artemis entered into the Share Exchange
Agreement. For the quarter ended September 30, 2000, management fees were $0.4
million.
Acquisition costs: Acquisition costs for the quarter ended September
30, 2001 were $0.3 million. For the quarter ended September 30, 2000 acquisition
25
costs were $1.8 million and related to the acquisition of Legacy Artemis by
Proha Plc. As the acquired company, Legacy Artemis expensed the costs it
incurred relating to its acquisition by Proha.
Operating Loss
Operating loss for the quarter ended September 30, 2001 was $7.5
million, an increase of $4.8 million from the $2.6 million for the same period
in 2000. The increase is the result of lower software revenues, the additional
costs of the Opus360 operation and amortization of goodwill for the Contributed
Businesses, partially offset by elimination of management fees and acquisition
costs.
Non-operating Expenses
Non-operating expenses, consisting primarily of gains/(losses) from
minority interests in joint ventures and interest expense, increased to $0.3
million for the quarter ended September 30, 2001 from $0.2 million for the
quarter ended September 30, 2000. This was due to the start up losses
experienced in two joint ventures, offset slightly by decreased interest costs
accruing from lower borrowings and rates.
Income Tax Benefit
Income tax benefit for the quarter ended September 30, 2001 was
$15,000, a decrease of approximately $0.3 million from the $0.3 million for the
quarter ended September 30, 2000. The income tax benefit for the quarter ended
September 30, 2000 resulted from the utilization of net operating loss by Legacy
Artemis's foreign subsidiaries.
Net Loss
As a result of the foregoing, the net loss for the quarter ended
September 30, 2001 increased to $7.7 million from $2.5 million in the comparable
quarter of 2000.
Nine Months Ended September 30, 2001 and 2000
Revenues
Total Revenues for the nine months ended September 30, 2001 were $50.4
million. This represents an increase of $16.2 million, or 47%, from $34.2
million in the comparable period of 2000. Software license sales declined $2.6
million to $10.8 million for the nine months ended September 30, 2001, primarily
due to the reduction experienced in the third quarter of 2001. Support Revenues,
primarily software maintenance fees, were up $3.6 million to $12.2 million for
the nine months ended September 30, 2001 as a function of the installed base
added from the Contributed Businesses. Consulting revenue increased 126% to
$27.4 million, an increase of $15.3 million from $12.1 million for the first
nine months of fiscal year 2000. This increase reflects more and lengthened
consulting engagements in new and previously served locales. Sales for the nine
months ended September 30, 2001 included $18.9 million from the Contributed
Businesses. For the nine months ended September 30, 2001 the Contributed
Businesses had combined revenue of $18.7 million. The entities that are included
in both the nine months ended September 30, 2001 and September 30, 2000 had
revenues of approximately $31.5 million and $34.2 million, respectively.
Cost of Revenues
For the nine months ended September 30, 2001, the total Cost of Revenue
26
increased to $25.3 million, an increase of $11.1 million or 78% from the $14.2
million for the period ended September 30, 2000. The increase was primarily a
function of the increased third party consulting costs associated with the
increase in consulting services provided to clients. Cost of Revenues for the
nine months ended September 30, 2001 included $9.8 million from the Contributed
Businesses. The entities that are included in both the nine months ended
September 30, 2001 and September 30, 2000 had cost of revenues of approximately
$15.5 million and $14.2 million, respectively.
Gross Profit
Total Gross Profit for the period ended September 30, 2001 was $25.1
million, an increase of $5.1 million or 25%, from $20.0 million for the nine
months ended September 30, 2000. Gross profit margin for the first nine months
of 2001 declined to 50% from 58% for the first nine months of 2000 due to
reduced volume of high margin software sales in the most recent quarter.
Operating Expenses
Operating expenses for the nine months ended September 30, 2001 were
$41.5 million, an increase of $16.8 million or 68% from the $24.7 million for
the quarter ending September 30, 2000. Operating expenses for the nine months
ended September 30, 2001 included approximately $2.1 million of operating
expenses from Opus360 which was acquired by Legacy Artemis on July 31, 2001 and
$9.8 million from the Contributed Businesses. These companies including Opus360
were not included in operating expenses for the quarter ended September 30,
2000.
Selling and marketing: Selling and marketing expenses for the nine
months ended September 30, 2001 were $12.9 million, an increase of $4.1 million
or 47% from the $8.8 million for the nine months ended September 30, 2000. The
increase in Selling and Marketing expenses resulted from the inclusion of
Selling and Marketing expenses for the Contributed Businesses which had combined
selling and marketing expenses of $5.5 million for the nine months ended
September 30, 2001.
Research and development: Research and development expenses for the
nine months ended September 30, 2001 were $8.2 million, an increase of $2.3
million or 39% from the $5.9 million for the quarter ended September 30, 2000.
The increase in Research and Development expenses resulted from the inclusion of
Research and Development expenses of $0.6 million from the Contributed
Businesses and $1.1 million from Opus360, which was acquired by Legacy Artemis
in July 2001.
