Final Results, Share Placing & Other News

Sopheon PLC 3 March 2000 Sopheon plc £20M SHARE PLACING £29M PROPOSED ACQUISITION OF TELTECH RESOURCE NETWORK CORP. BUSINESS REVIEW INCLUDING PRELIMINARY RESULTS FOR YEAR ENDED 31 DECEMBER 1999 Sopheon plc ('Sopheon' formerly named PolyDoc), the international knowledge management software and services company, announces a conditional share placing, a proposed US acquisition, and its business review including preliminary results for the year ended 31 December 1999. Sopheon has operations in the UK, Netherlands and the USA; its shares are traded on AIM in London and on the Euro.NM in Amsterdam. KEY POINTS Share Placing * Sopheon is raising £20m through a placing of 2.5m ordinary shares with institutions at 800p. * These funds will be used to support Sopheon's acquisition strategy in the USA and to accelerate sales and marketing efforts on both sides of the Atlantic. Proposed acquisition of Teltech Resource Network Corporation ('Teltech') * Teltech is a knowledge management and research services company based in Minneapolis, USA, which uses web technology to deliver its products and services through vertical internet portals. * Teltech is to be acquired for £29m, satisfied by 2.19m new ordinary shares and $17m (£11m) in cash. * This acquisition would give Sopheon access to a blue chip' US client base which includes half the Fortune 500 companies and also brings a substantial uplift in overall revenues. Business review including preliminary results for the year ended 31 December 1999 * Good progress was made during the year in the development of the business and products. * AppliedNet was acquired in late November 1999 for £8m in shares and has been successfully integrated into the Group. * In November 1999, £8m was raised through an institutional placing to fund development. Barry Mence, Sopheon's Chairman said : 'Sopheon has made huge progress during 1999. The proposed £29m acquisition of Teltech announced today would give us a firm footprint in the important US market, giving Sopheon substantive operations in the UK, Netherlands and the USA. The £20m share placing provides the enlarged Group with the resources to accelerate its development into a global knowledge management software and services organisation.' For further information, please contact : Barry Mence, Chairman (barry.mence@sopheon.com) +44 (0)1483-883000 Richard Maddocks, Managing Director (richard.maddocks@sopheon.com) +31 (0)20-301 3900 Arif Karimjee, Finance Director (arif.karimjee@sopheon.com) +44 (0)1483-883000 Steve Liebmann at Buchanan Communications (stevel@buchanan.uk.com) +44 (0)171-466 5000 £20 MILLION CONDITIONAL SHARE PLACING It gives us great pleasure to announce the raising of £20 million through the placing of 2,500,000 ordinary shares at £8.00. These funds will be used to support our acquisition strategy in the USA and to further strengthen our working capital base primarily to accelerate our sales and marketing effort on both sides of the Atlantic. This successful institutional fund raising, which was achieved together with our brokers Durlacher, has resulted in a number of existing investors enlarging their holding in Sopheon and in a further number of top flight institutions becoming new shareholders in the Group. Durlacher will use all the proceeds of commissions due under the placing to subscribe for shares in cash in Sopheon at the placing price. The placing is conditional upon the admission of the new Ordinary Shares to AIM. PROPOSED ACQUISITION OF TELTECH RESOURCES NETWORK CORPORATION Sopheon has entered into a conditional agreement to acquire Teltech Resources Network Corporation. The completion of the acquisition of Teltech would give Sopheon significant operations in the Netherlands, UK and the USA. Teltech is a knowledge management and research services company based in Minneapolis, USA, which uses web technology to deliver its products and services to its customers through vertical internet portals. It was founded in 1984 with the current management being appointed in 1997. In early 1999, Teltech became a Sopheon business partner and the first joint software and services sales have been achieved. Currently, Teltech is experiencing good growth in revenues, having made substantial investment in the development of its knowledge portal technologies, launched into the market as Teltech.com in September 1999. Teltech has a blue chip' client base, which includes half of the Fortune 500 companies. In the year ended 31 December 1999, Teltech's revenues were $16.2 million (£10.1 million) and it had a loss of $0.09 million (£0.06 million). All development costs are written off as incurred. Teltech had net liabilities