UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark one)
[ ]
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 333-44404
SOPHEON PLC
(Exact name of Registrant as specified in its charter)
ENGLAND AND WALES
(Jurisdiction of incorporation or organization)
STIRLING HOUSE, SURREY RESEARCH PARK, GUILDFORD
SURREY GU2 7RF, UNITED KINGDOM
(Address of principal executive offices)
Securities registered or to be registered pursuant to
Section 12(b) of the Act.
Title of each
Class
Name of each exchange
On which registered
N/A
N/A
Securities registered or to be registered pursuant to 12(g) of the
Act.
N/A
(Title of Class)
Securities for which there is a reporting obligation
pursuant to 15(d) of the Act.
Ordinary Shares of 5p each
(Title of Class)
Indicate the number of outstanding shares of each of the
issuer's classes of capital or common stock as of the close of the
period covered by the annual report.
82,933,309 Ordinary shares
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
Indicate by check mark which financial statement item the
registrant has elected to follow.
Item 17 X Item 18 ____
PART I . . . .
.. . . 1
ITEM 1. IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT, AND ADVISORS . . . . . . . 1
ITEM 2. OFFER
STATISTICS AND EXPECTED TIMETABLE. . . . . . . .1
ITEM 3. KEY
INFORMATION. . . . . . . 1
A. SELECTED
FINANCIAL DATA . . . . . . . .1
B.
CAPITALIZATION AND INDEBTEDNESS . . . . . . 3
C. REASONS
FOR THE OFFER AND USE OF PROCEEDS . . . . . . 3
D. RISK
FACTORS. . . . . . 3
ITEM 4.
INFORMATION ON THE COMPANY . . . . . . 6
A. HISTORY
AND DEVELOPMENT OF THE COMPANY. . . . . .6
B. BUSINESS
OVERVIEW . . . . . .8
C.
ORGANIZATIONAL STRUCTURE. . . . . . . 10
D.
PROPERTY, PLANTS, AND EQUIPMENT . . . . .11
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS . . . . . . .12
A.
OPERATING RESULTS . . . . . . 12
B.
LIQUIDITY AND CAPITAL RESOURCES . . . . . .16
C. RESEARCH
AND DEVELOPMENT, PATENTS, AND LICENSES, ETC. . . . . .19
D. TREND
INFORMATION . . . . . 19
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT, AND EMPLOYEES. . . . . 20
A.
DIRECTORS AND SENIOR MANAGEMENT . . . . . . .20
B.
COMPENSATION. . . . . .21
C. BOARD
PRACTICES . . . . . . 23
D.
EMPLOYEES . . . . . . .23
E. SHARE
OWNERSHIP . . . . . . 24
ITEM 7. MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. . . . . . . 27
A. MAJOR
SHAREHOLDERS. . . . . 27
B. RELATED
PARTY TRANSACTIONS . . . . . 27
C.
INTERESTS OF EXPERTS AND COUNSEL. . . . . .27
ITEM 8.
FINANCIAL INFORMATION. . . . . . 27
A.
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL
INFORMATION. . . . . . . . . . . . . . . . . . . . . 27
B.
SIGNIFICANT CHANGES . . . . . . .28
ITEM 9. THE OFFER AND LISTING . . . . . . . . . . . . . 28
A. OFFER
AND LISTING DETAILS . . . . . . 28
B. PLAN OF
DISTRIBUTION. . . . . . .29
C. MARKETS
.. . . . . 29
D. SELLING
SHAREHOLDERS. . . . . . .29
E.
DILUTION. . . . . 29
F. EXPENSES
OF THE ISSUE . . . . . .29
ITEM 10.
ADDITIONAL INFORMATION . . . . . 29
A. SHARE
CAPITAL . . . . .29
B.
MEMORANDUM AND ARTICLES OF ASSOCIATION. . . . . 29
C. MATERIAL
CONTRACTS. . . . . 30
D. EXCHANGE
CONTROLS . . . . . 30
E.
TAXATION. . . . . 30
F.
DIVIDENDS AND PAYING AGENTS . . . . . 34
G.
STATEMENT BY EXPERTS. . . . . . .34
H.
DOCUMENTS ON DISPLAY. . . . . . .34
I.
SUBSIDIARY INFORMATION. . . . . .34
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . .35
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES . . . . . . .35
PART II . . . .
.. . .36
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES, AND DELINQUENCIES . . . . .36
ITEM 14. MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS. . . . . . . . . . . . . . . . . . .36
ITEM 15 CONTROLS AND PROCEDURES ..
....36
ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT
... 36
ITEM 16B CODE OF ETHICS . .. 36
ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES
..36
ITEM 16D EXEMPTION FROM THE LISTING STANDARDS FOR
AUDIT COMMITTEES 36
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ITEM 17.
FINANCIAL STATEMENTS . . . . . . 37
ITEM 18.
FINANCIAL STATEMENTS . . . . . . 37
ITEM 19. EXHIBITS
.. . . . .38
References in this document to "United States dollars", "$" or
"cents" are to the currency of the United States and
references to "pounds sterling", "pounds", "Pound", "pence" or "p"
are to the currency of the United Kingdom. There are
100 pence to each pound. References to euro and " " are to the
currency of the European Monetary Union. Solely
for your convenience, this document contains translations of certain
pounds sterling amounts into United States
dollars at specified rates. You should not take these translations
as assurances that the pounds sterling amounts
currently represent United States dollar amounts or could be
converted into United States dollars at the rate indicated
or at any other rate, at any time.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995:
Matters discussed in this document may constitute forward-looking
statements. The Private Securities Litigation
Reform Act of 1995 provides safe harbor protections for
forward-looking statements in order to encourage
companies to provide prospective information about their businesses.
Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future
events or performance, underlying assumptions and
other statements, which are other than statements of historical
facts and information set forth in "Material
Information-Risk Factors".
Sopheon plc desires to take advantage of the safe harbor provisions
of the Private Securities Litigation Reform Act
of 1995 and is including this cautionary statement in connection
with this safe harbor legislation. This document and
any other written or oral statements made by us or on our behalf may
include forward-looking statements that reflect
our current views with respect to future events and financial
performance. The words "believe", "expect",
"anticipate"," "intend"," "estimate"," "forecast"," "project" and
similar expressions identify forward-looking
statements.
The forward-looking statements in this document are based upon
various assumptions, many of which are based, in
turn, upon further assumptions, including without limitation,
management's examination of historical operating
trends, data contained in our records and other data available from
third parties. Although we believe that these
assumptions were reasonable when made, because these assumptions are
inherently subject to significant
uncertainties and contingencies, we cannot assure you that we will
achieve or accomplish these expectations, beliefs
or projections.
Except to the extent required by law, neither Sopheon plc, nor any
of its respective agents, employees or advisors
intends or has any duty or obligation to supplement, amend, update
or revise any of the forward-looking statements
contained in this document.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT, AND ADVISORS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA.
The following table sets forth selected historical financial data of
Sopheon for each of the last five fiscal years ended
December 31, 2002. The selected historical data have in part been
derived from and should be read in conjunction
with Sopheon's audited consolidated financial statements, including
the notes thereto, beginning at page F-1 of this
document.
Consolidated Profit and Loss account data
Amounts in accordance with UK GAAP
Year ended December 31 1998
1999 2000 2001 2002
Pound'000
Pound'000 Pound'000 Pound'000 Pound'000
Turnover continuing operations 891
1,510 7,763 13,963 12,353
Cost of sales (608) (983)
(5,402) (10,186) (9,002)
Gross profit 283 527
2,361 3,777 3,351
Sales and marketing expenses (502)
(760) (3,450) (7,281) (5,437)
Administrative expenses (884)
(1,460) (6,080) (9,802) (8,058)
Amortization of goodwill -
(323) (5,561) (12,288) (5,922)
Impairment charge re goodwill -
- - (9,143) -
Operating loss continuing operations (1,103)
(2,016) (12,730) (34,737) (16,066)
Share of operating loss
of associated undertaking -
- (76) (63) (46)
Other income / (expense) net (39)
(56) 861 169 (67)
Loss for the year before tax (1,142)
(2,072) (11,945) (34,631) (16,179)
Tax on ordinary activities -
- - - - 126
Loss for the year after tax (1,142)
(2,072) (11,945) (34,631) (16,053)
Loss per share (basic and diluted) (6.1)p (10.1)p
(33.4)p (76.2)p
(19.4)p
Weighted average number of shares
outstanding and issued ('000) 18,731 20,566
35,732 45,471
82,669
Amounts in accordance with US GAAP
Year ended December 31
1999 2000 2001 2002
Pound'000
Pound'000 Pound'000 Pound'000
Turnover 1,510
7,763 13,963 12,353
Cost of sales (983)
(5,402) (10,186) (9,002)
Gross profit 527
2,361 3,777 3,351
Sales and marketing expense
(886) (4,039) (7,281) (5,437)
Administrative expenses
(1,460) (6,132) (9,724) (7,927)
Amortization of goodwill
and other intangible assets
(349) (7,970) (18,461) (1,582)
Impairment charge re goodwill
and other intangible assets
- - (19,806) (7,964)
Operating loss (2,168)
(15,780) (51,495) (19,559)
Share of operating loss of associated undertaking
- (76) (63) (46)
Other income / (expense) net
(707) 481 86 (140)
Loss before tax (2,875)
(15,375) (51,472) (19,745)
Tax -
- - - 126
Loss before extraordinary gain (2,875)
(15,375) (50,977) (19,619)
Extraordinary gain -
- - 495 -
Loss for the year (2,875)
(15,375) (50,977) (19,619)
Loss per share (before extraordinary gain) (14.0)p
(43.0)p (113.2)p
(23.8)p
Extraordinary gain per share - -
1.0 p -
Net loss per share (14.0)p
(43.0)p (112.2)p
(23.8)p
No dividends have been declared or paid in respect of any of the
above financial years.
Consolidated Balance Sheet data
At December 31 1998 1999
2000 2001 2002
Pound'000
Pound'000 Pound'000 Pound'000 Pound'000
Amounts in accordance with UK GAAP
Working capital (1,231) 5,543
4,726 8,352 (317)
Total assets 1,171 17,104
46,127 29,988 11,840
Creditors: amounts falling due
after more than one year (3)
(55) (22) (2,578) (2,569)
Shareholders' funds (864)
13,479 38,296 18,365 2,426
Share capital 6,001 22,461
56,706 68,337 68,376
Amounts in accordance with US GAAP
Working capital (1,231) 5,543
4,726 8,352 (317)
Total assets 1,171 17,944
61,649 33,281 10,779
Long-term obligations less current portion (3)
(55) (22) (2,505) (2,569)
Shareholders' equity/(deficit) (864)
14,319 53,818 21,731 1,365
Exchange Rates
The tables below set forth, for the periods and dates indicated, the
exchange rate for the United States dollar against
the United Kingdom pound sterling, based on the noon buying rate in
The City of New York for cable transfers in
pounds sterling as certified for customs purposes by the Federal
Reserve Bank of New York. The period average is
based on the average of the noon buying rates on the last day of
each month during the period. Such rates are not
used by Sopheon in the preparation of its consolidated financial
statements.
For the Months of High Low
January 2003 . . . . . $1.65 $1.60
February 2003. . . . . $1.65 $1.57
March 2003 . . . . . . $1.61 $1.56
April 2003 . . . . . . $1.60 $1.55
May 2003 . . . . . . . $1.65 $1.59
June 2003 . . . . . . $1.68 $1.63
Period
For the Year ended December 31 Average
1997 . . . . . . . . . $1.64
1998 . . . . . . . . . $1.66
1999 . . . . . . . . . $1.61
2000 . . . . . . . . . $1.52
2001 . . . . . . . . . $1.45
2002 $1.50
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
Sopheon has a history of losses and its prospects of achieving
profitability are dependent on products which
have yet to demonstrate full market acceptance. Sopheon has in past
years experienced substantial net losses
due, in part, to its investment in product development, marketing
and integration of its businesses. In the year ended
December 31, 2002 it generated consolidated sales of Pound12.4
million but incurred an operating loss of Pound16.1 million.
