**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

**ý****ANNUAL REPORT PURSUANT TOSECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**FORTHE FISCAL YEAR ENDED DECEMBER 31, 2002**

 

**o****TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Forthe transition period from                to                **

 

**Commissionfile number 000-29793**

 

| **ARTEMIS  INTERNATIONAL SOLUTIONS CORPORATION**                                                    |
|-----------------------------------------------------------------------------------------------------|
| (Exact name of  Registrant as specified in its charter)                                             |
|                                                                                                |   |   |
| **Delaware**                                                                                        |   | **13-4023714** |
| (State of  Incorporation)                                                                           |   | (I.R.S. Employer  Identification Number) |
|                                                                                                |   |   |
| **4041 MacArthur Boulevard, Suite  260, Newport Beach, CA 92660**                                   |
| (Address of  principal executive offices, including zip code)                                       |
|                                                                                                |   |   |
| **(949) 660-7100**                                                                                  |
| (Registrant’s  telephone, including area code)                                                 |
|                                                                                                |   |   |
| Securities  registered pursuant to Section 12(b) of the Act: **NONE**                               |
|                                                                                                |   |   |
| Securities  registered pursuant to Section 12(g) of the Act:  **Common Stock, $.01 par value** |

 

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Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes  ý    No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of the Registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

 

Indicate by check markwhether the Registrant is an accelerated filer (as defined in Rule 12b-2 of theAct). Yes  o    No ý

 

The aggregate marketvalue of the Registrant’s outstanding common stock held by non-affiliates ofthe Registrant on June 28, 2002 was approximately $0.5 million.  There were 9,964,767 shares of common stockoutstanding as of March 31, 2003.

 

 

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**ARTEMIS INTERNATIONAL SOLUTIONS CORP.**

**Annual Report on Form 10-K**

**For the Year Ended December 31, 2002**

 

**TABLE OF CONTENTS**

 
| **Part I**                                      |
|-------------------------------------------------|
|                                            |   |
| Item 1.                                         | Business |
|                                            |   |
| Item 2.                                         | Properties |
|                                            |   |
| Item 3.                                         | Legal Proceedings |
|                                            |   |
| Item 4.                                         | Submission of Matters to a Vote of Security  Holders |
|                                            |   |
| **Part II**                                     |
|                                            |
| Item 5.                                         | Market for Registrant’s Common Equity and  Related Stockholder Matters |
|                                            |   |
| Item 6.                                         | Selected Financial Data. |
|                                            |   |
| Item 7.                                         | Management’s Discussion and Analysis of Financial  Condition and Results of Operations. |
|                                            |   |
| Item 7a.                                        | Quantitative and Qualitative Disclosures about  Market Risk. |
|                                            |   |
| Item 8.                                         | Financial Statements and Supplementary Data |
|                                            |   |
| Item 9.                                         | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure |
|                                            |   |
| ***Part III***                                  |
|                                            |   |
| Item 10.                                        | Directors and Executive Officers of the  Registrant |
|                                            |   |
| Item 11.                                        | Executive Compensation |
|                                            |   |
| Item 12.                                        | Security Ownership of Certain Beneficial Owners  and Management and Related Stockholder Matters |
|                                            |   |
| Item 13.                                        | Certain Relationships and Related Transactions |
|                                            |   |
| Item 14.                                        | Controls and  Procedures |
|                                            |   |
| **Part IV**                                     |
|                                            |   |
| Item 15.                                        | Exhibits, Financial Statement Schedules, and  Reports on Form 8-K |
|                                            |   |
| **SIGNATURES**                                  |
|                                            |
| **INDEX TO  CONSOLIDATED FINANCIAL STATEMENTS** |
|                                            |
| **EXHIBIT INDEX**                               |

 

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*ThisReport on Form 10-K contains forward-looking statements that involve risks anduncertainties.  Actual events andresults could differ materially from those anticipated in these forward-lookingstatements as a result of certain factors. See Item 7, “Management’s Discussion and Analysis of Financial Conditionand Results of Operations - Safe Harbor Statement”.*

 

**PART I**

 

**Item 1****.  Business.**

 

##### **Overview**

 

Artemis International Solutions Corporation andSubsidiaries, (*“Artemis”*, “*We*” or the *“Company”*) is a provider ofenterprise-based portfolio and project management software solutions.  Artemis’ solutions consist of scalableclient/server and Web-based applications, and are supported by consultingservices and an international distribution network of 41 offices in 27countries.

 

The Company offers a broadselection of high-end software tools spanning the entire spectrum of portfolioand project management tools, including investment analysis and monitoring,initiatives alignment, “what-if” scenario analysis, task estimating, timetracking, scheduling, budgeting, forecasting, resource and cost analysisreporting, proactive business alerts and gateways to other enterpriseapplications.  Artemis’ solutionsestimate, plan, track, and manage business projects, resources, programs andportfolios using a comprehensive suite of integrated portfolio, project andresource software applications, helping clients significantly improve theirability to execute projects in a timely, controlled manner. Using the Company’sproducts, clients can realize such tangible business benefits as greater returnon investments, better alignment of business initiatives with companyobjectives, higher project success rates, reduced cost overruns, quickerproduct development cycles, and more cost effective allocation and usage ofcritical corporate resources.

 

TheCompany has a proud 27-year history of successfully delivering Enterprise andProject Management solutions to Global 2000 customers with the most extensiveportfolio and project management needs. Companies trust Artemis’ software tomanage their business-critical processes. Customers use our software in such notable projects as (i) managing theJoint Strike Fighter program for the US government, (ii) maintaining nuclearpower stations, (iii) developing new pharmaceuticals and (iv) helpinggovernmental agencies promote business efficiency through better alignment andallocation of resources.

 

Our corporate offices are located at 4041 MacArthur Boulevard, Suite 260, NewportBeach, CA 92660 and our telephone number atthat address is (949) 660-7100.

 

**Strategy**

 

The Company’s overall mission is to enable Global 2000companies – from the executive to the knowledge worker - to achieve success;and to that end it has been restructured to become a more customer-centricorganization.

 

Artemis has aligned itscustomer facing functions of sales, consulting, marketing and strategic alliancesto seven key vertical markets, (i) Aerospace and Defense, (ii) Energy andTelecom, (iii) Pharmaceuticals,  (iv)Government, (v) Financial Services (vi) Automotive, and (vii) High Technology.  Product Management and Research andDevelopment efforts are focused on developing solutions to meet the needs ofthese markets.  In response to changingmarket needs, the Company is changing the way it markets its solutionsofferings.  Rather than brandingspecific products such as “Portfolio Director”, “ViewPoint”, or “Views”, theCompany will leverage the Artemis brand when marketing to each targetedmarket.  Software solutions will now bemarketed and licensed by the functionality they provide. As such, PortfolioDirector has been re-branded as Artemis Portfolio Management, which moreaccurately reflects current market needs, nomenclature and positioning.  In like manner, Artemis Views and ViewPointbecome Artemis Project and Artemis Resource Management.  Artemis will focus on providingcomprehensive solutions with integrated capabilities based on specific customerneeds within each targeted vertical, as opposed to embracing a “pointsolution”.  The Company’s belief is thatoffering a comprehensive, integrated solution that optimizes business processesfrom the executive to the

 

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knowledge worker providesa much stronger value proposition to customers than departmental or pointsolutions.

 

**Key Business Focus**

 

Artemis manages its business on ageographic basis and provides three primary solutions offerings:  “Portfolio Management”, “Project Management”and “Resource Management”.  In addition,the Company leverages an international consulting organization, characterizedby institutionalized and proprietary portfolio and project managementmethodologies and best practice procedures to support its offerings. Artemis’primary solutions offerings are as follows:

 

•                  *PortfolioManagement*

Artemis Portfolio Management is aWeb-based, enterprise-level offering designed to improve executives’ ability toalign strategic initiatives with overall business objectives.  Artemis Portfolio Management gives Global2000 companies the ability to improve financial performance by reducinginvestment risks and cost overruns. Artemis Portfolio Management provides anintuitive, Web-based approach for sophisticated return-on-investment analysisof program investments and their alignment to strategic business priorities.

 

*•**                  ProjectManagement*

Artemis Project Managementleverages client/server and Web-based technology to provide an enterprise-levelproject and resource management solution. Artemis Project Management significantly improves project stakeholders’ability to tactically and strategically initiate, plan and manage complexprojects.  Using its enterprisecollaboration capability, the organization’s widely dispersed resources cancollaborate more effectively and efficiently on a common objective under theexception-based direction of project managers at all levels.

 

*•**                  ResourceManagement*

Artemis Resource Managementcapabilities support the Company’s more general Portfolio and ProjectManagement offerings, and provide the tools and processes required to make themost effective use of the human resources involved in the planning and executingof programs and projects.  Specifically,Artemis Resource Management helps enterprises get personnel, including allproject leaders and individual contributors, assigned to and working on thehighest priority of projects.

 

*•**                  Consultingand Training Services*

Drawing on the consolidated experience of a globalnetwork of over 250 consultants specialized in portfolio, project and resourcemanagement, Artemis Consulting has developed a structured methodology calledpm2 (Project Management Methodology). The methodology ensures a logical phasedapproach to business process improvement by integrating the technical,organizational and cultural changes associated with establishing an effectiveproject-driven approach to business management.

 

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**Selling and Marketing**

 

Artemis markets itssolutions and services primarily through its own direct sales and serviceorganizations. Sales and service groups are based in our headquarters and infield offices located in several countries in the United States, Europe andAsia.  Our subsidiaries directly licenseand support our Artemis software products in their local countries and throughdistributors and in other countries where Artemis does not operate through adirect sales subsidiary.

 

Inaddition, Artemis’ marketing and sales efforts are supported by a variety ofinitiatives, including:

 

*•**                  Channels*

In addition to our direct sales force, Artemisdistributes its products through OEMs, distributors, and value-addedresellers.  The Company has establisheda formal but flexible approach to partnering with specific professionalservices organizations.  Artemissupports its partners with a wide variety of sales and marketing activities,including, (i) product training, (ii) sales support, (iii) dedicated customersupport, (iv) technical support and (v) sales incentives.

 

*•**                  Customer Referrals*

Word-of-mouth from satisfiedcustomers continues to be one of Artemis’ most effective promotional activitiesand lead sources.  The strength andhigh-profile nature of Artemis’ referenceable customer base is a criticalingredient in the Company’s new vertical marketing strategy.

 

*•**                  Marketing Communications*

To support its overall verticalmarketing and sales strategy, Artemis pursues a very focused approach tomarketing communications.  Itparticipates in trade shows, events, and local seminars as “citizens ofvertical industries”; participates in vertically-oriented publications, andworks with industry analysts that cover the Portfolio and Project Managementsectors.  All marketing communicationsactivities are designed to support the selling process.

 

**Clients**

 

Artemis provides mission-criticalsoftware solutions to hundreds of Global 2000 clients worldwide, such as ABNAMRO Bank N.V., BAE SYSTEMS, The Boeing Company, Deutsche Bank, Ericsson,Exelon, First Union National Bank, The Goldman Sachs Group Inc., TheGoodyear Tire and Rubber Company, Lockheed Martin, Marconi Plc, Italy’sMinistry of Infrastructure, Nokia, Pfizer Inc., Sun Microsystems Inc.,Toshiba, Union Carbide, and Unisys.

 

Artemis distributes its productsdirectly to customers in the United States, United Kingdom, France, Finland,Germany**,**Italy, Japan and the Far East. It also markets through a distributor network inother European countries, Scandinavia, Australia and Asia/Pacific.

 

During the years ended December 31, 2002 and 2001, one client, LockheedMartin Corporation, accounted for approximately $12.3 million (about 18%) and$8.1 million (about 12%), respectively, of consolidated revenue.  Substantially all of this revenue wasrecorded in the United States.

 

**Strategic Partners and Alliances**

 

Artemis is committed toworking with long-time, strategic partners to make sure our customers areprovided with the most comprehensive and integrated enterprise, portfolio,project and resource management solutions available.  Artemis’ cost control, resource tracking, project analysis andenterprise project planning applications are integrated with many of theworld’s leading Enterprise Resource Planning (ERP) application providers andcomplementary software providers. Our strategic alliances include companiessuch as Changepoint Corporation, Categoric Software, Citrix SystemsIncorporated, Cognos Corporation, Concur Technologies, CS Solutions, Okaya &Co., Ltd., Oracle Corporation, People Sciences Inc., PricewaterhouseCoopersLLP, Sun Microsystems Inc., and Toshiba Corporation. Through these strategicalliances, Artemis has helped businesses build on existing investments insoftware and processes, improve data integrity, increase business efficiencyand streamline overall decision-making.

 

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**IntellectualProperties**

 

We license our software products and require ourcustomers to enter into license agreements that impose restrictions on theirability to utilize the software or transfer the software to other users.Additionally, we seek to avoid disclosure of our trade secrets through a numberof means, including, but not limited to, requiring those persons with access toour proprietary information to execute confidentiality agreements with us andrestricting access to our source code. We protect our software, documentation,templates and other written materials under trade secret and copyright laws,which afford only limited protection.

** **

**Competition**

 

There is intense competition in the portfolio andproject management software marketplace. We compete against industry giantssuch as Microsoft and SAP and the in-house development efforts of companiescreating individualized solutions, as well as other software applicationvendors offering point products. Our current independent software vendorcompetition includes, among many others, Niku Corporation, Primavera SystemsInc. and ProSight Inc.

 

**Employees**

 

Artemis directly employsapproximately 437 persons on a worldwide basis; 112 in the United States, 282in Europe, and 43 in Asia. None of our employees are represented by a laborunion or a collective bargaining agreement. We have not experienced any workstoppages and consider our relations with our employees to be good.

 

**Worldwide Revenues**

 

Our revenue is segmented by geographic region basedupon management responsibility for such operations.  The following table presents information about the Company’srevenue (net of eliminations) by geographic area for the two years endedDecember 31, 2002, and the nine months ended December 31, 2000:

 
|           |   |                     |   |              |   | **For the  nine** |   |
|----------------|--------|--------------------------|--------|-------------------|--------|-------------------|--------|
|           |   | **For the  years ended** |   | **months  ended** |   |
|           |   | **December  31,**        |   | **December  31,** |   |
|           |   | **2002**                 |   | **2001**          |   | **2000**          |   |
|           |   | **(in  thousands)**      |   |
| United States  |   | $                        | 28,074 |              | $      | 26,583            |   | $ | 16,823 |   |
| United Kingdom |   | 8,148                    |   | 7,321             |   | 7,816             |   |
| Japan          |   | 6,335                    |   | 7,247             |   | 6,571             |   |
| France         |   | 7,868                    |   | 7,811             |   | 832               |   |
| Finland        |   | 7,082                    |   | 7,377             |   | 1,928             |   |
| Italy          |   | 5,686                    |   | 6,468             |   | 495               |   |
| Other          |   | 5,471                    |   | 4,839             |   | 357               |   |
|           |   | $                        | 68,664 |              | $      | 67,646            |   | $ | 34,822 |   |

 

We incurred research and development expenses ofapproximately $7.9 million, 9.9 million and 8.3 million, respectively for theyears ended December 31, 2002, 2001 and the nine months ended December 31,2000.

 

**CompanyHistory**

 

As used herein:

 

•                  “Opus360” refersto Opus360 Corporation prior to the closing of certain share exchangetransactions.  Opus360 Corporation was incorporated in August 1998 toprovide an integrated web-based service to streamline the procurement and managementof professional services.

 

•                  “Legacy Artemis”refers to Artemis Acquisition Corporation (“Legacy Artemis”), a Delawarecorporation and the parent Artemis business organization.  Prior to the share exchange transactionsdescribed below, Legacy Artemis was a wholly owned subsidiary of Proha Plc(“Proha”), a Finnish corporation. Legacy Artemis was a developer and supplier of comprehensive project andresource collaboration application software products and consulting services.

 

•                  In November 2001the Company changed its name to “Artemis International Solutions Corporation”which refers to Opus360 Corporation after the closing of certain Share ExchangeTransactions.

 

In April 2001,Opus360 and Proha entered into a share exchange agreement (the “Share ExchangeAgreement”), pursuant to which, Opus360 exchanged 80% of its post-transactionoutstanding Common Stock for all of the capital stock of Legacy Artemis, and19.9% of two Finnish subsidiaries of Proha, Intellisoft OY and Accountor OY.

 

Proha acquired LegacyArtemis and transferred its interests in several companies based in Europe,Asia and the United States to Legacy Artemis in August 2000.  In addition, Proha contributed its directlyheld interests in several companies to Artemis in conjunction with the ShareExchange Transactions effective July 31, 2001. Each of the “Contributed Businesses”is reflected as having been contributed by Proha as of the later of the dateLegacy Artemis was acquired by Proha, or the date these interests were underthe control of Proha.  TheseContributed Businesses are included in the results of Artemis as of theeffective date a majority interest is transferred to Artemis.

 

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The active ContributedBusinesses and the effective dates of their contribution to Legacy Artemis areas follows:

 
| **Current Company Name**              |   | **Location**   |   | **Contribution  Date** |   |
|---------------------------------------|--------|----------------|--------|------------------------|--------|
| Artemis  Finland OY                   |   | Finland        |   | August 24, 2000        |   |
| Artemis  International Solutions Ltd. |   | United Kingdom |   | August 24, 2000        |   |
| Artemis  International Limited        |   | Japan          |   | August 24, 2000        |   |
| PMSoft  Asia Pte. Ltd.                |   | Singapore      |   | December 1, 2000       |   |
| Artemis  International S.p.A.         |   | Italy          |   | December 1, 2000       |   |
| Enterprise  Management Systems Sarl   |   | Italy          |   | December 1, 2000       |   |
| Artemis  International Sarl           |   | France         |   | December 1, 2000       |   |
| Solutions  International              |   | France         |   | December 1, 2000       |   |
| Artemis  International Gmbh           |   | Germany        |   | December 1, 2000       |   |

 

The transactions were structured in two steps sincethe number of authorized Opus360 shares needed to be increased to allow for theissuance of 8 million new shares to Proha in satisfaction of the 80%requirement.  Despite its two stepstructure, the transaction was accounted for upon the consummation of the firstclosing because Proha gained a majority controlling interest and the votingagreements discussed below effectively “locked in” phase two of thetransaction.

 

In connection with the Share Exchange Agreement, Prohaentered into two voting agreements, one with Ari Horowitz, (cofounder ofOpus360 and member of the Artemis Board of Directors), and one withOpus360.  Pursuant to these agreements,Ari Horowitz agreed among other things to cause all of his 133,000 shares ofOpus360 common stock to be voted in favor of the second closing.  Also, Proha agreed among other things tocause all of its 3.0 million shares of Opus360’s common stock to be voted infavor of the second closing.

 

As a result of the above agreements, there werecommitments to vote in favor of the second closing representing approximately62% of the outstanding common stock. Accordingly, the transaction was not treated as a step acquisition sinceProha obtained a majority controlling and voting interest upon consummation ofthe first closing.

 

On July 31, 2001, Opus360consummated the first phase of the share exchange.  In connection with the share exchange Opus 360 acquired all ofthe capital stock of Legacy Artemis in exchange for approximately 3 millionshares of the Opus360’s common stock. As a result of this exchange, Proha obtained its controlling ownershipand management interest in Opus360. Accordingly, the transaction was accounted for as a reverse acquisitionwith Legacy Artemis treated as the accounting acquiror and accounted for underthe purchase method of accounting in accordance with the provisions ofStatement of Financial Accounting Standards (“SFAS”) No. 141, “BusinessCombinations.”  The second closing wascompleted on November 20, 2001 by Opus360’s filing of a Definitive ProxyStatement with the Securities and Exchange Commission (the “SEC”) containingthe required disclosures and financial information of the combined andconsolidated companies.  At the secondclosing, Opus360 delivered approximately 5 million additional shares ofOpus360’s common stock in return for the delivery by Proha of 19.9% of theoutstanding common stock of two Proha subsidiaries. Since completion of thesecond closing, Proha has owned approximately 80% of the post-transactionoutstanding common stock of the Company.

 

In November 2002, the Company sold its 19.9% interestin Accountor OY to Pretax Ltd, an unrelated party, for a pretax gain ofapproximately $0.7 million.

 

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###### ***Item 2*****.  Properties**

 

Artemis leases all of its UnitedStates and international facilities pursuant to leases that expire betweenAugust 31, 2003 and September 30, 2009. Two of these leases have singlerenewal options. Artemis International’s corporate headquarters are currentlylocated at 4041 MacArthur Blvd, Newport Beach, California. The Company alsomaintains facilities at 6260 Lookout Road, Boulder Colorado, where the Companyoccupies approximately 10,500 square feet of office space under a lease thatwill expire in August 2003, and various other locations across the UnitedStates, Europe and Asia. The Company’s facilities comprise a total of 38,000square feet in the United States and 28,000 square feet in Europe and Asia. Webelieve our current facilities are sufficient for our needs.

###### * *

###### ***Item 3*****.  Legal Proceedings**

 

As previously reported, on April 6, 2001, a putativeclass action lawsuit captioned *Charles Bland vs. Opus360 Corporation, et al.,*01 Civ. 2938, was filed in the United States District Court for the SouthernDistrict of New York.  Ten similarputative class actions also were filed in the Court.  By Order dated August 10, 2001, the Court consolidated all elevenactions and on September 24, 2001, the plaintiff served a consolidated amendedclass action complaint (the “Amended Complaint”).  The Amended Complaint was brought on behalf of all persons whoacquired securities of the Company between April 7, 2000 and March 20,2001.  Named as defendants in theAmended Complaint were the Company, ten current and former officers anddirectors of the Company, the underwriters of the Company’s initial publicoffering (“IPO”) and two shareholders who sold stock in a secondary offeringconcurrent with the IPO.  The AmendedComplaint alleged that, among other things, the plaintiff and members of theproposed class were damaged when they acquired securities of the Companybecause false and misleading information and material omissions in theregistration statement relating to the IPO and the secondary offering causedthe prices of the Company’s securities to be inflated artificially.  It asserted violations of Section 11,12(a)(2), and 15 of the Securities Act of 1933.  Damages in unspecified amounts and certain rescission rights weresought.

 

In October 2001, the Company and all other defendantsfiled motions to dismiss the Amended Complaint.  By Opinion and Order dated October 2, 2002, the Court granted allof the motions and dismissed the Amended Complaint, but granted plaintiffsleave to serve a second consolidated amended class action complaint (the“Second Amended Complaint”).  On October30, 2002, plaintiffs served their Second Amended Complaint, which containsallegations similar to those in the Amended Complaint.  The defendants, including the Company, movedto dismiss the Second Amended Complaint on December 31, 2002. Briefing ondefendants’ motion to dismiss the Second Amended Complaint is scheduled to becompleted by April 25, 2003.  In theinterim, the parties have reached an agreement in principle to settle allclaims asserted and that could have been asserted in this litigation.  Under the terms of the proposed settlement,which is still subject to further documentation and court approval, most of thesettlement proceeds would be paid by the insurance carrier pursuant to theCompany’s D&O coverage, and the Company would pay an immaterial amount.

 

The Company is a party to a number of additional legalclaims arising in the normal course of its business.  The Company believes the ultimate resolution of these claims willnot have a material effect on its financial position, results of operations, orcash flows.

 

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**Item 4****.    Submission of Matters to a Vote ofSecurity Holders**

 

Artemis held a specialmeeting of stockholders on October 21, 2002 to consider and vote upon fouralternative proposals to adopt an amendment to our Amended and RestatedCertificate of Incorporation to effect, alternatively, one of four differentreverse stock splits, as determined in good faith by our board ofdirectors.  The following summarizes thefour proposals submitted for a vote of the stockholders at that meeting:

 

Proposal1.                                   Toamend the Company’s Amended and Restated Certificate of Incorporation to effecta one for 25 reverse stock split.

 

Votes *“For”*—9,195,484shares

Votes *“Against”*—45,409shares

Votes *“Abstained”*—1,340 shares

 

Proposal2.                                   Toamend the Company’s Amended and Restated Certificate of Incorporation to effecta one for 50 reverse stock split.

 

Votes *“For”*—9,188,048shares

Votes *“Against”*—53,072shares

Votes *“Abstained”*—1,116 shares

 

Proposal3                                      Toamend the Company’s Amended and Restated Certificate of Incorporation to effecta one for 75 reverse stock split.

 

Votes *“For”*—9,186,646shares

Votes *“Against”*—54,474shares

Votes *“Abstained”*—1,115 shares

 

Proposal4                                        Toamend the Company’s Amended and Restated Certificate of Incorporation to effecta one for 100 reverse stock split.