of $1.6 million (£1.0 million) at 31 December 1999. The consideration for the proposed Teltech acquisition is for 2,192,954 new Ordinary Shares (valued at £18 million at the placing price of 800p) and US$17 million (£11 million) in cash. Included in the cash element of the consideration is $3 million (£1.9 million) that would, as a result of the deal structure, be injected into the Teltech balance sheet at completion. The cash element of the proposed transaction, associated costs, and the development of the enlarged US business that would result, will be funded through the £20 million placing referred to above. Directors and employees of Teltech receiving Sopheon shares will undertake to retain them for 12 months and all other investors in Teltech, other than those with a minimal holding, will undertake not to dispose of any of their Sopheon shares for 6 months. Completion of the acquisition of Teltech by Sopheon is subject to Securities and Exchange Commission approvals as well as Teltech shareholder approval, although the board of Teltech, which represents over 50% of Teltech's shares, has already given its approval. SOPHEON PLC BUSINESS REVIEW FOR 1999 AND THE OUTLOOK FOR 2000 AND BEYOND. EXTRACTS FROM CHAIRMAN'S STATEMENT AND REVIEW OF THE YEAR. 1999 was a year of considerable progress for Sopheon and the year 2000 has begun with even more substantial progress as we move towards fulfilling our objective to become a major global company in the knowledge management market. Financial results In line with expectations, revenue from the core business, including the additional revenue from AppliedNet Limited which we acquired on 22 November 1999, showed an increase in turnover by 70% to £1.5 million. On an illustrative combined basis, the total revenue for AppliedNet and Sopheon for the full year 1999 was £3.6 million, also in line with expectations. Revenue for Teltech, the company proposed to be acquired by the Group, was £10.1 million for 1999 which, also based on an illustrative combined basis, would result in a revenue base for the enlarged group of £13.7 million for 1999. Sopheon earnings before interest, tax, depreciation and amortisation (EBITDA') were £1.7 million. We have adopted this approach for reporting on an ongoing basis in line with common industry practice on both sides of the Atlantic. Business development The most significant business development during the last few months has been the acquisition of the UK knowledge management company, AppliedNet, which brought to the Group amongst other important elements, a strong additional customer, revenue and prospect base in the UK. With the integration of the former PolyDoc and AppliedNet organisations into the new Sopheon completed in a very smooth and expeditious manner, the Group is already starting to experience accelerated commercial business results. The most recent of these has been the signing of a large contract (value to Sopheon at least £580,000) as part of a consortium with DERA to deliver a substantial e-commerce site with comprehensive knowledge management capabilities for the UK Public Records Office. Amongst several other notable events, I would like to mention the recent successful launch of the new FT.com (Financial Times online news website) in which Sopheon played an important role providing software and services, as covered in a recent Financial Times newspaper article. In addition to these and other business successes, and with good progress being made in our Healthcare business and a start in Life Sciences (Pharmaceutical and Biotech), 1999 finished well and the year 2000 has started strongly in Europe. Our North American office in Denver has expanded rapidly with nine new staff joining in the last few months and this, together with the substantial presence of Teltech in the USA, would I believe position Sopheon exceptionally well in that market. Product development The former PolyDoc focused on the development and provision of content management and collaborative software solutions, generically labelled KnowledgeCap software. This software is delivered as specific business solutions by industry such as QualiFlow for Healthcare, NormFlow for Manufacturing, ResearchFlow for research in Biotech and High-tech manufacturing. Prior to acquiring AppliedNet, PolyDoc was looking to extend its software product range to incorporate software that can gather, filter and disseminate information from both internal and external sources. AppliedNet's KnowledgeAgents software not only satisfies these needs, it also profiles information automatically for distribution to individual users. Sopheon's solutions moving forward will now be drawing upon the integrated set of