Sopheon expects to continue to invest in product development and
marketing, which in the absence of revenue
growth could result in continued operating losses for the
foreseeable future. Much of the historical growth in
Sopheon's revenues has been derived from acquisitions. Sopheon's
ability to achieve profitability depends on a
number of factors, including the meeting of sales targets for its
Accolade software, which are at a level higher than
that achieved to date. The report of Sopheon's independent auditors
for the periods ended December 31, 2001 and
2002 refers to the disclosures made in the financial statements as
to Sopheon's recurring losses from operations and
lack of funds, which raise substantial doubt about its ability to
continue as a going concern. Details of the steps taken
by Sopheon to provide the Group with adequate funding to support its
activities are set out in Note 1 to the financial
statements.
The deterioration in investor sentiment towards technology companies
may affect Sopheon's ability to obtain
funding from external investors. The past three years have seen a
significant deterioration in investor sentiment
towards technology companies. Sopheon has in the past experienced
large operating losses and accordingly large
cash outflows. Profitability in the short term is dependent on a
number of factors as set out below. Should Sopheon
not succeed in achieving profitability, there is no certainty that
market conditions will permit it to obtain sufficient
further funding from external sources so as to continue to operate
in its current form.
The generally weak economic conditions have significantly reduced
prospective client budgets for spending on
the Company's products. If economic conditions do not improve,
Sopheon's business, results of operations and
financial condition could be materially affected. The impact of weak
economic conditions on some of Sopheon's
customers may adversely affect demand for Sopheon's products and
services which could harm Sopheon's business,
results of operations and financial condition. More specifically,
customers' budgets for Information Technology
investment have been severely curtailed, thus sales cycles are
lengthened and, in many cases, never brought to
fruition. Such a continuing climate, if sustained, could have a
significant adverse impact on our on-going operations.
The expected benefits from Sopheon's proposed restructuring may not
be realised. At December 31, 2002,
Sopheon had gross cash resources of Pound3.4 million before
overdrafts and lines of credit drawn totaling Pound0.9 million.
Coming into 2003 the board took the view that a stronger cash
position was required for a responsible continuation
of our development strategy for the business. After consulting with
Sopheon's financial advisers and key
institutional investors, Sopheon came to the conclusion that a
restructuring of the business was the most pragmatic
approach to improve the balance sheet that could be taken in the
current financial market environment.
As part of the restructuring, on June 26, 2003 Sopheon announced the
signing of a definitive agreement for the
divestment of its US-based Information Management ("IM") division,
and on June 30, 2003 holders of Sopheon's
Convertible Loan Stock agreed to extend the maturity date of the
Stock to June 20, 2005. Sopheon has also
announced that it is assessing its German IM division with a view to
restructuring its activities.
As a consequence of the restructuring, Sopheon will sharpen its
focus on its Business Process Division ("BPS"). The
divestment of the US-based IM business will result in the loss of a
revenue flow, which includes a substantial
predictable element of renewals by established customers, and there
will in future be reduced level of predictability
of Sopheon's future revenue streams, which will increasingly depend
on the BPS division's proprietary software.
The acquisitions in recent years of AppliedNet, Teltech and Orbital
significantly affect the comparability of
Sopheon's results making it difficult to analyse Sopheon's
performance, and the divestment during 2003 of
Sopheon's US-based IM business will make the analysis of future
performance difficult. Accordingly, period-
to-period comparisons of Sopheon's operating performance may not
necessarily be meaningful and should not be
relied on as an indication of future performance.
Sopheon will require relationships with partners who are able to
market and implement its products.
Historically, Sopheon has devoted substantial resources to the
direct marketing of its products, and its strategy to
enter into strategic alliances and other collaborative relationships
to widen the customer base and create a broad
sales and implementation channel for its products is still at an
early stage. The successful implementation of this
strategy is crucial to Sopheon's prospects. However, Sopheon cannot
be sure that partners will devote adequate
resources to promoting or selling Sopheon's products.
Certain of Sopheon's competitors have greater financial resources
than Sopheon, which may affect Sopheon's
ability to gain market share for its products. While Sopheon has in
the past invested substantial resources and
effort in sales and marketing activities, it remains a relatively
small organization by global standards. Its resources
would be dwarfed by those of many larger companies that are capable
of developing and offering similar solutions
or part solutions. If Sopheon were to compete directly with such
companies, it may not succeed in reaching as deep
and broad an audience or in developing and marketing programs and
collateral which are as effective as its
competitors may be able to achieve with their greater resources.
The unpredictability of Sopheon's revenues and results of operations
makes it difficult to predict financial
performance. In the short term, Sopheon expects its revenues to be
significantly dependent on a small number of
relatively large orders for its products and services. Sopheon's
products require a substantial commitment of
resources by customers or their consultants over an extended period
of time. The time required to complete a
product sale may vary from customer to customer and may be
protracted due to unforeseen circumstances.
Furthermore, the market for information systems products and
services in the Internet sector has experienced
significant variation in recent years. A significant proportion of
the group's traditional business activities have
exposure to this sector.
Sopheon is dependent upon certain key management personnel, the loss
of whom could have a material
impact on it. While service agreements have been entered into with
key executives, the retention of their services
cannot be guaranteed. The loss of the services of these and other
key employees could have a material adverse
effect on Sopheon. In addition, it has become increasingly
difficult to retain key employees, and the competition for
qualified employees has become exceedingly difficult.
The loss of trading relationships with key customers would
materially adversely affect Sopheon's business. A
few major customers account for a substantial amount of Sopheon's
revenues and there is no guarantee that these
customers will continue to do business with Sopheon after the end of
their current contracts. Sopheon expects that it
will continue to depend on a relatively small number of customers
for a substantial portion of its revenue in the
foreseeable future.
Sopheon's markets continue to be at an early stage of development
and it is possible that Sopheon's products
may not sell in the quantities or at the prices required to achieve
sustained profitability. The market for
knowledge management software and services is emerging and evolving.
Because this market is new, it is difficult
to determine its potential size and growth rate, or whether
Sopheon's products will achieve market acceptance.
Historically, much of its turnover derived from consultancy, systems
integration and research services. Sopheon is
seeking to migrate the emphasis of its business towards higher
software sales and is reducing its involvement in
bespoke consultancy and systems integration services. A delay or
failure in the development of the market for
Sopheon's new products would harm Sopheon's business and operating
results.
Sopheon could be subject to claims for damages for errors in its
products. Sopheon may be exposed to claims
for damages from customers in the event that there are errors in its
software products. Sopheon has sought to protect
itself from such risks through its development methodologies, its
contract terms and insurance, and is not aware of
any such claims at this time.
The business environment for Sopheon's German Information Management
(IM) business is very difficult
and Sopheon may not succeed in it. Sopheon's German-based IM
business has been particularly hard hit by weak
economic conditions. Employment conditions in Germany mean that the
cost base is relatively rigid, and therefore,
as a number of clients reduced their level of business with us
following their own restructuring and mergers and
acquisitions ("M&A") activity, our German business suffered higher
financial losses than might be expected in a
more flexible environment. As a result, the board has been
assessing Sopheon's German IM business with a view to
restructuring its activities. Sopheon believes, based upon legal
advice received, that any restructuring actions that
may arise out of such assessment can be isolated and implemented
without additional recourse to any other member
of the Sopheon Group, but this is not certain.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
Sopheon is a provider of information and software solutions, focused
on the research and development ("R&D")
community, to support knowledge intensive business processes that
enable customers to access internal and external
information sources more efficiently and effectively. Sopheon
operates as a public limited company, under the laws
of England and Wales, and currently has operations in the United
Kingdom, the United States, Germany and the
Netherlands. Sopheon's registered address and principal place of
business is located at Stirling House, Surrey
Research Park, Guildford, Surrey GU2 7RF, United Kingdom. Sopheon's
telephone number is +44 (0) 1483
883000. In the United States, Sopheon's principal place of business
is located at 2850 Metro Drive, Minneapolis
MN 55425-1566.
Sopheon was founded in 1993 as PolyDoc NV. In August 1996, PolyDoc
plc, a newly incorporated UK holding
company, acquired 100% of PolyDoc NV in a group reorganization. In
September 1996, PolyDoc plc obtained
admission to the Alternative Investment Market (AIM) of the London
Stock Exchange and raised Pound1.66 million by
means of a placing of ordinary shares. A further Pound0.89 million
was raised from a venture capitalist in the
Netherlands in January 1997, followed by admission to the Euronext
stockmarket in Amsterdam in March 1997.
In July 1998, PolyDoc plc issued Pound1.57 million of 5% convertible
loan stock, which was subscribed by three of its
shareholders. The loan was converted into ordinary shares, at a
price of Pound1.46 per ordinary share, on July 31, 2000.
As part of the transaction, each of the three shareholders was also
granted 300,000 warrants to subscribe for ordinary
shares at the same price of Pound1.46 per ordinary share,
exercisable on or before March 31, 2001. These warrants lapsed
unexercised in 2001.
In December 1998, PolyDoc plc acquired Lessenger Associates BV, a
Dutch company offering document
management solutions with a customer base of fifty healthcare
institutions, for Pound168,000, satisfied partly in shares
and partly in cash (with the cash element raised primarily through a
Pound100,000 share placing). An additional
Pound500,000 was raised in March 1999 through a further share issue.
In November 1999, PolyDoc plc acquired AppliedNet Limited, a company
offering knowledge management
solutions with an established market presence and commercial
infrastructure in the United Kingdom, for Pound8.3 million
in shares. Simultaneously, PolyDoc plc raised Pound7.7 million (net
of issue expenses) through an institutional placing
of ordinary shares and changed its name to Sopheon plc. Total costs
associated with the transaction were of the
order of Pound0.6 million. Following the change of name of the
holding company to Sopheon plc, Polydoc NV was
renamed Sopheon NV and AppliedNet was renamed Sopheon UK Limited.
During 1999, Sopheon began to expand its North American presence,
initially with the recruitment of a chief
technology officer and, later, with the creation of a sales and
development base in Denver, Colorado.
In February 2000, Sopheon paid Pound164,000 to Pro-GRAM BV, as part
of a commitment to contribute a total of
Pound410,000 for a 25% equity interest in a joint venture with three
leading Dutch teaching hospitals to provide software
solutions to the medical and healthcare sector.
In March 2000, Sopheon announced the raising of approximately
Pound19.9 million (net of issue expenses of
approximately Pound1.1 million) through an institutional placing of
its shares, and also announced the proposed
acquisition of Teltech Resource Network Corporation ("Teltech"), a
company based in Minneapolis, Minnesota,
engaged in research services and the provision of technical and
business information to the desktop. The acquisition
of Teltech was completed on September 15, 2000 for a total
consideration of Pound26,211,000, financed as to
Pound10,775,000 in cash and the balance in Sopheon shares and share
options.
In October 2000, Sopheon announced the launch of its Accolade
system, an integrated set of software applications,
tools and research capabilities designed to help major corporate
customers to enhance their new product
development process and success rates. The decision to move forward
with Accolade was partly in response to the
slow buying cycles within public sector healthcare institutions
which represented Sopheon's market focus in the late
1990s, leading to an emphasis on developing a solution which was
both specific to a business application, and
positioned to be attractive to customers which would have a rapid
and commercial approach to purchasing decisions.
Accolade was first released to the market in the second quarter of
2001, with a new version released in January 2002
which included a number of improvements and additional
functionality, in part reflecting Sopheon's original design
road-map but also responding to customer feedback. A further
release is scheduled for July 2002. Sopheon
developed this product in partnership with the Ontario-based Product
Development Institute.
On June 19, 2001, Sopheon raised an additional Pound2,600,000 for
working capital through the issue to management
and other investors of a convertible loan, as set out in more detail
below under "Item 5 B. Operating and Financial
Review and Prospects Liquidity and Capital Resources".
In June 2001, Sopheon completed the acquisition of the Technology
and Information Services division of Aventis
Research & Technologies ("AIT"), based in Frankfurt, Germany. With
over 50 employees, the acquisition gave
Sopheon a substantial presence and customer base in Germany and in
the life sciences market. The business offers
expert research, content delivery, portal and applications
development and a range of integration support, including
hosting services. AIT's staff, together with associated liabilities
for pensions and similar rights, business, know-how,
fixed assets, cash reserves and customer base was transferred into a
newly established company, Sopheon GmbH.
In November 2001, Sopheon completed the acquisition of UK based
Orbital Software Holdings plc ("Orbital") a
leading provider of knowledge sharing and collaboration solutions.
Based in Edinburgh, Scotland, Orbital had
approximately 80 staff and also had office facilities in Boston,
Massachusetts and Gatwick, England. The primary
product of Orbital is marketed under the product name "Organik" .