General and administrative: General and administrative expenses for the
nine months ended September 30, 2001 were $7.0 million, an increase of $3.4
million or 94% from the $3.6 million for the nine months ended September 30,
2000. The increase in general and administrative expenses resulted from the
combination of the Company with Legacy Artemis and from the inclusion of general
and administrative expenses for new members of the Contributed Businesses. The
combined group has increased its overhead as a result of an increase in its
facilities and personnel resulting from the combination. The Contributed
Businesses had combined general and administrative expenses of $1.8 million for
the nine months ended September 30, 2001.
Amortization: Amortization expense consists of the amortization of
goodwill resulting from the acquisition of Legacy Artemis by Proha Plc in August
of 2000. Amortization expense for the nine months ended September 30, 2001 was
$12.2 million, an increase of $8.8 million or 259% for the $3.4 million for the
nine months ended September 30, 2000. The nine months ended September 30, 2000
included amortization for only a few months compared to nine
27
months for the comparable period in 2001. The Contributed Businesses had
combined amortization of $2.0 million for the nine months ended September 30,
2001.
Management fees: Management fees for the nine months ended September
30, 2001 were $0.8 million, a decrease of $0.5 million or 41% from the $1.3
million for the nine months ended September 30, 2000. The Company terminated its
management agreements in early 2001.
Acquisition costs: Acquisition costs for the nine months ended
September 30, 2001 were $0.3 million. For the nine months ended September 30,
2000 acquisition costs were $1.8 million and related to the acquisition of
Legacy Artemis by Proha Plc. As the acquired company, Legacy Artemis expensed
the costs it incurred relating to its acquisition by Proha.
Operating Loss
The nine month Operating Loss for the period ended September 30, 2001
was $16.4 million, an increase of $11.7 million from the $4.7 million for the
same period in 2000. The increase is primarily attributable to amortization of
goodwill expense of $12.2 million and other operating expenses associated with
the expanded operation.
Non-operating Expenses
Non-operating expenses consisting of interest expense and losses
associated with minority holdings decreased by $0.5 million to $0.7 million for
the nine months ended September 30, 2001 because of lower average rates and
balances on borrowings. For the nine months ended September 30, 2000,
non-operating expenses were $1.1 million.
Income Tax Expense (Benefit)
During the nine month period ended September 30, 2000, utilization of
domestic and foreign net operating loss carryforwards and a reduction in the
valuation allowance resulted in a net tax benefit of $2.9 million. Because of
the effect of permanent goodwill differences in the September 2001 period, there
was a net tax expense of $0.1 million.
Net Income (Loss)
The aforementioned items increased the Net Loss for the nine months
ended September 30, 2001 to $17.1 million from $3.0 million for the same period
in 2000.
Liquidity and Capital Resources
Legacy Artemis has historically funded operations through the use of
cash flow from internal cash flow and loans from Computer Sciences Corporation,
the shareholders of Legacy Artemis, the shareholders of Software Productivity
Research and Foothill Capital Corporation ("Foothill").
For the nine months ended September 30, 2001 and 2000, net cash used in
operations was $5.3 million and $1.5 million, respectively. For the nine months
ended September 30, 2001 the $5.3 million cash used in operations was primarily
due to the net loss of $17.1 million adjusted for non-cash amortization of
goodwill and depreciation of $12.9 million, and changes in operating assets and
liabilities. For the nine months ended September 30, 2000, the Company's net
loss was $3.0 million, which was reduced by non-cash expenses and tax benefits
of $1.2 million and changes in operating assets and liabilities of $0.3 million,
resulting in net cash used in operations of $1.5 million.
28
Cash provided by investment activities for the nine months ended
September 30, 2001 was $13.9 million compared to cash used in investing
activities of $0.5 million for the nine months ended September 30, 2000. The
cash provided in 2001 resulted from cash provided by entities, primarily
Opus360, that was acquired during the period. Capital expenditures were
approximately $0.5 million for the nine months ended September 30, 2001 and
2000, respectively.
Net cash used in financing activities was $4.7 million for the nine
months ended September 30, 2001 compared to cash provided by financing
activities of $0.1 million for the nine months ended September 30, 2000. During
the nine months ended September 30, 2001, the Company's financial statements
reflect a reduction in shareholders' equity as a result of certain assets in the
amount of $2.1 million being retained by Proha, the parent company, which were
excluded from the business combination pursuant to the Share Exchange Agreement.
The Company also repaid approximately $5.4 million of debt, primarily to
Foothill, and received additional financing of $2.7 million. During the nine
months ended September 30, 2000, the Company received financing of $5.5 million
and repaid $5.4 million of debt.
Foothill has extended a combination of a note payable and line of
credit, bearing interest at the prime rate plus 2% (11% at September 30, 2000
and 9% at September 30, 2001) with a final maturity date of August 1, 2002. The
combined balances, which are secured by the Company's assets, at September 30,
2001 and 2000, were $2.4 and $4.0 million, respectively.
Interest paid under all borrowings was approximately $0.4 million for
the nine months ended September 30, 2001 and $0.7 million for the nine months
ended September 30, 2000.