solutions and technology comprising both KnowledgeCap and KnowledgeAgents software, a very powerful and currently unique offering. Recently, Doculabs (a Chicago-based software industry analyst firm) positively evaluated elements of our Sopheon technology and gave verification of our integrated product strategy. In the immediate future our product development efforts will be focused on enhancing this integration as well as bringing the next generation of our industry-specific knowledge management business solutions to market, utilising these new capabilities. In addition, the inclusion of Teltech's portal technology and approach into the Sopheon product set will, I believe, allow the Group to significantly enhance its offering in the world of e- business and e-commerce. Acquisition strategy We embarked on our acquisition strategy in 1998 with step one being the acquisition of Lessenger in the Netherlands, which gave us over 50 healthcare software clients and ownership of a complementary software product. Step two was achieved with the acquisition of AppliedNet at the end of 1999, which gave us a more substantial customer base in the UK and ownership of further complementary software. It also secured us an established UK commercial organisation with strong product development and implementation groups, which are already providing a firm base from which to further expand our business. As previously announced step three was targeted to be in the USA in the year 2000 with the objective of obtaining similar benefits for the Group. The proposed acquisition of Teltech in the USA announced today, our most substantial to date, would satisfy all of our requirements for this. It would bring us a commercial organisation with strong management and over 100 additional personnel, a customer base that includes half of the Fortune 500 companies, a substantial growing revenue base with a strong recurring element, and complementary technology. This together with our strong software team already in place in Denver, would give us a firm footprint into the North American market upon which to build. A large number of our clients operate on a global basis and they expect their suppliers to operate in a similar way. This is in line with our own objective of becoming a global player in due course. Therefore step four of our acquisition strategy is targeted at the Pacific Rim in the year 2001. Other options are also being explored. However the integration of Teltech and its technologies into the Group would take us through the summer and I will report to shareholders on these matters at that time. Capital raising developments I was pleased to announce in October last year that we had raised £8m to finance the development of the enlarged group at the same time as we acquired AppliedNet in the UK. Earlier last year we also raised £0.5m to invest in a joint venture company with three of our major healthcare clients in the Netherlands. I am confident that the acquisition of AppliedNet and the investment in the healthcare joint venture will make significant contributions to Sopheon's future. It gives me great pleasure to further announce the raising of an additional £20 million. These funds will be used to fund the cash requirements of £11 million for the proposed acquisition of Teltech, and in addition the associated costs, and to further strengthen our working capital base primarily to accelerate our sales and marketing effort on both sides of the Atlantic. This successful institutional fund raising, which was achieved together with our brokers Durlacher, has resulted in a number of existing investors enlarging their holding in Sopheon and in a further number of top flight institutions becoming new shareholders in the Group. Durlacher will use all the proceeds of commissions due under the placing to subscribe in cash for shares in Sopheon at the placing price. I would like to welcome those new institutions to the company and to thank them for sharing our confidence in Sopheon's future. I would also like to extend this thank-you to all new and existing shareholders who have retained or acquired stock during 1999 and the beginning of 2000. Outlook for 2000 and beyond The full integration of the AppliedNet business and potentially the Teltech business into the Group should ensure the year 2000 will be another year of substantial progress. With a growing customer base on both sides of the Atlantic and a product and service offering that we believe has a considerable 'first to market' advantage we have confidence that we are well positioned for considerable growth in a rapidly growing market. In line with our customers' requirements and Sopheon's ambitions to become a global