Organik creates an environment in which
knowledge workers and user communities can find answers, locate
expertise and share knowledge. It is designed to
capture the questions and answers of people within an organisation
and to build a searchable and re-usable
knowledge base.
In the final quarter of 2001 as the company was reorganised into two
complementary global operating divisions:
Information Management"", which focuses on the more traditional
research services side of Sopheon's business,
including outsourcing, acquired with Teltech and AIT; and Business
Process Solutions ""which concentrates on
sales of Accolade and Organik licenses and services. A healthcare
applications unit was also retained in the
Netherlands to focus resources on regional opportunities in that
sector. The reorganisation included a sharp
reduction in the cost base through elimination of duplicated costs
and a significant contraction of the workforce by
approximately 80 positions. The overall cost of the restructuring
was recorded in the fourth quarter and amounted to
approximately Pound1million.
Against a background of general economic uncertainty prevailing
during 2002 and into 2003, which created difficult
trading conditions for the Group, resulting in continued trading
losses and cash outflows, the Company announced in
June 2003 that it had come to the conclusion that a restructuring of
the business represented the most pragmatic
approach to improve the group's balance sheet.
Accordingly, the Company entered into a definitive agreement on June
25, 2003 with FIND/SVP, Inc. ("FIND") to
divest its US-based IM business. The gross value of the
transaction, which closed on July 1, 2003, amounts to just
over $5 million, including $3 million in immediate cash
consideration and a further $0.4 million in potential earn-
outs. FIND will also assume approximately $2.1 million of net
current liabilities and approximately $0.45 million of
tangible fixed assets. As part of the structure of the transaction,
FIND issued $50,000 of its stock to Sopheon on
completion, and thereafter Sopheon issued $100,000 of Sopheon
ordinary shares to FIND. Sopheon expects to
continue to provide clients with information management services
following completion of the divestment through
an exclusive outsourcing arrangement with FIND.
The Company has further stated that its German subsidiary has been
particularly hard hit by weak economic
conditions. Employment conditions in Germany mean that the cost
base is relatively rigid, and therefore, as a
number of clients reduced their level of business with us following
their own restructuring and M&A activity, our
German business suffered higher financial losses than might be
expected in a more flexible environment. As a
result, the board has been assessing Sopheon's German subsidiary
with a view to restructuring its activities.
On June 16, 2003, the Company issued 4.5 million new ordinary shares
by way of a placing for cash at 12p per share
to raise additional working capital for the Company, and circulated
proposals to amend the terms of the Company's
6% Convertible Unsecured Loan Stock by extending its maturity date
from 20 June 2004 to 20 June 2005 and
reducing the conversion price from a floor of 31p per share to 12p
per share.
B. BUSINESS OVERVIEW
The Sopheon group is an international provider of software and
services that enable organizations to more efficiently
access internal and external information and to support knowledge
intensive business processes. Sopheon's
principal areas of activity are
(a) Business Process Solutions software and process consulting
that blends human expertise and specialized
content with the efficiencies of technology to support strategic,
knowledge-intensive processes such as R&D and
product development, and includes the Web-enabled Sopheon Accolade
product development system and
Organik expertise-sharing software; and
(b) Information Management providing access to comprehensive
research sources through a web-based research
portal and through access to a staff of analysts and a proprietary
network of technical and industry experts.
Sopheon serves nearly half of the technology-driven companies on the
Fortune 500, providing process-specific
software applications that are pre-loaded with specialized content
and access to human expertise. Sopheon's
corporate headquarters are in Guildford in the United Kingdom, close
to the majority of its investor base, and its
operational headquarters are in Minneapolis. The Company also has
operating bases in Denver in the United States,
and in Germany and the Netherlands. Sopheon is traded on the
Alternative Investment Market of the London Stock
Exchange and on Euronext in the Netherlands.
Attention is drawn to the agreement for the divestment of the
Company's US-based IM business and the assessment
with a view to restructuring of its German-based IM business, as
referred to in Section A above.
Analysis of Turnover By Geographical Destination
Year ended December 31 2002
2001 2000
Pound'000
Pound'000 Pound'000
United Kingdom
829 2,026 2,965
Rest of Europe
4,012 3,239 1,339
North America
7,391 8,471 3,459
Rest of World
121 227 -
12,353 13,963 7,763
Analysis of Turnover By Category of Activity
Software and consultancy
3,307 3,654 4,912
Information research and services 9,046
10,309 2,851
12,353
13,963 7,763
Reliance on licences, contracts and other relationships
Certain of Sopheon's products incorporate software licensed from
third parties in the ordinary course of business.
Sopheon has also entered into industrial and commercial contracts
with customers, suppliers, lessors and other
parties and has entered into financing arrangements with banks and
other financial institutions in the ordinary course
of business, and its operations are dependent on these contracts and
arrangements. In addition, Sopheon's range of
software products is based on a number of intellectual property
assets, the most significant of which include:
Sopheon's "Integrated Document Production Architecture"
("IDP/A"), which enables the creation of specific
software applications for a wide variety of industry sectors and
which has been granted a patent by the
European Patent Office. A US patent application has been filed;
Sopheon's (formerly Teltech's) "Presentation of search
results from large domains of archived textual data by
category or type" which allows searching of multiple sources and
for which a US patent was granted in 1997;
Orbital's "Information System using Human Resource
Profiles" which is used in the Organik product and has
been granted a patent by the UK Patent Office and the US patent
office. European patent applications have
been filed;
A business partnership agreement with the Product
Development Institute ("PDI") of Ontario, Canada, which
grants Sopheon the rights to embed certain new product
development methodologies and content into its
Accolade products.
In addition, Sopheon has filed trademark applications in the
European Union, the United States and Canada for a
number of its brands and products including "Sopheon", the Sopheon
logo, "Sopheon Accolade", "IDP/A" and
"Organik". Sopheon has no other dependence on patents, licenses,
industrial, commercial or financial contracts, or
new manufacturing processes, which is material to its business.
Sopheon's businesses in the United Kingdom, the Netherlands, Germany
and the United States are impacted by
government regulations relating to employment, health and safety and
other areas which are non-specific to
Sopheon's business. Sopheon is not aware of any specific regulatory
body applicable to the conduct of its business
in any of these countries.
C. ORGANIZATIONAL STRUCTURE
Details of the investments in which the Group holds more than 20% of
the nominal value of any class of share
capital are set out below. Companies marked with an asterisk* are
held via Sopheon UK Limited and those marked
with an obelus are held via Orbital Software Holdings plc.
Name of Company and Holding Proportion of Nature of
Business
country of incorporation ownership interest
Sopheon Corporation Common Stock 100% Information management
services,
Minnesota USA software sales and services
Sopheon Corporation Common Stock 100% Software development
Delaware USA
Orbital Software Inc. Common Stock 100% Software
sales and services
Delaware, USA
Sopheon GmbH Ordinary Shares 100% Information management
services,
Germany software sales and services
Sopheon NV Ordinary Shares 100% Software sales and
services
The Netherlands
Lessenger BV Ordinary Shares 100% Software sales and
services
The Netherlands
Sopheon UK Ltd Ordinary Shares 100% Software sales and
services
United Kingdom
Orbital Software Holdings plc Ordinary Shares 100% Holding company
United Kingdom
Sopheon Edinburgh Ltd Ordinary Shares 100% Software
development
United Kingdom
Orbital Software Europe Ltd Ordinary Shares 100% Software
sales and services
United Kingdom
Network Managers (UK) Ltd* Ordinary Shares 100% Dormant
United Kingdom
AppliedNet Ltd* Ordinary Shares 100% Dormant
United Kingdom
Future Tense Ltd* Ordinary Shares 100% Dormant
United Kingdom
Polydoc Ltd Ordinary Shares 100% Dormant
United Kingdom
Applied Network Technology Ltd* Ordinary Shares 100% Employee
Share Ownership
United Kingdom Trust
D. PROPERTY, PLANTS, AND EQUIPMENT
Sopheon does not own real property but leases premises in several
locations. The basic terms of these leases and
their locations are as follows:
Location Expiry of lease Total
square feet Use
Guildford, England *September 1, 2004 3,300
Office
Minneapolis, Minnesota, United States November 30, 2004
25,000 Office
Arvada, Colorado, United States May 1, 2005
8,414 Office
Frankfurt-am-Main, Germany December 31, 2003
19,138 Office
Amsterdam, the Netherlands December 31, 2006
4,887 Office
Maastricht, the Netherlands December 31, 2003
3,875 Office
Edinburgh, Scotland April 30, 2007
4,000 Office
* there is an option to terminate in September 2003
there is an option for early termination at any time prior to
expiry of the lease on giving two months' notice
there is an option to terminate on April 30, 2005
Sopheon considers its properties and equipment to be adequate in the
context of its current business plan, including
the proposed restructuring of the business referred to earlier
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. OPERATING RESULTS
The following discussion is based upon the Company's financial
statements for the three-year period to
December 31, 2002, which have been prepared in accordance with
accounting principles generally accepted in the
United Kingdom. The results for the three-year period ended December
31, 2002 are summarised in the table below.
Year ended December 31
2002 2001 2000
Pound'000 Pound'000 Pound'000
TURNOVER
12,353 13,963 7,763
Cost of sales
(9,002) (10,186) (5,402)
GROSS PROFIT
3,351 3,777 2,361
Sales and marketing expenses
(5,437) (7,281) (3,450)
Research and development expenses
(2,331) (3,010) (3,321)
Amortisation and impairment
charges in respect of goodwill
(5,922) (21,431) (5,561)
Other administrative expenses
(5,727) (6,792) (2,759)
operating loss
(16,066) (34,737) (12,730)
Share of operating loss
of associated undertaking
(46) (63) (76)
Other (expense)/income, net
(67) 169 861
LOSS FOR THE YEAR BEFORE TAX
(16,179) (34,631) (11,945)
Tax credit
126 - -
LOSS FOR THE YEAR AFTER TAX
(16,053) (34,631) (11,945)
The results for the three years can also be expressed in terms of
percentages of turnover as follows:
Year ended December 31
2002 2001 2000
TURNOVER
100% 100% 100%
Cost of sales
(73) (73) (70)
GROSS PROFIT/(LOSS)
27 27 30
Sales and marketing expenses
(44) (52) (44)
Research and development expenditures
(19) (22) (43)
Amortisation and impairment
charges in respect of goodwill
(48) (153) (71)
Other administrative expenses
(46) (49) (36)
operating loss
(130) (249) (164)
Share of operating loss
of associated undertaking
- - (1)
Other income/(expense), net
(1) 1 11
LOSS FOR THE YEAR
(131) (248) (154)
Tax credit
1 - -
LOSS FOR THE YEAR AFTER TAX
(130) (248) (154)
Management's Discussion and Analysis
General
During 2002 the Company focused on operational development of the
business and in particular on Accolade,
Sopheon's flagship software solution for product development. The
year saw the full integration of technology
acquired in 2001 as part of the merger with Orbital Software, the
release of Accolade version 4.0, and a substantial
increase in Accolade sales activity compared to the year before.
Sopheon is now recognized as a leading supplier of
solutions that improve the financial return on innovation and
product development investments within research and
development , a market that is receiving increasing attention and
focus from the business community.
Notwithstanding these positive developments, during the year it was
realised that the Company's operating plans for
2002 were more ambitious than the economic environment permitted.
Consequently, in the second half of the year,
the Company took further cost reduction measures.
Coming into 2003, the Company took the view that a stronger cash
position was required for a responsible
continuation of its development strategy for the business.
Accordingly, the Company came to the conclusion that a
restructuring of the business, as described in more detail in Item 4
Section A above, was the most pragmatic
approach to improve the balance sheet that could be taken in current
market conditions.
Turnover
Turnover in 2000 amounted to Pound7,763,000. This included a
contribution of Pound3,190,000 from Teltech, acquired in
September 2000 with Pound4,573,000 arising in the continuing
business of the former Group, representing an increase of
25% over the prior year. A major part of this increase related to
software and consultancy for knowledge and content
management projects for major customers such the Financial Times and
the Public Records Office in the United
Kingdom as well as a similar project in Germany. These projects had
a particular impact on the first half of 2000,
with the general uncertainty in the technology sector that began in
2000 restricting revenues in the second half of the
year. In the Netherlands, following the installation of Sopheon's
solution at three teaching hospitals, healthcare
revenues were also restricted mainly to support and project
activities, including the development of "Evidence
Monitor", an internet based enhancement to the healthcare solution
designed to support evidence-based medicine.