 

Votes *“For”*—9,196,977shares

Votes *“Against”*—44,579shares

Votes *“Abstained”*—680 shares

 

Proposals 1, 2, 3 and 4 were approved by the Artemisstockholders at the special meeting.  OnFebruary 7, 2003, the Company announced it had effected a one fortwenty-five  reverse stock split.

 

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**Part II**

 

**Item 5****.****           Marketfor Registrant’s Common Equity and Related Stockholder Matters**

 

Our Common Stock was listed on the NASDAQ NationalMarket (“NASDAQ”) under the symbol “OPUS” from April 4, 2000 until June 29,2001.  Since June 29, 2001, the stockhas traded on the NASDAQ – Over-the-Counter Bulletin Board (“OTCBB”).  Effective November 25, 2001, the tradingsymbol on the OTC BB was changed to “AISC”. Subsequent to the Company’s one for twenty-five reverse stock split onFebruary 7, 2003, the trading symbol was changed to “AMSI”. All informationregarding common stock, stock options, warrants and related per share amountshas been restated within this annual report to reflect the reverse stock split.At March 31, 2003, the number of stockholders of record was approximately812 (excluding beneficial owners and any shares held in street name or bynominees).  The following table setsforth the quarterly high and low sales prices per share, as retroactivelyadjusted for the aforementioned reverse stock split.  The prices after June 28, 2001 represent over-the-counter marketquotations between dealers without retail markup, mark down or commission, andmay not necessarily represent actual transactions.

 
|                              |   | **Artemis  International  Solutions Corp** |       |
|-----------------------------------|--------|--------------------------------------------|------------|
|                              |   | **High**                                   |       | **Low** | ** ** |
| **YEAR ENDED DECEMBER 31, 2001**  |   |                                       |       |   |   |
| First Quarter                     |   | $                                          | 25.75      |   | $ | 2.34 |   |
| Second Quarter                    |   | 12.25                                      |       | 1.56 |   |
| Third Quarter                     |   | 3.25                                       |       | 1.25 |   |
| Fourth Quarter                    |   | 2.50                                       |       | 1.00 |   |
| **YEAR ENDED DECEMBER 31, 2002**  |   |                                       | ** ** |   | ** ** |
| First Quarter                     |   | 1.50                                       |       | 1.00 |   |
| Second Quarter                    |   | 1.25                                       |       | 0.25 |   |
| Third Quarter                     |   | 2.25                                       |       | 0.25 |   |
| Fourth Quarter                    |   | 1.75                                       |       | 0.75 |   |
| **YEAR ENDING DECEMBER 31, 2003** |   |                                       | ** ** |   | ** ** |
| First Quarter                     |   | 2.50                                       |       | 1.00 |   |
|                                   |        |                                            |            |  |  |  |  |

 

On April 7, 2003, the last sale price of our CommonStock was $1.50 per share.

 

**Dividend Policy**

 

During the nine monthsended December 31, 2000, Legacy Artemis paid a cash dividend of $140,000.  We do not anticipate paying cash dividendsin the foreseeable future. We currently intend to retain future earnings, ifany, to finance operations and the expansion of our business. Any futuredetermination to pay cash dividends will be at the discretion of our board ofdirectors and will be dependent upon our financial condition, operatingresults, capital requirements, general business conditions, restrictionsimposed by financing arrangements, if any, legal and regulatory restrictions onthe payment of dividends and other factors that our board of directors deemsrelevant.

 

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The following table providesinformation about the Company’s Common Stock that may be issued upon theexercise of options under all of our existing equity compensation plans as ofDecember 31, 2002.  See Notes 1 and 15to the Company’s financial statements attached hereto.

 
| **Plan  category**                                      |   | **Number of  shares  of common stock  to be issued upon  exercise of  outstanding  options** |   | **Weighted  average  exercise price of  outstanding  options** |   | **Number of  shares of  common stock  remaining available  for future issuance  under equity  compensation plans  (excluding shares in  the first column)** |    |
|---------------------------------------------------------|--------|----------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
| Equity compensation plans  approved by shareholders     |   | 995,215                                                                                      |   | $                                                              | 21.28  |                                                                                                                                                        | 407,736 |   |
| Equity compensation plans not approved by  shareholders |   | 103,670                                                                                      |   | $                                                              | 120.26 |                                                                                                                                                        | —  |   |
| Total                                                   |   | 1,098,885                                                                                    |   | $                                                              | 10.08  |                                                                                                                                                        | 407,736 |   |

 

The Company hasgranted options to purchase the Company’s common stock under various plans toemployees and directors.  All stockoption plans are administered by the compensation committee of the Board ofDirectors, which determines the terms of the options granted, including theexercise price, the number of shares subject to option, and the vestingperiod.  Options generally vest overterms of three to five years and have a maximum life of ten years.

 

The stock optionplans adopted by Opus360 prior to the consummation of the Share ExchangeTransactions, and the related stock options continue in full force andeffect.  Even though Legacy Artemis isthe acquiror for accounting purposes in the Share Exchange Transactions,Opus360 as a legal entity survived the consummation of such transaction.Options granted under Opus 360 plans are redeemable in the common stock ofArtemis. Following is a description of the Company’s non stockholder-approvedstock option plans of Opus 360 and Legacy Artemis prior to the merger, and thestatus of the plans after July 31, 2001.

 

•                    The 2000 Non-Employee Directors’Plan (the “Non-Employee Directors Plan”) provides for automatic,non-discretionary grants of up to 42,000 non-qualified stock options tonon-employee board members. Approximately 42,000 options granted under the Non-Employee DirectorsPlan remain outstanding at December 31, 2002.

 

•                    The Company assumed non-qualified stockoptions granted to certain key former employees of Opus360.  Approximately 47,000 of these stock optionswith an exercise price of $250.00 are outstanding and exercisable as ofDecember 31, 2002.  The options areexercisable until February 2010.

 

•                    The Company also assumednon-qualified stock options granted to other employees of Opus360 who becameArtemis employees after the Share Exchange Transactions.  At December 31, 2002, approximately 4,000 ofthe options with a weighted average exercise price of $146.25 remainedoutstanding.

 

11

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**Item 6****.  Selected FinancialData**

** **

The following selected consolidated financial datashould be read in conjunction with “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and the consolidated financialstatements and notes thereto included elsewhere in this report.  The selected consolidated financial data arederived from our audited and unaudited consolidated financial statements, whichhave been prepared assuming that the Company will continue as a goingconcern.  As disclosed in Note 1 to thefinancial statements, the Company has incurred substantial recurring lossesfrom operations and may incur losses in the future.  These and other factors as described in Note 1 raise substantialdoubt about its ability to continue as a going concern.

 
|                                                             |   |                                              |       |            |                      | **Nine Months  Ended****December 31,****2000(a)(b)** |       |       |       |       |       |       |       |
|------------------------------------------------------------------|--------|---------------------------------------------------|------------|-----------------|---------------------------|------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                                                             |   | **Year Ended December 31,**                       |       |            | **Year Ended  March 31,** |                                                 |
|                                                             |   | **2002**                                          |       | **2001**        |                      |                                                 | **2000**   | ** ** | **1999**   | ** ** | **1998**   | ** ** |
|                                                             |   |                                              |       | **(unaudited)** |                      |                                                 |       |       |       |       |       |       |       |
|                                                             |   | **(in  thousands, except per common share data)** |       |
| **Summary of operations data**                                   |   |                                              |       |            |                      |                                                 |       |       |       |       |       |       |       |
| Revenues                                                         |   | $                                                 | 68,664     |            | $                         | 67,646                                               |       | $          | 34,822     |       | $          | 49,303     |       | $ | 42,781 |   | $ | 37,533 |   |
| Operating (loss) income                                          |   | (3,746                                            | )          | (66,483         | )                         | (11,398                                              | )          | 42         |       | (265       | )          | 628        |       |
| Net (loss) income                                                |   | (3,948                                            | )          | (59,764         | )                         | (10,797                                              | )          | 1,060      |       | (1,389     | )          | (132       | )          |
| Basic (loss) earnings per common share:                          |   | $                                                 | (0.40      | )               | $                         | (6.78                                                | )          | $          | (1.40      | )          | $          | 0.14       |       | $ | (0.19 | ) | $ | (0.02 | ) |
| Shares used in computing basic earnings (loss) per  common share |   | 9,965                                             |       | 8,816           |                      | 7,689                                                |       | 7,426      |       | 7,412      |       | 7,412      |       |
| Diluted (loss) earnings per common share:                        |   | $                                                 | (0.40      | )               | $                         | (6.78                                                | )          | $          | (1.40      | )          | $          | 0.14       |       | $ | (0.19 | ) | $ | (0.02 | ) |
| Shares used in computing earnings (loss) per common  share       |   | 9,965                                             |       | 8,816           |                      | 7,689                                                |       | 7,525      |       | 7,412      |       | 7,412      |       |
|                                                             |   |                                              |       |            |                      |                                                 |       |       |       |       |       |       |       |
| **Balance sheet data:**                                          |   |                                              | ** ** |            | ** **                |                                                 | ** ** |       | ** ** |       | ** ** |       | ** ** |
| Cash                                                             |   | $                                                 | 7,766      |            | $                         | 5,081                                                |       | $          | 3,200      |       | $          | 1,199      |       | $ | 1,514 |   | $ | 4,212 |   |
| Working capital deficiency                                       |   | (5,414                                            | )          | (5,785          | )                         | (2,823                                               | )          | (2,477     | )          | (2,911     | )          | (1,671     | )          |
| Total assets                                                     |   | 41,873                                            |       | 40,193          |                      | 103,488                                              |       | 23,421     |       | 24,330     |       | 21,172     |       |
| Long-term debt, including amounts due within one  year           |   | 1,185                                             |       | 2,618           |                      | 5,546                                                |       | 9,384      |       | 10,865     |       | 6,615      |       |
| Total  stockholders' equity (deficit)                            |   | 5,780                                             |       | 9,582           |                      | 60,905                                               |       | (996       | )          | (1,577     | )          | 150        |       |

 

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(a)          On August 24, 2000 Proha purchased all of theoutstanding common stock of Legacy Artemis. The purchase was structured as ashare exchange whereby Proha issued shares of its publicly traded common stockto Legacy Artemis’ equity holders in exchange for all of Legacy Artemis’ commonstock. As a result of the transaction Legacy Artemis recorded goodwill ofapproximately $30.7 million. Legacy Artemis also recorded approximately $32.3 million ofidentifiable intangible assets and an expense of $2.3 million attributedto in-process research and development.

 

(b)         During the nine months ended December 31,2000, Legacy Artemis paid a cash dividend of $140,000. No other dividends weredeclared or paid since Legacy Artemis’s inception.

 

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**Item 7****.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

The following discussesthe financial condition and results of operations of Artemis InternationalSolutions and should be read in conjunction with the consolidated financialstatements and notes thereto included elsewhere in this report.

 

**SafeHarbor Statement**

 

TheManagement’s Discussion and Analysis and other portions of this report include“forward-looking” statements (versus historical facts) that are subject torisks and uncertainties that could cause actual results to differ materiallyfrom those described.  Although webelieve that our expectations that are expressed in these forward-lookingstatements are reasonable, we cannot promise that our expectations will turnout to be correct.  Our actual resultscould be materially different from and worse than our expectations. Withrespect to such forward-looking statements, the Company invokes the protectionsafforded by the Private Securities Litigation Reform Act of 1995.

 

**Overview**

 

Artemis InternationalSolutions Corporation, (*“Artemis”*, *“We”* or the *“Company”*)is a provider of enterprise-based portfolio, project and resource managementsoftware solutions.  Artemis’ solutionsconsist of scalable client/server and Web-based applications, and are supportedby consulting services and an international distribution network of 41 officesin 27 countries. Artemis services seven key vertical markets, (i) Aerospace andDefense, (ii) Energy and Telecom, (iii) Pharmaceuticals,  (iv) Government, and (v) Financial Services(vi) Automotive, and (vii) High Technology.

 

As used herein:

 

•                  “Opus360”refers to Opus360 Corporation prior to the closing of certain share exchangetransactions.  Opus360 Corporation wasincorporated in August 1998 to provide an integrated web-based service tostreamline the procurement and management of professional services.

 

•                  “LegacyArtemis” refers to Artemis Acquisition Corporation (“Legacy Artemis”), aDelaware corporation and the parent corporation of the Artemis businessorganization.  Prior to these shareexchange transactions, Legacy Artemis was a wholly owned subsidiary of ProhaPlc (“Proha”), a Finnish corporation. Legacy Artemis was a developer and supplier of comprehensive project andresource collaboration application software products and consulting services.

 

•                  InNovember 2001 the Company changed its name to “Artemis International SolutionsCorporation” which refers to Opus360 Corporation after the closing of certainshare exchange transactions.

 

In April 2001,Opus360 and Proha entered into a share exchange (the “Share ExchangeAgreement”), agreement pursuant to which, upon completion of the transactionscontemplated under such agreement, Opus360 exchanged 80% of itspost-transaction outstanding Common Stock for all of the capital stock ofLegacy Artemis, and 19.9% of two Finnish subsidiaries of Proha, Intellisoft OYand Accountor OY.

 

*CriticalAccounting Policies*

 

Our discussion andanalysis of our financial condition and results of operations are based uponour consolidated financial statements, which have been prepared in accordancewith accounting principles generally accepted in the United States.  The preparation of these financialstatements requires us to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses, and related disclosureof contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those relatedto revenue recognition, the valuation of long-lived and intangible assets, andthe amortization of intangible assets. We base our estimates on historical experience and on various otherassumptions that are believed to be reasonable under the circumstances, the resultsof which form the basis for making judgments about the carrying values ofassets and liabilities that are not readily apparent from other sources.  Actual results may differ from

 

13

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these estimates under different assumptions orconditions.  We believe the followingcritical accounting policies affect our more significant judgments andestimates used in preparation of our consolidated financial statements.

 

•                  Revenuerecognition;

•                  Valuation oflong-lived and intangible assets;

•                  Amortization ofintangible assets;

•                  Valuation ofdeferred tax assets; and

•                  Estimating theallowance for doubtful accounts.

 

*Revenue recognition*.

 

The Company has adoptedStatement of Position, or SOP, 97-2, *Software Revenue Recognition*, whichsupersedes SOP 91-1, *Software Revenue Recognition*, as well asSOP, 98-9, *Modificationof* SOP 97-2, *Software Revenue Recognition, with Respect to CertainTransactions*, which amends SOP 97-2 and supercedes SOP 98-4.  SOP 97-2, as amended, generally requiresrevenue earned on software arrangements involving multiple elements to beallocated to each element based on the relative fair market values of each ofthe elements. The fair value of an element must be based on vendor-specificobjective evidence (“VSOE”) of fair value. Software license revenue allocatedto a software product is recognized upon delivery of the product, or deferredand recognized in future periods to the extent that an arrangement includes oneor more elements that are to be delivered at a future date and for which VSOEhas not been established.  Maintenanceand support revenue is recognized ratably over the maintenance term.  First-year maintenance typically is soldwith the related software license and renewed on an annual basis thereafter.Estimated fair values of ongoing maintenance and support obligations are basedon separate sales of renewals to other customers or upon renewal rates quotedin the contracts. For such arrangements with multiple obligations, we allocaterevenue to each component of the arrangement based on the estimated fair valueof the undelivered elements. Fair value of services, such as consulting ortraining, is based upon separate sales of these services. The Company at timesmay enter into multiple-customer contracts in which the Company allocatesrevenue based on the number of specified users at each customer, and recognizesrevenue upon customer acceptance and satisfying the other applicable conditionsof the above described accounting policy.

 

Services revenue isrecognized as the service is performed assuming that sufficient evidence existsto estimate the fair value of the services. Consulting and training services are billed based on hourly rates andrevenues are recognized as the services are performed. Consulting servicesprimarily consist of implementation services related to the installation of theCompany’s products and do not include significant customization to ormodification of the underlying software code.

 

Significant managementjudgments and estimates must be made in connection with determination of therevenue to be recognized in any accounting period. If we made differentjudgments or utilized different estimates for any period, material differencesin the amount and timing of revenue recognized could result.

 

*Valuation of long-lived andintangible assets*.

 

The Company’s businesscombinations were accounted for using the purchase method of accounting.  In connection with the reverse acquisitionof Opus360, the adoption of SFAS No. 141, *BusinessCombinations* resulted in the allocation of negative goodwill in theamount of approximately $10.5 million as a direct reduction of the acquiredOpus360 non-current assets.  At December31, 2001, the Company recorded an impairment charge which resulted in thecomplete write-off of goodwill and a partial write-off of its identifiableintangible assets.  As a result of thecomplete write off of the goodwill at December 31, 2001, the adoption of SFASNo. 144 *Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to Be Disposed Of*, had no impact on theamortization expense during 2002.  Inaccordance with SFAS No. 144, we assess other intangible assets and otherlong-lived assets for recoverability whenever events or changes incircumstances indicate that their carrying value may not be recoverable throughthe estimated undiscounted future cash flows resulting from the use of theassets.  If we determine that thecarrying value of other intangible assets and other long-lived assets may notbe recoverable, we measure impairment by using the projected discountedcash-flow method in accordance with SFASNo. 144.

 

14

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*Amortizationof intangible assets*

 

Intangible assets atDecember 31, 2002 consist of acquired customer bases and current coretechnology. Customer bases acquired directly are valued at cost, whichapproximates estimated fair value at the time of purchase.  The valueof the purchased in-process research and development was determined byestimating the projected net cash flows related to in-process research anddevelopment projects, excluding costs to complete the development of thetechnology. These cash flows were discounted back to their net present value.The discount rate was estimated based on the implied rate of the transaction,the weighted average cost of capital and the percentage of completion at theacquisition date. The projected net cash flows from such projects were based onmanagement’s estimates of revenues and operating profits related to such projects.  The costs assigned to intangibleassets are being amortized on a straight-line basis over the estimated usefullives of the assets, which is 42 months from January 1, 2002.

 

*Valuationof deferred tax assets*

 

The Company records anestimated valuation allowance on its significant deferred tax assets when,based on the weight of available evidence (including the scheduled reversal ofdeferred tax liabilities, projected future taxable income, and tax-planningstrategies), it is more likely than not that some or all of the tax benefitwill not be realized.

 

*Allowance for doubtful accounts*.

 

We establish ourallowance for doubtful accounts based on our qualitative and quantitativereview of credit profiles of our customers, contractual terms and conditions,current economic trends and historical payment, return and discount experience.We reassess the allowance for doubtful accounts each period. If we madedifferent judgments or utilized different estimates for any period, materialdifferences in the amount and timing of revenue recognized could result.

 

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**Resultsof Operations**

 

The following table setsforth the percentage of total revenues represented by certain items in ourconsolidated statements of operations for the periods indicated:

 
|                                           |   | **Year ended  December 31,** |   |
|------------------------------------------------|--------|------------------------------|--------|
|                                           |   | **2002**                     |   | **%****of  Revenue** |   | **2001** |   | **%****of  Revenue** |   | **2000** |   | **%****of  Revenue** |   |
|                                           |   |                         |   |   |   | **(Unaudited)** |   |   |   | **(Unaudited)** |   |   |   |
|                                           |   | **(in  millions)**           |   |
| Revenue:                                       |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Software                                       |   | $                            | 15.1   |   | 22 |   | $ | 15.1 |   | 22 |   | $ | 17.3 |   | 37 |   |
| Support                                        |   | 15.7                         |   | 23 |   | 15.5 |   | 23 |   | 12.0 |   | 25 |   |
| Services                                       |   | 37.9                         |   | 55 |   | 37.0 |   | 55 |   | 18.3 |   | 38 |   |
|                                           |   | 68.7                         |   | 100 |   | 67.6 |   | 100 |   | 47.6 |   | 100 |   |
|                                           |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Cost of revenue:                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Software                                       |   | 1.7                          |   | 2 |   | 2.5 |   | 4 |   | 1.5 |   | 3 |   |
| Support                                        |   | 6.4                          |   | 9 |   | 6.7 |   | 10 |   | 5.6 |   | 12 |   |
| Services                                       |   | 24.6                         |   | 36 |   | 23.9 |   | 35 |   | 13.5 |   | 28 |   |
|                                           |   | 32.7                         |   | 47 |   | 33.1 |   | 49 |   | 20.6 |   | 43 |   |
|                                           |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Gross margin                                   |   | 36.0                         |   | 53 |   | 34.5 |   | 51 |   | 27.0 |   | 57 |   |
|                                           |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses:                            |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Selling and marketing                          |   | 12.5                         |   | 18 |   | 16.8 |   | 25 |   | 11.7 |   | 25 |   |
| Research and development                       |   | 7.9                          |   | 11 |   | 9.9 |   | 15 |   | 10.3 |   | 22 |   |
| General and administrative                     |   | 15.1                         |   | 22 |   | 10.9 |   | 16 |   | 5.0 |   | 11 |   |
| Amortization expense                           |   | 4.2                          |   | 6 |   | 18.8 |   | 28 |   | 7.9 |   | 17 |   |
| Impairment charge                              |   | —                       |   | — |   | 43.4 |   | 64 |   | — |   | — |   |
| Management fees                                |   | —                       |   | — |   | 0.8 |   | 1 |   | 1.5 |   | 3 |   |
| Acquisition costs                              |   | —                       |   | — |   | 0.4 |   | 1 |   | 1.9 |   | 4 |   |
|                                           |   | 39.7                         |   | 57 |   | 101.0 |   | 150 |   | 38.3 |   | 82 |   |
|                                           |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Operating loss                                 |   | (3.7                         | )      | (4 | ) | (66.5 | ) | (99 | ) | (11.3 | ) | (25 | ) |
|                                           |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Non operating (income) expense:                |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                          |   | 0.2                          |   | — |   | 0.8 |   | 1 |   | 0.8 |   | 2 |   |
| Equity in net loss of unconsolidated affiliate |   | 0.2                          |   | — |   | 0.9 |   | 1 |   | 0.9 |   | 2 |   |
| Gains on sale of subsidiary and investee       |   | (1.0                         | )      | (1 | ) | — |   | — |   | — |   | — |   |
| Other expense, net                             |   | 0.7                          |   | 1 |   | 1.2 |   | 2 |   | 0.2 |   | — |   |
| Foreign exchange (gain) loss                   |   | (0.4                         | )      | (1 | ) | 0.2 |   | — |   | 0.2 |   | — |   |
| Non operating (income) expense, net            |   | (0.3                         | )      | (1 | ) | 3.1 |   | 4 |   | 2.1 |   | 4 |   |
|                                           |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense (benefit)                   |   | 0.5                          |   | 1 |   | (9.7 | ) | (14 | ) | (4.2 | ) | (9 | ) |
| Net loss                                       |   | $                            | (3.9   | ) | (4 | ) | $ | (59.9 | ) | (89 | ) | $ | (9.2 | ) | (20 | ) |

 

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**2002 compared to 2001**

 

**Revenue**

 

*SoftwareRevenue*

 

Software revenue represents fees earned for grantingcustomers licenses to use our software products.  Software revenue remained flat at $15.1 million during 2002 and2001.  Many customers responded touncertain economic and political conditions in 2001 by delaying or curtailingtheir technology capital spending.  Inaddition, customers restricted their software purchases to essentialrequirements and reduced investments in software designed to accommodateprojected customer growth. Consequently, our software revenues declined in the second half of 2001and the first half of 2002.  However,during the second half of 2002, our software revenues started to recover as (1)our customers began to increase their investment purchases and (2) our newerproducts such as our *Portfolio Director* and *Viewpoint*gained acceptance in certain European countries, particularly the UK, France,Germany and Italy.  Management expectsthe overall trend of increasing software sales to continue during 2003.  In particular, management expects increasedsales of its Portfolio Management Solutions.

 

*SupportRevenue*

 

Support revenue consistsof fees for providing software updates and technical support for our softwareproducts.  Support revenue increased$0.2 million or 1% to $15.7 million during 2002 from $15.5 million during 2001.  The increase in support revenues wasprimarily due to the recovery in our software license sales in the latterportion of 2002.  That is to say, as thenumber and size of software licenses increased during the latter portion of2002, our customers’ requirements for technical support and updates of softwareincreased accordingly.

 

*ServicesRevenue*

 

Services revenue consistsof fees for consulting and training generated by our personnel and throughsubcontracted third-party arrangements. Services revenue increased $0.9 million or 2% to $37.9 million during2002 from $37.0 million during 2001.  The Company has been able tomaintain its service revenues despite weak economic conditions through severallarge follow-on consulting assignments with clients who had licensed ourproducts in prior periods.

