AREM is the hot short de jour (Auric v. Irv): "Market Place: New Questions
About AremisSoft
By ALEX BERENSON and SARITHA RAI
Three weeks ago it was Bulgaria. Now it is
India — where new questions have come to
the surface about AremisSoft, a software
company whose prospects are the subject of an
intense battle on Wall Street.
According to AremisSoft employees in India,
where most of the company's programs are written,
it employs far fewer software developers than it has
told investors. In addition, it appears to have
substantially overstated the value of software sold
to the Indian Army.
In March, the company said it had signed two army contracts worth as much as $6.25 million, almost 3
percent of its projected revenue this year. But Indian officials say they are unaware of any contracts, and an
AremisSoft executive in India says the company has actually sold the army about $70,000 of software and
has no guarantees of future orders.
This is the second time in recent weeks that AremisSoft and its customers have failed to agree on the value of
their contracts. In May, the Bulgarian government and the World Bank said that a contract Bulgaria signed
with AremisSoft to overhaul its national health information network was worth less than $4 million, one-tenth
the value assigned by the company.
AremisSoft recorded $7 million in revenue from the Bulgarian contract
last year, amounting to more than 5 percent of its annual revenue. But
Bulgaria said last month that it had paid AremisSoft less than $2 million.
AremisSoft, with offices in Westmont, N.J., near Camden, trades on
the Nasdaq stock market, although the vast majority of its sales come
from overseas and its top executives work from London. Since
mid-May, when the discrepancies in the Bulgarian contract became
known, the company's shares have tumbled. They closed yesterday at
$13, up 46 cents.
AremisSoft's supporters, including the Minneapolis financier Irwin
Jacobs, say that short- sellers, who profit from falling stock prices,
have waged a smear campaign against the company. It has a market
value of more than $500 million, down from $1 billion in January.
In statements and filings with the Securities and Exchange Commission,
AremisSoft has said that it has about 325 employees at its software
"development and support facilities in New Delhi and Bangalore,
India." Since 1997, it has increased its staff in India to 323 from 115,
according to the company's most recent annual filing with the S.E.C.
Alex Eapen, a vice president in AremisSoft's Indian division, said the
company employed about 120 people in its Bangalore office, another
120 in New Delhi and 80 more in three other Indian cities.
•
But employees in Bangalore, including a woman who identified herself
as the company's director of human resources there, said AremisSoft in
fact employs only about 100 people in all of India. The Bangalore
office has about 75 employees, including 65 software developers, she
and the other employees said, while the office in New Delhi has about 30 more developers and support staff
members. They said they knew of no other offices in India.
Roys Poyiadjis, chief executive of AremisSoft, said in a telephone interview that the company did have 325
employees in India but that he was not sure exactly where they worked.
"I can't off the top of my head know how big is every single office in India," Mr. Poyiadjis said, adding that
some Indian developers are working on projects in Bulgaria or other countries.
The number of employees is not the only confusion about AremisSoft's Indian operations.
On March 13, the company announced that it had received two orders from the Indian Army. The contracts,
it said, included 300 licenses for its Account21 accounting software as well as a license for its document
management software, with an initial value of $500,000 and an expected value of $6.25 million within a year.
But according to the Indian Army, contracts for army supplies are posted on the Web site of India's defense
ministry. That site does not list any contracts between AremisSoft and the army. In addition, army officials in
Bangalore and Chennai, where accounts in the southern part of the country are overseen, said they did not
know of any contracts with AremisSoft. They said, however, that they might not know of very small
contracts.
Mr. Eapen said he knew of only one contract with the Indian Army. He said the company had sold 300
packages of accounting software, worth about $200 each, for use on army bases around the country.
AremisSoft hopes to expand the contract to all 3,000 of the army's bases, he said, but so far has won only the
initial order, or about $70,000. Mr. Eapen said he knew of no other AremisSoft contracts with the Indian
Army.
Mr. Poyiadjis said the company stood by its characterization of the Indian contracts. "Whatever we reported
in the press release is correct," he said.
Meantime, Mr. Jacobs, the Minneapolis financier, reported in a filing with the S.E.C. yesterday that he had
bought 541,000 additional shares, or 1.4 percent, of AremisSoft, for $6.7 million on May 31 and June 1.
Mr. Jacobs, who now owns more than 9 percent of the company, released a letter last week complaining that
short-sellers and reporters had distorted the company's financial picture and hurt its stock. "What is going on
at AremisSoft is beyond anything I have ever seen or heard of before," he wrote. |
