irwinljacobs.com on AREM! BWA HAH HAHAAHHA "Nasdaq Takes Corrective Action. Irwin L. Jacobs Letter to Shareholders No. 2 Dated: May 31, 2001
I noticed this morning that AREM has been put on Nasdaq Restricted List specifically relating
to Uniform Practice Code (UPC) 71 which requires the broker representing the seller of a
security to buy-in any shares not delivered to the buyer within 10 days of settlement date.
Whereas normally brokers can get extensions almost indefinitely when they are not able to
deliver securities by settlement date, this restriction establishes a zero tolerance for failure to
deliver past 10 days. My congratulations to Nasdaq!
Open Letter to AremisSoft Shareholders
From Irwin L. Jacobs
Irwin L. Jacobs Letter to Shareholders No. 1
Dated: May 29, 2001
I am sure that every AremisSoft shareholder has never been more confused, frustrated and/or
upset over the recent barrage of negative publicity that has been created and manufactured by
Herb Greenberg at thestreet.com, Alex Berenson at the New York Times and Michael
Rapoport at Dow Jones Newswire Service.
I believe that the management of AremisSoft has done a good job of trying to deal with the
distortions, lies, and stock manipulations that the short sellers created. However, since I have
obviously done more work on researching AremisSoft than the media, as well as putting my
own money at risk, I thought I could shed some real light on the situation by telling the
AremisSoft shareholders, from my perspective, what I believe are some of the real truths and
facts in this situation rather than the misinformation put out by short sellers and their supporting
media.
First of all there is something quite alarming and totally insidious about Herb Greenberg and his
column. One of the largest short sellers and outspoken critics of AremisSoft is none other than
David Rocker. What is remarkable is that Mr. Rocker is one of the largest shareholders of
thestreet.com. Isn’t that a coincidence that Herb Greenberg from thestreet.com is also one of
the biggest critics of AremisSoft and has been working overtime to try and destroy
AremisSoft’s credibility and business while one of his largest shareholders has been shorting
AremisSoft stock. What is disingenuous is that Herb Greenberg always states in his column that
he doesn’t have any financial interest in the stock he is writing about. What about his owner’s
conflict of interest? Does anyone believe that Rocker and Greenberg do not speak to each
other? Another remarkable coincidence is that Herb Greenberg and Alex Berenson from the
New York Times were at one time both working together at thestreet.com. After knowing this,
could anyone believe Greenberg and Berenson didn’t plan, discuss, and/or collaborate their
recent negative stories on AremisSoft, which stories came out coincidentally on the same day?
I’ll let you answer that question.
It is difficult for people to understand why sometimes we seem to get two very different
answers for the same question. Through my investigation I became totally satisfied that
AremisSoft did, in fact, complete $7 million of work already on the Bulgarian Government
Contract (NHIF) during 2000.
I am also satisfied that AremisSoft has been totally truthful in responding to questions on the
$37 million Bulgarian contract. Although I know management is concerned about discussing
any contract in an open public forum, I have encouraged them in the case of the Bulgarian
contract to give the public everything that needs to be told to put the controversy to bed once
and for all. Any such disclosures must of course be consistent with SEC and GAAP rules.
I went to great lengths to find out everything I could about AremisSoft business and its
management before I purchased my stock. I believe one thing is for sure - I did more
investigative and financial work on AremisSoft than Herb Greenberg, Alex Berenson, and
Michael Rapoport combined. Furthermore, I put my money where my mouth is by investing in
the companies that I talk about, rather than writing about them and hoping the stock goes down
so that a certain owner of the media company they work for can make money by the garbage
journalism the Herb Greenberg’s of the world write about. Such is, I believe, the case in
AremisSoft.
Following this memo I have included an interesting document that lays out in great detail several
negative articles about other companies which, I believe, Herb Greenberg coordinated with
David Rocker. I think you will be able to see the clear pattern of what these people have and
are continuing to do in what I believe is a clear securities law violation of stock manipulation. I
am also including a link to an article that Alex Berenson wrote for thestreet.com while he was
working there with Herb Greenberg, so that there can be no question as to his relationship with
Greenberg.
David Rocker document
Alex Berenson document
Michael Rapoport wrote an article on AremisSoft on May 24, 2001. Obviously he has no idea
what he is talking or writing about. Let me explain.
Rapoport pointed out that AremisSoft purchased two companies with declining revenues:
“Eltrax” – a hospitality company and “Fourth Shift” (FSFT) – a manufacturing company.
He reported that AremisSoft said Eltrax is profitable, but he did not say that is was profitable in
the quarter it was acquired. Fourth Shift is profitable as well, a fact which he did not mention.
The discussion about acquisition accounting would only be novel if you were asleep in the
software business for the past 20 years. There have been literally hundreds of deals, all of
which had a similar effect of increasing goodwill. Frequently, software companies do not have
hard assets and an acquisition would result in creating goodwill. Even Microsoft and Cisco
have enormous amounts of goodwill relative to their hard assets.
Rapoport is fundamentally using a flawed methodology about the value of a software company
by looking at changes in AremisSoft’s balance sheet. Software companies are valued by
investors and buyer/sellers based upon their earnings, growth, and business value, which is
based upon customers, products and management. The point he brings up about changing cash
to goodwill, which cannot be translated back into cash, is totally wrong because, again,
software companies are valued based on their earnings, growth, customers, products, etc.
Institutional investors would laugh at his analysis. It is embarrassing and shows absolutely no
understanding of the software industry or how companies monetize their intrinsic value.