 

*DeferredRevenue*

 

The balance of deferred revenue increased $3.4 millionto $10.8 million at December 31, 2002 from $7.4 million at December 31,2001.  The increase is due to thefollowing:

 

 

1.     In September 2002 the Company announced thesigning of a $3 million contract for providing of the Artemis PortfolioDirector software solution to plan, monitor and control investment projectswith eight of the United Kingdom’s Regional Development Agencies.  At December 31, 2002, the Company recorded$1.7 million of deferred revenue related to the contract.

 

2.     Our French and German subsidiaries billcustomers in advance for amounts due under support contracts based on the termsof such contracts.  By December 31,2002, customers had been billed for approximately $1.5 million in services tobe provided under support contracts during 2003. A corresponding amount wasrecorded as accounts receivable.

 

3.     The remaining increase of approximately$0.2 million is due to changes in foreign currency exchange rates.

 

**Costof Revenue**

 

Cost of revenue consistsprimarily of salaries and commissions paid to employees and third-partyexpenses principally related to consulting, software maintenance services andtraining services.  To a lesser extent, costof revenue includes royalty payments to third parties.  The majority of these costs of revenue aredirectly related to our support and service revenue.  Total cost of revenue decreased $0.4 million or 1% to $32.7million during 2002 from $33.1 million during 2001.  Cost of revenue as a percentage of total revenue decreased to 47%during 2002 from 49% during 2001 because the Company licensed a higherproportion of products with low or no associated royalty costs and due to moreefficient use of staff in delivering services.

 

**Gross Margin**

 

Totalgross margin for 2002 was $36.0 million, an increase of $1.5 million or4%, from $34.5 million for 2001. Gross margin for 2002 also increasedapproximately 2 percentage points, to 53% from 51% for 2001, reflecting theaforementioned revenue increases and cost of revenue efficiencies.

 

17

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**OperatingExpenses**

 

*Selling and marketing expenses*

 

Selling and marketingexpenses consist primarily of personnel related costs of our direct sales forceand marketing staff and the cost of third party marketing programs, includingadvertising, trade shows, promotional materials and customer conferences.  Sellingand Marketing expenses decreased $4.3 million or 26% to $12.5 million during2002, from $16.8 million during 2001. The decrease was the result of management’s concentrated efforts toreduce discretionary marketing expenses in a challenging economy.

 

*Research and development*

 

Research and developmentexpenses consist primarily of salaries and related costs associated with thedevelopment of our products.  Theseexpenses decreased $2.0 million or 20% to $7.9 million during 2002 from $9.9million during 2001.  This decrease is primarilydue to increased efficiencies and reduction and reallocation of personnel, aswe reacted to general economic conditions during the latter part of 2001 andthe first half of 2002.  In particular,we changed the leadership of our product development organization and separatedour development, product management, and support leadership.  Our restructuring also included a reductionin headcount and the closure of our Exton, Pennsylvania facility.  The main purposes in our restructuringactivity were threefold: (1) to align resources with the strategic goal ofunifying and further integrating interrelated products; (2) to add to ourdevelopment capacity a variable component for adaptation to dynamic conditions;and (3) to bring our development processes closer to our customers, fullycommitting to a customer-centric model for solutions development.

 

Specific customer-centricmethodological modifications for research and development have included theshortening of internal software development cycles, an iterative planning andtesting practice, and movement of the feature prioritization process out ofdevelopment and closer to customers.

 

We believe that continuedinvestment in research and development is critical to attaining our strategicobjectives and, as a result, we expect that spending on research anddevelopment will remain at current levels during the first six months of2003.  Our primary focus for 2003 is tocontinue the process of evolving our development methodology and to invest inproduct functionality in the following three ways:  (1) adding significant new capability; (2) integrating key newarchitectural features and technology; and (3) bringing our suite ofinterrelated products together into a unified solution.

 

*General and administrative*

 

General andadministrative expenses consist primarily of salaries, wages and related costsfor general corporate functions, including executive, legal, accounting, humanresources and information systems. General and administrative expensesincreased $4.2 million or 39% to $15.1 million during 2002, from $10.9 millionduring 2001. The increase was primarily a result of (1) the inclusion ofOpus360 related costs for the full year of 2002 as opposed to five months in2001, (2) costs incurred to enhance the quality of our administrative functionsby adding experienced accountants, legal counsel and management executives and(3) costs incurred as the Company built its corporate infrastructure byintegrating and consolidating operations after the reverse acquisition ofArtemis in July 2001.

 

Legal and accounting feesincreased by approximately $0.6 million during 2002 as compared to 2001.  Fees paid to accountants and auditorsincreased by $0.5 million and investor relations costs increased by $0.1million.  The increase in legal feesrepresented (1) severance payments made to the Company’s former legal counseland (2) costs incurred in the Company’s successful defense of shareholderlawsuits. The increase in accountant’s fees represents costs incurred to gainthe assistance of accountants in establishing proper account balances for thenewly merged Company in conjunction with the audit of the Company’s 2001results and the filing of the Company’s annual report.  Accountants also assisted in the developmentof policies and procedures to support accounting and reporting in the Company.

 

18

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In response to thechanges in corporate form brought about by the merger of Opus360 and LegacyArtemis management undertook an analysis of risks surrounding the Company’sbusiness and determined that certain coverages needed to be expanded.  In addition, the Company incurred increasedinsurance costs as result of change in the underlying insurance markets.

 

*Amortizationexpense*

 

Amortizationexpense represents the financial statement effect of amortizing intangibleassets acquired in conjunction with Proha’s purchase of Legacy Artemis inAugust 2000.  These assets are beingamortized on a straight-line basis over the remaining life of 42 monthscommencing January 1, 2002. Amortization expense decreased $14.6 million or 78% to $4.2 million during 2002, from $18.8million during 2001.  The decrease isdue to the reevaluation and write-off, in December 2001, of all remaininggoodwill and a portion of the intangible assets arising from the pushdownaccounting of Proha’s August 2000 acquisition of Legacy Artemis.

 

**Non-operating (income) expenses, net**

 

Non-operatingincome/expenses consist of (i) net interest expense, (ii) equity in income orlosses of unconsolidated affiliates, (iii) foreign exchange gains or losses, (iv)other (income) expense and (v) minority interest in the operations of anunconsolidated subsidiary.  The Companyearned net non-operating income of approximately $0.3 million during 2002 andincurred net non-operating expense of approximately $3.0 million during 2001.

 

The decrease in netinterest expense to $0.2 million during 2002 from $0.8 million during 2001 wasdue to a decrease in borrowings under the Company’s line of credit withFoothill Capital Corporation and a decrease in the Company’s note payable toProha.

 

The Company accounts forcertain investments in other companies under the equity method ofaccounting.  The decrease in equity inthe net loss of unconsolidated affiliates to $0.2 million during 2002 from $0.9million during 2001 reflects decreases in losses incurred by certain investees.

 

In 2001 approximately$0.4 million of costs, which were previously capitalized in conjunctionwith the purchase of Legacy Artemis, were determined to be non-deferrable.Accordingly, the costs were recorded as other expense, net. There were nosimilar costs during 2002.

 

In November 2002, theCompany sold its 19.9% interest in Accountor Oy to an unrelated party.  In December 2002, the Company sold itsinterest in ABC Technologies – France to an unrelated party.  Other income for the year ended December 31,2002 includes pretax gains of $0.7 million and $0.3 million on the sales of ourinterests in Accountor OY and ABC Technologies – France, respectively.

 

Favorable changes in therate of exchange for British Pound Sterling to United States dollars increasedforeign exchange income to $0.54 million in 2002 from $0.2 million in 2001.

 

**Provision for Income Taxes**

 

The Company recordedincome tax expense of approximately $0.5 million for the year ended December 31,2002.  The income tax expense on thepre-tax loss of approximately $3.5 million is the result of book to taxpermanent differences for the amortization of intangible assets acquired in theProha acquisition of Legacy Artemis. The valuation allowance for deferred tax assets was reduced byapproximately $1.1 million from 2001 to 2002 as a result of a reduction indeferred tax assets, primarily tax net operating loss carryforwards.

 

19

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# **2001 compared to 2000**

 

**Revenue**

 

Forthe year ended December 31, 2001, total revenue was $67.6 million, of which$15.1 million was derived from Software Licenses, $15.5 million for Support and$37.0 million from consulting services to licensed clients.  Software revenues for the year endedDecember 31, 2001 declined $2.2 million or 13% to $15.1 million from $17.3million in the year ended December 31, 2000, largely as a result of two largelicensing agreements in fiscal year 2000 that were not repeated in the currentyear.  Support Revenue increased 29%, or$3.5 million, as a result of the full year inclusion of the ContributedBusinesses’ maintenance revenues. Services Revenues increased 102%, or $18.7 million, not only because ofthese Contributed Businesses, but also because of several large follow-onconsulting assignments with clients who had licensed our products in priorperiods.  Total revenues for theContributed Businesses were approximately $25.5 million and $3.6 million in theyears ended December 31, 2001 and 2000, respectively.

 

**Cost of Revenue**

 

Cost of revenue increased $12.5million or 61% to $33.1 million for the year ended December 31, 2001 from $20.6million during the year ended December 31, 2000. The majority of the increasewas a function of the over 102% increase in Services revenues and thecorresponding increase in related personnel costs of services.  However, the addition of ContributedBusinesses increased the cost of software revenues and cost of support revenuesat a greater rate than their respective revenues.  Overall gross margins declined from 57% in fiscal year 2000 to51% in fiscal year 2001, as a function of the extended organization and thesignificantly higher percentage of lower margin consulting services revenuesrecorded in 2001.  The ContributedBusinesses recorded $ 14.0 million total costs of revenue in the year endedDecember 31, 2001, and $1.6 million in the year ended December 31, 2000.

 

**OperatingExpenses**

 

*Sellingand marketing expenses*

 

Sellingand marketing expenses for the year ended December 31, 2001 were $16.8 million,an increase of 44% over selling and marketing expenses of $11.7 million for theyear ended December 31, 2000.  Thisincrease was primarily attributable to incremental marketing and advertisingexpenses incurred in the Contributed Businesses, only partially offset byreduced advertising expenses in North America.

 

*Research anddevelopment.*

 

Forthe year ended December 31, 2001, research and development expenses were $9.9million, approximately 24% greater than those incurred in the twelve monthsended December 31, 2000, excluding the $2.3 million in-process research anddevelopment charge incurred as part of the Proha purchase of Artemis.  This increase reflected some growth in LegacyArtemis research staffing and the July 31, 2001 addition of the Opus360 costs.

 

*General andadministrative.*

 

Generaland administrative expenses increased $5.9 million or 118% to $10.9 million forthe year ended December 31, 2001 from $5.0 million in for the year endedDecember 31, 2000.  The increase wasprimarily attributable to the additional employees and associated salaries andbenefits in the Contributed Companies. Full year rent and utilities expenses also increased as a result of theadditional office locations.  Inaddition to the infrastructure costs incurred with the full year impact of theContributed Businesses and the Opus360 July 2001 business combination,increased office rental and insurance costs contributed to increased overhead.

 

Combinedoperating expenses for the Contributed Businesses was $16.4 million in 2001versus $2.0 million in 2000.

 

20

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*Amortization*

 

Amortizationexpense increased $10.9 million or 138% to $18.8 million for the year endedDecember 31, 2001 from $7.9 million during the year ended December 31,2000.  The pushdown of the Goodwill andIntangible valuations resulting from the Proha acquisition of Legacy Artemisadded a combined total of over $80.9 million in long-lived assets to the LegacyArtemis balance sheet. Intangible asset values were based on assessments of thecontinuing client base, costs avoided with the addition of trained personneland the intellectual property acquired. $18.8 million in amortization expense was recorded during the year endedDecember 31, 2001.  This was slightlymore than two times total amortization expense for the year ended December 31,2000.

 

*Managementfees and acquisition costs.*

 

Managementfees incurred prior to the July 31, 2001 merger of Legacy Artemis and Opus360 andthe acquisition costs expensed in conjunction with that merger were $.8 millionand $.4 million, respectively, in the year ended December 31, 2001.  Management fees were not incurred after July31, 2001.  The $1.5 million and $1.9million of management fees and acquisition costs incurred in 2000 reflect theProha acquisition of Legacy Artemis, and approximately $1.0 million inmanagement fees paid to Gores Technology, the former parent company of LegacyArtemis.

 

*Impairmentcharges*

 

SFAS No. 121, *Accounting for the Impairment of Long-Lived Assetsand for Long-Lived Assets to be Disposed Of,*requires impairmentlosses to be recorded on long-lived assets used in operations, includinggoodwill, when indicators of impairment are present and the undiscounted futurecash flows, estimated to be generated by those assets are less than the assets’carrying value.  If such assets areimpaired, the impairment to be recognized is measured by the amount by whichthe carrying amount of the asset exceeds the estimated fair market value of theassets.  Assets to be disposed of arereported at the lower of the carrying value or estimated fair market value,less cost to sell.

 

At the close of its 2001 fiscalyear, the Company evaluated the carrying value of its goodwill and identifiableintangible assets.  An impairmentcharge of  $43.4 million was recorded inthe quarter ended December 31, 2001. Specifically, the significant decline in business activity generally andsoftware license revenues following the terrorist attacks on New York City andWashington, DC as well as the Company’s fourth quarter operating and cash flowlosses required an adjustment to the carrying value of the Company’s long-livedassets.  Using discounted cash flowprojections of expected returns from these assets; the Company determined thatthe carrying value of its goodwill and intangible assets should be reduced toapproximately $14.8 million.

 

###### ***Non-Operating Expenses***

 

Interest expense in the yearended December 31, 2001 decreased $0.6 million from $1.5 million inthe year ended December 31, 2000 because the Company was able to decrease itsborrowings as a result of the cash acquired in the Opus360 combination with Legacy Artemis. Higher operating losses inunconsolidated subsidiaries for the year ended December 31, 2001 as well as thespin off of one subsidiary and the shut down of another joint venture increasedother non-operating expense from $0.4 million to $2.0 million.

 

###### ***Provision for Income Taxes***

 

The Company recorded a net taxbenefit of $9.7 million for the year ended December 31, 2001, or more thantwice the benefit recognized in the year ended December 31, 2000 primarilybecause of the higher pre-tax losses incurred, only partially offset by the neteffect of permanent and temporary differences and an increase in the valuationallowance during 2001.  In both 2001and2000, deferred tax liabilities established with the push down of goodwill andidentifiable intangible assets resulting from the Proha acquisition of LegacyArtemis were reduced as a result of amortization and the impairment chargerecorded during the fourth quarter of fiscal year 2001.  The reduction in the deferred taxliabilities during the year-ended December 31, 2001 resulted in a deferred taxbenefit for the year ended December 31, 2001.

 

##### **Liquidity and Capital Resources**

 

*Cash flows for the year ended December31, 2002*

 

Our operating activitiesprovided approximately $2.1 million in cash during 2002.  Our net loss of $3.9 million was the primarycomponent that reduced operating cash flow. Operating cash was further reduced by (i) the $4.2 million increase inaccounts receivable and (ii) a non-cash gain of $1.0 million from sales of ourinterests in certain affiliates, the proceeds of which are reported as aninvesting activity.  The effects ofthese items on cash was offset by factors such as (i) non-cash expenses of $6.2million in depreciation and amortization related to our fixed assets andintangible assets, (ii) non-cash losses of $0.4 million representing our equityin the net loss of an unconsolidated affiliate, (iii) an increase of $3.4million in deferred revenues and (iv) a net increase in accounts payable,accrued liabilities and other liabilities of $1.4 million.

 

Investing activities providedcash of approximately $0.2 million.  Ourcapital equipment purchases of  $1.0million during 2002 represented cash used in investing activities.  This was offset by $1.1 million in cashproceeds received from the sale of our interests in certain affiliates.

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Ourfinancing activities provided cash of approximately $0.9 million.  The Company uses lines of credit to fund temporary operating cashrequirements and certain financial obligations.  Fundings under our line of credit, net ofrepayments were $2.4 million during the year ended December 31, 2002.  In addition, we repaid $1.2 million in debtto lenders and $0.3 million on behalf of Proha during year ended December 31,2002.

 

Foothill Capital Corporation (“Foothill”) has extended to theCompany a combination of Note Payable and a Line of Credit totalingapproximately $4.5 million (the “Foothill Facility”).  This combined facility bears interest at the prime rate (4.25% atDecember 31, 2002), plus 2%, but not less than 9%, and is due in full on June30, 2003.  Borrowings under the FoothillFacility are secured by an interest in the Company’s accounts receivable,equipment, general intangibles, inventories, negotiable collateral, and anyother assets that come into the possession of the Company. Borrowings under theLine of Credit are subject to maintenance of certain covenants includingminimum current ratio, tangible net worth, trailing twelve month EarningsBefore Interest, Taxes, Depreciation and Amortization, coverage of interest andprincipal payments and capital expenditure limitations.  At December 31, 2002, Foothill had waivedany of the covenants that were not in compliance for one quarter. We expect tobe in compliance with the covenants for the quarter ended March 31, 2003. Theborrowings under the Line of Credit are limited by the level and aging ofeligible accounts receivable.

 

*Liquidityand Going Concern Considerations*

 

The Company’s continuedexistence is dependent upon several factors including the Company’s ability to selland successfully implement its software solutions.  The Company has experienced net losses in each of the two yearsin the period ended December 31, 2002, and the nine months ended December 31,2000.  At December 31, 2002, the Companyhas an accumulated deficit of $75.1 million and its current liabilitiesexceeded current assets by $5.4 million.

 

A summary of the Company’s future contractualobligations and commercial commitments as of December 31, 2002 is as follows:

 
|                                                |   | **Year ending December 31,** |   |
|-----------------------------------------------------|--------|------------------------------|--------|
|                                                |   | **2003**                     |   | **2004** |   | **2005** |   | **2006** |   | **2007** |   | **2008-  thereafter** |   | **Total** |   |
|                                                |   | **(in  thousands)**          |   |
| Long-term  debt                                     |   | $                            | 950    |   | $ | 113 |   | $ | 16 |   | $ | 16 |   | $ | 90 |   | $ | — |   | $ | 1,185 |   |
| Obligations  under non-cancellable operating leases |   | 3,522                        |   | 1,407 |   | 1,070 |   | 347 |   | 43 |   | 7 |   | 6,396 |   |
|                                                |   | $                            | 4,472  |   | $ | 1,520 |   | $ | 1,086 |   | $ | 363 |   | $ | 133 |   | $ | 7 |   | $ | 7,581 |   |

 

Other cash requirementsthrough the end of fiscal year 2003 are primarily to fund operations atapproximately the same levels as fiscal year 2002.  In the future, the Companymay need to raise additional funds through public or private financings, orother arrangements to fund our operations or potential acquisitions, if any.The Company currently has no plans to affect any other offerings. The Companycannot be assured that any financings or other arrangements will be availablein amounts or on terms acceptable to the Company or at all and any newfinancings or other arrangements could place operating or other restrictions onthe Company.  The Company’s inability toraise capital when needed could seriously harm the growth of the business andresults of operations.

 

The Company’s near andlong-term operating strategies focus on promoting its new and existing softwareand services to increase its revenue and cash flow while better positioning theCompany to compete under current market conditions.  Since joining the Company, the new Chief Executive Officer, hasbeen developing a broad operational and restructuring plan designed to (i)leverage the Company’s brand and technology strengths, (ii) reduce costs and(iii) dispose of certain non-core assets. At December 31, 2002, the Company had unused credit lines of $0.9million based on the December 31, 2002 balance and aging of eligible accountsreceivable.  The Company generatedpositive operating cash flow for the quarter and year ended December 31,2002.  In addition, the Company isexploring a number of alternatives regarding financing to support its effortsat implementing its strategies. Management believes that cash generated from operations as well as itscurrent credit facilities will be sufficient to support he Company’s liquidityrequirements through December 31, 2003, depending on operating results and thelevel of acceptance of its products, its costs and its short-term financing.

 

The Company’s consolidated financial statements havebeen prepared assuming that the Company will continue as a going concern (basedupon management’s plans discussed above), which contemplates, among otherthings, the realization of assets and satisfaction of liabilities in theordinary course of business. Accordingly, the accompanying consolidated financial statements do notinclude any adjustments related to the recoverability and classification ofasset carrying amounts or the amount and classification of liabilities thatmight result, should the Company be unable to continue as a going concern.

 

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**Item 7a****.****     Qualitative and Quantitative Disclosure About Market Risk**

 

At December 31, 2002, themajority of our cash balances were held primarily in the form of short- termhighly liquid investment grade money market funds of major financialinstitutions.  Due to the short-termnature of our investments and the fact that they are marked to market daily, webelieve that we are not subject to any material interest or market rate risks.

 

The Company utilizes lines of credit to fundoperational cash needs.  The Company’soutstanding balance under its lines of credit at December 31, 2002 wasapproximately $3.5 million.  Theweighted average interest rate for the Company’s lines of credit during 2002was 8.5%.  The Company will pay anaggregate amount of $0.7 million, including interest, under its declining termloan with Foothill, which matures in June 2003.

 

We conduct a significant portion of our business incurrencies other than the United States dollar. Our operating results aretherefore subject to fluctuations in foreign currency exchange rates. Changesin the value of major foreign currencies relative to the value of the United Statesdollar could potentially adversely affect revenues and operating results.  We do not hedge foreign currencies. As aresult, we will continue to experience foreign currency gains and losses.

 

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# **Item8**.           FinancialStatements and Supplementary Data

 

The information required by this item appears in asubsequent section of this Report.  (SeeItem 15(a)(1) and (2)).

 

**Item 9****.****           Changesin and Disagreements with Accountants on Accounting and Financial Disclosure**

 

On January 28, 2003, the Company dismissed itsindependent accountants, KPMG LLP (“KPMG”), and engaged the services of SquarMilner Reehl & Williamson LLP (“Squar Milner”) as the Company’s newindependent accountants for its current fiscal year ended December 31,2002.  The Company’s Board of Directors(the “Board”), including the Company’s Audit Committee, approved the dismissalof KPMG and the appointment of Squar Milner.

 

During the fiscal year of the Company ended December31, 2001, and the subsequent period through January 28, 2003, there were nodisagreements between the Company and KPMG on any matter of accountingprinciples or practices, financial statement disclosure, or auditing scope orprocedures, which disagreements, if not resolved to KPMG’s satisfaction, wouldhave caused KPMG to make reference to the subject matter of the disagreement inconnection with their reports.

 

The audit report of KPMGon the consolidated financial statements of the Company as of and for thefiscal year ended December 31, 2001 did not contain any adverse opinion ordisclaimer of opinion, nor was it qualified or modified as to audit scope oraccounting principles except that KPMG’s audit report on such financialstatements did contain a separate paragraph stating:

 

“The accompanyingconsolidated financial statements have been prepared assuming that the Companywill continue as a going concern. As disclosed in Note 1 to the financialstatements, the Company has incurred substantial recurring losses fromoperations and at December 31, 2001 the Company’s current liabilities exceededcurrent assets by $5.8 million. These factors as described in Note 1 raisesubstantial doubt about the Company’s ability to continue as a going concern.Management’s plans in regards to these matters are also described in Note 1.The consolidated financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.”

 

The Company believes thatthere were no reportable events as set forth in Item 304(a)(1)(v) of RegulationS-K of the Securities Exchange Act of 1934 (the “34 Act”) during the year endedDecember 31, 2001, or the subsequent period through January 28, 2003, except asdescribed below:

 

The Company requestedfrom KPMG the letter required by Item 304(a)(3) of Regulation S-K of the 34 Actas to whether KPMG agrees with the statements made above.  The letter dated February 5, 2003 from KPMG(the “KPMG letter”) indicated that KPMG reported to the Company’s Audit Committeeduring 2002 certain material weaknesses as reflected in said letter.  The KPMG letter specifically stated that thematerial weaknesses identified did not affect KPMG’s audit report on thefinancial statements of the Company for 2001.  In a letter commenting onthe KPMG letter, the SEC stated that in their opinion the aforementionedmaterial weaknesses that are characterized, as “reportable conditions” arereportable events as contemplated by Regulation S-K of the 34 Act.  Therefore, on March 19, 2003, the Companyfiled with the SEC a Current Report on Form 8-K to list the actions taken bythe Company to resolve the material weaknesses listed in the KPMG letter.