Sopheon's 2001 consolidated turnover shows a Pound6,200,000 increase
to Pound13,963,000. In addition to the effect of
having a full year of trading of the Teltech business acquired in
2000, this includes a contribution of Pound2,865,000
from AIT for the six months from July 1, 2001 and Pound132,000 from
Orbital for the six-week period from
November 16, 2001. Approximately 74% of total revenues were
generated from IM. BPS contributed 26% of
revenue during the year. Both areas experienced a difficult year.
Coupled with the impact of general market
conditions, certain IM revenues were adversely impacted by customer
merger and acquisition and restructuring
activity. Turnover from bespoke applications and consultancy
services, part of BPS, reduced sharply in line with the
end of the website construction boom, which happened more quickly
than expected. This reduction was partially
offset by the initial revenues contributed by Accolade licenses and
services. Revenue performance for Accolade has
itself been influenced by the caution in the marketplace over
investment in new systems, leading to longer buying
cycles and some disappointment at the speed of conversion of the
sales pipeline. Revenues relating to Sopheon's
traditional healthcare solutions are reported within the BPS
results.
Sopheon's 2002 turnover amounted to Pound12,353,000 a reduction of
Pound1,610,000 compared with 2001. This decline can
be attributed to continued economic uncertainty, which persisted
during 2002. Within this total, Sopheon's IM
business contributed Pound9,046,000 (73%), representing a decline of
Pound1,263,000 as the IM division faced continuing
pressure, with the German business particularly hard hit. Sopheon's
BPS business contributed Pound3,307,000, a decline
of Pound353,000. Within the BPS division, turnover from sales of
Sopheon's own solutions rose by Pound1,064,000, offset by
a decline of Pound1,362,000 in sales of bespoke developments and
third party products. In the BPS division, activity
related to Accolade accelerated, with 30 transactions in 2002
compared with four in 2001 As a result of these
developments, 65% of the total BPS turnover during 2002 was related
to Sopheon's proprietary products and
services as opposed to third party and bespoke solutions. This
compares to 30% in 2001. Nevertheless, Sopheon's
integration teams continued to work on bespoke projects, at a
reducing level, as the Company continued the
transition to supporting our own products.
No single customer accounted for 10% or more of Sopheon's
consolidated 2002 revenues or its consolidated 2001
revenues.
Gross Margin
Gross margin has fallen from 30% in 2000 to 27% in 2001 and 2002.
However, the gross margin of the BPS
business rose to 35% in 2002 from 20% in 2001 and 29% in 2000. The
primary cause of the decline in 2001 was
lower utilisation of consultancy resources, as turnover for the
bespoke applications and consultancy business within
BPS fell away. Sopheon's business plan called for the consultancy
resources to be expanded and re-deployed from
bespoke work to Sopheon's own-software projects; in the event, the
bespoke business fell away faster than planned
or expected, while the sales cycle for Sopheon's own products
including Accolade was longer than expected.
In 2002 turnover from Sopheon's own software products grew
significantly, contributing to the gross margin
improvement in its BPS division, and offsetting the lower
contribution from work on bespoke projects, which
continued at a lower level, as the Company continued to transition
to supporting its own products.
The gross margin for the IM business was also lower in 2002 at 25%
compared with 30% in 2001 and 33% in 2000.
reflecting the effects of weak economic conditions noted above,
leading to lower staff utilisation. The German
business was particularly hard hit, as a number of clients reduced
their level of activity with Sopheon as a result of
their own restructuring or M&A activity, while employment conditions
in Germany meant that the cost base
remained relatively rigid.
Sales, Marketing and Administrative Costs
Following the increase in absolute terms in 2001, consequent on the
acquisitions of Teltech, AIT and Orbital in
2002, sales, marketing and administrative costs fell in 2002 both in
absolute terms and as a proportion of turnover, as
part of the overall cost base and headcount reductions implemented
during the year. Sales and marketing resources
were focused on short-term lead generation and on third-party
validation of Sopheon's proprietary products.
Notwithstanding the reduced marketing spend, Sopheon achieved a
substantial increase in activity relating to its
Accolade software, including 10 initial licences, 6 additional
licences either following on from an assessment or
extending the user base at existing clients, 3 ancillary modules
sold without the core Accolade system and 15
assessments. (Sopheon defines assessments as trial installations,
paid for by clients, which could lead to a full
licence sale).
Sopheon's administrative expenses, excluding R&D costs and goodwill
amortisation, amounted to Pound5,727,000 in
2002 compared to Pound6,792,000 in 2001 and Pound2,837,000 in 2000.
This category includes all facility and internal
infrastructure costs in addition to the specific finance, human
resources and administration departmental expenses.
The increase in 2001 was primarily linked to the impact of the
geographically disparate acquisitions which were
made during 2000 and 2001. At the end of 2001, the annualised fixed
cost base for the combined businesses of the
Sopheon group, including AIT and Orbital, was reduced by over 25%,
through elimination of duplicated costs and a
significant contraction of the workforce amounting to approximately
80 positions. Costs associated with this
restructuring were of the order of Pound1,000,000 and were charged
to the profit and loss account in 2001. The reduced
level of administrative costs in 2002 reflects these reductions, in
addition to a further reduction of fixed costs by
35% during 2002, bringing the cumulative reduction since Sopheon's
acquisition of Orbital in late 2001 to 55%.
Headcount has been reduced to 184 at the end of 2002, compared with
264 in January 2002 and 349 in late 2001.
Research and Development Costs
The gross and net research costs can be analysed as follows:
Year ended December 31
2002 2001 2000
Pound'000 Pound'000 Pound'000
Research and development costs
2,331 3,010 3,321
Grants and subsidies
(69) (19) (78)
Net expenditure charged
2,262 2,991 3,243
In 2000, R&D expenditure included a full year of Sopheon UK's
development costs relating to its KnowledgeAgent
("KA") product set. In addition, substantial development
expenditure was incurred at Sopheon's Denver operation
and by Teltech relating to the development of the Accolade product
and to Teltech's research service internet portals.
R&D spending in 2001 was predominantly focused at Sopheon's Denver
operation on the development of the
Accolade solution, with the first market release (version 2.0) in
the second quarter and a further, enhanced release
(version 3.0) at the turn of the year. Development also continued
on certain Sopheon linguistic and healthcare
applications in use, however significant development activities
relating to AppliedNet's KA and Teltech's research
portals did not continue beyond the first half of the year.
The acquisition of Orbital brought with it a development based in
the Edinburgh location and focused on its Organik
solution. During 2002, the Organik solution was incorporated into
version 4.0 of Sopheon's Accolade product,
providing important additional functionality designed to enable
organizations to capture and reuse information using
a "question and answer" technique. Following the release of Accolade
4.0 Sopheon's R&D resources were scaled
back and concentrated at Sopheon's Denver office as part of the
cost-base and headcount reductions implemented
during the year.
Amortisation of Goodwill
Following the acceleration of goodwill amortisation during 2001 to
reflect the changed market conditions since the
acquisitions of AppliedNet and Teltech, resulting in a total
goodwill charge of Pound21,431,000 during 2001, comprising
Pound12,288,000 of regular charges and an exceptional impairment
charge of Pound9,143,000, the charge for goodwill
amortisation in 2002 fell sharply to Pound5,922,000. This amount
represents the normal amortisation charge required in
respect of the residual net book value of goodwill in respect of the
acquisitions of Teltech and Orbital, and negative
goodwill in respect of the acquisition of AIT, which is being
amortised over their estimated economic lives, which
are three years in each case.
The impairment charge in 2001 was calculated in accordance with the
UK's Financial Reporting Standard 11, and
represents Pound2,330,000 in respect of AppliedNet, leaving a
carrying value of Poundnil, and Pound6,735,000 in respect of
Teltech, leaving a carrying value of Pound9,678,000. The impairment
charges were computed using a discount rate of
15%.
At December 31, 2002, the Group carried goodwill of Pound4,148,000
in respect of Teltech, Pound943,000 in respect of
Orbital and negative goodwill of Pound166,000 in respect of AIT.
Other Income/(Expense)
This category includes bank interest receivable and interest payable
and similar charges. In 2000, there was net
interest income of Pound861,000, including interest on the Pound20
million equity issue made in March 2000, which provided
funds for working capital and for the Pound10,775,000 cash element
of the Teltech acquisition, which was not disbursed
until September 2000.
Net interest income of Pound169,000 was recorded in 2001, a decrease
of Pound692,000 from 2000. The decrease is largely
attributable to lower cash levels during the year as well as lower
overall rates of interest in the market. The cash
balances at December 31, 2001 include Pound11,877,000 in cash and
bank deposits added in November with the Orbital
acquisition. Interest expense was up from Pound89,000 to
Pound204,000 as a result of the 6% Convertible Unsecured Loan
Stock issued in 2001.
In 2002 net interest expense Pound67,000 comprising Pound260,000 in
net interest received in respect of Sopheon's cash and
bank deposits, and Pound327,000 in interest expense. Interest
receivable was again lower, mainly reflecting lower short-
term interest rates and the lower level of Sopheon's cash and bank
deposits which amounted to Pound3,355,000 at the end
of 2002. The main element in the increase in interest expense in
2002 was a full year's charge in respect of the
Convertible Unsecured Loan Stock.
During each of the three years, the main other component of interest
expense is interest paid against a bank line of
credit which is secured against the receivables of Sopheon
Corporation, formerly Teltech.
Taxation
At December 31, 2002, tax losses estimated at Pound54 million were
available to carry forward by Sopheon, arising from
historic losses incurred. Approximately Pound15 million of the tax
losses relate to Teltech Resource Network Corporation
and to Orbital Software Inc, the future utilisation of which may be
restricted under section 382 of the US Internal
Revenue Code, whereby the ability to utilise net operating losses
arising prior to a change of ownership is limited to
a percentage of the entity value of the corporation at the date of
change of ownership. Full allowance has been made
against the deferred tax asset relating to the above tax losses, due
to prior year reported losses and the lack of
certainty over future operating profits in the relevant companies.
In 2002 Sopheon was in receipt of UK tax credits in respect of its
R&D expenditure amounting to Pound126,000.
B. LIQUIDITY AND CAPITAL RESOURCES
Overview
A summary of Sopheon's historical fund raising activities is
provided in the Item 4 --"History of the Company".
On December 31, 2002, the Group had Pound3,355,000 available in cash
resources against which there are outstanding
bank loans, lines of credit and other borrowings totaling
Pound3,544,000, including Pound2,569,000 of 6% Convertible
Unsecured Loan Stock (described below) issued to management and
other investors. Net current liabilities were
Pound317,000 at the year end, comprising current assets of
Pound6,015,000 less current liabilities of Pound6,332,000. Deferred
revenue of Pound1,584,000 is included in current liabilities.
Capital expenditures are expected to be well below Pound100,000 in
2003.
While Sopheon does not own any freehold or leasehold property, it
occupies several office locations around the
world involving leases of varying duration, with aggregate annual
rental charges at December 31, 2002 of
approximately Pound660,000 per annum.
Sopheon has continued to generate operating losses and cash outflows
during 2002 and expects to continue to do so
for all or part of 2003.
On June 19, 2001, Sopheon raised Pound2,600,000 for working capital
through the issue of a convertible loan to
management and other investors. The principal terms of the
convertible loan stock, as adjusted by subsequent
resolutions of stockholders on November 7, 2002 and June 30, 2003
(the latter being conditional on the passing by
Sopheon shareholders of a resolution at the Annual General Meeting
of the Company to be held in July 2003 to
increase the directors' authority to issue and allot shares) are as
follows:
The Loan Stock carries an annual coupon rate of 6%.
The conversion price for the Loan Stock (the "Conversion
Price") is 12p per share. Conversion of the Loan
Stock is at the option of the investor between 12 and 48 months
from date of issue of the Loan Stock or
earlier if the Company undertakes a placing or similar equity
issue. Any portion of the Loan Stock, which is
not converted, will be redeemed at par on June 20, 2005.
The Conversion Price may be adjusted if, at any time after
the date of issue of the Loan Stock and before
the date of conversion, the Company undertakes a placing or
similar equity issue at a lower price, in which
event the Conversion Price will be reset to the higher of the
placing price or the nominal value of Sopheon
shares, which is 5p.
