The Plot Thickens: Bulgaria Disputes AremisSoft's Claims

The National Health Insurance Fund in Bulgaria this morning issued a press release, which I received via email and have reprinted below, that claims the size of its "acting" contract with AremisSoft(AREM Quote - Cramer on AREM - Stock Picks), including a $255,000 "interim information system," is for no more than a total of $3.94 million. (I confirmed the authenticity of the release with Bulgarian officials and the World Bank, which plans to fund much of the future development of Bulgaria's health system.) What's more, the NHIF says that so far it has paid out only about $1.7 million -- not the $7 million AremisSoft has claimed it has received.

Herb Probes the Saga of AremisSoft

Probing the Quality of AremisSoft's Revenue

AremisSoft to Media: It's All in the Translation

The Plot Thickens: Bulgaria Disputes AremisSoft's Claims

A Stock Buyback for AremisSoft and a Chat With Its Prez

Fuzzy Math at AremisSoft?

The Continuing Saga of AremisSoft

Did AremisSoft Really Get a $37.5 Million Contract From Bulgaria?

As I've been reporting for the past few days, officials of the World Bank and NHIF have insisted the contract with AremisSoft is for only about $3.94 million. The company, however, has repeatedly maintained it has a $37.5 million software and services contract to help automate the health care system in Bulgaria. AremisSoft on Friday again said it stands by the size of the contract, which it says includes two signed "annexes" for $29 million that were contingent on AremisSoft lining up financing and winning competitive bids for different parts of the project.

However, in its press release today, the NHIF says: "Both annexes expressly require confirmation from NHIF during year 2000. During 2000 NHIF has not informed officially AremisSoft that it expressly confirms the annexes, which automatically eliminates the possibility for their implementation." The result, according to the NHIF, is that "AremisSoft has acting contracts amounting in total" of $3.94 million U.S. dollars. "The amounts above that," the NHIF says, "are solely investment intentions of the company or their obligations for participation in future bidding procedures."

The NHIF added that the contract "is the most inspected document during the short two years' history of the Fund. Examining institutions such as the National Court of Auditors and the State Financial Control officially announced that its signing is not accompanied by any Bulgarian law violations and it has caused no budget damages."

The NHIF also said the contract calls for AremisSoft to finish installing software in July. Officials of the NHIF couldn't be reached, but a Bulgarian health ministry official said the remainder of the $3.94 million will be paid out gradually as the software is installed. "Forget everything you were told by AremisSoft," the official said.

AremisSoft President and co-CEO Roys Poyiadjis told me this morning he hadn't seen the press release, but had heard about it and was discussing it with AremisSoft's chairman. He said as far as AremisSoft is concerned, it has a signed contract for $37.5 million, which includes the two "signed" annexes. What about the NHIF's claim that it has only paid about $1.5 million in U.S. dollars to AremisSoft? Poyiadjis said that in a statement issued Friday, the NHIF "said... that they had paid out $10 million." I suggested to him that the $10 million is for everybody, not just AremisSoft. He replied that he was on the phone with the chairman of his company and they were trying to figure it out. Also today, AremisSoft reported that Poyiadjis and his co-CEO, Lycourgos Kyprianou, planned to purchase 100,000 AremisSoft shares. Kyprianou already owns 3.78 million shares; Poyiadjis recently bought 100,000 shares. The company didn't say how the executives plan to pay for the shares -- via loans or direct purchases.

On Friday AremisSoft said it planned to buy back as many as 1 million shares of its common stock.

The following is the NHIF press release, which has not been disseminated on the major news wires: (The boldface type is emphasis provided by NHIF, and the exchange rate is that of the time of the contract, in late 1999.)

---

Official Statement for media and public regarding publications on the contract between the National Health Insurance Fund and AremisSoft Corporation, Sofia, 20th May 2001

1. The contract

The contract between NHIF and AremisSoft Corporation is signed on 16th December 1999 after the company has won a tender, announced from the Fund under the Bulgarian Public Procurement Act. The contract has several parts:

1. Development of interim information system -- total value: 490,000 BGL (255, 000 USD);

2. Development and supply of integrated information system for the health insurance (Phase 1 and 2) -- total value: 7,078,000 BGL (3,686,000 USD);

3. The contract obliges AremisSoft Corporation to submit a bid if a bidding procedure is announced for Phase 3 and 4 and to offer a price for those phases not higher than 8,400,000 BGL.

4. Annex 1 -- This annex obliges AremisSoft Corporation to ensure lease financing for at least 5000 general practitioners.

5. Annex 2 -- This annex obliges AremisSoft, in case if a bidding procedure under the Bulgarian legislation is won, to provide hospital information systems at preferential rates. Both annexes expressly require confirmation from NHIF during year 2000. During 2000 NHIF has not informed officially AremisSoft that it expressly confirms the annexes, which automatically eliminates the possibility for their implementation.

As per the above stated AremisSoft has acting contracts amounting in total at 7,658,000 BGL. The amounts above that, are solely investment intentions of the company or their obligations for participation in future bidding procedures.

The contract between NHIF and AremisSoft is the most inspected document during the short two years' history of the Fund. Examining institutions such as the National Court of Auditors and the State Financial Control officially announced that its signing is not accompanied by any Bulgarian law violations and it has caused no budget damages.

2. Why all those annexes were signed?

The reason for the inclusion of these annexes in the contract is that at the time when the contract was signed, in December 1999 the negotiations with the World Bank for a loan in support of the health reform of Bulgaria, were at early stage of development and the result of them was still unclear. Accepting these annexes meant that AremisSoft is obliged to continue the implementation of the information system in the course of the coming years and even to invest through lease financing.

In July 2000 the World Bank approved and released to the country loan in support of the health reform. Part of it finances the further development of the information system -- Phase 3 and 4. The entrustment of its implementation will be made in strict obligation of the procedures of both the World Bank and the Bulgarian Public Procurement Act.

3. What is the current status of implementation of the contract between the NHIF and AremisSoft Corporation?

AremisSoft Corporation executes its contract according to the requirements and specifications of the entrusting institution. The implementation of the contract will end in July 2001. The company is obliged in the course of one year to provide guarantee service and maintenance. Up till now NHIF has paid 3,796,100 BGL to AremisSoft Corporation. 490 000 BGL out of them are for the development of the interim information system which is fully completed.

All products and technological solutions developed under the contract remain in possession of the NHIF.

The National Health Insurance Fund of Bulgaria has no responsibility for any unofficial information and materials, connected with this contract, as well as for any journalists' interpretations on this topic.