 

KPMG has subsequentlyinformed management that it will not authorize the Company to include KPMG’saudit report on the Company’s 2001 audited financial statements in theCompany’s annual report on Form 10-K for 2002. In response, management has labeled all 2001 financial statements andrelated data included herein as “unaudited”. In addition management plans to engage Squar Milner to  “re-audit” the Company’s December 31, 2001consolidated financial statements as soon as possible.  Upon completion of Squar Milner’s audit, theCompany will file an amended annual report on Form 10-K to include the auditedresults for 2001.

 

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The actions taken were asfollows:

 

1.               During 2002 the Company centralized executiveand finance management in its corporate offices in Newport Beach, CA.

 

2.               The Company added significantresources to the finance and management functions in Newport Beach. Additions to the corporate management team since the 2001 audit include (i)Michael Rusert, CEO, (ii) Robert Stefanovich, CFO, (iii) Charles Savoni,General Counsel and (iv) several other individuals considered key to executive,finance and reporting functions.

 

3.               In the fourthquarter of 2002, our executive team improved its management of internationalactivities by way of (i) regular review and analyses of financial data providedby the Artemis Subsidiaries, (ii) regular communication with internationalsubsidiaries via phone, facsimile and email and (iii) regular controllers’meetings in which significant accounting issues are discussed; and corporatewide directives and policies are communicated.

 

4.               Effective January2003, all of the Artemis subsidiaries report their results to the corporateoffice using a standard reporting package. The reporting package includes sufficient detail and analyses formanagement to spot anomalies caused by the implementation of new ornon-standard contracts.  Local managers are required to prepare ananalysis of monthly activities, including new contracts and/or potentialrevenue recognition issues.  In addition, management has implemented asystem of regular reviews and analyses of financial data provided by theArtemis subsidiaries.

 

***Part III***

 

**Item10****.****                       Directorsand Executive Officers of the Registrant**

 

The following table sets forth the names, ages and positions of all directors and named executive officers. A summary of the background and experience of each of these individuals is set forth after the table.

 
| **NAME**            |   | **AGE** |   | **POSITION**                                          |   | **COMMITTEES**         |   |
|---------------------|--------|---------|--------|-------------------------------------------------------|--------|------------------------|--------|
| Michael J. Rusert   |   | 48      |   | President, Chief Executive  Officer and Director      |   |                   |   |
|                |   |    |   |                                                  |   |                   |   |
| Ari Horowitz (2)    |   | 34      |   | Director                                              |   |                   |   |
|                |   |    |   |                                                  |   |                   |   |
| Robert Stefanovich  |   | 38      |   | Executive Vice President  and Chief Financial Officer |   |                   |   |
|                |   |    |   |                                                  |   |                   |   |
| Charles F. Savoni   |   | 45      |   | Senior Vice President,  General Counsel and Secretary |   |                   |   |
|                |   |    |   |                                                  |   |                   |   |
| James Cannavino (1) |   | 58      |   | Director                                              |   | Audit and Compensation |   |
|                |   |    |   |                                                  |   |                   |   |
| Klaus Cawen         |   | 45      |   | Director                                              |   | Audit and Compensation |   |
|                |   |    |   |                                                  |   |                   |   |
| Pekka Halonen       |   | 41      |   | Director                                              |   |                   |   |
|                |   |    |   |                                                  |   |                   |   |
| Michael Murphy      |   | 45      |   | Director                                              |   |                   |   |
|                |   |    |   |                                                  |   |                   |   |
| Olof Odman          |   | 59      |   | Director                                              |   | Audit and Compensation |   |
|                |   |    |   |                                                  |   |                   |   |
| Pekka Pere          |   | 45      |   | Director                                              |   |                   |   |
|                |   |    |   |                                                  |   |                   |   |
| Steven Yager (1)    |   | 49      |   | Chairman of the Board of  Directors                   |   |                   |   |

 

                As a result of a special meeting of the Board of Directors on April 14, 2003 the following resolutions were enacted:

 

1.     Effective April 14, 2003, Steven Yager replaced James Cannavino as Chairman of the Board of Directors.  Mr. Cannavino will continue to serve on the Board of Directors.

2.     Effective April 14, 2003, Ari Horowitz will no longer be an employee of the Company.  Mr. Horowitz will continue to serve on the Board of Directors.

25

 

                    MR. RUSERT was named President and Chief Executive Officer of the Company in January 2002.  From July 2001 to January 2002, Mr. Rusert was Chief Executive Officer of GDP Consulting, providing high-level sales and consulting services to the high-tech industry for a wide range of clients from start-up companies to multinational corporations.  Mr. Rusert was Vice President of Operations for Canon Computer Systems, Inc. (1994-2001), and Chief Operating Officer for Ameriquest Technology, Inc. (1991-1994).  He has also served in various capacities with Inacomp Computer Centers, including VP of Major Account Sales, VP New Business Ventures, and Executive VP & Cofounder of Computer City in Garden Grove, California.  Mr. Rusert served on the Executive Board of Canon Computer Systems, Inc., as well as on the boards of directors and advisory boards of a number of business and professional organizations including Crossroads Open Systems Advisory, Zustek Software, Answer Friend Software and Evant Software.  Mr. Rusert currently sits on the Board of Directors for Artemis International Solutions Corporation, as well as for Proha Plc.  Mr. Rusert holds a Bachelor of Science degree in business economics from Valparaiso University.

 

                    MR HOROWITZ was elected as Executive Vice President, Corporate Development of the Company on July 10, 2001.  He served as Chairman of the Board and Chief Executive Officer from April 1999 until July 2001, and as President from November 1999 to January 2000.  From June 1998 to March 1999, Mr. Horowitz served as a Senior Managing Partner of USWeb/CKS.  From March 1997 to June 1998, he served as President and Chief Financial Officer of Gray Peak Technologies, a network consulting company.  From September 1994 to March 1997, he served as Chief Financial Officer and as Vice President, Finance and Business Development of ICon CMT Corporation.  From July 1992 until September 1994, Mr. Horowitz was a Principal and Director of Finance and Business Development of Conley Corporation, a developer of storage management software.  Mr. Horowitz currently serves as a director of NetVendor Systems, a provider of e-markets for the industrial, electronics and automotive sectors.  He holds a Bachelor of Science degree in economics from the University of Pennsylvania.

 

                MR. STEFANOVICH was elected asExecutive Vice President and Chief Financial Officer of the Company onSeptember 27, 2002.  He has held seniorfinance positions in both publicly traded and privately held technologycompanies. Prior to joining Artemis, he held several senior positions,including Chief Financial Officer for a publicly traded medical device companyand Vice President for Administration at Science Applications InternationalCorporation (SAIC), a Fortune 500 company. Mr. Stefanovich was also a member ofthe Software Advisory Group and an Audit Manager with Price Waterhouse LLP’s(now PricewaterhouseCoopers) hi-tech practice in San Jose, CA. He holds an MBAin Finance/Accounting and Engineering.

 

                    MR. SAVONI was elected as Senior Vice President, General Counsel and Secretary of the Company on March 18, 2002.  He served as Corporate Attorney, Senior Corporate Attorney and General Counsel for Canon Computer Systems, Inc. (“CCSI”) prior to joining Artemis. He was then promoted to Counsel for Canon U.S.A.’s Legal Division, primarily supporting the Digital Home and Personal Systems Division, formerly CCSI. He handled general corporate matters, including license, distribution and marketing agreements, advising on advertising and marketing materials, and counseling on employment law matters. Prior to joining CCSI in 1994, he was an associate for four years with the law firm of Bryan, Cave in Los Angeles.  Mr. Savoni holds a bachelor’s degree from Cornell University, as well as master’s degree in labor and industrial relations from Michigan State University. He worked for five years in the Employee Relations department of Hughes Aircraft Company in El Segundo, California, before completing his J.D. at the University of Southern California.

 

                    MR. CANNAVINO has been a director of the Company since January 1999, and was elected Chairman of the Board of Directors in January 2002.  Mr. Cannavino has been the Chairman of the Board of Direct Insite since March 2000.  He also has been the Chairman of Voyant Corporation since February 2000.  From September of 1997, to April of 2000, he was non-executive Chairman of Softworks, Inc. (a wholly owned subsidiary of Computer Concepts).  Mr. Cannavino was also Chief Executive Officer and Chairman of the Board of Directors of Cybersafe, Inc. from April 1998, to July 2000.  In August 1995, he was hired as President and Chief Operating Officer of Perot Systems Corporation.  In 1996 he was elected to serve as Chief Executive Officer through July 1997.  He also was a Senior Vice President at IBM and a board member for three IBM joint-venture companies, including Prodigy Services, Inc.; Digital Domain, In.; and Newleaf Entertainment.  Mr. Cannavino currently serves on the boards of the National Center for Missing and Exploited Children, the International Center for Missing and Exploited Children, and Verio.  He was recently Chairman of the Board of Marist College in Poughkeepsie, New York and continues to serve on the board.

 

                    MR. CAWEN was elected director of the Company in July 2001.  He has been a member of the Board of Directors of Proha Plc since December 1999.  Prior to becoming a Senior Vice President of Kone Corporation in 1995, Mr. Cawen held other positions at Kone Corporation, including Vice President, General Counsel (1991-1994), Assistant General Counsel (1986-1996), and Legal Counsel, International Operations (1983-1986).  Mr. Cawen also worked as an Associate at White & Case LLP (1982-1983) and at Law Office Mattila & Toppola (1979-1981).  Mr. Cawen holds a Masters of Law Degree from University of Helsinki and Columbia University.

 

26

 

        MR. HALONEN was elected a director of the Company on March 17, 2003.  Mr. Halonen is currently the Executive Vice President, Corporate Development of Proha Plc.  Prior to joining Proha, Mr. Halonen served as Manager and Partner of PCA Corporate Finance Oy  (1996 to 2001).  From 1994 to 1995, he was a Manager of Selin Corporate Finance.  He also was an Assistant Vice President and Manager of Kansallis Bank, Investment Banking Division (1988-1994).  Mr. Halonen holds a Master of Law Degree from University of Helsinki as well as a Master of Business Administration from Helsinki School of Economics.

 

                    MR. MURPHY was elected a director of the Company on March 17, 2003.  Mr. Murphy is currently the CEO of InQuira, Inc.  Prior to InQuira, Mr. Murphy served as an executive at Cambridge Technology Partners, where he ran the Western Region. Mr. Murphy later oversaw the sales, marketing, alliances and partner programs. Prior to his tenure at CTP, Mr. Murphy spent 13 years with Hewlett Packard. He holds a B.A. in Management from Loyola Marymount University.

 

                    MR. ODMAN was elected a director of the Company in July 2001.  Since December 1999, he has been a member of the Board of Directors of Proha Plc., and is currently Chairman of the Proha Plc Board of Directors.  Mr. Odman has been the Managing Director of TNS AB since 1999.  In 1997, Mr. Odman founded Metagroup Consulting AB, prior to which he worked as Managing Director of ICT/Perinet AS (1993-1995), Managing Director of Databloin AB (1980-1992) and Systems Director of Mobil Oil AB (1970-1979).  Mr. Odman is also Chairman of the Board of Directors of Best Technology AB, Transaction Network Services AB, Structur Relocation Svenska AB, Structure International AB, Cobnet AB, Metagroup Sweden AB, Metagroup Consulting Sweden AB as well as Golf de Pierpont SA.  Mr. Odman holds a Master of Science Degree.

 

                    MR. PERE was elected a director of the Company in July 2001.  He has been President and Chief Executive Office of Proha Plc since 1984 and is also the founder of Proha Plc.  Mr. Pere is also the Chairman of the Board of Directors of Eficor Ltd, the Vice Chairman of the Board of Directors of Software Entrepreneurs Association and a member of the Board of Directors of Information Technology Branch Association.  Mr. Pere was Chairman of the Board of Directors of Proha Oy from 1984 until 1999.  In addition, Mr. Pere was a founding partner of and consultant for KPMG Wideri Consulting Oy (1985-1991) and a consultant for Finnsystems Oy (1979-1983) as well as acting Chairman of the Board of Directors of Metier Management Systems Sweden AB and Metier Management Systems Denmark AS (1991-1994).

 

                MR. YAGER was elected as a director of the Company in July 2001 and Chief Executive Officer from August 2001 to January 2002.  In January 2002, he became a Vice Chairman of the Board.  Mr. Yager is Group President, Mergers & Acquisitions of Gores Technology Group.  Prior to joining the Company in August 2001, Mr. Yager served for four years as President and CEO of Artemis International Corporation, which combined with OPUS360 Corporation in July 2001 to form Artemis International Solutions Corporation.  Mr. Yager also served as the executive vice president of business development for Medaphis Physician Services Corporation, a $300 million subsidiary of Medaphis Corporation. Mr. Yager has held senior sales management and business development positions with Burroughs Corporation and Versyss Incorporated. Mr. Yager earned a bachelor’s degree in business administration and economics from the University of Michigan.

 

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**Item 11****.****    Executive Compensation**

**SUMMARYOF EXECUTIVE COMPENSATION**

 

                The followingtable sets forth for each of the Company’s last three completed fiscal years,the compensation of Michael J. Rusert, the Company’s President and ChiefExecutive Officer ("CEO") at December 31, 2002, the three most highlycompensated executive officers as of December 31, 2002 and one additionalindividual not serving as an executive officer as of December 31, 2002, but whohad served as an executive officer earlier in such year (collectively, the“Named Executive Officers”). Executive officers (other than the CEO) whosetotal annual compensation including bonus does not exceed $100,000 are notincluded in the definition of named executive officers. For that reason, theCompany has included only three (verses four) other most highly compensatedexecutive officers as of December 31, 2002 in the table below.

 

**SUMMARYCOMPENSATION TABLE**

 
|                             |   |     |   | **ANNUAL  COMPENSATION** |    | **LONG TERM**

**COMPENSATION** |   |                                         |   |
|----------------------------------|--------|----------|--------|--------------------------|---------|---------------------------------|--------|----------------------------------------------|--------|
| **NAME AND  PRINCIPAL POSITION** |   | **YEAR** |   | **SALARY ($)**      |    | **BONUS ($)(2)**           |   | **OTHER  ANNUAL**

**COMPENSATION**

**($)** |   | **NUMBER OF**

**SECURITIES**

**UNDERLYING**

**OPTIONS (#)** |   | **ALL OTHER**

**COMPENSATION** |   |
| Michael J.  Rusert, President    |   | 2002     |   | $                        | 256,857 |                            | $      | 163,800                                      |   | * |   | 250,000 |   | — |   |
| and Chief Executive  Officer(1)  |   | 2001     |   | —                   |    | —                          |   | —                                       |   | — |   | — |   |
|                             |   | 2000     |   | —                   |    | —                          |   | —                                       |   | — |   | — |   |
| Ari Horowitz,  Executive Vice    |   | 2002     |   | 248,076                  |    | 49,500                          |   | —                                       |   | 2,640 |   | — |   |
| President, Corporate             |   | 2001     |   | 250,000                  |    | —                          |   | —                                       |   | 49,910 |   | — |   |
| Development                      |   | 2000     |   | 241,667                  |    | —                          |   | —                                       |   | 40,854 |   | — |   |
| Robert  Stefanovich, Executive   |   | 2002     |   | 68,095                   |    | 36,156                          |   | —                                       |   | 20,000 |   | — |   |
| Vice President. Chief  Financial |   | 2001     |   | —                   |    | —                          |   | —                                       |   | — |   | — |   |
| Officer(3)                       |   | 2000     |   | —                   |    | —                          |   | —                                       |   | — |   | — |   |
| Peter Schwartz,  Former          |   | 2002     |   | 173,653                  | (4)     | —                          |   | *                                            |   | 3,600 |   | — |   |
| Executive Vice  President,       |   | 2001     |   | 175,000                  |    | —                          |   | —                                       |   | 18,786 |   | — |   |
| Chief Financial  Officer(4)      |   | 2000     |   | 54,407                   |    | —                          |   | —                                       |   | 28,000 |   | — |   |
| Charles F.  Savoni, Senior Vice  |   | 2002     |   | 98,961                   |    | 31,378                          |   | —                                       |   | 7,000 |   | — |   |
| President, General  Counsel(5)   |   | 2001     |   | —                   |    | —                          |   | —                                       |   | — |   | — |   |
|                             |   | 2000     |   | —                   |    | —                          |   | —                                       |   | — |   | — |   |
| Steven Yager,  Former            |   | 2002     |   | 72,312                   | (6)     | —                          |   | —                                       |   | 40,000 |   | — |   |
| President, Chief  Executive      |   | 2001     |   | 120,833                  |    | 45,825                          |   | *                                            |   | — |   | — |   |
| Officer(1)                       |   | 2000     |   | —                   |    | —                          |   | —                                       |   | — |   | — |   |
|                                  |        |          |        |                          |         |                                 |        |                                              |        |  |  |  |  |  |  |

----

*      The value of personal benefits provided was less than the minimum amountrequired to be reported.

 

(1)   Mr. Rusert was appointed to the position ofPresident and Chief Executive Officer effective January 25, 2002, upon Mr.Yager’s resignation as President and Chief Executive Officer.

 

(2)   Includes bonuses accrued in year of servicewhether paid during year of service or thereafter.  The bonus amounts pertaining to 2002 are subject to final reviewby the Company’s Compensation Committee and approval by the Board.

 

(3)   Mr. Stefanovich became Chief FinancialOfficer effective with Mr. Schwartz’s resignation as Chief Financial Officereffective September 27, 2002.

 

(4)   Mr. Schwartz became Chief Financial Officeron September 8, 2000.  This amountincludes $43,750 paid to Mr. Schwartz in his role as advisor to the Companysubsequent to his resignation as Chief Financial Officer on September 27,2002.  Said payment has been made inlieu of severance payments which Mr. Schwartz is eligible to receive upontermination from the Company according to the terms of his Employment Agreementwith the Company.

 

(5)   Mr. Savoni became an executive officer of theCompany effective March 1, 2002.

 

(6)   This amount includes $26,210 paid as accruedvacation upon Mr. Yager’s separation from the Company.

 

28

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**SUMMARY OF OPTION GRANTS**

 

                The following table sets forth the individual grants of stock options made by the Company during the fiscal year ended December 31, 2002, to each of the Named Executive Officers.

 

 
|                    |   | **INDIVIDUAL  GRANTS**                                   |   | **POTENTIAL  REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR  OPTION TERM (3)** |   |
|-------------------------|--------|----------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------|--------|
| **NAME**                |   | **NUMBER OF  SECURITIES UNDERLYING OPTIONS GRANTED (#)** |   | **% TOTAL  OPTIONS GRANTED TO EMPLOYEES IN FISCAL YEAR (1)**                                             |   | **PER-SHARE  EXERCISE PRICE ($/SH)** |   | **EXPIRATION  DATE (2)** |   | **5% ($)** |   | **10% ($)** |   |
| Steven Yager (4)        |   | 40,000                                                   |   | 4.79                                                                                                     | %      | $ | 1.50 |   | 1/17/2012 |   | $ | 16,577 |   | $ | 36,631 |   |
| Michael J.  Rusert (5)  |   | 250,000                                                  |   | 29.91                                                                                                    | %      |   | 1.50 |   | 1/25/2012 |   |   | 235,835 |   |   | 597,653 |   |
| Ari Horowitz (6)        |   | 2,640                                                    |   | 0.32                                                                                                     | %      |   | 1.50 |   | 1/17/2012 |   |   | 2,490 |   |   | 6,311 |   |
| Peter Schwartz  (7)     |   | 3,600                                                    |   | 0.43                                                                                                     | %      |   | 1.50 |   | 1/17/2012 |   |   | 3,396 |   |   | 8,606 |   |
| Charles Savoni  (8)     |   | 2,800                                                    |   | 0.33                                                                                                     | %      |   | 1.25 |   | 4/11/2012 |   |   | 2,201 |   |   | 5,578 |   |
|                    |   | 4,200                                                    |   | 0.50                                                                                                     | %      |   | 1.25 |   | 10/01/2012 |   |   | 3,302 |   |   | 8,367 |   |
| Robert  Stefanovich (9) |   | 20,000                                                   |   | 2.39                                                                                                     | %      |   | 1.25 |   | 10/01/2012 |   |   | 15,722 |   |   | 39,844 |   |

(1)   Based on an aggregate of 836,000 options granted to directors and employees of the Company in fiscal year 2002, including the Named Executive Officers.

 

(2)   Options expire 10 years after grant date.

 

(3)   The potential realizable value is calculated based on the term of the option at its time of grant assuming that the stock price appreciates at the indicated annual rate compounded annually for the entire term of the option and that the option is exercised on the last day of its term for the appreciated stock price. No gain to the option holder is possible unless the stock price increases over the option term.

 

(4)   Mr. Yager’s option to purchase 40,000 shares at $1.50, vests one-third one year after the date of the grant, and one-half of the remaining unvested shares subject to the option grant vest each anniversary of the grant date.

 

(5)   Mr. Rusert’s option to purchase 250,000 shares at $1.50, vests one-third one year after the commencement date of the grant, and one-half of the remaining unvested shares subject to the option grant vest each anniversary of the grant date.

 

(6)   Mr. Horowitz’s option grant to purchase 2,640 shares at $1.50, vests one-third one year after the commencement date of the grant, and one-half of the remaining unvested shares subject to the option grant vest each anniversary of the grant date.

 

(7)   Mr. Schwartz’s option grant to purchase 3,600 shares at $1.50, vests one-third one year after the date of the grant, and one-half of the remaining unvested shares subject to the option grant vest each anniversary of the grant date.

 

(8)   Mr. Savoni’s option grant to purchase 2,800 shares at $1.25 vests one-third one year after the date of the grant, and one-half of the remaining unvested shares subject to the option grant vest each anniversary of the grant date.  Mr. Savoni’s option grant to purchase 4,200 shares at $1.25 vests one-third one year after the date of the grant, and one-half of the remaining unvested shares subject to the option grant vest each anniversary of the grant date.

 

(9)   Mr. Stefanovich’s option grant to purchase 20,000 shares at $1.25, vests one-third one year after the date of the grant, and one-half of the remaining unvested shares subject to the option grant vest each anniversary of the grant date.

 

All options grantspresented in the above table have provisions accelerating the vesting in theevent of a change in control.

 

29

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**SUMMARYOF OPTIONS EXERCISED**

 

                The following table sets forth information concerning exercises of stock options during the year ended December 31, 2002, by each of the Named Executive Officers and the value of unexercised options at December 31, 2002.

 

**AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR**

**AND FISCAL YEAR-END OPTION VALUES**

** **
|               |   |                                 |       |                        |       | **NUMBER OF  SECURITIES UNDERLYING UNEXERCISED OPTIONS AT FISCAL YEAR END** |       | **VALUE OF  UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL YEAR END** |       |
|--------------------|--------|--------------------------------------|------------|-----------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| **NAME**           |   | **SHARES  ACQUIRED ON EXERCISE (#)** |       | **VALUE  REALIZED ($) (1)** |       | **EXERCISABLE/UNEXERCISABLE  (#)**                                          |       | **EXERCISABLE/UNEXERCISABLE  ($) (2)**                            |       |
|               |   |                                 | ** ** |                        | ** ** |                                                                        | ** ** |                                                              | ** ** |
| Michael J.  Rusert |   | Zero                                 |       | $0.00                       |       | Zero/250,000                                                                |       | Zero / Zero                                                       |       |
| Ari Horowitz       |   | Zero                                 |       | 0.00                        |       | 69,426/48,573                                                               |       | Zero / Zero                                                       |       |
| Robert Stefanovich |   | Zero                                 |       | 0.00                        |       | Zero /20,000                                                                |       | Zero / Zero                                                       |       |
| Charles F.  Savoni |   | Zero                                 |       | 0.00                        |       | Zero /7,000                                                                 |       | Zero / Zero                                                       |       |
| Peter Schwartz     |   | Zero                                 |       | 0.00                        |       | 30,485/19,901                                                               |       | Zero / Zero                                                       |       |
| Steven Yager       |   | Zero                                 |       | 0.00                        |       | Zero /40,000                                                                |       | Zero / Zero                                                       |       |

(1)   Value realized is based on estimated fair market value of Common Stock on the date of exercise minus the exercise price.

 

(2)   Value is based on estimated fair market value of Common Stock as of December 31, 2002 ($1.00) minus the exercise price.

 

None of our named executive officers exercised any oftheir options during 2002. The value of unexercised in-the-money options iscalculated by subtracting the exercise price of the options from the marketprice of the shares underlying the options as of December 31, 2002.