player in the knowledge management market, we plan to continue to accelerate our progress by acquisitions in further geographic locations. Barry Mence Executive Chairman 3 March 2000 Group profit and loss account and Statement of recognised gains and losses For the year ended 31 December 1999 (Unaudited) Restated 1999 1998 £'000 £'000 Turnover 1,510 891 Cost of sales (1,362) (892) ------- ------- Gross profit/(loss) 148 (1) Administrative and distribution expenses (1,885) (1,102) Amortisation of goodwill (323) - ------ ------- Operating loss-continuing operations (2,060) (1,103) Bank interest receivable 62 13 Interest payable and similar charges (74) (52) ------- --------- Loss on ordinary activities before and after taxation (2,072) (1,142) ======= ========= Loss per share-basic and diluted (10.1p) (6.1p) Statement of recognised gains and losses Loss for the financial year (2,072) (1,142) Exchange difference on retranslation of net assets of subsidiary undertakings (45) 47 ------ ------- Total recognised gains and losses relating to the year (2,117) (1,095) Prior year adjustment (373) - ------- -------- Total recognised gains and losses recognised since last annual report (2,490) (1,095) ======= ========= The prior year adjustment and the reasons for restatement of comparatives are discussed in note 1. Group Balance Sheet at 31 December 1999 (Unaudited) Restated 1999 1998 £'000 £'000 Fixed assets Goodwill 7,605 167 Tangible assets 386 203 ------ ------ 7,991 370 Current assets Debtors 1,362 127 Cash and short term deposits 7,751 674 ------ ------- 9,113 801 Creditors: amounts falling due within one year 3,624 2,032 ------ ------- Net current assets/(liabilities) 5,489 (1,231) ------ -------- Total assets less current liabilities 13,480 (861) Creditors: amounts falling due after 1 3 more than one year ------ -------- 13,479 (864) ====== ======== Capital and reserves Called up share capital 4,491 3,773 Shares to be issued 10 15 Share premium account 17,960 2,213 Profit and loss account (8,982) (6,865) ------ --------- Shareholders' funds (all equity interests) 13,479 (864) ====== ========= Included within creditors due within one year is £1,570,920 of Convertible Loan Stock held by three of the company's shareholders. This loan stock is repayable or convertible on 31 July 2000. Group Statement of Cash Flows for the year ended 31 December 1999 (Unaudited) Restated 1999 1998 £'000 £'000 Net cash outflow from operating activities (1,322) (946) Return on investment and servicing of finance Interest received 62 13 Interest paid (72) (50) Interest element of finance lease rental payments (2) (2) ------- ------- (12) (39) ------- ------- Capital expenditure and financial investment Payments to acquire tangible fixed assets (53) (52) ------- ------- (53) (52) ------- ------- Acquisitions and disposals Purchase of subsidiary undertakings (178) (95) Net cash acquired with subsidiary undertakings 389 2 ------- ------- 211 (93) ------- ------- Management of liquid resources Increase in short term deposits (6,602) (401) ------- ------- (6,602) (401) ------- ------- Net cash outflow before financing (7,778) (1,531) ------- ------- Financing Issue of ordinary share capital 8,265 110 New short term loans 4 1,571 Repayment of long term loan - (299) Repayment of capital element of finance lease (16) (12) ------- ------- 8,253 1,370 ------- ------ Increase/(decrease) in cash excluding short term deposits 475 (161) ======= ======= Notes 1. Accounting policies Accounting convention The accounts are prepared under the historical cost convention and in accordance with applicable accounting standards. Basis of consolidation The consolidated accounts include the results of the company and its subsidiary undertakings. The results of AppliedNet Limited have been included since the date of acquisition, 22 November 1999. Tangible fixed assets Tangible fixed assets are stated at historical cost, less accumulated depreciation. Tangible fixed assets are depreciated on a straight line basis at rates ranging from 20% to 33% per annum on cost over their expected useful lives. Research and development Research and development expenditure is written off as incurred. The cost of patents and trademarks are written off as incurred. Subsidies received from the European Eureka funding programme are credited to the profit and loss account over the period to which they relate. Prior year adjustment Historically, development expenditure incurred for specific products was capitalised when its future recoverability could reasonably have been regarded as assured, and amortised in line with the expected future sales from the related product, to a maximum of 5 years. Following the acquisition