Sopheon has in place a secured line of bank credit of $3,000,000
(Pound1.9 million). The facility is limited to 85% of the
former Teltech operation's eligible accounts receivable. As of May
1, 2003, total outstanding borrowings were
$1,045,000, and there was approximately $100,000 of further credit
available on this bank line, based on eligible
receivables at that date. Borrowings bear interest at the rate of 3%
over the bank's prime rate (4.5% at May 1, 2003).
The line of credit requires certain covenants to be met at a local
level, and expires in August 2003. This facility is
secured by substantially all the assets of the subsidiary Sopheon
Corp, Minnesota and is senior in subordination
to any other debt obligations of the subsidiary. In May 2002, at the
request of the bank, Sopheon plc executed a
guarantee in favor of the bank, in respect of borrowings under the
line of credit.
Sopheon's budget for 2003 assumes that cash generated from
operations, and available resources and borrowings,
together with the cash proceeds of up to $3,400,000 from the
divestment of its US-based Information Management
business, and the net proceeds from the placing, on June 16, 2003,
of 4.5 million new ordinary Sopheon shares at
12p per share, will be sufficient to meet its working capital and
capital expenditure requirements through 2003. This
assumption is predicated on Sopheon's ability to meet revenue and
cost targets established in its 2003 business
plans. However, in the event that Sopheon's financial results differ
materially from those expected, it could require
new debt or equity funding.
The Group's cash-flow statements for the three years to December 31,
2002 are set out on page F-5, and are
summarized below:
Years ended December 31 2002
2001 2000
Pound000
Pound000 Pound000
Net cash outflow from operating activities (10,268)
(11,244) (8,793)
Return on investments and servicing of finance (67)
169 861
Taxation 126
- -
Capital expenditure (86) (201)
(954)
Acquisitions and disposals -
13,037 (12,281)
Management of liquid resources 8,186
(3,512) (267)
_______ _______ ______
Net cash outflow before financing (2,109)
(1,731) (21,434)
Financing (12) 4,083
20,184
_______ _______ ______
(Decrease)/increase in cash (2,121)
2,352 (1,250)
====== ====== =====
During the period Sopheon has invested in marketing and product
development and in acquisitions, resulting in net
cash outflows on operating a activities, which have been financed
primarily by the raising of equity capital.
At December 31, 2002 Sopheon had short-term borrowings of
Pound975,000 consisting of a bank overdraft and the term
loans in the United Kingdom and the line of credit in the United
States, which are used to provide working capital
for the Group. In addition, Sopheon had Pound2,569,000 in 6%
Convertible Unsecured Loan Stock issued to management
and other investors, repayable in June 2004.
The report of Sopheon's independent auditors for the periods ended
December 31, 2001 and 2002 refers to the
disclosures made in the financial statements as to Sopheon's
recurring losses from operations and lack of funds,
which raise substantial doubt about its ability to continue as a
going concern. Details of the steps taken by Sopheon
to provide the Group with adequate funding to support its activities
are set out in Note 1 to the financial statements.
Further information, including certain qualitative and quantitative
disclosures on market risk, is given in Item 11 and
in Note 20 to the financial statements.
C. RESEARCH AND DEVELOPMENT, PATENTS, AND LICENSES, ETC.
Sopheon's expenditure on R&D in the three-year period ended December
31, 2002 is summarised in Section A of
Item 5 above.
In 2001, Sopheon was granted a European patent in connection with
its knowledge management software
architecture and methodology originally developed in the early
1990s. The technology portfolio has also been
enhanced by Sopheon's patented profiling technology acquired with
Orbital, in respect of which a US Patent was
granted on February 25, 2003.
During 2002 these technologies were integrated into the Accolade
system, applying them to the process of creating,
publishing and re-using content from knowledge bases and communities
of interest built up by an organization
during the product development life cycle, as part of the Accolade
4.0 version, which was released during the year.
D. TREND INFORMATION
Although Sopheon expects that tough economic conditions will persist
in 2003 in all geographical areas in which it
operates, it entered 2003 with a substantially reduced cost base and
rationalised infrastructure, a flagship software
product that is generating a high level of interest and sales
activity, an expanding installed client base, and increased
validation of the market. Accolade has demonstrated consistently
that it is a valuable solution in which clients are
prepared to invest. The planned divestiture of Sopheon's US-based
IM business will reduce complexity and sharpen
focus. Since the beginning of 2003, the pipeline for Accolade has
continued to develop. This progress supports
Sopheon's belief that there is a positive outlook for Accolade in
the current year, and that Sopheon is well-positioned
to continue to advance toward its goal of becoming a leading
international supplier of software and services that
improve the financial return on innovation and product development
investments.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT, AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
The directors and executive officers of Sopheon are as follows:
Directors
Name Age Title
Barry Mence 50 Executive Chairman
Andrew Michuda 48 Chief Executive Officer
Arif Karimjee 36 Chief Financial Officer and Company
Secretary
Stuart Silcock 55 Non-executive director
Bernard Al 58 Non-executive director
Andrew Davis 45 Non-executive director
Daniel Metzger 49 Non-executive director
Executive Officers
Name Age Title
J. Christian Hawver 52 Chief marketing officer
Paul Heller 41 Chief technology officer
Huub Rutten 54 Vice President product research and
definition
All directors hold office until the next annual meeting of
shareholders or until their successors have been duly
elected and qualified. Executive officers of Sopheon are appointed
by and serve at the direction of the board of
directors.
Barry Mence, Executive Chairman. Barry Mence served as Chairman,
Chief Executive Officer and Director of
Sopheon from its inception in 1993 until September 2000, when he
relinquished the role of Chief Executive Officer
to Andrew Michuda. From 1976 to 1990, Mr. Mence was the major
shareholder and Group Managing Director of
Rendeck Group of Companies based in the Netherlands. Mr. Mence is
currently a non-executive director of two
property development companies, Crowstone Estates Limited and BSN
Limited, and a privately owned golf club,
The Burstead Golf Club, all based in England.
Andrew Michuda, Executive Director. Andrew Michuda was appointed
Chief Executive Officer of Sopheon in
September 2000. He was elected as President and Chief Executive
Officer of Teltech in April, 1997 and has served
as a Director of Teltech since that time. Mr. Michuda held the
position of Vice President of Teltech from 1994 until
1997.
Arif Karimjee, Executive Director. Arif Karimjee has served as Chief
Financial Officer of Sopheon since February
2000. Mr. Karimjee was previously an accountant and auditor with
Ernst & Young from August 1988 until joining
Sopheon.
Stuart Silcock, Non-executive Director. Stuart Silcock has served as
a Director of Sopheon from its inception in
1993. Since 1982, Mr. Silcock has been a principal partner of
Lawfords & Co. and a director of Lawfords Ltd.,
chartered accountants. In June 2001 Mr Silcock was appointed a
non-executive director of Brown & Jackson Plc.
Bernard Al, Non-executive Director. Bernard Al was appointed as a
non-executive director of Sopheon in January
2001 and is a former Chief Executive Officer of Wolters Kluwer in
the Netherlands and has a background in science
and linguistics.
Andrew Davis, Non-executive Director. Andrew Davis was a founder of
Spider Systems Limited in 1983 and held
the post of Chief Technology Officer for 12 years. He left Spider
Systems Limited in 1995 when it was sold to Shiva
Corporation. Since then he has been an investor/director in a number
of companies, including Orbital Software
Holdings plc.
Daniel Metzger was until 1998 an executive vice president of Lawson
Software, a leading ERP provider, where he
was responsible for corporate strategy and marketing. Since then he
has held similar roles at Parametric
Technologies, where he led the business strategy and marketing
around collaborative product development
technologies and at nQuire Software, which was subsequently sold to
Siebel.
Christian Hawver was appointed as Chief Marketing Officer in
November 2000. He was previously involved with
business and channel development for international information
technology businesses including Achieve
Healthcare, Medical Documenting Systems and Data General.
Paul Heller is Chief Technology Officer. He joined Sopheon in June
1999, having previously been Vice President of
Product Management for Baan Company.
Huub Rutten is responsible for Sopheon's healthcare business in the
Netherlands and also has responsibility for
product research. A founder of PolyDoc, he has been an employee of
Sopheon for over seven years, and was a
director of Sopheon until September 2000 before stepping down from
the Board to assume a more operational role.
B. COMPENSATION
Directors' Remuneration
Set out below is a summary of the fees and emoluments received by
those persons who were directors of Sopheon
during the fiscal year 2002, or (where applicable) during their
period of office.
Salary
and Fees
Benefits
Contributions
to Pension
Total
2002
Executive directors
(Pound)
B.K. Mence
108,403
3,157
7,475
119,035
A. Michuda
117,333
6,128
2,267
125,728
A. Karimjee
77,500
1,091
3,504
84,915
Non-executive directors
S.A. Silcock
18,000
-
-
18,000
J.M. Shuster (1)
12,000
3,117
320
15,437
B.P.F. AI
18,000
-
-
18,000
A.M. Davis
18,000
-
-
18,000
D. Metzger (2)
4,500
-
-
4,500
373,736
13,493
16,386
403,615
____________
(1) Resigned September 30, 2002
(2) Appointed on September 30, 2002
The emoluments of S.A. Silcock are paid to Lawfords Limited, of
which Mr. Silcock is a director.
The following table shows emoluments payable to all directors and
executive officers of Sopheon as a group in the
year to December 31, 2002.
Salaries Benefits
Pension Total
and fees
contributions
Pound'000
Pound'000 Pound'000 Pound'000
Total for all directors and executive officers 783
44 21 848
The following table provides summary information for each of the
directors who held office during the year and who
held options to subscribe for Sopheon ordinary shares. All options
were granted without monetary consideration.
Date of Exercise At
31 Granted Exercised At 31
Grant price
December during during December
2001
year year 2002
B.K. Mence (1) May 2, 2001 77.5p
22,500 - - 22,500
B.K. Mence (1) April 30, 2002 14,75p
100,000 - - 100,000
A. L. Michuda (2) September 15, 2000 184p
187,600 - - 187,600
A. L. Michuda (2) September 15, 2000 230p
7,846 - - 7,846
A. L. Michuda (2) September 15, 2000 322p
12,501 - - 12,501
A. L. Michuda (2) September 15, 2000 368p
1,756 - - 1,756
A. L. Michuda (3) October 2, 2000 427.5p
16,280 - - 16,280
A.L. Michuda (3) January 1, 2001 160p
5,030 - - 5,030
A.L. Michuda (3) May 2, 2001 77.5p
54,662 - - 54,662
A.L. Michuda (3) April 30, 2002 14.75p
487,932 - - 487,932
A. Karimjee (1) November 22, 1999 150p
100,000 - - 100,000
A. Karimjee (1) May 2, 2001 77.5p
12,500 - - 12,500
A. Karimjee (4) April 30, 2002 14.75p
- 150,000 - 150,000
B.P.F. Al (1) May 2, 2001 77.5p
25,000 - - 25,000
(1) Exercisable between the third and tenth
anniversary of the date of grant
(2) Fully vested options,
which were granted as part of the acquisition of Teltech Resource
Network Corporation.
(3) One fourth of these
options becomes exercisable on each of the first four anniversaries
of the date of grant and
they expire on the tenth anniversary of the date of grant.
(4) Exercisable as to 100,000 options between the third and
tenth anniversary of the date of grant and as to 50,000
options exercisable immediately.
C. BOARD PRACTICES
The executive directors of Sopheon and their dates of appointment
are as follows:
Date of appointment
Barry Mence August 1994
Arif Karimjee February 2000
Andy Michuda September 2000
The contracts of service of the executive directors are for an
indefinite term and incorporate various benefits
including entitlements to option and bonus programs in addition to
base salary, which can be increased at the
discretion of the board. These contracts also provide for benefits
on termination. The service contracts of Mr. Mence
and Mr. Karimjee provide for notice periods of six months. Mr.
Michuda's service contract would entitle him to a
severance payment equal to nine months' basic remuneration on
termination.
The non-executive directors of Sopheon and their dates of
appointment are set out below. None of the non-executive
directors has a service contract with the Company.
Date of appointment
Stuart Silcock August 1994
Bernard Al January 2001
Andrew Davis November 2001
Daniel Metzger September 2002
The audit committee of Sopheon comprises the four non-executive
directors, under the chairmanship of Mr. Silcock.