 

30

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##### **Item 12**.                       Security Ownership of CertainBeneficial Owners and Management and Related Stockholder Matters

 

**SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

The following table sets forth information withrespect to beneficial ownership of the Company’s Common Stock as of March 31,2003, for (i) each person known by the Company to beneficially own more than 5%of each class; (ii) each Director; (iii) each Named Executive Officer; and (iv)all of the Company’s directors and executive officers as a group.  Unless otherwise indicated, the principaladdress of each of the shareholders below is c/o Artemis InternationalSolutions Corporation, 4041 MacArthur Boulevard, Suite 260, Newport Beach, CA92660.

 

| **NAME OF BENEFICIAL OWNERS**                                           |   | **TOTAL  AMOUNT OF  SHARES  BENEFICIALLY  OWNED (1)** |   | **PERCENTAGE  OF  OUTSTANDING  COMMON STOCK  OWNED** |   |
|-------------------------------------------------------------------------|--------|-------------------------------------------------------|--------|------------------------------------------------------|--------|
| Proha  Plc (2)                                                          |   | 7,977,062                                             |   | 80                                                   | %      |
|                                                                    |   |                                                  |   |                                                 |   |
| Directors and Named  Executive Officers                                 |   |                                                  |   |                                                 |   |
| James Cannavino (3) (4) (5)                                             |   | 89,400                                                |   | *                                                    |   |
| Klaus Cawen (3) (4) (5)                                                 |   | 158                                                   |   | *                                                    |   |
| Alec Gores (3) (4) (6)                                                  |   | —                                                |   | *                                                    |   |
| Ari Horowitz (3) (4) (5)                                                |   | 210,673                                               |   | *                                                    |   |
| Olof Odman (3) (4) (5)                                                  |   | 158                                                   |   | *                                                    |   |
| Pekka Pere (3) (4) (5)                                                  |   | 158                                                   |   | *                                                    |   |
| Michael  J. Rusert (3) (4) (5) (7)                                      |   | 124,999                                               |   | *                                                    |   |
| Steven  Yager (3) (4) (5)                                               |   | 20,000                                                |   | *                                                    |   |
| Charles  F. Savoni (5) (8)                                              |   | 934                                                   |   | *                                                    |   |
| Robert  Stefanovich (9)                                                 |   | —                                                |   | *                                                    |   |
| Peter  Schwartz (4) (5) (7)                                             |   | 38,523                                                |   | *                                                    |   |
| All  directors and executive officers as a group (11 persons) (10) |   | 485,003                                               |   | *                                                    |   |

----

*      Less than 1%

 

(1)   Except as indicated in the footnotes to thistable and pursuant to applicable community property laws, the Company believesthat the persons named in this table have sole voting and investment power withrespect to all shares.

 

(2)   Based upon information contained in a Form13D/A dated November 20, 2001, filed by Proha Plc on behalf of itself andrelated entities, such entities own 7,977,062 shares of Common Stock.

 

(3)   This individual also serves as a director onthe board of directors for Proha Plc.

 

(4)   Director disclaims beneficial ownership of7,977,062 shares held by Proha Plc, except to the extent of his stock holdinginterests in Proha Plc.

 

(5)   Includes the number of shares that could beacquired by May 30, 2003, pursuant to outstanding stock options, as follows:Mr. Cannavino 89,400 common shares; Mr. Cawen, 158 common shares; Mr. Horowitz210,673 common shares; Mr. Odman, 158 common shares; Mr. Pere 158 commonshares; Mr. Rusert 124,999 common shares; Mr. Yager 20,000 common shares; Mr.Savoni 934 common shares; Mr. Schwartz 37,281 common shares, and of the group483,761 common shares.

 

(6)   Mr. Gores resigned from the Board effectiveApril 19, 2002.

 

(7)   On April 15, 2002, Mr. Rusert replaced Mr.Schwartz as a director on the board of directors for Proha Plc.

 

(8)   Mr. Savoni became an executive officer of theCompany effective March 18, 2002.

 

(9)   Mr. Stefanovich  became an executive officer of the Company effective September27, 2002.

 

(10) The shares beneficially owned by Proha Plc arenot included in this total as the respective directors disclaimed beneficialownership per footnote (4) above.

31

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**Item 13****.****                       CertainRelationships and Related Transactions**

 

Prior to August 2000, Legacy Artemis had entered into a managementagreement with Gores Technology Group, the former parent company of LegacyArtemis (“Gores”.)  The managementagreement called for Gores to provide certain management services to LegacyArtemis.  On August 24, 2000, LegacyArtemis terminated the agreement with Gores in conjunction with its acquisitionby Proha.  In August 2000, LegacyArtemis entered into a management agreement with Proha pursuant to which Prohais required to provide certain management services to Legacy Artemis.  In connection with the Share ExchangeAgreement, the management agreement with Proha was terminated. Management feesincurred and paid for each of the two years in the period ended December 31,2002, the year ended March 31 2000 and the nine months ended December 2000 wereapproximately zero, $0.8 million, $2.0 million and $1.0 million, respectively.

 

At December31, 2002 and 2001, the Company had other receivables of zero and $0.2 million,respectively, from Proha, which owns approximately 80% of the Company’soutstanding common stock. At December 31, 2002, the Company had other payablesto Proha of $0.1 million.

 

**Item 14****.  Controls andProcedures**

 

Under the supervision andwith the participation of our management, including our Chief Executive Officer(“CEO”) and Chief Financial Officer (“CFO”), we evaluated the effectiveness ofthe design and operation of our disclosure controls and procedures (as definedin Rule 13a-14(c) of the 34 Act) as of a date (the “Evaluation Date”) within 90days prior to the filing date of this report. Based upon that evaluation, the CEO and CFO concluded that, as of theEvaluation Date, our disclosure controls and procedures were effective intimely alerting them to the material information relating to us (or ourconsolidated subsidiaries) required to be included in our periodic filings withthe SEC.  Based on their most recentevaluation as of the Evaluation Date, the CEO and the CFO have also concludedthat there are no significant deficiencies in the design or operation ofinternal controls which could adversely affect the Company’s ability to record,process, summarize and report financial data, and such officers have identifiedno material weaknesses in internal controls.

 

There were no significantchanges made in our internal controls or other factors that could significantlyaffect these controls subsequent to the Evaluation Date.  Thus, no corrective actions with regard tosignificant deficiencies and material weaknesses were necessary.

 

32

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**PartIV**

 

##### **Item15**. Exhibits, Financial Statement Schedules and Reportson Form 8-K

 

**(a)****                                  (1) and (2) Documents filed as part of thisReport.**

 

1.                                       Report of Squar, Milner, Reehl & WilliamsonLLP, Independent Auditors

2.                                       Report of Ernst & Young LLP, IndependentAuditors

3.                                       Report of KPMG WIDERI OY AB, Independent Auditors

4.                                       Report of KPMG WIDERI OY AB, Independent Auditors

5.                                       Report of KPMG SpA, Independent Auditors

6.                                       Consolidated Balance Sheets as of December 31,2002 and 2001

7.                                       Consolidated Statements of Operations for each ofthe two years in the period ended December 31, 2002, the year ended March 31,2000 and the nine months ended December 31, 2000.

8.                                       Consolidated Statements of Stockholders’ Equity(Deficit) and Comprehensive Income (Loss) for each of the two years in theperiod ended December 31, 2002, the year ended March 31, 2000 and the ninemonths ended December 31, 2000

9.                                       Consolidated Statements of Cash Flows for each ofthe two years in the period ended December 31, 2002, the year ended March 31,2000 and the nine months ended December 31, 2000.

10.                                 Notes to Consolidated Financial Statements

 

**(3) Listing of Exhibits**

 
| **Exhibit No.** |   | **Description**                                                                                                                                                                                         |
|-----------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1.1*          |   | Amended and Restated Certificate of Incorporation of OPUS360  Corporation.                                                                                                                              |
| 3.1.2*          |   | Certificate of Amendment to the Amended and Restated Certificate of  Incorporation of OPUS360 Corporation.                                                                                              |
| 3.1.3           |   | Certificate of Amendment to the Amended and Restated Certificate of  Incorporation of Artemis International Solutions Corporation.                                                                      |
| 3.2*            |   | Amended and Restated Bylaws of Artemis International Solutions  Corporation was filed as Exhibit 3.1 to the Company’s Form 8-K dated  September 13, 2002, and is hereby incorporated by reference. |
| 4.1*            |   | Certificate for Shares.                                                                                                                                                                                 |
| 10.1*           |   | Lease Agreement dated August 10, 1999, between the Company and Samson  Associates, LLC as amended.                                                                                                      |
| 10.2*           |   | Modification and Extension of Lease dated August 6, 1999, between the  Company and Royal Realty Corp.                                                                                                   |
| 10.3*           |   | Employment Agreement dated April 1, 1999, between the Company and Ari  B. Horowitz.                                                                                                                     |
| 10.3.1*         |   | Amendment to Employment Agreement of Ari B. Horowitz dated  September 2, 1999.                                                                                                                |
| 10.3.2          |   | Promissory Note of Ari B. Horowitz                                                                                                                                                                      |
| 10.3.3          |   | Second Amendment to Employment Agreement of Ari B. Horowitz dated May  1, 2001.                                                                                                                         |
| 10.3.4          |   | Third Amendment to Employment Agreement of Ari B. Horowitz dated July  31, 2001.                                                                                                                        |
| 10.3.5          |   | Fourth Amendment to Employment Agreement of Ari B. Horowitz dated  January 10, 2003                                                                                                                     |
| 10.5*           |   | Loan and Security Agreement dated May 19, 1999, between Silicon  Valley Bank and the Company.                                                                                                      |
| 10.6*           |   | Loan and Security Agreement dated August 17, 1999, between Silicon  Valley Bank and the Company.                                                                                                        |
| 10.7*           |   | Amended and Restated Registration Rights Agreement dated  March 16, 2000, among the Company and the Security holders parties  thereto.                                                             |
| 10.8*           |   | The Company’s 1998 Stock Option Plan.                                                                                                                                                              |
| 10.9*†     |   | Letter Agreement dated October 15, 1999, between the Company and J.P.  Morgan Corporation.                                                                                                              |
| 10.10*†    |   | Letter Agreement dated November 21, 1999, between the Company and  CareerPath.com, Inc.                                                                                                                 |
| 10.11*          |   | Standard Form of *FreeAgent e.office* services agreement.                                                                                                                                               |
| 10.12*          |   | Series A Securities Purchase Agreement dated December 24, 1998, among  the Company and the signatories thereto.                                                                                         |

 

33

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| 10.13*      |   | Series B Securities Purchase Agreement dated September 3, 1999, among  the Company and the purchasers of the Series B Convertible Preferred Stock.                                                                              |
|-------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.14*      |   | Agreement and Plan of Merger dated May 27, 1999, among the Company,  The Churchill Benefit Corporation, William Bahr and Churchill Acquisition  Corp.                                                                           |
| 10.15*      |   | Agreement and Plan of Merger dated January 30, 2000 among the  Company, Opus PM Acquisition Corp., PeopleMover, Inc. and the other parties  thereto.                                                                       |
| 10.16*      |   | Agreement and Plan of Merger dated January 19, 2000 among the  Company, Ithority Corporation and the other parties thereto.                                                                                                |
| 10.17*      |   | Asset Purchase Agreement dated as of January 12, 2000 among  Brainstorm Interactive, Inc., the Company and the other parties thereto.                                                                                      |
| 10.18*      |   | Escrow Agreement dated as of February 24, 2000 among the Company,  Suntrust Bank and James L. Jonassen and Ali Behnam.                                                                                      |
| 10.19*      |   | Escrow and Pledge Agreement dated as of January 19, 2000 among  SunTrust Bank, the Company and the other parties thereto.                                                                                                       |
| 10.20*      |   | Amended and Restated Employment Agreement dated February 2, 2000,  between the Company and Richard S. Miller.                                                                                                                   |
| 10.20.1     |   | First Amendment to Amended and Restated Employment Agreement, between  the Company and Richard Miller dated June 21, 2001.                                                                                                      |
| 10.21*      |   | Agreement between The Churchill Benefit Corporation and Automatic Data  Processing.                                                                                                                                             |
| 10.22*      |   | Employment Agreement dated February 29, 2000, between the Company  and Allen Berger.                                                                                                                                       |
| 10.23*      |   | Strategic Partner Registration Rights Agreement dated February 7,  2000 between the Company and Lucent Technologies Inc.                                                                                                   |
| 10.24*      |   | The Company’s 2000 Stock Option Plan.                                                                                                                                                                                      |
| 10.25*      |   | The Company’s 2000 Stock Option Plan for Non-Employee Directors.                                                                                                                                                           |
| 10.26*      |   | The Company’s 2000 Employee Stock Purchase Plan.                                                                                                                                                                           |
| 10.27*      |   | Registration Rights Agreement dated February 24, 2000 between the  Company and the PM Security holders.                                                                                                                         |
| 10.28*      |   | PeopleMover, Inc. 1999 Stock Incentive Plan.                                                                                                                                                                                    |
| 10.29*      |   | Stock Purchase Agreement dated February 28, 2000, between the  Company and Dell USA L.P.                                                                                                                                   |
| 10.30*      |   | Form of Strategic Partner Registration Rights Agreement between the  Company and Dell USA L.P.                                                                                                                                  |
| 10.33*      |   | Amended and Restated Non-Statutory Option Agreement dated as of  February 2, 2000 by and between the Company and Richard S. Miller.                                                                                        |
| 10.34*      |   | Promissory Note of Richard S. Miller.                                                                                                                                                                                           |
| 10.34A      |   | Amended and Restated Promissory Note of Richard S. Miller dated  November 21, 2000                                                                                                                                              |
| 10.35*      |   | Pledge Agreement between Company and Richard S. Miller.                                                                                                                                                                         |
| 10.35A      |   | Amended and Restated Pledge Agreement dated as of November 21, 2000  between Company and Richard S. Miller                                                                                                                      |
| 10.36*      |   | Form of Agreement between the Company and the *FreeAgent e.office* employee.                                                                                                                                                    |
| 10.40‡ |   | Employment Agreement dated June 12, 2000 between the Company and Jeanne  Murphy (Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q dated June 30,  2000)                                           |
| 10.40.1     |   | First Amendment to Employment Agreement dated July 31, 2001, between  the Company and Jeanne Murphy.                                                                                                                            |
| 10.41‡ |   | Employment Agreement dated September 7, 2000 between the Company and  Peter Schwartz (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q dated December  31 2000)                                   |
| 10.41.1     |   | First Amendment to Employment Agreement dated July 31, 2001, between  the Company and Peter Schwartz.                                                                                                                           |
| 10.44       |   | Employment Agreement dated January 25, 2002, between the Company and  Michael J. Rusert  (Incorporated by reference to Exhibit  10.44 to our Quarterly Report on Form 10-Q  for the Quarterly Period Ended March 31, 2002) |
| 10.44.1     |   | First Amendment to Employment Agreement between the Company and  Michael J. Rusert dated October 1, 2002                                                                                                                        |
| 10.45       |   | Employment Agreement dated March 1, 2002, between the Company and  Charles F. Savoni                                                                                                                                            |

 

34

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|    |   | (Incorporated by reference to Exhibit 10.45 to our  Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2002.) |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------|
| 10.45.1 |   | First Amendment to Employment Agreement between the Company and  Charles Savoni dated October 4, 2002                             |
| 10.48   |   | Employment Agreement dated October 9, 2002, between the Company and  Robert Stefanovich                                           |
| 24.1    |   | Powers of Attorney (included on signature page).                                                                                  |
| 99.1    |   | Certification  pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the  Sarbanes Oxley Act of 2002            |
| 99.2    |   | Certification  pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the  Sarbanes Oxley Act of 2002            |

 

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*                                         Incorporated by reference to our RegistrationStatement on Form S-1, Registration No. 333-93185.

‡                                          Incorporated by reference to Artemis’ Report onForm 10-K for the fiscal year ended December 31, 2001—File No. 000-29793.

†                                          Wehave been granted confidential treatment of certain provisions of this exhibitpursuant to Rule 406 of the Securities Act of 1933. The entire agreementhas been filed separately with the Securities and Exchange Commission.

 

**(b)****                                  Reports on Form 8-K filed in fourth quarter of2002:**

 

On October 29, 2002, theCompany filed a Current Report on Form 8-K to announce that the Company’sstockholders approved each of four proposals to effect a reverse split of theCompany’s common stock, at its special meeting of stockholders held on October21, 2002,

 

At the meeting, thestockholders approved four possible ratios for the reverse stock split: 1)one-for-25; 2) one-for-50; 3) one-for-75; and 4) one-for-100.  On February 7, 2003, the Company announcedit had effected a one for twenty-five reverse stock split.

 

**(c)****                                  Exhibits—The response to this portion of Item 15is submitted as a separate section of this report**

 

**(d)****                                  FinancialStatement Schedules**

 

Thefinancial statement schedules required by Item 8 and Item 15 are not includedherein because they are either not applicable, not material, or the informationrequired by such schedules in included elsewhere in this annual report.

 

35

----

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the Company has duly caused this Report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
|   | **ARTEMIS INTERNATIONAL SOLUTIONS CORPORATION** |
|--------|-------------------------------------------------|
|   |                                            |   |
|   | /s/ Michael J. Rusert                           |   |
|   | Michael J. Rusert,                              |   |
|   | *Chief Executive Officer*                       |   |
|   | Date: April 15,  2003                      |   |

 

Each person whose signature appears below herebyconstitutes and appoints Michael J. Rusert and Robert, S. Stefanovich the andlawful attorneys-in-fact and agents of the undersigned, with full power ofsubstitution and resubstitution, for and in the name, place and stead of theundersigned, in any and all capacities, to sign any and all amendments to thisReport, and to file the same, with all exhibits thereto, and other documents inconnection therewith, with the Commission, and hereby grants to suchattorneys-in-fact and agents full power and authority to do and perform eachand every act and thing requisite and necessary to be done, as fully to allintents and purposes as the undersigned might or could do in person, herebyratifying and confirming all that said attorneys-in-fact and agents, or theirsubstitute or substitutes, may lawfully do or cause to be done by virtuehereof.

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this Report has been signed below by the followingpersons on behalf of the Company and in the capacities and on the datesindicated.

 

 
| Date:  | April 15,  2003 |   |   |   |   |   | /s/ Michael J. Rusert                                                                                        |   |
|--------|----------------------|--------|--------|--------|--------|--------|--------------------------------------------------------------------------------------------------------------|--------|
|   |                 |   |   |   |   |   | Michael J. Rusert,  Chief Executive and Operating Officer (principal executive officer), Director            |
|   |                 |   |   |   |   |   |                                                                                                         |
| Date:  | April 15,  2003 |   |   |   |   |   | /s/ Robert S.  Stefanovich                                                                                   |   |
|   |                 |   |   |   |   |   | Robert S. Stefanovich,  Executive Vice President and Chief Financial Officer (principal accounting  officer) |
|   |                 |   |   |   |   |   |                                                                                                         |
| Date:  | April 15,  2003 |   |   |   |   |   | /s/ Steve Yager                                                                                              |   |
|   |                 |   |   |   |   |   | Steve Yager, Chairman  of the Board                                                                          |
|   |                 |   |   |   |   |   |                                                                                                         |
| Date:  | April 15,  2003 |   |   |   |   |   | /s/ Klaus Cawen                                                                                              |   |
|   |                 |   |   |   |   |   | Klaus Cawen, Director                                                                                        |
|   |                 |   |   |   |   |   |                                                                                                         |
| Date:  | April 15,  2003 |   |   |   |   |   | /s/ Michael Murphy                                                                                           |   |
|   |                 |   |   |   |   |   | Michael Murphy,  Director                                                                                    |
|   |                 |   |   |   |   |   |                                                                                                         |
| Date:  | April 15,  2003 |   |   |   |   |   | /s/ Pekka Halonen                                                                                            |   |
|   |                 |   |   |   |   |   | Pekka Halonen, Director                                                                                      |
|   |                 |   |   |   |   |   |                                                                                                         |
| Date:  | April 15,  2003 |   |   |   |   |   | /s/ Ari B. Horowitz                                                                                          |   |
|   |                 |   |   |   |   |   | Ari B. Horowitz,  Director                                                                                   |
|   |                 |   |   |   |   |   |                                                                                                         |
| Date:  | April 15,  2003 |   |   |   |   |   | /s/ Olaf Odman                                                                                               |   |
|   |                 |   |   |   |   |   | Olaf Odman, Director                                                                                         |
|   |                 |   |   |   |   |   |                                                                                                         |
| Date:  | April 15,  2003 |   |   |   |   |   | /s/ Pekka Pere                                                                                               |   |
|   |                 |   |   |   |   |   | Pekka Pere, Director                                                                                         |
|   |                 |   |   |   |   |   |                                                                                                         |
| Date:  | April 15,  2003 |   |   |   |   |   | /s/ James Cannavino                                                                                          |   |
|   |                 |   |   |   |   |   | James Cannavino,  Director                                                                                   |

 

36

----

 

**CERTIFICATION OF CEO PURSUANT TO****SECURITIESEXCHANGE ACT RULES 13A-14 AND 15D-14****ASADOPTED PURSUANT TO****SECTION302 OF THE SARBANES-OXLEY ACT OF 2002**

 

I, Michael J. Rusert, theChief Executive Officer of Artemis International Solutions Corporation, certifythat:

 

1.               I have reviewedthis annual report on Form 10-K of Artemis International Solutions Corporation(the Company);

 

2.               Based on myknowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report;

 

3.               Based on myknowledge, the financial statements, and other financial information includedin this annual report, fairly present in all material respects the financialcondition, results of operations and cash flows of the Company as of, and for,the periods presented in this annual report;

 

4.               The Company’s othercertifying officer and I are responsible for establishing and maintaining ourdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the Company and we have:

(a)          designed such disclosurecontrols and procedures to ensure that material information relating to theCompany and its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annual report wasbeing prepared;

(b)         evaluated theeffectiveness of our disclosure controls and procedures as of a date within 90days prior to filing this annual report (the “Evaluation Date”); and

(c)          presented in this annualreport our conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5.               The Company’s othercertifying officer and I have disclosed, based on our most recent evaluation, tothe Company’s auditors and to the audit committee of our board of directors:

(a)          all significantdeficiencies in the design or operation of internal controls which couldadversely affect the Company’s ability to record, process, summarize and reportfinancial data and have identified for the Company’s auditors any materialweaknesses in internal controls; and

(b)         any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the our internal controls; and

 

6.               The Company’s othercertifying officer and I have indicated in this annual report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
| Date:  | April 11,  2003 |   |   |   | /s/ Michael J. Rusert                       |
|--------|----------------------|--------|--------|--------|---------------------------------------------|
|   |                 |   |   |   | Michael J. Rusert, Chief Executive  Officer |

 

37

----

 

**CERTIFICATIONOF CFO PURSUANT TO****SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

 

I, Robert S. Stefanovich,the Chief Financial Officer of Artemis International Solutions Corporation,certify that:

 

1.               I have reviewedthis annual report on Form 10-K of Artemis International Solutions Corporation(the Company);

 

2.               Based on myknowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report;

 

3.               Based on myknowledge, the financial statements, and other financial information includedin this annual report, fairly present in all material respects the financialcondition, results of operations and cash flows of the Company as of, and for,the periods presented in this annual report;

 

4.               The Company’s othercertifying officer and I are responsible for establishing and maintaining ourdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the Company and we have:

(a)          designed such disclosurecontrols and procedures to ensure that material information relating to theCompany and its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annual report wasbeing prepared;

(b)         evaluated theeffectiveness of the our disclosure controls and procedures as of a date within90 days prior filing this annual report (the “Evaluation Date”); and

(c)          presented in this annualreport our conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5.               The Company’s othercertifying officer and I have disclosed, based on our most recent evaluation,to the Company’s auditors and to the audit committee of our board of directors:

(a)          all significant deficienciesin the design or operation of internal controls which could adversely affectthe Company’s ability to record, process, summarize and report financial dataand have identified for the Company’s auditors any material weaknesses ininternal controls; and

(b)         any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the our internal controls; and

 

6.               The Company’s othercertifying officer and I have indicated in this annual report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
| Date:  | April 11,  2003 |                                           | /s/ Robert S. Stefanovich |
|--------|----------------------|------------------------------------------------|---------------------------|
|   |                 | Robert S. Stefanovich, Chief Financial Officer |

 

32

----

 

**ARTEMIS INTERNATIONAL SOLUTIONSCORPORATIONINDEX TO CONSOLIDATED FINANCIALSTATEMENTS**

 
| Report of Squar, Milner,  Reehl & Williamson LLP, Independent Auditors                                                                                                                                                                    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                          |
| Report of Ernst &  Young LLP, Independent Auditors                                                                                                                                                                                        |
|                                                                                                                                                                                                                                          |
| Report of KPMG WIDERTOY AB,  Independent Auditors                                                                                                                                                                                             |
|                                                                                                                                                                                                                                          |
| Report of KPMG WIDERI OY  AB, Independent Auditors                                                                                                                                                                                            |
|                                                                                                                                                                                                                                          |
| Report of KPMG SpA,  Independent Auditors                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                          |
| Consolidated Balance Sheets  as of December 31, 2002 and 2001                                                                                                                                                                            |
|                                                                                                                                                                                                                                          |
| Consolidated  Statements of Operations for each of the two years in the period ended  December 31, 2002, the year ended March 31, 2000 and the nine months ended  December 31, 2000.                                                          |
|                                                                                                                                                                                                                                          |
| Consolidated  Statements of Stockholders’ Equity (Deficit) and Comprehensive Income (Loss)  for each of the two years in the period ended December 31, 2002, the year  ended March 31, 2000 and the nine months ended December 31, 2000. |
|                                                                                                                                                                                                                                          |
| Consolidated  Statements of Cash Flows for each of the two years in the period ended  December 31, 2002, the year ended March 31, 2000 and the nine months ended  December 31, 2000.                                                          |
|                                                                                                                                                                                                                                          |
| Notes to  Consolidated Financial Statements                                                                                                                                                                                                   |

 

F-1

----

 

INDEPENDENT AUDITOR’S REPORT

 

To the Board of Directors and StockholdersArtemis International Solutions Corporation

 

We have audited the accompanying consolidated balancesheet of Artemis International Solutions Corporation and subsidiaries (the“Company”) as of December 31, 2002 and the related consolidated statements ofoperations, shareholders’ equity and comprehensive loss and cash flows for theyear then ended.  These consolidatedfinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audit.  The Company’s December 31, 2001 consolidatedfinancial statements were audited by other auditors whose report thereon datedApril 10, 2002 expressed an unqualified opinion on such financialstatements.  The other auditor’s reportincluded a paragraph stating that there was substantial doubt about theCompany’s ability to continue as a going concern.  As discussed in Note 18, the predecessor auditor did not reissuetheir aforementioned audit report; thus, it is not included in the Company’sDecember 31, 2002 Form 10-K to be filed with the Securities and ExchangeCommission.