of AppliedNet Limited and subsequent harmonisation of group accounting policies, all such expenditure is now written off as incurred. The effect of changing this policy has been reflected by way of a prior year adjustment to the 1998 financial statements of the group. Goodwill Goodwill arising on consolidation is capitalised and amortised on a straight line basis over its estimated useful economic life, currently estimated at 3 to 5 years depending on circumstances. Goodwill is reviewed for impairment at the end of the first full financial year after acquisition and in other periods if events or changes in circumstances indicate that carrying values may not be recoverable. Foreign currencies Company: Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction or at the contracted rate if the transaction is covered by a forward exchange contract. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date or if appropriate at the forward contract rate. All differences are taken to the profit and loss account. Group: The assets and liabilities of the subsidiary undertakings are translated at the rate of exchange ruling at the balance sheet date. The profit and loss account is translated at the average rate of exchange. The exchange difference arising on the re translation of the subsidiary undertaking is taken, together with differences arising on the translation of intra-group funding loans, directly to reserves. All other translation differences are taken to the profit and loss account. Pensions Sopheon contributes to the personal pension arrangements of certain employees, the costs of which are charged in the profit and loss account as incurred. 2. Acquisition of AppliedNet Limited On 22 November 1999 the group completed the acquisition of AppliedNet Limited for consideration of 6,402,961 ordinary shares of Sopheon plc in respect of the entire ordinary share capital of AppliedNet and cash of £11,000 in respect of its entire preference share capital, as well as attributed costs of £167,000. The market value of Sopheon plc's ordinary shares on 27 October 1999, the date the acquisition became unconditional, was 129p. Accordingly, the total cost recorded in respect of the acquisition was £8,438,000. As part of this transaction the share capital of Sopheon plc was restructured such that each ordinary share of 20p was converted into one ordinary share of 5p and one deferred share of 15p. The deferred shares carry no rights as to dividend, voting or return of capital on liquidation, and are not listed on any exchange. The number of ordinary shares listed and in issue did not change as a consequence of the restructuring. On the same date 6,500,000 ordinary shares of Sopheon plc were placed with institutions at a price of 125p per ordinary share, realising net proceeds after attributed costs of £7,699,000. 3. Post Balance Sheet Events Since the year end, and as alluded to in previous reports, the group has committed funds of £425,000 for a 25% equity stake in ProGram BV, a company established with a number of Dutch healthcare institutions to market knowledge management solutions incorporating Sopheon's software to the Dutch healthcare industry. Since the year end 55,000 ordinary shares in Sopheon plc have been issued for £11,000 in cash to option holders exercising their options, giving rise to a premium of £8,250. A placing of shares for cash, and a potential acquisition, have been announced on 6 March 2000 details of which are given in the announcement of which this preliminary statement forms a part. 4. Loss Per Ordinary Share The calculation of basic loss per ordinary share is based on a loss of £2,072,000 (1998 £1,142,000 as adjusted), and 20,565,985 (1998: 18,730,633) ordinary shares, being the weighted average number of ordinary shares in issue during the year. The effect of all potential ordinary shares is antidilutive in 1998 and 1999. The historic earnings per share calculations are not affected by the restructuring of share capital described in note 2 above because the number of ordinary shares in issue did not change as a result of the restructuring. 5. Financial Information The financial information set out above does not constitute the company's statutory accounts as defined in section 240 of the UK Companies Act 1985 for the years ended 31 December 1999 or 1998, and is unaudited. Statutory accounts for 1998 have been delivered to the registrar of companies and an unqualified audit opinion was issued thereon. The statutory accounts for 1999 will be sent to shareholders in due course and will be delivered to the registrar of companies following the Company's annual general meeting.

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