The committee reviews the annual and interim financial statements of
the Group, together with its accounting
policies and financial controls. It meets once in each quarter,
including one meeting with the external auditors, Ernst
& Young LLP, prior to the issue of the Annual Report and Accounts
and the filing of the Annual Report with the US
Securities and Exchange Commission on Form 20-F
The remuneration committee of Sopheon is responsible for overseeing
the contract terms, remuneration and other
benefits for executive directors, and comprises Mr. Al (Chairman)
and Mr. Silcock, together with Mr. Barry Mence
other than in respect of his own compensation. The committee makes
recommendations to the board, within agreed
parameters, on overall remuneration packages for executive directors
and other senior executives.
D. EMPLOYEES
The average number of employees of the Group in each of the three
years to December 31, 2002 was as follows:
Year ended December 31 2002
2001 2000
Development and operations
151 164 79
Sales and management
81 94 71
232
258 150
E. SHARE OWNERSHIP
The following table sets out certain information regarding the
ownership of Sopheon ordinary shares as at June 12,
2003 by (i) each of the executive and non-executive directors of
Sopheon, (ii) each executive officer of Sopheon,
and (iii) each person who has disclosed an interest in more than 3%
of the issued share capital of Sopheon pursuant
to Sections 198-208 of the Companies Act 1985.
Unless otherwise indicated each person has sole voting and
investment power as to the shares shown. Beneficial
ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes any
shares which the person has the right to acquire within sixty days
of June 12, 2003 through the exercise of any stock
option or other right (including the conversion of the 6%
Convertible Loan Stock 2005 at the adjusted conversion
rate of 12p per share but excluding the exercise of the warrants
which were attached thereto and which expired
unexercised on June 20, 2003):
Name of beneficial owner Number Percentage
of shares owned
(i) Directors
Barry Mence (1) 14,247,277
17.7%
Andrew Michuda 644,860
0.8%
Arif Karimjee 291,666
0.4%
Stuart Silcock (2) 1,112,793
1.3%
Bernard Al 601,333
0.7%
Andrew Davis 494,520
0.6%
(ii) Executive officers
Christian Hawver 300,833
0.4%
Huub Rutten 715,833
0.9%
Paul Heller 107,708
0.1%
(iii) Other shareholders with notifiable interests
Aventis Research & Technologies GmbH & Co KG 3,471,191
4.2%
___________
(1) Includes 3,847,800 ordinary shares held
in trust over which Mr Mence exercises investment control.
(2) Includes 5,362 ordinary shares held in
trust for Mr Silcock's wife and 107,010 ordinary shares registered
in Mr
Silcock's name but held in trust for two adult children, a sister
and a corporation. Mr Silcock disclaims
beneficial ownership of the 107,010 shares held in trust.
On June 12, 2003, the total amount of the Company's voting
securities owned by Directors and Officers of the
Company was:
Number
of Percentage
Class of share
shares of class
Ordinary shares 14,727,108
17.8%
At June 12, 2003 no other person owned more than 10% of any class of
the Company's voting securities.
The holdings of the above persons of 6% Convertible Unsecured Loan
Stock 2004 which was issued on June 20,
2001, are set out below. The Stock is convertible into ordinary
shares of Sopheon at a conversion rate of 12p per
share prior to June 20, 2004.
Name of beneficial owner Nominal
amount
(i) Directors
Barry Mence Pound390,000
Andrew Michuda Pound28,000
Arif Karimjee Pound17,000
Stuart Silcock Pound100,000
Bernard Al Pound25,000
(ii) Executive officers
Chris Hawver Pound25,000
Huub Rutten Pound28,000
The Group operates employee share option schemes as a means of
promoting employee share ownership. A
summary of the share options which have been granted under such
share ownership schemes, which also includes
share options granted in September 2000 to vendors in connection
with the acquisition of Teltech Resource Network
Corporation, and share options granted in November 2001 by way of
exchange to holders of vested options to
acquire shares in Orbital, is set out below:
Number of shares under option Subscription price
Normal expiry date
at December 31, 2002
4,342,281 6.193p to 960p 2002 to 2010
Movements in options
outstanding for the three years in the period ended December 31,
2002 are as follows:
Number of Weighted
average
Shares
exercise price
Pound
Outstanding at January 1, 2000 1,509,947
0.62
Granted under share option schemes 569,901
4.24
Granted to the vendors of Teltech 718,292
2.29
Exercised (631,250)
0.34
Lapsed (137,027)
2.10
Outstanding at December 31, 2000 2,029,863
2.22
Granted under share option schemes 362,339
0.83
Granted by way of exchange to holders of Orbital share options
660,066 0.06
Exercised (82,543)
0.15
Lapsed (368,149)
3.13
Outstanding at December 31, 2001
2,601,576 1.42
Granted under share option schemes
3,439,328 0.15
Exercised (621,734)
0.06
Lapsed (1,076,889)
0.85
Outstanding at December 31, 2002
4,342,281 0.74
The following table
summarises share options outstanding at December 31, 2002
Outstanding options
Exercisable options
Range of exercise Number of Weighted Weighted
Number of Weighted
prices shares (000s) average average
shares (000s) average
contractual exercise
exercise
life (years) price
price
Pound0.06 to Pound0.20 3,047 9.1
Pound0.15 523 Pound0.14
Pound0.78 to Pound1.98 948 6.8
Pound1.40 647 Pound1.58
Pound2.30 to Pound3.75 128 6.6
Pound3.00 123 Pound2.97
Pound4.06 to Pound9.60 291 7.6
Pound4.90 81 Pound4.97
_____
_____
Totals 4,414 8.5 Pound0.74
1,374 Pound1.36
On December 31, 2002 the total number of options granted to
Directors and Executive Officers of the Company
were as follows:
Number of share options Subscription price Normal
expiry date
1,806,107 14.75p to 960p 2005 to 2012
No director or executive
officer exercised any options between December 31, 2002 and June 12,
2003.
The following table shows the percentage holdings of persons who
have notified the Company that they are
interested in 3% or more of the Company's issued share capital:
At December 31 2000
2001 2002
B.K. Mence
22.5% 10.6% 13.3%
J Macfarlane
4.4% - -
Friends Ivory & Sime plc
- 5.5% -
3i Group plc
3.7% 4.8% 3.7%
Aventis Research &
Technologies GmbH & Co KG -
4.2% 4.2%
A. Slater
- 3.7% -
C. Smeaton
- 3.7% -
Holders of 3% or more of the issued share capital of the Company
have the same voting rights, proportional to their
shareholdings, as other shareholders in the Company.
On March 20, 2003 the Company was notified that 3i Group plc no
longer has a notifiable interest in the share
capital of Sopheon. Otherwise, the Company has not been notified
since December 31, 2002 of any change in the
holdings of persons interested in 3% or more of the Company's issued
share capital.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
For a listing of beneficial owners of 3% or more of Sopheon's voting
securities, please see Item 6.E "Directors,
Senior Management, and Employees Share Ownership."
At June 12, 2003 there were 414 holders of record of Sopheon shares
with registered addresses in the United States,
who held a total of 717,525 shares, or 0.9% of the total shares
outstanding.
There is no trading market at the present time for Sopheon shares in
the United States. Details of Sopheon's
sponsored American Depositary Receipt ("ADR") program appear under
Item 9 Section C.
So far as the Company is aware, it is neither directly nor
indirectly owned or controlled by one or more corporations,
by any government, or by any other natural or legal person,
severally or jointly.
The Company does not know of any arrangement the operation of which
might result in a change in the control of
the Company.
A. RELATED PARTY TRANSACTIONS
There have been no related party transactions during the period from
January 1, 2002 to June 12, 2003.
B. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
The Consolidated Statements and other Financial Information required
by this Item are contained in the Financial
Statements, commencing on page F-1. See Item 17.
Legal Proceedings
As of June 12 2003, neither Sopheon nor any of its subsidiaries are
party to any significant litigation that would have
a material adverse effect on the consolidated financial statements.
The Company is occasionally involved in
litigation in the ordinary course of business.
Dividend Policy
Holders of Sopheon ordinary shares may, by ordinary resolution,
declare dividends but may not declare dividends in
excess of the amount recommended by the directors. The directors
may also pay interim dividends. No dividend
may be paid other than out of profits available for distribution.
Dividends on Sopheon ordinary shares will be
announced and paid in pounds sterling. Sopheon has not in the past
declared or paid any dividends to holders of its
ordinary shares, and there is no present intention to declare or pay
any such dividend.
B. SIGNIFICANT CHANGES
There have been no significant post balance sheet events since
December 31, 2002 other than as disclosed in Note 22
to the Financial Statements.
ITEM 9. THE OFFER AND LISTING
OFFER AND LISTING DETAILS
At June 12 2003, the market price of Sopheon shares was 16p on the
Alternative Investment Market of the London
Stock Exchange and 0.23 on Euronext. The following table shows, for
the periods indicated, the high and low
closing prices per Sopheon ordinary share as reported on the
Alternative Investment Market of the London Stock
Exchange and on Euronext.
Alternative Investment Market Euronext
High Low
High Low
(pence) (pence)
(euro) (euro)
June 24 14
0.37 0.22
May 25 11
0.39 0.18
April 15 11
0.26 0.17
March 19 11
0.32 0.18
February 12 10
0.44 0.30
January 30 24
0.49 0.39
2002
Fourth quarter 19 5
0.75 0.43
Third quarter 11 6
0.99 0.39
Second quarter 16 11
1.64 0.95
First quarter 31 11
2.80 1.64
2001
December 33 29
0.53 0.46
Fourth quarter 47 27
0.75 0.43
Third quarter 59 25
0.99 0.39
Second quarter 97 53
1.64 0.95
First quarter 160 95
2.80 1.64
2000
Calendar year 1,762 155
27.00 2.63
1999
Calendar year 405 126
6.00 1.75
1998
Calendar year 272 120
4.44 1.82
A. PLAN OF DISTRIBUTION
Not applicable.
B. MARKETS
The ordinary shares of Sopheon have been traded on the Alternative
Investment Market of the London Stock
Exchange since August 1996 and on the Euronext market of the
Amsterdam Stock Exchange since March 1997.
The shares are traded in London under the symbol SPE.
On June 13, 2001, Sopheon filed with the SEC a registration
statement on Form F-6 for American Depositary Shares
("ADSs") to be evidenced by American Depositary Receipts ("ADRs")
under a level 1 ADR program, with the Bank
of New York as depositary. Each Sopheon ADS represents 10 Sopheon
shares. When the ADR program is
implemented, the Sopheon ADSs will trade on the OTC market under the
symbol SOPEY.
No listing is being sought or application for admission made on any
other exchange.
C. SELLING SHAREHOLDERS
Not applicable.
D. DILUTION
Not applicable.
E. EXPENSES OF THE ISSUE
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
SHARE CAPITAL
Not applicable.
A. MEMORANDUM AND ARTICLES OF ASSOCIATION
There are no restrictions under the Memorandum and Articles of
Association or under English law that limit the
rights of non-resident or foreign holders to hold or vote Sopheon
shares, nor any other restrictions on rights to own
securities.
Registrar
The registrar for Sopheon ordinary shares is Capita IRG Plc of The
Registry, 34 Beckenham Road, Beckenham,
Kent BR3 4TU, England
The information under the headings "Description of Sopheon Ordinary
Shares" and "Comparison of Rights of
Teltech Shareholders and Sopheon Shareholders" contained in the
Company's Registration Statement on Form F-4
(File No 333-44404) is incorporated herein by reference.
C. MATERIAL CONTRACTS
The following contracts to which the Company is party have been
entered into (other than in the normal course of
business) since January 1, 2001 and are, or may be, material:
a) An Agreement dated June 19, 2001 for the issue of Pound2.6
million 6% Convertible Unsecured Loan Stock
with detachable warrants to subscribe for ordinary shares.
b) An Agreement dated June 22, 2001 for the acquisition of
the Technology and Information Services
Division of Aventis Research and Technologies, Frankfurt,
Germany for a consideration comprising
3,471,191 Sopheon shares.
c) An Offer, made on behalf of the Company by HSBC Investment
Bank plc and dated October 22, 2001,
to acquire the whole of the issued and to be issued share
capital of Orbital Software Holdings plc on
the basis of 8 new Sopheon shares for every 9 existing
Orbital shares. The Offer was declared
unconditional on 15 November 2001. The total consideration
payable under the Offer comprised
40,016,715 ordinary Sopheon shares and 660,066 options to
acquire Sopheon shares.
d) Amended and restated Asset Purchase Agreement between
TTECH Acquisition Corp. as purchaser,
FIND/SVP, Inc. as the parent company of the purchaser,
Sopheon Corporation as vendor and Sopheon
plc as the parent company of the vendor, being an agreement
for the divestment of Sopheon
Corporation's Information Management business. The total
consideration receivable under the
agreement is $3.0 million in cash together with a further
cash amount of up to $0.4 million contingent
on the level of future earnings, as well as the assumption by
TTECH Acquisition Corp of net current
liabilities amounting to approximately $2.1 million. In
addition, FIND/SVP is required to issue to
Sopheon $50,000 in FIND/SVP stock, and Sopheon is required to
issue to FIND/SVP $100,000 of
Sopheon stock.