 

We conducted our audit in accordance with auditingstandards generally accepted in the United States of America.  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the consolidatedfinancial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditprovides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred toabove present fairly, in all material respects, the financial position of theCompany as of December 31, 2002, and the results of their operations and theircash flows for year then ended in conformity with accounting principlesgenerally accepted in the United States of America.

 

The accompanying December 31, 2002 consolidatedfinancial statements have been prepared assuming that the Company will continueas a going concern.  As discussed inNote 1, the Company has negative working capital of $5.4 million and an accumulateddeficit of approximately $75 million at December 31, 2002, and experiencednegative operating cash flow for calendar 2001 and the nine months endedSeptember 30, 2002.  These factors,among others, raise substantial doubt about the Company’s ability to continueas a going concern.  Management’s plansin regard to these matters are described in Note 1.  The consolidated financial statements do not include adjustmentsthat might result from the outcome of this uncertainty.

 

/s/ Squar, Milner, Reehl & Williamson, LLP

 

 

Newport Beach, California

March 16, 2003

 

F-2

----

 

Report of Independent Auditors

 

Board of Directors

Artemis International Solutions Corporation:

 

We have audited the accompanying consolidatedstatements of operations, stockholders’ equity (deficit) and comprehensiveincome (loss), and cash flows for the year ended March 31, 2000 and the ninemonths ended December 31, 2000 of Artemis International Solutions Corporation(formerly Artemis International Corporation). These financial statements arethe responsibility of the Company’s management. Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudits. We did not audit the financial statements of Projektihallinto Proha Oy,a combined entity under common control, whose statements reflect total assetsof $8,947,000 as of December 31, 2000 and total revenues of $1,928,000 for theperiod from August 24, 2000 (date of affiliation with the combined companies)through December 31, 2000. We did not audit the financial statements of ArtemisInternational S.p.A., a combined entity under common control, which statementsreflect total assets of $3,602,000 as of December 31, 2000 and total revenuesof $495,000 for the period from December 1, 2000 (date of affiliation withcombined companies) through December 31, 2000. We did not audit the financialstatements of Intellisoft Oy and Accountor Oy, two separately held equityinvestments of the Company, for which the investments are recorded at $109,000as of December 31, 2000 and equity in earnings of affiliates were $137,000 forthe period from August 24, 2000 (date of affiliation with combined companies)through December 31, 2000. Those statements were audited by other auditorswhose reports have been furnished to us, and our opinion, insofar as it relatesto data included for these entities, is based solely on the reports of theother auditors.

 

We conducted our audits in accordance with auditingstandards generally accepted in the United States. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits and the reports of other auditors provide a reasonable basis for ouropinion.

 

In our opinion, based on our audits and the reports ofother auditors, the consolidated financial statements referred to above presentfairly, in all material respects, the consolidated results of operations andcash flows for the year ended March 31, 2000 and the nine months ended December31, 2000 of Artemis International Solutions Corporation in conformity withaccounting principles generally accepted in the United States.

 

 
|             | /s/ ERNST & YOUNG LLP |   |
|------------------|---------------------------|--------|
|             |
| Denver, Colorado |
| June 29, 2001    |

 

F-3

----

 

**INDEPENDENTAUDITORS REPORT**

 

To the Board of Directorsof Proha Oyj

 

 

We have audited the accompanying combined profit and loss accounts forthe period of August 24, 2000 to December 31, 2000 as well as thecombined cash flows and the combined balance sheets as of December 31,2000 representing an aggregation of financial information from the individualcompanies and operations of the Finnish Project Management business (“the PPOYBusinesses”) as defined in note 2 to the financial statements. Thesecombined financial statements are the responsibility of the company’smanagement. Our responsibility is to express an opinion on these combinedfinancial statements based on our audit.

 

We conducted our audit in accordance with generally accepted auditingstandards in Finland and in the United States. These standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudit provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly,in all material respects, the combined financial position of the PPOYBusinesses as of December 31, 2000, and the results of their combinedoperations during the period of August 24, 2000 to December 31, 2000on the basis described in note 2, in conformity with generally acceptedaccounting principles in Finland.

 

Generally accepted accounting principles in Finland vary in certainsignificant respects from generally accepted accounting principles in theUnited States. Application of generally accepted accounting principles in theUnited States would have affected results of operations for the period ofAugust 24, 2000, to December 31, 2000 and capital and reserves as ofDecember 31, 2000, to the extent summarized in note 22 to the combinedfinancial statements.

 

Helsinki, July 2, 2001

 

/s/ KPMG WIDERI OY AB

 

Reino TikkanenAuthorized Public Accountant

 

F-4

----

 

**INDEPENDENTAUDITORS REPORT**

 

To the Board of Directorsof Proha Oyj

 

We have audited the accompanying combined profit andloss accounts for the period of August 24, 2000 to December 31, 2000as well as the combined cash flows and the combined balance sheets as ofDecember 31, 2000 representing an aggregation of financial informationfrom the individual companies and operations of the Financial Management (“theFM Businesses”) as defined in note 2 to the financial statements. Thesecombined financial statements are the responsibility of the company’smanagement. Our responsibility is to express an opinion on these combinedfinancial statements based on our audit.

 

We conducted our audit in accordance with generallyaccepted auditing standards in Finland and in the United States. Thesestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to abovepresent fairly, in all material respects, the combined financial position ofthe FM Businesses as of December 31, 2000, and the results of theircombined operations during the period of August 24, 2000 toDecember 31, 2000 on the basis described in note 2, in conformity withgenerally accepted accounting principles in Finland.

 

Generally accepted accounting principles in Finlandvary in certain significant respects from generally accepted accountingprinciples in the United States. Application of generally accepted accountingprinciples in the United States would have affected results of operations forthe period of August 24, 2000, to December 31, 2000 and capital andreserves as of December 31, 2000, to the extent summarized in note 21 tothe combined financial statements.

 

Helsinki, July 2, 2001/s/ KPMG WIDERI OY ABReino TikkanenAuthorized Public Accountant

 

F-5

----

 

**Reportof Independent Auditors**

 

To the Board of Directorsof Artemis International S.p.A.

 

1.                                       Wehave audited the accompanying reporting package of Artemis International S.p.A.as of and for the one month period ended 31 December 2000. This reportingpackage is the responsibility of the Company’s management. Our responsibilityis to express an opinion on this reporting package based on our audit.

 

2.                                       Weconducted our audit in accordance with auditing standards generally accepted inthe United States. These standards require that we plan and perform the auditto obtain reasonable assessment about whether the financial statements are freeof material misstatement. An audit includes examining on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audit provides reasonable basis forour opinion.

 

3.                                       Theaccompanying reporting package has been prepared in conformity with theaccounting instructions of Artemis International Corporation, the Company’sparent, for use in preparing its consolidated financial statements. Theseinstructions required preparing the reporting package adopting accountingpolicies generally accepted in the United States. These instructions, which donot require presentation of footnote disclosure and a statement of cash flows,differ however from accounting principles generally accepted in the UnitesStates. Accordingly, the accompanying reporting package is not intended topresent the Artemis International S.p.A.’s financial position, results ofoperations, and cash flows in accordance with accounting principles generallyaccepted in the United States.

 

4.                                       TheCompany, in accordance with the Italian accounting practices, accounts forfinancial leases booking in the profit and loss as lease fees, the leaseinstallments paid in the period without recording into the fixed assets thecost of the lease goods and without recording within liabilities the financialobligation toward the lease company. Had the Company accounted financial leasesin accordance with Fas 13, fixed assets net of accumulated depreciationwould have been euros 175 thousand higher, prepaid expenseseuros 18 thousand lower, debts for financial leaseseuros 111 thousand higher, net equity at 31 December 2000euros 46 thousand higher and no effect on the profit and loss.

 

5.                                       Inour opinion, the reporting package referred to above except for matterdescribed in paragraph four, has been prepared for the purpose described inparagraph three, in all material respects, in conformity with the accountinginstructions of Artemis International Corporation.

 
| 31 May 2001 | /s/ K.P.M.G. S.p.A.                 |
|-------------|-------------------------------------|
|        | Orazio Vagnessi  Director of Audits |

 

F-6

----

 

**ARTEMIS INTERNATIONAL SOLUTIONS CORPORATIONCONSOLIDATED BALANCE SHEETS**

**(inthousands, except share amounts)**

 
|                                                                                                                                        |   | **December  31, 2002** |   | **December  31, 2001** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|------------------------|--------|
|                                                                                                                                        |   |                   |   | **(Unaudited)**        |   |
| **ASSETS**                                                                                                                                  |   |
| Current assets:                                                                                                                             |   |                   |   |                   |   |
| Cash                                                                                                                                        |   | $                      | 7,766  |                   | $      | 5,081 |   |
| Accounts receivable, net of allowance for doubtful  accounts of approximately $296 at December 31, 2002 and $223 at December 31,  2001      |   | 17,320                 |   | 13,088                 |   |
| Other accounts receivable                                                                                                                   |   | 461                    |   | 952                    |   |
| Prepaid expenses                                                                                                                            |   | 1,618                  |   | 2,404                  |   |
| Other current assets                                                                                                                        |   | 1,647                  |   | 392                    |   |
| Total current assets                                                                                                                        |   | 28,812                 |   | 21,917                 |   |
|                                                                                                                                        |   |                   |   |                   |   |
| Property and equipment, net of accumulated  depreciation and amortization of $7,197 at December 31, 2002 and $5,194 at  December 31, 2001   |   | 1,588                  |   | 2,725                  |   |
| Intangible assets, net of amortization of $4,118 at  December 31, 2002 and zero at December 31, 2001                                        |   | 10,637                 |   | 14,755                 |   |
| Investment in affiliates and other assets                                                                                                   |   | 836                    |   | 796                    |   |
| Total assets                                                                                                                                |   | $                      | 41,873 |                   | $      | 40,193 |   |
|                                                                                                                                        |   |                   |   |                   |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                              |   |
|                                                                                                                                        |   |                   |   |                   |   |
| Current liabilities:                                                                                                                        |   |                   |   |                   |   |
| Accounts payable                                                                                                                            |   | $                      | 4,468  |                   | $      | 5,292 |   |
| Accrued liabilities                                                                                                                         |   | 7,254                  |   | 5,954                  |   |
| Accrued payroll and taxes                                                                                                                   |   | 7,226                  |   | 6,678                  |   |
| Deferred revenue                                                                                                                            |   | 10,842                 |   | 7,471                  |   |
| Line of credit                                                                                                                              |   | 3,486                  |   | 1,062                  |   |
| Current portion of long-term debt                                                                                                           |   | 950                    |   | 1,245                  |   |
| Total current liabilities                                                                                                                   |   | 34,226                 |   | 27,702                 |   |
|                                                                                                                                        |   |                   |   |                   |   |
| Accrued pension and other liabilities                                                                                                       |   | 832                    |   | 989                    |   |
| Deferred taxes                                                                                                                              |   | 800                    |   | 547                    |   |
| Long-term debt, less current portion                                                                                                        |   | 235                    |   | 1,373                  |   |
| Total liabilities                                                                                                                           |   | 36,093                 |   | 30,611                 |   |
|                                                                                                                                        |   |                   |   |                   |   |
| Commitments and contingencies                                                                                                               |   |                   |   |                   |   |
|                                                                                                                                        |   |                   |   |                   |   |
| Stockholders’ equity:                                                                                                                  |   |                   |   |                   |   |
| Preferred stock, $0.001 par value, 25,000,000 shares  authorized, none issued or outstanding                                                |   | —                 |   | —                 |   |
| Common stock, $0.001 par value, 500,000,000 shares  authorized, 9,964,767 shares issued and outstanding at December 31, 2002  and 2001 |   | 10                     |   | 10                     |   |
| Additional paid-in capital                                                                                                                  |   | 80,833                 |   | 80,187                 |   |
| Accumulated deficit                                                                                                                         |   | (75,100                | )      | (71,152                | )      |
| Accumulated other comprehensive income                                                                                                      |   | 37                     |   | 537                    |   |
| Total stockholders’ equity                                                                                                             |   | 5,780                  |   | 9,582                  |   |
| Total liabilities and stockholders’ equity                                                                                             |   | $                      | 41,873 |                   | $      | 40,193 |   |

 

The accompanying notesare an integral part of these consolidated financial statements

 

F-7

----

 

 

**ARTEMISINTERNATIONAL SOLUTIONS CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS**

**(in thousands, except per share amounts)**

 
|                                                                             |   |                    |   |                      |   |    |   | **For the nine********months ended********December 31,********2000** |   |
|----------------------------------------------------------------------------------|--------|-------------------------|--------|---------------------------|--------|---------|--------|----------------------------------------------------------------------|--------|
|                                                                             |   | **For the years ended** |   |                      |
|                                                                             |   | **December 31,**        |   | **March 31,********2000** |   |    |
|                                                                             |   | **2002**                |   | **2001**                  |   |    |   |
|                                                                             |   |                    |   | **(Unaudited)**           |   |    |   |                                                                 |   |
| Revenue:                                                                         |   |                    |   |                      |   |    |   |                                                                 |   |
| Software                                                                         |   | $                       | 15,070 |                      | $      | 15,105  |   | $                                                                    | 18,297 |   | $ | 12,134 |   |
| Support                                                                          |   | 15,690                  |   | 15,512                    |   | 11,557  |   | 9,121                                                                |   |
| Services                                                                         |   | 37,904                  |   | 37,029                    |   | 19,449  |   | 13,567                                                               |   |
|                                                                             |   | 68,664                  |   | 67,646                    |   | 49,303  |   | 34,822                                                               |   |
|                                                                             |   |                    |   |                      |   |    |   |                                                                 |   |
| Cost of revenue:                                                                 |   |                    |   |                      |   |    |   |                                                                 |   |
| Software                                                                         |   | 1,734                   |   | 2,522                     |   | 1,497   |   | 1,157                                                                |   |
| Support                                                                          |   | 6,389                   |   | 6,705                     |   | 5,249   |   | 4,212                                                                |   |
| Services                                                                         |   | 24,587                  |   | 23,870                    |   | 13,565  |   | 10,170                                                               |   |
|                                                                             |   | 32,710                  |   | 33,097                    |   | 20,311  |   | 15,539                                                               |   |
|                                                                             |   |                    |   |                      |   |    |   |                                                                 |   |
| Gross margin                                                                     |   | 35,954                  |   | 34,549                    |   | 28,992  |   | 19,283                                                               |   |
|                                                                             |   |                    |   |                      |   |    |   |                                                                 |   |
| Operating  expenses:                                                             |   |                    |   |                      |   |    |   |                                                                 |   |
| Selling and  marketing                                                           |   | 12,544                  |   | 16,782                    |   | 11,356  |   | 8,520                                                                |   |
| Research and  development                                                        |   | 7,868                   |   | 9,894                     |   | 7,894   |   | 8,271                                                                |   |
| General and  administrative                                                      |   | 15,122                  |   | 10,879                    |   | 4,774   |   | 4,039                                                                |   |
| Amortization  expense                                                            |   | 4,166                   |   | 18,832                    |   | 2,876   |   | 6,932                                                                |   |
| Impairment  charge                                                               |   | —                  |   | 43,430                    |   | —  |   | —                                                               |   |
| Management fees                                                                  |   | —                  |   | 806                       |   | 2,050   |   | 976                                                                  |   |
| Acquisition  costs                                                               |   | —                  |   | 409                       |   | —  |   | 1,943                                                                |   |
|                                                                             |   | 39,700                  |   | 101,032                   |   | 28,950  |   | 30,681                                                               |   |
|                                                                             |   |                    |   |                      |   |    |   |                                                                 |   |
| Operating income  (loss)                                                         |   | (3,746                  | )      | (66,483                   | )      | 42      |   | (11,398                                                              | )      |
|                                                                             |   |                    |   |                      |   |    |   |                                                                 |   |
| Interest  expense, net                                                           |   | 194                     |   | 826                       |   | 1,151   |   | 801                                                                  |   |
| Equity in net  loss (earnings) of unconsolidated affiliates                      |   | 199                     |   | 866                       |   | (165    | )      | (30                                                                  | )      |
| Gains on sale of  subsidiary and investee                                        |   | (977                    | )      | —                    |   | —  |   | —                                                               |   |
| Other expense,  net                                                              |   | 688                     |   | 1,176                     |   | 562     |   | 252                                                                  |   |
| Foreign exchange  (gain) loss                                                    |   | (382                    | )      | 178                       |   | —  |   | —                                                               |   |
|                                                                             |   | (278                    | )      | 3,046                     |   | 1,548   |   | 1,023                                                                |   |
|                                                                             |   |                    |   |                      |   |    |   |                                                                 |   |
| Loss before  income taxes                                                        |   | (3,468                  | )      | (69,529                   | )      | (1,506  | )      | (12,421                                                              | )      |
|                                                                             |   |                    |   |                      |   |    |   |                                                                 |   |
| Income tax  expense (benefit)                                                    |   | 480                     |   | (9,670                    | )      | (2,566  | )      | (1,691                                                               | )      |
|                                                                             |   |                    |   |                      |   |    |   |                                                                 |   |
| Income (loss)  before minority interest                                          |   | (3,948                  | )      | (59,859                   | )      | 1,060   |   | (10,730                                                              | )      |
|                                                                             |   |                    |   |                      |   |    |   |                                                                 |   |
| Minority  interest in (earnings) losses of unconsolidated subsidiary             |   | —                  |   | 95                        |   | —  |   | (67                                                                  | )      |
|                                                                             |   |                    |   |                      |   |    |   |                                                                 |   |
| Net (loss)  income                                                               |   | $                       | (3,948 | )                         | $      | (59,764 | )      | $                                                                    | 1,060  |   | $ | (10,797 | ) |
|                                                                             |   |                    |   |                      |   |    |   |                                                                 |   |
| Income (loss)  per common share:                                                 |   |                    |   |                      |   |    |   |                                                                 |   |
| Basic                                                                            |   | $                       | (0.40  | )                         | $      | (6.78   | )      | $                                                                    | 0.14   |   | $ | (1.40 | ) |
| Diluted                                                                          |   | $                       | (0.40  | )                         | $      | (6.78   | )      | $                                                                    | 0.14   |   | $ | (1.40 | ) |
|                                                                             |   |                    |   |                      |   |    |   |                                                                 |   |
| Weighted average  common shares used in computing income (loss) per common share |   |                    |   |                      |   |    |   |                                                                 |   |
| Basic                                                                            |   | 9,965                   |   | 8,816                     |   | 7,426   |   | 7,689                                                                |   |
| Diluted                                                                          |   | 9,965                   |   | 8,816                     |   | 7,525   |   | 7,689                                                                |   |

 

The accompanying notesare an integral part of these consolidated financial statements

 

F-8

----

 

**ARTEMIS INTERNATIONAL SOLUTIONS CORPORATION**

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND**

**COMPREHENSIVE INCOME (LOSS)**

**For the Period April 1, 1999 to December 31, 2002**

**(Information for the Year Ended December 31, 2001 isUnaudited)**

**(inthousands)**

 
|                                                                        |   | **Common Stock** |   | **Investment  in Stock of  Parent********Company** |   | **Additional  Paid-in********Capital** |   | **Accumulated********Deficit** |   | **Accumulated  Other  Comprehensive********Income (Loss)** |   | **Total** |   |
|-----------------------------------------------------------------------------|--------|------------------|--------|----------------------------------------------------|--------|----------------------------------------|--------|--------------------------------|--------|------------------------------------------------------------|--------|-----------|--------|
|                                                                        |   | **Shares**       |   | **Amount**                                         |   |                                   |   |                           |   |                                                       |
| Balance March  31, 1999                                                     |   | 7,413            |   | $                                                  | 7      |                                   | $      | —                         |   | $                                                          | 93     |      | $      | (1,511 | ) | $ | (166 | ) | $ | (1,577 | ) |
| Exercise of  stock options                                                  |   | 13               |   | —                                             |   | —                                 |   | 4                              |   | —                                                     |   | —    |   | 4 |   |
| Net income                                                                  |   | —           |   | —                                             |   | —                                 |   | —                         |   | 1,060                                                      |   | —    |   | 1,060 |   |
| Foreign currency  translation adjustment                                    |   | —           |   | —                                             |   | —                                 |   | —                         |   | —                                                     |   | (483      | )      | (483 | ) |
| Comprehensive  income                                                       |   | —           |   | —                                             |   | —                                 |   | —                         |   | —                                                     |   | —    |   | 577 |   |
| Balance March  31, 2000                                                     |   | 7,426            |   | 7                                                  |   | —                                 |   | 97                             |   | (451                                                       | )      | (649      | )      | (996 | ) |
| Contribution of  Proha shares                                               |   | —           |   | —                                             |   | (3,787                                 | )      | 3,787                          |   | —                                                     |   | —    |   | — |   |
| Sale of Proha  shares                                                       |   | —           |   | —                                             |   | 1,004                                  |   | 518                            |   | —                                                     |   | —    |   | 1,522 |   |
| Exercise of  stock options/warrants                                         |   | 391              |   | 1                                                  |   | —                                 |   | 318                            |   | —                                                     |   | —    |   | 319 |   |
| Stock bonuses                                                               |   | 160              |   | —                                             |   | —                                 |   | 601                            |   | —                                                     |   | —    |   | 601 |   |
| Capital  contribution-expenses paid by shareholder                          |   | —           |   | —                                             |   | —                                 |   | 329                            |   | —                                                     |   | —    |   | 329 |   |
| Capital  contribution-push-down purchase accounting                         |   | —           |   | —                                             |   | —                                 |   | 68,920                         |   | —                                                     |   | —    |   | 68,920 |   |
| Cash dividends                                                              |   | —           |   | —                                             |   | —                                 |   | —                         |   | (140                                                       | )      | —    |   | (140 | ) |
| Net loss                                                                    |   | —           |   | —                                             |   | —                                 |   | —                         |   | (10,797                                                    | )      | —    |   | (10,797 | ) |
| Foreign currency  translation adjustment                                    |   | —           |   | —                                             |   | —                                 |   | —                         |   | —                                                     |   | 1,147     |   | 1,147 |   |
| Comprehensive  loss                                                         |   | —           |   | —                                             |   | —                                 |   | —                         |   | —                                                     |   | —    |   | (9,650 | ) |
| Balance December  31, 2000                                                  |   | 7,977            |   | 8                                                  |   | (2,783                                 | )      | 74,570                         |   | (11,388                                                    | )      | 498       |   | 60,905 |   |
| Cancellation of  stock in Proha                                             |   | —           |   | —                                             |   | 2,783                                  |   | (2,783                         | )      | —                                                     |   | —    |   | — |   |
| Capital  contributions-Proha                                                |   | —           |   | —                                             |   | —                                 |   | 425                            |   | —                                                     |   | —    |   | 425 |   |
| Shares of  Opus360 outstanding prior to reverse acquisition deemed acquired |   | 1,988            |   | 2                                                  |   | —                                 |   | 7,975                          |   | —                                                     |   | —    |   | 7,977 |   |
| Net loss                                                                    |   | —           |   | —                                             |   | —                                 |   | —                         |   | (59,764                                                    | )      | —    |   | (59,764 | ) |
| Foreign currency  translation adjustment                                    |   | —           |   | —                                             |   | —                                 |   | —                         |   | —                                                     |   | 39        |   | 39 |   |
| Comprehensive  loss                                                         |   | —           |   | —                                             |   | —                                 |   | —                         |   | —                                                     |   | —    |   | (59,725 | ) |
| Balance December  31, 2001                                                  |   | 9,965            |   | 10                                                 |   | —                                 |   | 80,187                         |   | (71,152                                                    | )      | 537       |   | 9,582 |   |
| Net loss                                                                    |   | —           |   | —                                             |   | —                                 |   | —                         |   | (3,948                                                     | )      | —    |   | (3,948 | ) |
| Foreign currency  translation adjustment                                    |   | —           |   | —                                             |   | —                                 |   | —                         |   | —                                                     |   | (500      | )      | (500 | ) |
| Comprehensive  loss                                                         |   | —           |   | —                                             |   | —                                 |   | —                         |   | —                                                     |   | —    |   | (4,448 | ) |
| Adjustment  related to the reverse acquisition of Opus 360                  |   | —           |   | —                                             |   | —                                 |   | 646                            |   | —                                                     |   | —    |   | 646 |   |
| Balance December  31, 2002                                                  |   | 9,965            |   | $                                                  | 10     |                                   | $      | —                         |   | $                                                          | 80,833 |      | $      | (75,100 | ) | $ | 37 |   | $ | 5,780 |   |