In his GlobalSoft comments he chose not to mention that through public information available to
anyone, GlobalSoft generated $20 million in net income in 2000 and has publicly projected net
income of $33+ million for 2001. Nor did he mention that GlobalSoft is projecting 99%
revenues growth in 2001(This information is available in AremisSoft’s press release on the
transaction.) Obviously all of this makes the transaction look more compelling.
Finally, Rapoport should, but doesn’t, understand the following:
· AremisSoft acquisitions are estimated to account for less than 10% of analyst EPS
projections for 2001 and 2002.
· AremisSoft beat the Q1 2001 analyst EPS estimate by $0.05, which is more than
they projected as a contribution by either Eltrax or FSFT for all of 2001.
· AremisSoft EPS growth rate for 2001 exclusive of acquisitions is projected at
40%+, an amount which is consistent with the public targets for internal growth.
· AremisSoft revenue growth in Q1 2001 was indicated at 45%+ on the quarterly
conference call
· Once AremisSoft gets control of GlobalSoft, they have the option of delaying future
investment stages (except the first) if the transactions with GlobalSoft looks dilutive
to AremisSoft’s EPS in future quarters.
The same day, May 24, 2001, Michael Rapoport wrote his article, Herb Greenberg wrote
another pathetic article on AremisSoft, which clearly is short on the facts and has few
understandings and/or truths. Based on the similarity of contents and timing of Rapoport and
Greenberg’s articles, it looks like they have spent some time on the telephone together. Again,
let me explain.
Greenberg says AremisSoft is nothing more than a roll up when it had 39% and 60+% internal
growth in 1999 and 2000 respectively.
AremisSoft’s internal growth averaged 35% between 1996 and 1999. All this has been
discussed publicly many times.
AremisSoft indicated that FSFT met its expectations in Q1 2001. This is true. If Herb
had done his work he could have learned that almost 75% of FSFT revenue is from
services, not software, so the structural risk in the business is low.
Herb knows, or should know full well, that looking at historical results is not indicative
of future profitability after an acquisition because it depends upon what the acquiring
company does to the business. Thus looking solely at pro forma information is mostly
useless. AremisSoft has not stated it, but I am convinced that they have, taken several
million dollars of annual costs out of FSFT. Considering their track record of success,
does he think they would just buy it and stand there?
His analysis of quarterly financial results is also incorrect. Rio was only owned for one
month. You can figure that out from the acquisition date.
AremisSoft has also told the analysts that they have changed the accounting for new
customer software contracts at FSFT to its milestone based accounting over
approximately six months. This reduces the risk at the end of the quarter for surprises –
a hallmark of the AremisSoft approach.
Greenberg fails to mention that AremisSoft projected FSFT to add $0.04 to 2001
EPS. They beat the analyst estimate in Q1 2001 by $0.05, prior to the acquisition.
Most anyone should have been able to figure out that all of the above analysis on
relative EPS contribution from acquisitions and internal growth applies.
Overall, this stuff is pathetic. Just look at AremisSoft’s track record and you should be
able to conclude that any institutional or experienced technology investor who would
consider Greenberg seriously should or would be fired. He is insulting his audience.
I have been involved in several other short situations where the short sellers, I believe, have
gone too far and potentially broken laws in an attempt to manipulate and or destroy the stock
of a company. However, what is going on at AremisSoft is beyond anything I have ever seen or
heard of before. I have personally spoken with several people familiar with the ways and
schemes that the short sellers are violating the securities laws in AremisSoft in everything from
“naked shorts” to “Bullets”. The most recent short interest in AremisSoft shows that it has
increased from 5,391,525 shares to 8,932,828 shares. Those numbers don’t include the
historically high trading activity during the weeks of May 14, 2001 and May 21, 2001. There
can be no doubt that there were several million more shares of AremisSoft shorted during those
two high volume trading weeks. All one has to do is to call the back offices of any of the Wall
Street firms that lend stock out to the shorts and you will find out, as I did, AremisSoft’s stock
can no longer be borrowed. Not only is this stock not available to borrow, but I was told the
borrowers in several instances are now being forced to pay a cash premium to borrow
AremisSoft stock. I have never before heard of this in any other stock situation I have been
involved with.
Frankly, I don’t understand how anyone can be lending their AremisSoft stock out to the
shorts. I would suggest that if you know your stock is being borrowed out to the short sellers
you consider calling it in immediately. If you don’t know if your AremisSoft is or isn’t borrowed
out, I suggest you call your broker and immediately request your stock not be lent out for short
selling. Be sure to ask your broker to confirm in writing to you that they have not borrowed
your stock out, or if they did, they called it in as per your request.
I recently spoke to an official of Nasdaq and told him I believed the short sellers, Herb
Greenberg, David Rocker and Alex Berenson have made a laughing stock of Nasdaq’s
governance and compliance department. I suggested that Nasdaq take more than a casual look
at the AremisSoft situation, as well as several other similar situations like AremisSoft that trade
on Nasdaq. If Nasdaq allows these short sellers to continue to manipulate and destroy the
credibility and businesses of their members then I would suggest that any company trading on
Nasdaq look carefully into the New York Stock Exchange or some other exchange that has
policies, procedures, and governance to deal with the short sellers and stock manipulations.
Finally, isn’t it ironic that when you look at thestreet.com’s stock performance as a public
company, you have to wonder what these people that run thestreet.com have done for their
shareholders lately. The stock has gone from trading in May 1999 at $70.125 to $1.97 today.
Herb, it looks like your investors haven’t been very well taken care of as shareholders. Maybe
you can get Alex Berenson and/or Michael Rapoport to tout thestreet.com through an article in
the New York Times and/or the Dow Jones Newswire. Be sure and let David Rocker know in
advance and maybe he will be able to buy stock before the articles are published. |