D. EXCHANGE CONTROLS
There are currently no UK exchange control restrictions on the
import or export of capital, the conduct of the
Company's operations or affecting the remittance of dividends.
TAXATION.
United States Federal Income Tax Consequences of Ownership of
Sopheon Ordinary Shares
Taxation of Dividends
Dividends paid to a United States holder of Sopheon ordinary shares
will be treated as foreign source dividend
income to the United States holder for United States federal income
tax purposes to the extent that they are paid out
of Sopheon's current or accumulated earnings and profits, as
determined for United States federal income tax
purposes. The income will equal the United States dollar value of
the dividend on the date the dividend is actually
or constructively received by the United States holder, calculated
by reference to the exchange rate on the relevant
date.
A United States holder may be entitled to a foreign tax credit for
United Kingdom tax withheld with respect to cash
dividends paid on Sopheon ordinary shares. If a United States
holder is so entitled, the foreign tax credit would be
equal to the percentage of the payer's tax pool computed under IRC
Section902 plus any taxes withheld in the United
Kingdom on any dividend received. In addition, a "gross-up" under
IRC Section78 would give rise to additional dividend
income. United States holders that do not elect, or are not
permitted, to claim a foreign tax credit may be entitled to
claim a deduction for foreign tax withheld.
The United States and the United Kingdom have entered into a new
income tax treaty recently. Each United States
holder is urged to consult his or her tax adviser concerning whether
the United States holder is eligible for benefits
under the United Kingdom-United States tax treaty and whether, and
to what extent, a foreign tax credit or deduction
will be available with respect to dividends received from Sopheon. A
United States holder that relies on the United
Kingdom-United States tax treaty should consider disclosing this
reliance on the United States holder's United States
federal income tax return. A United States holder that fails to
disclose reliance on a treaty where disclosure is
required would be subject to penalties under United States federal
income tax law.
Distributions by Sopheon in excess of current and accumulated
earnings and profits, as determined for United States
federal income tax purposes, will be treated as a return of capital
to the extent of the United States holder's basis in
its Sopheon shares and thereafter as capital gain. Dividends paid
by Sopheon will not be eligible for the dividends-
received deduction allowed to United States corporations in respect
of dividends received from other United States
corporations. United States holders should consult their own tax
advisers regarding the treatment of any foreign
currency gain or loss on any sterling amounts received on the
Sopheon shares which are not converted into United
States dollars on the date the sterling amounts are actually or
constructively received by the United States holder.
For foreign tax credit limitation purposes, dividends paid by
Sopheon will be income from sources outside of the
United States.
Taxation of Capital Gains
Upon a sale or other disposition of Sopheon shares, a United States
holder will generally recognize a gain or loss for
United States federal income tax purposes in an amount equal to the
difference between the United States dollar
value of the amount realized on such sale or disposition and the
United States holder's adjusted tax basis, determined
in United States dollars, in the Sopheon shares. Such gain or loss
recognized will be a long-term capital gain or loss
with respect to Sopheon shares held for more than 12 months at the
time of the sale or other disposition and any gain
recognized generally will be income from sources within the United
States for foreign tax credit limitation purposes.
A United States holder that is liable for both United Kingdom and
United States tax on a gain on the disposal of
Sopheon shares will generally be entitled, subject to certain
limitations and under the terms of the Income Tax
Convention, to credit the amount of United Kingdom capital gains or
corporation tax, as the case may be, paid in
respect of such gain against such United States holder's United
States federal income tax liability in respect of such
gain. United States holders should seek professional tax advice to
determine their entitlement to credit United
Kingdom tax against their United States federal income tax liability.
Withholding and Information Reporting
The relevant paying agents for the Sopheon shares must comply with
information reporting requirements in
connection with dividend payments or other taxable distributions
made with respect to Sopheon shares within the
United States to a non-corporate United States person. In addition,
"backup withholding" may apply to these
payments unless the holder or beneficial owner provides an accurate
taxpayer identification number in the manner
required by United States law and applicable regulations, certifies
that the holder or beneficial owner is not subject
to backup withholding, and the holder or beneficial owner otherwise
complies with applicable requirements of the
backup withholding rules.
In general, payment of the proceeds from the sale of Sopheon shares
to or through a United States office of a broker
is subject to both United States backup withholding and information
reporting requirements, unless the holder or
beneficial owner certifies its non-United States status under
penalties of perjury or otherwise establishes an
exemption as described in the preceding paragraph. In general,
United States backup withholding and information
reporting will not apply to a payment made outside the United States
of the proceeds of a sale of Sopheon shares
through an office outside the United States of a non-United States
broker. Special rules may require information
reporting in the case of payments made outside the United States of
the proceeds of the sale of Sopheon shares
through a United States broker.
Amounts withheld under the backup withholding rules may be credited
against a United States holder's United States
federal income tax liability, and a holder may obtain a refund of
any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for a refund with
the IRS.
United Kingdom Tax Consequences of the Ownership of Sopheon Ordinary
Shares
Taxation of Distributions
A United States holder who receives a dividend from Sopheon will not
have any further United Kingdom tax to pay
in respect of the dividend but will not be able to claim any payment
in respect of the dividend under the United
Kingdom-United States tax treaty. See "United States Federal Income
Tax Consequences of the Ownership of
Sopheon Ordinary Shares - Taxation of Dividends."
Taxation of Capital Gains
A United States holder who is neither resident or ordinarily
resident for tax purposes in the United Kingdom will not
normally be liable for United Kingdom tax on capital gains realized
on the disposal of Sopheon ordinary shares.
However, this will not apply if at the time of the disposal, the
United States holder carries on a trade, which for this
purpose includes a profession or vocation, in the United Kingdom
through a branch or agency which constitutes a
permanent establishment and the disposed Sopheon ordinary shares are
or have been used in or for the purposes of
that trade or are or have been used or held by or for the purposes
of the branch or agency. An individual United
States holder who is only temporarily not resident in the United
Kingdom may, under anti-avoidance legislation, still
be liable for United Kingdom tax on capital gains realized, subject
to any available exemption or relief.
Inheritance and Gift Taxes
Sopheon ordinary shares are assets situated in the United Kingdom
for the purposes of United Kingdom inheritance
tax. A gift of these assets by, or the death of, an individual
holder may, subject to certain exemptions and relief, give
rise to a liability for United Kingdom inheritance tax even if the
holder is neither domiciled in the United Kingdom
nor deemed to be domiciled there under special rules relating to
long residence or previous domicile.
For United Kingdom inheritance tax purposes, a transfer of assets at
less than full market value may be treated as a
gift and particular rules apply to gifts where the donor reserves or
retains some benefit. Special rules also apply to
participators in close companies and to trustees of settlements
holding Sopheon ordinary shares, which can bring
them within the charge to inheritance tax.
An individual who is domiciled in the United States and who is not a
national of the United Kingdom for the
purposes of the United Kingdom-United States estate and gift tax
convention will generally not be subject to United
Kingdom inheritance tax in respect of the Sopheon ordinary shares on
the individual's death or on a gift of the
Sopheon ordinary shares during the individual's lifetime, provided
that any applicable United States federal gift or
estate tax liability is paid, unless the Sopheon ordinary shares are
part of the business property of a permanent
establishment of an enterprise of the individual in the United
Kingdom or pertain to a fixed base in the United
Kingdom of the individual used for the performance of independent
personal services.
Sopheon ordinary shares placed in trust will generally not be
subject to United Kingdom inheritance tax if the settlor,
at the time of settlement, was a United States holder domiciled in
the United States for the purposes of the United
Kingdom-United States estate and gift tax convention and was not a
United Kingdom national, provided that the
Sopheon ordinary shares are not part of the business property of a
permanent establishment in the United Kingdom
and do not pertain to a fixed base in the United Kingdom, as more
fully summarized above.
In the exceptional case where the Sopheon shares are subject to both
United Kingdom inheritance tax and United
States federal gift or estate tax, local law in conjunction with the
estate and gift tax convention generally provides for
the tax paid in the United Kingdom to be available for credit
against tax paid in the United States or for tax paid in
the United States to be available for credit against tax payable in
the United Kingdom. The country in which a credit
is taken will depend on individual facts and circumstances, together
with the priority rules set out in the estate and
gift tax convention. Credit in either jurisdiction is always limited
to the lower of foreign tax paid or the equivalent
local tax on the same item.
Stamp Duty and Stamp Duty Reserve Tax
A transfer for value of the Sopheon ordinary shares will generally
be subject to ad valorem stamp duty or to stamp
duty reserve tax. Stamp duty will arise on the execution of an
instrument to transfer Sopheon ordinary shares.
Stamp duty reserve tax will arise on the entry into an agreement to
transfer Sopheon ordinary shares but the charge
may be cancelled if stamp duty has been paid. Stamp duty and stamp
duty reserve tax are normally a liability of the
purchaser. The rate of stamp duty and stamp duty reserve tax is
currently 0.5% of the consideration.
Qualifications
As noted above, the foregoing discussion does not address all
aspects of United States federal income taxation or
United Kingdom taxation that may be relevant to US resident Sopheon
shareholders in light of their particular
circumstances. For instance, the discussion does not address all
aspects of United States federal income taxation or
United Kingdom taxation relevant to shareholders that are resident,
or, in the case of an individual shareholder,
ordinarily resident, in the United Kingdom, shareholders who conduct
a trade or business in the United Kingdom
through a permanent establishment situated therein, or who perform
independent personal services from a fixed base
situated therein.
In addition, the foregoing discussion does not address all aspects
of United States federal income taxation or United
Kingdom taxation that may be relevant to shareholders who are
subject to special provisions of United States federal
income tax law. For example, the discussion does not address all
aspects of United States federal income taxation or
United Kingdom taxation that may be relevant to:
shareholders liable for alternative minimum tax;
shareholders that actually or constructively will own 10% or
more by vote and value of the outstanding stock
of Sopheon;
shareholders that hold their stock as part of a straddle,
hedge, synthetic security, conversion transaction or other
integrated investment composed of Sopheon shares and one or more
other investments;
shareholders whose "functional currency" is not the United
States dollar;
financial institutions;
insurance companies;
tax-exempt organizations;
traders in securities that elect marked-to-market accounting
treatment; or
broker-dealers.
The foregoing discussion is based on existing United States federal
income and United Kingdom tax law, including
legislation, administrative rulings and court decisions, as well as
on the United Kingdom-United States tax treaty, all
of which are subject to change, or changes in interpretation,
possibly with retrospective effect.
Finally, Sopheon believes that it is not and will not become a
"passive foreign investment company" for United
States federal income tax purposes within the meaning of Section
1297(a) of the United States tax code and the
foregoing discussion so assumes.
A. DIVIDENDS AND PAYING AGENTS
Not applicable.
B. STATEMENT BY EXPERTS
Not applicable.
C. DOCUMENTS ON DISPLAY
It is possible to read and copy documents referred to in this annual
report on Form 20-F that have been filed with the
SEC at the SEC's public reference room located at 450 Fifth Street,
NW, Washington DC, 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the public
information rooms and their copy charges. The SEC
also maintains an Internet site at http://www.sec.gov that contains
reports, registration statements and other
information filed electronically with the SEC.
D. SUBSIDIARY INFORMATION
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Sopheon's principal financial instruments comprise cash, short-term
deposits, lines of credit and overdraft facilities.
The main purpose of these financial instruments is to fund the
operations of the business. Sopheon has various other
financial instruments, such as trade debtors and trade creditors
that arise directly from its operations.
It is, and has been throughout the period under review, Sopheon's
policy that no trading in financial instruments will
be undertaken. However, during 2002 the Group entered into forward
contracts to hedge future known foreign
exchange liabilities.
The main risks arising from the Group's financial instruments are
interest rate risk, liquidity risk and foreign
currency risk as summarized below. The board reviews and agrees
upon policies for managing each of these risks.