 

The accompanying notesare an integral part of these consolidated financial statements 

 

F-9

----

 

**ARTEMIS INTERNATIONAL SOLUTIONS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(inthousands)**

 
|                                                                                                  |   |                    |   |            |   |     |   | **For the nine********months ended********December 31,********2000** |   |
|-------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|-----------------|--------|----------|--------|----------------------------------------------------------------------|--------|
|                                                                                                  |   | **For the years ended** |   |            |
|                                                                                                  |   | **December 31,**        |   | **March 31,**   |   |     |
|                                                                                                  |   | **2002**                |   | **2001**        |   | **2000** |   |                                                                 |
|                                                                                                  |   |                    |   | **(Unaudited)** |   |     |   |                                                                 |   |
| Cash flow from  operating activities:                                                                 |   |                    |   |            |   |     |   |                                                                 |   |
| Net income  (loss)                                                                                    |   | $                       | (3,948 | )               | $      | (59,764  | )      | $                                                                    | 1,060  |   | $ | (10,797 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by or used in operating  activities: |   |                    |   |            |   |     |   |                                                                 |   |
| Depreciation and  amortization                                                                        |   | 6,213                   |   | 22,380          |   | 3,444    |   | 7,613                                                                |   |
| Minority  interest                                                                                    |   | —                  |   | (95             | )      | —   |   | 67                                                                   |   |
| Capital  contribution-expenses paid by shareholders                                                   |   | —                  |   | —          |   | —   |   | 329                                                                  |   |
| Issuances of  stock bonuses to employees                                                              |   | —                  |   | —          |   | —   |   | 601                                                                  |   |
| Equity in net  loss (gain) of unconsolidated affiliate                                                |   | 424                     |   | (866            | )      | —   |   | —                                                               |   |
| Gains on sale of  subsidiary and investee                                                             |   | (977                    | )      | —          |   | —   |   | —                                                               |   |
| Deferred income  taxes and other                                                                      |   | 254                     |   | (10,372         | )      | (2,607   | )      | (1,057                                                               | )      |
| Loss on impaired  assets                                                                              |   | —                  |   | 43,430          |   | —   |   | —                                                               |   |
| Push-down of  in-process research and development expense                                             |   | —                  |   | —          |   | —   |   | 2,326                                                                |   |
| Changes in  operating assets and liabilities:                                                         |   |                    |   |            |   |     |   |                                                                 |   |
| (Increase)  decrease in trade accounts receivable                                                     |   | (4,232                  | )      | 5,472           |   | (372     | )      | 627                                                                  |   |
| (Increase)  decrease in prepaid expenses and other assets                                             |   | (160                    | )      | (527            | )      | 46       |   | (29                                                                  | )      |
| Increase  (decrease) in deferred revenues                                                             |   | 3,371                   |   | (2,779          | )      | (276     | )      | 1,145                                                                |   |
| Increase  (decrease) in accounts payable, accrued liabilities, and other liabilities                  |   | 1,134                   |   | (5,449          | )      | (155     | )      | 2,452                                                                |   |
| Net cash  provided by (used in) operating activities                                                  |   | 2,079                   |   | (8,570          | )      | 1,140    |   | 3,277                                                                |   |
|                                                                                                  |   |                    |   |            |   |     |   |                                                                 |   |
| Cash flow from  investing activities:                                                                 |   |                    |   |            |   |     |   |                                                                 |   |
| Capital  expenditures, net                                                                            |   | (958                    | )      | (841            | )      | (588     | )      | (627                                                                 | )      |
| Proceeds from  sale of subsidiary and investee                                                        |   | 1,121                   |   | —          |   | —   |   | —                                                               |   |
| Increase in  short-term investments                                                                   |   | —                  |   | —          |   | —   |   | (24                                                                  | )      |
| Cash provided by  former parent contribution of subsidiaries                                          |   | —                  |   | 1,048           |   | —   |   | 1,477                                                                |   |
| Cash provided  from acquisitions                                                                      |   | —                  |   | 14,535          |   | —   |   | —                                                               |   |
| Investment in  affiliates                                                                             |   | —                  |   | —          |   | (114     | )      | 146                                                                  |   |
| Net cash  provided by (used in) investing activities                                                  |   | 163                     |   | 14,742          |   | (702     | )      | 972                                                                  |   |
|                                                                                                  |   |                    |   |            |   |     |   |                                                                 |   |
| Cash flow from  financing activities:                                                                 |   |                    |   |            |   |     |   |                                                                 |   |
| Net borrowings  on lines of credit                                                                    |   | 2,424                   |   | 2,747           |   | 4,623    |   | 411                                                                  |   |
| Proceeds from  sale of parent company stock, net of tax                                               |   | —                  |   | —          |   | —   |   | 1,522                                                                |   |
| Proceeds from  exercise of stock options and warrants, net of tax                                     |   | —                  |   | —          |   | —   |   | 319                                                                  |   |
| Parent company  dividends                                                                             |   | —                  |   | —          |   | —   |   | (140                                                                 | )      |
| Capital  contribution                                                                                 |   | —                  |   | —          |   | 4        |   | —                                                               |   |
| Payments of debt  and capital leases                                                                  |   | (1,481                  | )      | (6,496          | )      | (4,897   | )      | (4,104                                                               | )      |
| Net cash  provided by (used in) financing activities                                                  |   | 943                     |   | (3,749          | )      | (270     | )      | (1,992                                                               | )      |
|                                                                                                  |   |                    |   |            |   |     |   |                                                                 |   |
| Effect of  exchange rate changes on cash                                                              |   | (500                    | )      | (542            | )      | (483     | )      | (256                                                                 | )      |
|                                                                                                  |   |                    |   |            |   |     |   |                                                                 |   |
| Net (decrease)  increase in cash                                                                      |   | 2,685                   |   | 1,881           |   | (315     | )      | 2,001                                                                |   |
|                                                                                                  |   |                    |   |            |   |     |   |                                                                 |   |
| Cash at the  beginning of the period                                                                  |   | 5,081                   |   | 3,200           |   | 1,514    |   | 1,199                                                                |   |
|                                                                                                  |   |                    |   |            |   |     |   |                                                                 |   |
| Cash at the end  of the period                                                                        |   | $                       | 7,766  |            | $      | 5,081    |   | $                                                                    | 1,199  |   | $ | 3,200 |   |

 

See accompanyingnotes to consolidated financial statements for discussion of non-cashtransactions anddisclosure of cash paid for interest and income taxes.The accompanying notes are an integral part of these consolidated financialstatements.

 

F-10

----

 

**ARTEMISINTERNATIONAL SOLUTIONS CORPORATIONNOTES TO CONSOLIDATED FINANCIALSTATEMENTS(Information as of and for the Year EndedDecember 31, 2001 is Unaudited.)**

 

**Note 1. Organization and Summary of SignificantAccounting Policies**

 

*Organization and Description of Business*

 

Artemis International Solutions Corporation andSubsidiaries, (*“Artemis”*, or the *“Company”*) is a provider ofenterprise-based portfolio, project and resource management softwaresolutions.  Artemis’ solutions consistof scalable client/server and Web-based applications, and are supported byconsulting services and an international distribution network of 41 offices in27 countries. Artemis services key vertical markets such as (i) Aerospace andDefense, (ii) Energy and Telecom, (iii) Pharmaceuticals,  (iv) Government, (v) Financial Services (vi)Automotive, and (vii) High Technology.

 

As used herein:

 

•                  “Opus360” refersto Opus360 Corporation prior to the closing of certain share exchangetransactions.  Opus360 Corporation was incorporated on August 17, 1998 under thelaws of the State of Delaware to provide an integrated web-based service tostreamline the procurement and management of professional services.

 

•                  “Legacy Artemis”refers to Artemis Acquisition Corporation, a Delaware corporation and theparent corporation of the Artemis business organization.  Prior to certain share exchange transactions,Legacy Artemis was a wholly owned subsidiary of Proha Plc (“Proha”), a Finnishcorporation. Legacy Artemis was a developer and supplier of comprehensive,project and resource collaboration application software products and consultingservices.  Proha acquired Legacy Artemison August 24, 2000, and subsequently contributed its interests in theentities listed in the table below to Legacy Artemis (the “ContributedBusinesses”).

 

•                  In November 2001the Company changed its name to “Artemis International Solutions Corporation”,which refers to Opus360 Corporation after the closing of certain share exchangetransactions.

 

On August 24, 2000 Proha purchased all of theoutstanding common stock of Legacy Artemis. The purchase was structured as ashare exchange whereby Proha issued shares of its publicly traded (HelsinkiExchange) common stock to Legacy Artemis’ equity holders in exchange for all ofLegacy Artemis’ common stock. The purchase price was $50 million, lesspost-closing adjustments of approximately $6 million. The amount of thepurchase price adjustments was determined subsequent to the effective date ofthe transaction, and as a result, Legacy Artemis’ former shareholders wererequired to contribute to Legacy Artemis $6 million of the Proha stock. These contributionshave been recorded on a net of taxes basis, as additional paid-in capital andas an offsetting reduction in stockholders’ equity, similar to treasury stock,as an investment in the stock of the parent company. Subsequent to the receiptof the Proha shares, Legacy Artemis sold a portion of these shares, resultingin a gain of $518,000, net of taxes of $304,000, which has been recorded asadditional paid-in capital. At December 31, 2000, the Company held 392,036shares of Proha, recorded at $2,783,000, net of deferred income taxes of$1,634,000.  In 2001, Proha cancelledthese shares, which was treated as a reduction of additional paid in capital.

 

As a result of the transaction, Legacy Artemisrecorded goodwill of approximately $30.7 million with a correspondingincrease in additional paid-in capital. Legacy Artemis also recordedapproximately $32.3 million of identifiable intangible assets and$2.3 million of in-process research and development (“R&D”) expense.  The aforementioned intangible assets werepushed down to the financial statements of Legacy Artemis, with a correspondingincrease of additional paid-in capital. The in-process R&D expense recorded during the nine months endedDecember 31, 2000 resulted from an allocation of purchase price to the twoprojects under development by the Company in August 2000; such projects werenot considered to have reached technological feasibility at that date.  Such R&D expense was also pushed down tothe financial statements of Legacy Artemis. As a result of the

 

F-11

----

 

contribution by Proha to the Company of Proha’s interest in severalforeign companies, goodwill and identifiable intangible assets of approximately$10.2 million and $7.7 million, respectively, were also recorded during thenine months ended December 31, 2000.

 

As noted above, Proha acquired Legacy Artemis inAugust 2000.  Proha subsequentlytransferred its interests in several companies based in Europe, Asia and theUnited States to Legacy Artemis.  Inaddition, Proha contributed its directly held interests in several companies toArtemis in conjunction with the share exchange transactions effective December2000.  Each of the “ContributedBusinesses” is reflected as having been contributed by Proha as of the later ofthe date Legacy Artemis was acquired by Proha or the date these interests wereunder the control of Proha, Legacy Artemis’ parent.  These Contributed Businesses are included in the results ofArtemis as of the effective date a majority interest was transferred toArtemis.

 

The active Contributed Businesses and the effectivedates of their contribution to Legacy Artemis by Proha were as follows:

 
| **Current Company Name**              |   | **Location**   |   | **Contribution  Date** |   |
|---------------------------------------|--------|----------------|--------|------------------------|--------|
| Artemis Finland  OY                   |   | Finland        |   | August 24, 2000        |   |
| Artemis  International Solutions Ltd. |   | United Kingdom |   | August 24, 2000        |   |
| Artemis  International Limited        |   | Japan          |   | August 24, 2000        |   |
| PMSoft Asia Pte.  Ltd.                |   | Singapore      |   | December 1, 2000       |   |
| Artemis  International S.p.A.         |   | Italy          |   | December 1, 2000       |   |
| Enterprise  Management Systems Sarl   |   | Italy          |   | December 1, 2000       |   |
| Artemis  International Sarl           |   | France         |   | December 1, 2000       |   |
| Solutions  International              |   | France         |   | December 1, 2000       |   |
| Artemis  International GmBH           |   | Germany        |   | December 1, 2000       |   |

 

In April 2001, Opus360 and Proha entered into ashare exchange agreement (“the Share Exchange Agreement”) pursuant to which,upon completion of the transactions contemplated under such agreement("the Share Exchange Transactions''), Opus360 exchanged 80% of its post-transactionoutstanding common stock for all of the capital stock of Legacy Artemis, and19.9% of two Finnish subsidiaries of Proha, Accountor OY (see Note 2) andIntellisoft OY.  As a result of theshare exchange transactions, Proha owns 80% of the outstanding common stock ofArtemis.

 

*The Share Exchange Transaction*

 

The transaction was structured in two steps since thenumber of authorized Opus360 shares needed to be increased to allow for theissuance of 8.0 million new shares to Proha. Despite its two step structure, the transaction was accounted for uponthe consummation of the first closing because Proha gained a majoritycontrolling interest and the voting agreements discussed below effectively“locked in” phase two of the transaction.

 

In connection with the Share Exchange Agreement, Prohaentered into two voting agreements, one with Ari Horowitz, (cofounder ofOpus360 and member of the Artemis Board of Directors), and one withOpus360.  Pursuant to these agreements,Ari Horowitz agreed among other things to cause all of his 133,000 shares ofOpus360 common stock to be voted in favor of the second closing.  Also, Proha agreed among other things tocause all of its 3.0 million shares of Opus360’s common stock to be voted infavor of the second closing.

 

As a result of the above agreements, there werecommitments to vote in favor of the second closing representing approximately62% of the outstanding common stock. Accordingly, the transaction was not treated as a step acquisition sinceProha obtained a majority controlling and voting interest upon consummation ofthe first closing.

 

On July 31, 2001, Opus360 consummated the first phaseof the transaction contemplated by the Share Exchange Agreement.  In connection with this Agreement, Opus360acquired all of the capital stock of Legacy Artemis, in exchange forapproximately 3.0 million shares of the Opus360’s common stock.  As a result of this exchange, Proha obtaineda controlling ownership and management interest in Opus360.  Accordingly, the transaction was accountedfor

 

F-12

----

 

as a reverse acquisition with Legacy Artemis treated as the accountingacquirer and accounted for under the purchase method of accounting inaccordance with the provisions of Statement of Financial Accounting Standards(“SFAS”) 141, *Business Combinations*.  The second closing was completed November20, 2001 by Opus360’s filing of a Definitive Proxy Statement with the  Securities and Exchange Commission (“SEC”)containing the required disclosures and financial information of the combinedand consolidated companies.  At thesecond closing, Opus360 delivered approximately 5.0 million additional sharesof the Opus360’s common stock in return for the delivery by Proha of 19.9% ofthe outstanding shares of the two Proha subsidiaries. Upon completion of thesecond closing, Proha owned approximately 80% of the post-transactionoutstanding common stock of the Company.

 

All informationregarding equity instruments and related per share amounts has been restatedwithin this annual report to reflect the effects of the reverse mergertransaction described above.

 

*Basis of Presentation*

 

Accounting principles generally accepted in the UnitedStates (“GAAP”) require in certain circumstances that a company whoseshareholders retain the majority voting interest, governing body and seniormanagement in the combined business to be treated as the acquiror for financialreporting purposes. As a result of the Share Exchange Transactions, Proha, theformer shareholder of Legacy Artemis, holds a majority interest in the Company,governing body and senior management in the combined Company.  Accordingly, for accounting purposes thetransaction has been treated as a reverse acquisition in which Legacy Artemisis deemed to have purchased Opus360, although Opus360 (which changed its nameto Artemis International Solutions Corporation on November 20, 2001) remainsthe legal parent company and the registrant for SEC reporting purposes.

 

The consolidated financial statements included hereinrepresent the historical financial statements of Legacy Artemis, as theaccounting acquirer, and the acquisition of Opus360 has been accounted forunder the purchase method of accounting. The assets acquired and liabilities assumed of Opus360, as the legallyacquired entity, are recorded at their estimated fair values at July 31,2001.  The excess of the estimated fairvalues of the identifiable net assets over the purchase price is treated asnegative goodwill. Negative goodwill is first applied to reduce the assignedvalue of identifiable non-current assets other than long-term investments inmarketable securities and deferred tax assets, until those assets are reducedto zero.

 

*Liquidityand Going Concern Considerations*

 

The Company’s continuedexistence is dependent upon several factors including the Company’s ability tosell and successfully implement its software solutions.  The Company has experienced net losses ineach of the two years in the period ended December 31, 2002, and the ninemonths ended December 31, 2000.  AtDecember 31, 2002, the Company has an accumulated deficit of $75.1 million andits current liabilities exceeded current assets by $5.4 million.

 

A summary of the Company’s future contractualobligations and commercial commitments as of December 31, 2002 is as follows:

 
|                                                |   | **Year ending December 31,** |   |
|-----------------------------------------------------|--------|------------------------------|--------|
|                                                |   | **2003**                     |   | **2004** |   | **2005** |   | **2006** |   | **2007** |   | **2008-  thereafter** |   | **Total** |   |
|                                                |   | **(in  thousands)**          |   |
| Long-term  debt                                     |   | $                            | 950    |   | $ | 113 |   | $ | 16 |   | $ | 16 |   | $ | 90 |   | $ | — |   | $ | 1,185 |   |
| Obligations  under non-cancellable operating leases |   | 3,522                        |   | 1,407 |   | 1,070 |   | 347 |   | 43 |   | 7 |   | 6,396 |   |
|                                                |   | $                            | 4,472  |   | $ | 1,520 |   | $ | 1,086 |   | $ | 363 |   | $ | 133 |   | $ | 7 |   | $ | 7,581 |   |

 

Other cash requirements through the end of fiscal year2003 are primarily to fund operations at approximately the same levels asfiscal year 2002.  In the future, the Company may need to raiseadditional funds through public or private financings, or other arrangements tofund our operations or potential acquisitions, if any. The Company currentlyhas no plans to affect any other offerings. The Company cannot be assured thatany financings or other arrangements will be available in amounts or on termsacceptable to the Company or at all and any new financings or otherarrangements could place operating or other restrictions on the Company.  The Company’s inability to raise capitalwhen needed could seriously harm the growth of the business and results ofoperations.

 

The Company’s near andlong-term operating strategies focus on promoting its new and existing softwareand services to increase its revenue and cash flow while better positioning theCompany to compete under current market conditions.  Since joining the Company the new Chief Executive Officer, hasbeen developing a broad operational and restructuring plan designed to (i)leverage the Company’s brand and technology strengths, (ii) reduce costs and(iii) dispose of certain non-core assets. At December 31, 2002, the Company had unused credit lines of $0.9million based on the December 31, 2002 balance and aging of eligible accountsreceivable.  The Company generatedpositive operating cash flow for the quarter and year ended December 31,2002.  In addition, the Company isexploring a number of alternatives regarding financing to support its effortsat implementing its strategies. Management believes that cash generated from operations as well as itscurrent credit facilities will be sufficient to support he Company’s liquidityrequirements through December 31, 2003, depending on operating results and thelevel of acceptance of its products, its costs and its short-term financing.

 

The Company’s consolidated financial statements havebeen prepared assuming that the Company will continue as a going concern (basedupon management’s plans discussed above), which contemplates, among otherthings, the realization of assets and satisfaction of liabilities in theordinary course of business. Accordingly, the accompanying consolidated financial statements do notinclude any adjustments related to the recoverability and classification ofasset carrying amounts or the amount and classification of liabilities thatmight result, should the Company be unable to continue as a going concern.

 

F-13

----

 

*Reverse Stock Split*

 

On February 7, 2003, the Company effected a one fortwenty-five reverse stock split of its outstanding common stock. Allinformation regarding common stock, stock options, warrants and related pershare amounts has been restated within this annual report to reflect the reversestock split.

 

*Reclassifications*

 

Certain priorperiod information has been reclassified to conform to the current periodpresentation.

 

*Principles of Consolidation*

 

The accompanyingconsolidated financial statements include the accounts of Artemis InternationalSolutions Corporation and its majority owned subsidiaries. All materialintercompany transactions and balances have been eliminated in consolidation. Equity investments in which Artemisowns at least 20% of the voting securities, or exercises significant influenceover (either individually or in concert with its parent, Proha) are accountedfor using the equity method. Investments in which the Company owns less than 20% and is not able toexercise significant influence over the investee are accounted for under thecost method of accounting.

 

*Use of Estimates*

 

The preparation offinancial statements in accordance with GAAP requires management to makeestimates and assumptions regarding revenue recognition, and the recoverabilityof goodwill and other intangible assets that affect the reported amounts ofassets and liabilities, the disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenue andexpenses during the reporting period. Actual results could differ from those estimates.  Significant estimates include valuation ofdeferred tax assets, allowance for uncollectible accounts receivable, revenuerecognition, useful economic lives of intangible assets, accrued pensionliabilities and certain other accrued liabilities.

 

*Revenue Recognition*

 

The Company has adopted Statement of Position, or SOP,97-2, *SoftwareRevenue Recognition*, which supersedes SOP 91-1, *Software Revenue Recognition*,as well as SOP, 98-9, *Modification of* SOP 97-2, *SoftwareRevenue Recognition, with Respect to Certain Transactions*, whichamends SOP 97-2 and supercedes SOP 98-4. SOP 97-2, as amended, generally requires revenue earned on softwarearrangements involving multiple elements to be allocated to each element basedon the relative estimated fair market value of each of the elements. Theestimated fair value of an element must be based on vendor-specific objectiveevidence (“VSOE”). Software license revenue allocated to a software product isrecognized upon delivery of the product or deferred and recognized in futureperiods to the extent that an arrangement includes one or more elements thatare to be delivered at a future date and for which VSOE has not beenestablished.  Maintenance and supportrevenue is recognized ratably over the maintenance term.  First-year maintenance typically is soldwith the related software license and renewed on an annual basis thereafter.Estimated fair values of ongoing maintenance and support obligations are basedon separate sales of renewals to other customers or upon renewal rates quotedin the contracts. For such arrangements with multiple obligations, we allocaterevenue to each component of the arrangement based on the estimated fair valueof the undelivered elements. Fair value of services, such as consulting ortraining, is based upon separate sales of these services. The Company at timesmay enter into multiple-customer contracts in which the Company allocatesrevenue based on the number of specified users at each customer, and recognizesrevenue upon customer acceptance and satisfying the other applicable conditionsof the above described accounting policy.