Legacy Artemis has a revolving $1.8 million line of credit facility
with Foothill Capital corporation which may be used to fund working capital
requirements. The balance on the line of credit at September 30, 2001 was $1.0
million at September 31, 2001. In addition Opus360 has two lines of credit with
a bank aggregating $2.5 million, which may be used to purchase equipment. The
balance on these lines aggregated $0.8 million at September 30, 2001. The
management of the Company believes that the cash flow from operations will be
sufficient to meet operating and other commitments.
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 in accordance with the provisions of Statement 142.
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 or Disposal of Long-Lived Assets. SFAS
144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and will be adopted by the Company in 2002.
29
The Company is required to adopt the provisions of Statement 141
immediately, and Statement 142 effective January 1, 2002. Furthermore, any
goodwill and any intangible asset 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.
Goodwill and intangible assets acquired in business combinations completed
before July 1, 2001 will continue to be amortized prior to the adoption of
Statement 142.
Statement 141 will require upon adoption of Statement 142, that the
Company evaluate its existing intangible assets that were acquired in a prior
purchase business combination, and to make any necessary reclassifications in
order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company 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. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company 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.
As of September 30, 2001, the Company has approximately $51.2 million
of unamortized goodwill and other intangible assets subject to the transition
provisions of Statements 141 and 142. The Company has not yet determined the
effects SFAS 142 will have on the Company's operating results or financial
position.
In October 2001, the FASB issued Statements of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," ("SFAS 144"). SFAS 144, which replaces SFAS 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
requires long-lived assets to be measured at the lower of carrying amount or
fair value less the cost to sell. SFAS 144 also broadens disposal transactions
reporting related to discontinued operations. SFAS 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001.
The Company has not yet determined the effects SFAS 144 will have on its
financial position, results of operations or cash flows.
Qualitative and Quantitative Disclosure About Market Risk
At September 30, 2001, the majority of our cash balances were held
primarily in the form of short-term highly liquid investment grade corporate and
government securities. As a result, our interest income may be sensitive to
changes in the general level of U.S. interest rates. However, due to the
short-term nature of our investments and the fact that we generally hold these
investments until their maturity dates, we believe that we are not subject to
any material interest or market rate risks.
The Company utilizes lines of credit to purchase equipment and to back
certain financial obligations. The Company's outstanding balance under its lines
of credit at September 30, 2001 was $3.7 million.
The table below provides information about the Company's market
sensitive financial instruments and constitutes a forward looking statement.
30
Principal Amount by Expected Maturity
(in thousands)
Year ending December 31,
--------------------------------------------------
2001 2002 2003
--------------------------------------------------
Foothill note payable 271 1,082 1,078
Average interest rate 10.25% 9.50% 9.50%
Proha note payable - 390
Average interest rate 4%
Silicon Valley Bank note payable 120 546 140
Average interest rate 9.25% 8.75% 8.75%
Other note payable 48
Average interest rate 9.00%
31
ADDITIONAL INFORMATION
Part II - OTHER INFORMATION
Item 1. 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 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
32
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, 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.
Item 2. Change in Securities and Use of Proceeds
On July 31, 2001, the Company issued 73,938,802 shares of its common
stock to Proha Plc ("Proha") in exchange for all of the capital stock of
Artemis Acquisition Corporation, the parent company of the Artemis business.
This represented the closing of the first phase of the transaction
contemplated by the Share Exchange Agreement dated as of April 11, 2001, as
amended, between the Company and Proha. This offering was exempt from
registration under Section 4(2) of the Securities Act and satisfied the terms
and conditions of Rule 506 of the Securities Act. A Form D was filed on
August 14, 2001. The second phase of the transaction, in which the Company
issued an additional 125,484,858 shares of common stock to Proha, and
received 19.9% of each of two other subsidiaries of Proha, closed after the
conclusion of the Company's special meeting of stockholders held on November
20, 2001. This offering was also exempt from registration under section 4(2)
of the Securities Act and satisfied the terms and conditions of Rule 506 of
the Securities Act. A Form D was filed on November 20, 2001 with respect to
this second issuance.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
"First Amendment to the Share Exchange Agreement, dated as of July 10
2001, between Opus360 Corporation and Proha Plc", is incorporated herein by
reference to Form 8-K filed by the Company with the SEC on July 12, 2001.
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K on July 12, 2001 to report
the execution of an amendment to the Share Exchange Agreement, dated April 11,
2001, by and among Opus360 Corporation and Proha Plc, pursuant to which the
Company is expected to combine with Artemis Management Systems, Inc.
The Company also filed a Current Report on Form 8-K on August 13, 2001,
announcing that the first closing contemplated under the Share Exchange
Agreement, as amended by the First Amendment, was consummated on July 31, 2001
and that Proha's Artemis subsidiaries and Opus360 have combined operations and
will operate as Artemis International Solutions.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 9, 2002 Opus360 Corporation
(Registrant)
/s/ Peter Schwartz
------------------
Executive Vice President and
Chief Financial Officer
(Signature)
34