These policies have remained unchanged during the last 3 years.
Interest Rate Risk- On July 28, 1998, the Company issued
Pound1,570,920 Convertible Loan Stock in order to fund the
working capital requirements of the business. The loan stock bore
an interest rate of 5% and was converted into
ordinary shares of Sopheon plc on July 31, 2000.
On June 19, 2001 the Company issued Pound2,600,000 Convertible Loan
Stock, to provide additional working capital.
This loan bears interest at a fixed rate of 6% per annum and may be
converted into ordinary shares of Sopheon plc
prior to June 19, 2005. If not converted, the Loan Stock is
repayable at par on June 20, 2005.
The Group has a sterling bank loan, of which a total of Pound28,000
remained outstanding at December 31, 2002. This
loan bears interest at a fixed rate. Sopheon also has lines of
credit and overdraft facilities in sterling, US dollars and
Euros at floating rates of interest. Where Sopheon has significant
cash resources available that are in excess of the
short-term needs of the business, such funds are maintained in
sterling and are placed on short- and medium-term
bank deposit.
Liquidity Risk Sopheon's objective is to maintain a balance
between continuity of funding and flexibility through
the use of bank overdrafts and loans. Attention is, however, drawn
to the report of Sopheon's independent auditors
for the periods ended December 31, 2001 and 2002, which refers to
disclosures in the financial statements as to
Sopheon's recurring losses from operations and lack of funds, which
raise substantial doubt about its ability to
continue as a going concern. Details of the steps taken by Sopheon
to provide the Group with adequate funding to
support its activities are set out in Note 1 to the financial
statements.
Foreign Currency Risk- As a result of having significant operating
units in the United States, Germany and the
Netherlands, which give rise to short-term creditors, debtors and
cash balances in US dollars and euro, the Group's
balance sheet can be affected by movements in exchange rates of
these currencies. In managing its structural
exposures, Sopheon's objectives are to maintain a low cost of
borrowings and to retain some potential for currency
related appreciation. Sopheon also has transactional currency
exposures. Such exposures arise from sales or
purchases by an operating unit in currencies other than that unit's
functional currency.
Credit Risk - The Company's financial instruments that are exposed
to concentrations of credit risk are primarily
trade accounts receivable. Concentrations of credit risk are
limited, due to the large number of customers and their
dispersion across many different industries and geographic areas as
well as several product lines. Historically, the
company has relatively low levels of bad debt costs. It should not,
however, be inferred that this experience will
continue into future periods. The company does not know of any
reasons today why this position should change.
Further information, including certain quantitative disclosures on
market risk, is given in Note 20 to the financial
statements.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES, AND DELINQUENCIES
There has been no default by Sopheon in the payment of principal,
interest, sinking or purchase fund installment or
other default not cured within 30 days, with respect to any
indebtedness of the registrant or any of its significant
subsidiaries.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS
There have been no material modifications of instruments defining
the rights of holders of ordinary shares in
Sopheon, since August 25, 2000, the effective date of Sopheon's F-4
Registration Statement.
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on its review within 90 days of the date of this report of the
Group's disclosure controls and procedures, the
Chief Executive Officer and Chief Financial Officer have concluded
that the Group's current disclosure controls and
procedures are effective to ensure that material information
relating to the Group is recorded, processed, summarized
and reported in a timely manner; and that the information is
accumulated and communicated to management to allow
timely decisions regarding required disclosure.
Change in Internal Controls
As of the date of this annual report, based on the assessment of the
Board, there were no changes in the Group's
internal controls, or in other factors that could significantly
affect these controls, subsequent to the date of their
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Not applicable
ITEM 16B. CODE OF ETHICS
Not applicable
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not applicable
ITEM 16D. EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not Applicable
PART III
ITEM 17. FINANCIAL STATEMENTS
The following financial statements together with the report of Ernst
& Young LLP thereon are filed as part of the
annual report:
Report of Independent Auditors . . . . . . . . . . . . . . .F-1
Consolidated Profit and Loss Account for the years ended December
31, 2000, 2001 and 2002.F-2 . .
Consolidated Statement of Total Recognized Gains and Losses for the
years ended December 31, 2000, 2001 and 2002 .
.......F-3
Consolidated Balance Sheet as of December 31, 2001 and 2002
..F-4
Consolidated Statement of Cash Flows for the years ended December
31, 2000, 2001 and 2002 F-5
Notes to the Financial Statements . . . . . . . . . . . . . .F-6
ITEM 18. FINANCIAL STATEMENTS
The Company has responded to Item 17 in lieu of responding to this
Item.
ITEM 19. EXHIBITS
1.1
Memorandum of Association of Sopheon plc as amended by Special
Resolutions passed on August 18, 1996
and November 22, 1999 (incorporated by reference to Exhibit 3.1 to
Sopheon plc's Registration Statement on
Form F-4 filed on August 24, 2000 under file number 333-44404).
1.2
New Articles of Association of Sopheon plc as adopted pursuant to a
Special Resolution passed on August
28, 1996 and amended by a Special Resolution passed on November 22,
1999 (incorporated by reference to
Exhibit 3.2 to Sopheon plc's Registration Statement on Form F-4
filed on August 24, 2000 under file number
333-44404)
2.1
Instrument dated June 19, 2001 constituting up to Pound4,000,000 6%
Convertible Unsecured Loan Stock 2003 of
Sopheon plc of which Pound2,600,000 has been issued (incorporated by
reference to Exhibit 2.1 to Sopheon plc's
Annual Report for 2001 on Form 20-F filed on July 15, 2002 under
file number 333-44404)
4.1
Convertible Loan Agreement dated June 22, 1998 by and between
PolyDoc plc and Barry Mence,
Nederlandse Participatie Maatschappij NV and Brandon Limited
(incorporated by reference to Exhibit 10.1 to
Sopheon plc's Registration Statement on Form F-4 filed on August 24,
2000 under file number 333-44404).
4.2
Secured Promissory Note in the amount of $1,900,000 issued by
Teltech Resource Network Corporation to
Sopheon plc, dated June 27, 2000 (incorporated by reference to
Exhibit 10.7 to Sopheon plc's Registration
Statement on Form F-4 filed on August 24, 2000 under file number
333-44404).
4.3
Agreement of Sale and Transfer of the AIT business dated as of June
22, 2001 among Sopheon plc and
Aventis Research and Technlogies GmbH & Co KG (incorporated by
reference to Exhibit 4.1 to Sopheon
plc's Annual Report for 2000 on Form 20-F filed on July 15, 2001
under file number 333-44404).
4.4
Recommended Offer by HSBC Investment Bank plc on behalf of Sopheon
plc for Orbital Software Holdings
plc dated as of October 22, 2001 (incorporated by reference to
Exhibit 1 of Form CB filed on 22 October
2001 under file number 333-44404)
4.5
Amended and restated Asset Purchase Agreement between TTECH
Acquisition Corp. as purchaser,
FIND/SVP, Inc. as the parent company of the purchaser, Sopheon
Corporation as vendor and Sopheon plc as
the parent company of the vendor, dated as of June 25, 2003 being an
agreement for the divestment of
Sopheon Corporation's Information Management business
8.1
Subsidiaries of the Registrant (incorporated by reference to Exhibit
21 to Sopheon plc's Registration
Statement on Form F-4 filed on August 24, 2000 under file number
333-44404).
11.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of
2002.
11.2
Certification pursuant to 18 U.S.C. Section 1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of
2002.
SIGNATURES
The registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has
duly caused and authorized the undersigned to sign this annual
report on its behalf.
Date: July 3, 2003_____________ SOPHEON PLC
By:____Arif Karimjee_________________
Arif Karimjee,
Finance Director
(Principal Financial and
Accounting Officer)
CERTIFICATION
I, Andrew Lloyd Michuda, certify that:
1. I have reviewed this annual report on Form 20-F of Sopheon
plc;
2. Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or
omit to state a material fact necessary to make the
statements made, in light of the circumstances under
which such statements were made, not misleading with respect
to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this
annual report fairly present in all material respects the
financial condition, results of operations and
cash flows of the registrant as of, and for the periods
presented in this annual report.
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the
registrant and have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those
entities, particularly during the period in which this
annual report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to
the registrant's auditors and the audit committee of
registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a
significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have
indicated in this annual report whether or not there
were significant changes in internal controls or in other
factors that could significantly affect internal
controls subsequent to the date or our most recent
evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By: _____Andrew Lloyd Michuda________
Name: Andrew Lloyd Michuda
Title: Chief Executive Officer
Date: July 3, 2003
CERTIFICATION
I, Arif Karimjee, certify that:
7. I have reviewed this annual report on Form 20-F of Sopheon
plc;
8. Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or
omit to state a material fact necessary to make the
statements made, in light of the circumstances under
which such statements were made, not misleading with respect
to the period covered by this annual
report;
9. Based on my knowledge, the financial statements, and other
financial information included in this
annual report fairly present in all material respects the
financial condition, results of operations and
cash flows of the registrant as of, and for the periods
presented in this annual report.
10. The registrant's other certifying officers and I are
responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the
registrant and have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those
entities, particularly during the period in which this
annual report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
11. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to
the registrant's auditors and the audit committee of
registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a
significant role in the registrant's internal controls;
and
12. The registrant's other certifying officers and I have
indicated in this annual report whether or not there
were significant changes in internal controls or in other
factors that could significantly affect internal
controls subsequent to the date or our most recent
evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By: _______Arif Karimjee_____________
Name: Arif Karimjee
Title: Chief Financial Officer
Date: July 3, 2003
EXHIBITS
1.1
Memorandum of Association of Sopheon plc as amended by Special
Resolutions passed on August 18, 1996
and November 22, 1999 (incorporated by reference to Exhibit 3.1 to
Sopheon plc's Registration Statement on
Form F-4 filed on August 24, 2000 under file number 333-44404).
1.2
New Articles of Association of Sopheon plc as adopted pursuant to a
Special Resolution passed on August
28, 1996 and amended by a Special Resolution passed on November 22,
1999 (incorporated by reference to
Exhibit 3.2 to Sopheon plc's Registration Statement on Form F-4
filed on August 24, 2000 under file number
333-44404)
2.1
Instrument dated June 19, 2001 constituting up to Pound4,000,000 6%
Convertible Unsecured Loan Stock 2003 of
Sopheon plc of which Pound2,600,000 has been issued (incorporated by
reference to Exhibit 2.1 to Sopheon plc's
Annual Report for 2001 on Form 20-F filed on July 15, 2002 under
file number 333-44404)
4.1
Convertible Loan Agreement dated June 22, 1998 by and between
PolyDoc plc and Barry Mence,
Nederlandse Participatie Maatschappij NV and Brandon Limited
(incorporated by reference to Exhibit 10.1 to
Sopheon plc's Registration Statement on Form F-4 filed on August 24,
2000 under file number 333-44404).
4.2
Secured Promissory Note in the amount of $1,900,000 issued by
Teltech Resource Network Corporation to
Sopheon plc, dated June 27, 2000 (incorporated by reference to
Exhibit 10.7 to Sopheon plc's Registration
Statement on Form F-4 filed on August 24, 2000 under file number
333-44404).
4.3
Agreement of Sale and Transfer of the AIT business dated as of June
22, 2001 among Sopheon plc and
Aventis Research and Technologies GmbH & Co KG (incorporated by
reference to Exhibit 4.1 to Sopheon
plc's Annual Report for 2000 on Form 20-F filed on July 15, 2001
under file number 333-44404).
4.4
Recommended Offer by HSBC Investment Bank on behalf of Sopheon plc
for Orbital Software Holdings plc
dated as of October 22, 2001 (incorporated by reference to Exhibit 1
of Form CB filed on 22 October 2001
under file number 333-44404).
4.5
Amended and restated Asset Purchase Agreement between TTECH
Acquisition Corp. as purchaser,
FIND/SVP, Inc. as the parent company of the purchaser, Sopheon
Corporation as vendor and Sopheon plc as
the parent company of the vendor, dated as of June 25, 2003 being an
agreement for the divestment of
Sopheon Corporation's Information Management business
8.1
Subsidiaries of the Registrant (incorporated by reference to Exhibit
21 to Sopheon plc's Registration
Statement on Form F-4 filed on August 24, 2000 under file number
333-44404).
11.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of
2002.
11.2
Certification pursuant to 18 U.S.C. Section 1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of
2002.