Hard times yield SoftBrands
Unwittingly enmeshed in a stock scandal, ERP vendor emerges financially stronger
By Art DeMartini, Contributing Editor -- Manufacturing Business Technology, 11/1/2002 7:00:00 AM
At first, the acquisition of Fourth Shift by AremisSoft seemed a routine diversification move—a larger company gobbling up tasty enterprise resources planning (ERP) solutions for the manufacturing industry. In late February 2001, Fourth Shift never imagined that two newly appointed top executives at AremisSoft—Roys Poyiadjis and Lycourgos Kyprianou—were about to take them, and AremisSoft stockholders, for the ride of their lives.
Just six months later, on July 31, 2001, the Securities and Exchange Commission filed a complaint alleging that Poyiadjis and Kyprianou were involved in a fraudulent pump-and-dump scheme. The "pump" was creating fictional revenues and financial statements to inflate the company's value, reporting sales that never existed, and falsifying the value and operating history of acquired companies. Chief among the schemes was a purported $37.5-million agreement to automate the nationwide healthcare system of Bulgaria. Investigators found this contract to be worth less than one-tenth of the reported amount. The "dump" was selling millions of company shares through offshore nominees, totaling more than $200 million in "profits" for the perpetrators.
Not surprisingly, shortly thereafter Poyiadjis and Kyprianou packed their well-stuffed money bags, took early "retirement," and have not been seen since.
Fourth Shift has for years been a significant player in the ERP for mid-size companies market, and always had a solid reputation. At this point, however, its customers had to be wondering about its long-term viability.
"Of course we were concerned with the situation," says Jessica Adams, vice president of finance with Sovereign Pharmaceuticals, Fort Worth, Texas, which was evaluating ERP systems at the time. Sovereign liked Fourth Shift so much, "we delayed our decision three months just to be sure the situation with the SEC cleared up."
What's a seriously tarred and feathered, but innocent, company to do? Many would have folded. Remarkably, Fourth Shift says it acquired the most valuable brands of the raiding company, and, reincorporated as SoftBrands, has emerged as a financially stronger company with more resources to serve its customers.
According to Dave Latzke, SoftBrands chief financial officer, "Fourth Shift's involvement with AremisSoft was very limited. Aside from walk-throughs and formal introductions, AremisSoft executives kept us at arms' length. The impact on our day-to-day operations and our corporate culture was nil. Essentially, we were associates in name only," he says.
SoftBrands was technically born in October 2001 as an AremisSoft subsidiary. Ellis, in addition to orchestrating this move, forged agreements with aggrieved shareholders to give them a stake in the new company, who received 60.5 percent of the initial 40 million shares. Then, on August 2, 2002, the subsidiary was freed by the courts from any attachment to AremisSoft.
"Though this has been a challenging ride," explains Latzke, "we've kept operations running smoothly, have little debt, and good cash assets. We are especially satisfied that harm to creditors and shareholders has been minimized."
SoftBrands will now seek to be one of the world's premier ERP and supply chain management (SCM) software providers. Headquartered in Minneapolis and with branch offices in Europe, Asia, Australia, the Middle East, and Africa, it has customers at more than 5,000 sites in 60 countries—manufacturing alone has 1,110 sites in the Americas, 600 in Europe, and 300 in the Asia and Pacific Rim region. Revenues are projected at $80 million this year: five-eighths from manufacturing clients, and three-eighths from hospitality clients.
The vendor turned its potential disaster into a plus, it says, by discarding the weak elements of AremisSoft and acquiring its most valuable assets. Among these are skilled development teams in China and India, both of which are expected to continue to develop quality solutions at very competitive prices.
With the need to re-establish, SoftBrands also has recruited well-respected outside directors to the company's board, including Elaine Wetmore, chief executive with Austin Entrepreneurs Foundation, and Jeffrey Vorholt, who will serve on the audit committee. "We are being particularly meticulous with our annual audit at this time," maintains Latzke. "This in-depth audit is proving our numbers are solid and should help erase doubt in the minds of our critics."
Product development, the company says, has not lost a step. Fourth Shift, now the flagship manufacturing product for SoftBrands, was upgraded last May. An extended ERP suite with customer relationship management, human resources, workflow, and e-Business functionality, Fourth Shift is used in manufacturing sites across a range of industries, from electronics and automotive to aerospace and pharmaceutical sites.
An example of SoftBrands' planned organic growth is DemandStream, a supply chain execution product (SCE) that will serve current and potential customers in achieving lean manufacturing operations.
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