AREM, very important piece by Herb Greenberg after the close, still no position taken.
<<For the better part of a year and a half, AremisSoft (AREM:Nasdaq - news - boards), a highly acquisitive, $123 million enterprise software company, has been bragging about a $37.5 million contract with the Bulgarian Ministry of Health "to automate" Bulgaria's health care system. But is the $37.5 million contract really worth just $3.75 million? According to government officials in Bulgaria and an official with the World Bank, which is funding the project: Yes.
This is just the latest in the evolving saga of AremisSoft, which has been the focus of a growing number of shorts-sellers, all of whom share the concern that something doesn't appear to add up.
The company responded today, issuing a press release blasting the "circulation of a specious anonymous 'short report' and other spurious and unsubstantiated rumors the company believes are being disseminated by short-sellers in an apparent attempt to create fear and uncertainty in the company's shareholder base and to depress the price of the company's shares." That follows a press release yesterday that heralded the purchase of stock by one of AremisSoft's two CEOs. That, in turn, coincided with a 13D filing by one-time raider Irwin L. Jacobs, indicating he had accumulated 5.76% of the company. At the same time, a William Blair analyst decided to downgrade the stock to "not rated" because she couldn't get a firm handle on the conflicting information she has been hearing.
Among the issues: That $37.5 million contract.
Here's the story:
On Dec. 17, 1999, AremisSoft issued a press release claiming to have signed the $37.5 million Bulgarian contract. It said the contract was "initiated" by the National Health Insurance Fund of Bulgaria, which funds the health care system. AremisSoft said the contract would be recognized over an 18- to 24-month "installation period" beginning in January 2000.
In a report that same day, Paul Bloom, then an analyst at Cruttenden Roth and now AremisSoft's executive vice president of corporate development (and chief spokesman), said the project was backed by the World Bank. He added in that report that the World Bank has put "the necessary funds in escrow."
Bloom and others have subsequently referred to the $37.5 million contract numerous times. On a March 28 conference call from SG Cowen's Global Tech Conference in Cannes, France, Bloom said: "The $37.5 million [contract] is the first phase of a two to three hundred million dollar program which is multiple years, and that would be to install the systems you see here in all the different hospitals and pharmacies and labs." Two days later, on AremisSoft's investor's day conference call from Sofia, Bulgaria, Bloom reiterated the value of the entire project. Saurabh Singhania, AremisSoft's project manager in Bulgaria, added that AremisSoft is "recruiting more people, increasing our manpower in order to be ready to take on the next phases, which are much wider in terms of complexity, technology, and the scope of work involved ... phase three and four." Singhania said he expects phase three "to be awarded sometime later this year."
The contract is also mentioned in AremisSoft's SEC filings. In its 10-K for 1999, the company said the $37.5 million contract is "structured in multiple phases and we anticipate recognizing revenues from the contract over a three-year period from the day of signing, with the later phases subject to the availability of approximately $20 million." One year later in its 10-K, the company said: "During 2000, we continued our performance under two significant contracts in Bulgaria, one with a private company and the other with Bulgaria's National Health Insurance Fund. We have completed certain phases under both contracts and continue to perform under the terms of each contract." There were no further details. (It's often a red flag when a company doesn't include the same details from one 10-K to the next.)
The rub: Konstantine Andreev, who is with the National Health Insurance Fund, told me this morning that AremisSoft must be mistaken about the size of its contract. "Replace the comma," he says, "and you get $3.75 million. It's not $37.5 million. It's $3.75 million. Three million, seven-hundred and fifty thousand dollars." That was confirmed later this morning by Denitsa Sacheva, chief of staff of the Ministry of Health, who told me: "AremisSoft has only one contract, and it's for $3.7 to $3.8 million dollars." She said that at the time, the entire amount earmarked for building the information-technology system over five years was about $40 million (in U.S. dollars), "and it's hard to spend all of that in the first phase." She further says that AremisSoft's claim of a $37.5 million contract resulted in something of a scandal in Bulgaria. "They thought we were doing something illegal with their money." As far back as a year ago, she adds, Dr. Boyko Penkov, currently head of the Insurance Fund, complained about the figure in a letter to AremisSoft. She says she has no idea what the outcome of the complaint was, but "at the present, we're stuck because we need that software system" that AremisSoft has promised to install as part of the $3.75 million contract....>>
Rest is at
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