 

Services revenue is recognized as the service isperformed assuming that sufficient evidence exists to estimate the fair valueof the services.  Consulting andtraining services are billed based on hourly rates and revenues are recognizedas the services are performed. Consulting services primarily consist ofimplementation services related to the installation of the Company’s productsand do not include significant customization to or modification of theunderlying software code.

 

F-14

----

 

Significant management judgments and estimates must bemade in connection with determination of the revenue to be recognized in anyaccounting period.  If we made differentjudgments or utilized different estimates for any period, material differencesin the amount and timing of revenue recognized could result.

 

*Cost of Revenues*

 

Cost of software revenue primarily reflects themanufacture expense and royalties to third party developers, which arerecognized upon delivery of the product or in future periods to the extent thatan arrangement includes one or more elements that are to be delivered at afuture date and for which VSOE has not been established.  Cost of support includes (i) salescommissions and salaries paid to employees who provide first and second levelsupport to clients and (ii) consultants, which are recognized as the services areperformed.  Sales commissions areexpensed as incurred.  The costsincurred for implementation, customer support and training of the Company’sclients using internal or external resources are recorded as cost of servicesrevenue when the services are performed.

 

*SoftwareDevelopment Costs*

 

The costs incurred to develop computer softwareproducts to be sold or otherwise marketed are charged to expense untiltechnological feasibility of the product has been established. Oncetechnological feasibility of related software products has been established,computer software development costs are capitalized and reported at the lowerof amortized cost or estimated net realizable value. When a product is readyfor general release, its capitalized costs are amortized using thestraight-line method of amortization over a period not to exceed three years.Company management believes that technological feasibility is not establisheduntil a beta version of the product exists. Historically, costs incurred duringthe period from when a beta version is available until general release have notbeen material. Accordingly, during the years ended December 31, 2002 and 2001,the year ended March 31, 2000 and the nine months ended December 31, 2000,no software costs have been capitalized.

 

*Allowancefor doubtful accounts*

 

We establish our allowance for doubtful accounts basedon our qualitative and quantitative review of credit profiles of our customers,contractual terms and conditions, current economic trends and historical payment,return and discount experience. We reassess the allowance for doubtful accountseach period. If we made different judgments or utilized different estimates forany period, material differences in the amount and timing of revenue recognizedcould result.

 

*Property and Equipment*

 

Property and equipment arestated at cost less accumulated depreciation. Depreciation and amortization are calculated using the straight-linemethod over the shorter of the estimated useful lives of the related assets,generally ranging from three to five years, or the remaining lease term whenapplicable.  Gains and losses ondisposals are included in income at amounts equal to the difference between thebook value of the disposed assets and the proceeds received upon disposal.Expenditures for replacements and leasehold improvements are capitalized, whileexpenditures for maintenance and repairs are charged against earnings asincurred.

 

*IntangibleAssets*

 

Intangible assets at December 31, 2002 consist ofacquired customer bases and current core technology. Customer bases acquireddirectly are valued at cost, which approximates estimated fair value at thetime of purchase.  The value of thepurchased in-process research and development was determined by estimating theprojected net cash flows related to in-process research and developmentprojects, excluding costs to complete the development of the technology. Thesecash flows were discounted back to their net present value. The discount ratewas estimated based on the implied rate of the transaction, the weightedaverage cost of capital and the percentage of completion at the acquisitiondate. The projected net cash flows from such projects were based onmanagement’s estimates of revenues and operating profits related to such projects.  The costs assigned to intangible assets arebeing amortized on a straight-line basis over the estimated useful lives of theassets, which is 42 months from January 1, 2002.  Management believes that

 

F-15

----

 

the straight-line method is appropriate for the Company’s customerlist, given the caliber and nature of its customer relationships.  Substantially all intangible assetsremaining at December 31, 2002 will be fully amortized by July 2004, assumingno impairment adjustments or future changes in their estimated useful lives.

 

Intangible assets are reviewed at least annually forimpairment to ensure they are appropriately valued.  Conditions that may indicate an impairment issue exists includean economic downturn or a change in the assessment of future operations.  Where applicable, an appropriate interestrate is utilized, based on appropriate economic factors, risk and cost ofcapital.

 

*Impairmentof Long-Lived Assets*

 

The Company periodically evaluates the carrying valueof its long-lived assets under the provisions of SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets*.  SFAS No. 144 addresses financial accountingand reporting for the impairment or disposal of long-lived assets, andsupersedes SFAS No. 121, *Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of*,and the accounting and reporting provisions of Accounting Principles Board(“APB”) Opinion No. 30, *Reporting theEffects of the Disposal of a Segment of a Business, and Extraordinary, Unusualand Infrequently Occurring Events and Transactions*, for the disposalof a segment of a business (as previously defined in that Opinion).  SFAS No. 144 also amends Accounting ResearchBulletin  No. 51, *Consolidated Financial Statements*, toeliminate the exception to consolidation of a subsidiary of which control islikely to be temporary.  The Companyadopted SFAS No. 144 commencing January 1, 2002, and it did not have a materialeffect on the financial position or results of operations.

 

SFAS No. 144 requires impairment losses to be recordedon long-lived assets used in operations, including amortizable intangibleassets when indicators of impairment are present.  Indicators of impairment include an economic downturn or a changein the assessment of future operations. In the event a condition is identified that may indicate an impairmentissue, an assessment is performed using a variety of methodologies, includinganalysis of undiscounted future cash flows, estimates of sales proceeds andindependent appraisals.  If such assetsare impaired, the impairment to be recognized is measured by the amount bywhich the carrying amount of the asset exceeds the estimated fair market valueof the assets.  Assets to be disposed ofare reported at the lower of the carrying value or estimated fair market value,less cost to sell.  During the yearended December 31, 2001, the Company recorded impairment charges ofapproximately $43 million.  No suchimpairment charges were recorded during the year ended December 31, 2002.  (See Note 5).

 

*Translationof Foreign Currencies*

 

Artemis uses the U.S. dollar as it functionalcurrency.  Assets and liabilities offoreign subsidiaries are translated into U.S. dollars at year-end exchangerates, and revenues and expenses are translated at average rates prevailingduring the year or other period presented. In accordance with SFAS 52, *ForeignCurrency Translation*, translation adjustments are included as acomponent of stockholders’ equity. The Company recorded a foreign exchange lossof $0.2 million and a foreign exchange gain of $0.4 million for the years endedDecember 31, 2001 and 2002, respectively. Foreign currency remeasurement gains and losses were not material for anyother period presented.

 

*IncomeTaxes*

* *

The Company accounts for income taxes under theprovisions of SFAS No. 109, *Accounting forIncome Taxes*.  SFAS No. 109requires recognition of deferred tax liabilities and assets for the expectedfuture tax consequences of events that have been included in the financialstatements or tax returns.  Under thismethod deferred tax liabilities and assets are determined based on thedifference between the financial statement and tax bases of assets andliabilities using enacted tax rates for the year in which the differences areexpected to reverse  (See Note 10).

 

F-16

----

 

*Valuation of Deferred Tax Assets*

 

The Company records an estimated valuation allowanceon its significant deferred tax assets when, based on the weight of availableevidence (including the scheduled reversal of deferred tax liabilities,projected future taxable income, and tax-planning strategies), it is morelikely than not that some or all of the tax benefit will not be realized.

 

*Stock-BasedEmployee Compensation*

 

TheCompany has several stock-based employee compensation plans, which aredescribed more fully in Note 15.  TheCompany accounts for those plans under the recognition and measurementprinciples of APB Opinion No.25, *Accounting for Stock Issued toEmployees*, and related interpretations. No stock-based employee compensation cost is reflected in the statementsof operations as all options granted under those plans had an exercise priceequal to or greater than the market value of the underlying common stock on thedate of grant.  For disclosurepurposes only, the fair value of all stock options granted to employees isestimated using the Black-Scholes option-pricing model.  The following weighted average assumptionswere used for stock options granted by Artemis:

 
|                     |   |                    |   |                |   |    |   | **For the nine  months ended  December 31,  2000** |   |
|--------------------------|--------|-------------------------|--------|---------------------|--------|---------|--------|----------------------------------------------------|--------|
|                     |   | **For the years ended** |   |                |
|                     |   | **December 31,**        |   | **March 31,  2000** |   |    |
|                     |   | **2002**                |   | **2001**            |   |    |   |
| Annual  Dividends        |   | zero                    |   | zero                |   | zero    |   | zero                                               |   |
| Expected  Volatility     |   | 180                     | %      | 65                  | %      | zero    |   | zero                                               |   |
| Risk  free interest rate |   | 4.5                     | %      | 4.5                 | %      | 6.0     | %      | 6.0                                                | %      |
| Expected  life           |   | 5 years                 |   | 5 years             |   | 3 years |   | 3 years                                            |   |

 

As permitted by GAAP, theCompany used the minimum value method set forth in SFAS No. 123 *Accounting for Stock-Based Compensation*beforebecoming a publicly held entity; such method does not consider the volatilityof the stock underlying the options.

 

Thefollowing table illustrates the effect on net income or loss and earnings orloss per common share if the Company had applied the fair value recognitionprovisions of SFAS No. 123.  If compensation cost was determined on thebasis of estimated fair value pursuant for all of the Company’s stock-basedemployee compensation plans, the Company’s net income or loss and income orloss per common share would have changed as follows:

 
|                                                                                                        |   |                                       |   |                |   |    |   | **For the nine********months ended********December 31,********2000** |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|---------------------|--------|---------|--------|----------------------------------------------------------------------|--------|
|                                                                                                        |   | **For the years ended**                    |   |                |
|                                                                                                        |   | **December 31,**                           |   | **March 31,  2000** |   |    |
|                                                                                                        |   | **2002**                                   |   | **2001**            |   |    |   |
|                                                                                                        |   | **(in  thousands, except per share data)** |   |
|                                                                                                        |   |                                       |   |                |   |    |   |                                                                 |   |
| Net income  (loss) as reported                                                                              |   | $                                          | (3,948 | )                   | $      | (59,764 | )      | $                                                                    | 1,060  |   | $ | (10,797 | ) |
| Less: Total  stock-based employee compensation expense determined under Black-Scholes  option pricing model |   | (5,660                                     | )      | (3,298              | )      | —  |   | —                                                               |   |
| Pro forma net  income (loss)                                                                                |   | $                                          | (9,608 | )                   | $      | (63,062 | )      | $                                                                    | 1,060  |   | $ | (10,797 | ) |
|                                                                                                        |   |                                       |   |                |   |    |   |                                                                 |   |
| Basic and  diluted income (loss) per common share                                                           |   |                                       |   |                |   |    |   |                                                                 |   |
| As reported                                                                                                 |   | $                                          | (0.40  | )                   | $      | (6.78   | )      | $                                                                    | 0.14   |   | $ | (1.40 | ) |
| Pro forma                                                                                                   |   | $                                          | (0.96  | )                   | $      | (7.15   | )      | $                                                                    | 0.14   |   | $ | (1.40 | ) |

 

*Segment Information*

 

The Company disclosesinformation regarding segments in accordance with SFAS No. 131 *Disclosureabout Segments of an Enterprise and Related Information.*  SFAS No. 131 establishes standards forreporting of financial information about operating segments in annual financialstatements and requires reporting selected information about operating segmentsin interim financial reports.  TheCompany is managed, and financial information is developed on a geographicalbasis, rather than a product line basis. Thus, the Company has provided segment information on a geographicalbasis (see Note 11).

 

*Comprehensive Income*

 

The Company reportscomprehensive income in accordance with SFAS No. 130, *Reporting Comprehensive Income.*  SFAS No. 130 establishes standards for thereporting and display of comprehensive income and its components.  SFAS No. 130 requires unrealized holdinggains and losses, net of related tax effects, on available for sale securitiesto be included in comprehensive income until realized.  Translation gains or losses are alsoincluded in comprehensive income in the accompanying consolidated statements ofstockholders’ equity (deficit) and comprehensive income (loss).

 

F-17

----

 

*Postemployment Benefits*

 

The Company records postemploymentbenefits in accordance with SFAS No. 87, *Employers’ Accounting for Pensions*.  The Company discloses postemploymentbenefits in accordance with SFAS No. 132, *Employers’ Disclosure about Pensions and OtherPostemployment Benefits.* SFAS No. 132 establishes standards for employers who provide benefits toformer or inactive employees after employment but before retirement.  Postemployment benefits include, but are notlimited to, salary continuation, supplemental employment benefits anddisability related benefits.

 

*Earnings/Loss per Common Share*

 

The Company calculates earningsor loss per common share in accordance with SFAS No. 128, *Earnings Per Share*.  Accordingly, basic net loss per common shareexcludes dilution for potentiallydilutive securities and is computed by dividing net loss available to commonshareholders by the weighted average number of common shares outstanding forthe period. Diluted earnings per common share reflects the potentialdilution that could occur if securities or other contracts to issue commonstock were exercised or converted into common stock.

 

*SignificantRecent Accounting Pronouncements*

 

SFAS No. 146, *Accounting for Costs Associated with Exit andDisposal Activities*, is effective for exit and disposal activitiesinitiated after December 31, 2002. Management has not determined if suchpronouncement will have a material effect on the Company’s future consolidatedfinancial statements.

 

SFAS No. 148, *Accounting for Stock-Based Compensation Transitionand Disclosure, an Amendment of FASB Statement No. 123,* providesalternative methods for an entity that voluntarily changes to the fair valuebased method of accounting for stock-based employee compensation as describedin SFAS No. 123. This standard also requires additional disclosure related tostock-based employee compensation in annual and interim financial reporting.This standard is generally effective for fiscal years ended afterDecember 15, 2002 and did not have any impact on our consolidatedfinancial statements except for the tabular disclosure presented in the“Stock-Based Employee Compensation” section of this note.

 

Other recent accounting pronouncements issued by theFinancial Accounting Standards Board (including the Emerging Issues TaskForce), the American Institute of Certified Public Accountants and the SEC, didnot or are not believed by management to have a material impact on theCompany’s present or future consolidated financial statements.

 

##### **Note 2. Acquisitions and Divestitures**

 

As noted above, in April 2001, Opus360 and Prohaentered into the Share Exchange Agreement, pursuant to which, upon completionof the transactions contemplated under such agreement, Opus360 exchanged 80% ofits post-transaction outstanding common stock for all of the capital stock ofLegacy Artemis, and 19.9% of two Finnish subsidiaries of Proha, Intellisoft OYand Accountor OY.  As a result of theshare exchange transactions more fully described in Note 1, Proha owns 80% ofthe outstanding common stock of Artemis.

 

*Opus 360/Proha Merger*

 

In addition, goodwill of $30.7 million resulting fromthe acquisition of Legacy Artemis by Proha on August 24, 2000 was pusheddown to the financial statements of Legacy Artemis, with a correspondingincrease in additional paid-in capital. This goodwill represented the excess of the purchase price paid over theestimated fair value of tangible and identifiable intangible net assetsacquired in business combinations. Identifiable intangible assets of $30.7million resulting from the acquisition of the Company by Proha onAugust 24, 2000 were also been pushed down to Legacy Artemis, with anoffsetting increase in additional paid-in capital.  In addition, $2.3 million of the purchase price consisted ofin-process research and development existing at August 24, 2000 that waspushed down to Legacy Artemis’ financial statements, and was reflected inresearch and development expenses in the accompanying statement of operationsfor the nine months ended December 31, 2000. Goodwill and intangible assetsof $10.2 million and $7.7 million, respectively, were recorded during the ninemonths ended December 31, 2000 as a result of the contribution by

 

F-18

----

 

Proha to the Company of Proha’s interests in Projektihallinto Proha Oy,Enterprise Management Systems Sarl, Artemis International S.p.A., SolutionsInternational SA, Artemis International Gmbh and Artemis International Sarl.

 

At the date the Company was acquired by Proha, theCompany had two projects in development: Release 5 of the Company’s Viewsproduct line and Portfolio Director. Neither of these projects was consideredto have reached technological feasibility at the acquisition date.  Approximately $2.3 million of the purchaseprice consisted of in-process research and development, which was pushed downto Legacy Artemis financial statements and recorded as Research and Developmentexpense for nine months ended December 31, 2000.

 

The purchase price was determined using 80% of themarket value (market capitalization) of Opus360’s interest in the post-mergercombined entity, using the five day average closing share price of the Opus 360common stock for the two days prior to, the day of, and the two days subsequentto the announcement and approval of the transaction, April 11, 2001.  The assets acquired and liabilities assumedfrom Opus360, as the acquired entity, were recorded at their estimated fairvalues at July 31, 2001.

 

The excess of the estimated fair values of theidentifiable net assets over the purchase price was treated as negativegoodwill, which was applied to reduce the value assigned to non-current assets.

 
|                                                                            |   | **Purchase  Price  Allocation**             |   |
|---------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
|                                                                            |   | **(in  thousands,  except per share data)** |   |
| Outstanding  shares prior to Share Exchange Transaction                         |   | 1,994                                       |   |
| Average closing  price                                                          |   | $                                           | 5.00   |   |
| Market value                                                                    |   | 9,971                                       |   |
| Percentage of  Shares issued to acquiror                                        |   | 80                                          | %      |
| Market value  issued to acquiror per Share Exchange Agreement                   |   | $                                           | 7,977  |   |
|                                                                            |   |                                        |   |
| Fair value of  net assets acquired                                              |   | $                                           | 19,224 |   |
| Less market  value issued to acquiror per Share Exchange Agreement              |   | (7,977                                      | )      |
| Excess of  estimated fair market value of net assets acquired over market value |   | 11,247                                      |   |
| Less acquisition  costs                                                         |   | (747                                        | )      |
| Negative  goodwill allocated                                                    |   | $                                           | 10,500 |   |

 

The book value of net assets acquired at July 31, 2001approximates fair market value as the current assets and liabilities are liquidin nature and the long-term assets principally relate to recently acquiredcomputer equipment and software. Estimated fair market value of net assets acquired principally consistedof the following:

 
|                                       |   | **July 31, 2001**   |   |
|--------------------------------------------|--------|---------------------|--------|
|                                       |   | **(in  thousands)** |   |
| Cash                                       |   | $                   | 13,555 |   |
| Prepaid expenses  and other current assets |   | 1,269               |   |
| Property, plant  and equipment             |   | 7,631               |   |
| Purchased  software                        |   | 2,036               |   |
| Capitalized  software                      |   | 2,214               |   |
| Other assets                               |   | 782                 |   |
| Total assets                               |   | 27,487              |   |
| Current  liabilities                       |   | (8,194              | )      |
| Other  liabilities                         |   | (69                 | )      |
| Net assets                                 |   | $                   | 19,224 |   |

 

F-19

----

 

*PurchasePrice Allocation*

 

Negative goodwill of approximately $10.5 millionhas been allocated on a pro-rata basis to property and equipment ($6.3million), purchased software ($1.5 million), capitalized software ($1.9million) and other assets ($0.6 million).

 

*Proforma information*

 

The following unaudited pro forma condensed financialdata combine the historical combined and consolidated statements of operationsof Legacy Artemis and Opus360, giving effect to the Share Exchange Transactionusing the purchase method of accounting. The historical statements ofoperations for Legacy Artemis and Opus360 have been adjusted to conform thepro-forma financial statement presentation of the combined companies. The proforma combined condensed financial data for the years ended December 31, 2001and 2000 reflect the transaction as if it had occurred on January 1, 2000.

 
|                                                  |   | **Year ended December 31,**               |   |
|-------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                  |   | **2001**                                  |   | **2000** |   |
|                                                  |   | **(In thousands, except per share data)** |   |
|                                                  |   | **(unaudited)**                           |   |
| **Condensed  combined statement of operations data:** |   |                                      |   |   |   |
| Revenues                                              |   | $                                         | 69,372 |   | $ | 77,858 |   |
| Net loss                                              |   | (80,956                                   | )      | (71,905 | ) |
| Basic and  diluted net loss per share                 |   | $                                         | (0.32  | ) | $ | (0.29 | ) |

 

*Sale of Accountor OY*

 

In November 2002, the Company sold its 19.9% interestin Accountor OY to Pretax Ltd, an unrelated party.  Under the terms of the sale, the Company’s gross proceeds were$0.8 million less transaction costs and purchase commitments (net ofreimbursements) of approximately $0.1 million. The Company’s investment in Accountor OY was carried at less than $0.1million at the time of sale. Accordingly, the Company’s other income for the year ended December 31,2002 includes a pretax gain of $0.7 million on the sale of Accountor OY.

 

*Sale of ABC Technologies- France*

 

In December 2002, the Company sold its interest in ABCTechnologies – France to an unrelated party. Under the terms of the sale, the Company collected proceeds ofapproximately $0.3 million and expects to collect an additional $0.1 millionupon achievement of certain milestones in 2003. Based in Paris, France, ABCTechnologies - France was managed by Artemis’ French subsidiary.  The Company’s investment in ABC Technologieswas carried at approximately zero at the time of sale.  Accordingly, the Company’s other income forthe year ended December 31, 2002 includes a pretax gain of $0.3 million on thesale of ABC Technologies - France.  The$0.1 million of contingent consideration has not been recorded as of December31, 2002.

 

F-20

----

 

**Note 3. Accounts Receivable**

 

At December 31,2002 and 2001, the breakdown of accounts receivable was as follows:

 
|                                     |   | **December 31,**    |   |
|------------------------------------------|--------|---------------------|--------|
|                                     |   | **2002**            |   | **2001** |   |
|                                     |   | **(in  thousands)** |   |
| Trade  receivables                       |   | $                   | 17,616 |   | $ | 13,311 |   |
| Less allowance  for doubtful receivables |   | (296                | )      | (223 | ) |
|                                     |   |                |   |   |   |
| Net trade  accounts receivable           |   | $                   | 17,320 |   | $ | 13,088 |   |

 

Changes in theallowance for doubtful accounts receivable were as follows:

 
|                                |   |                                  |   | **For the nine********months ended  December 31,** |   |
|-------------------------------------|--------|---------------------------------------|--------|----------------------------------------------------|--------|
|                                |   | **For the years ended  December 31,** |   |                                               |
|                                |   | **2002**                              |   | **2001**                                           |   | **2000** |   |
|                                |   | **(in  thousands)**                   |   |
| Beginning  balance                  |   | $                                     | (223   | )                                                  | $      | (138 | ) | $ | — |   |
| Provision for  doubtful receivables |   | (157                                  | )      | (140                                               | )      | 138 |   |
| Write-offs                          |   | 84                                    |   | 55                                                 |   | — |   |
|                                |   |                                  |   |                                               |   |   |   |
| Ending balance                      |   | $                                     | (296   | )                                                  | $      | (223 | ) | $ | (138 | ) |

 

# **Note 4. Property and Equipment**

 

Property and equipment consist of the following:

 
|                                            |   | **December 31,**    |   |
|-------------------------------------------------|--------|---------------------|--------|
|                                            |   | **2002**            |   | **2001** |   |
|                                            |   | **(in  thousands)** |   |
| Computer  hardware                              |   | $                   | 6,060  |   | $ | 5,452 |   |
| Computer  software                              |   | 1,442               |   | 1,598 |   |
| Leasehold  improvements                         |   | 341                 |   | 354 |   |
| Furniture and  fixtures                         |   | 964                 |   | 409 |   |
| Other                                           |   | 70                  |   | 106 |   |
|                                            |   | 8,877               |   | 7,919 |   |
| Less accumulated  depreciation and amortization |   | (7,289              | )      | (5,194 | ) |
| Total                                           |   | $                   | 1,588  |   | $ | 2,725 |   |

 

F-21

----

 

**Note 5. Intangible Assets**

 

Identifiable intangible assets consist of thefollowing:

 
|                           |   | **December 31,**    |   |
|--------------------------------|--------|---------------------|--------|
|                           |   | **2002**            |   | **2001** |   |
|                           |   | **(in  thousands)** |   |
| Customer Base                  |   | $                   | 9,163  |   | $ | 9,163 |   |
| Current  Technologies          |   | 5,592               |   | 5,592 |   |
|                           |   | 14,755              |   | 14,755 |   |
| Less accumulated  amortization |   | (4,118              | )      | — |   |
| Total                          |   | $                   | 10,637 |   | $ | 14,755 |   |

 

Intangible assets are amortized on a straight-linebasis over their expected useful lives of forty two months. During the fourth quarter of 2001, the Companyevaluated the carrying values of its goodwill and identifiable intangibleassets.  An impairment chargeof  $43.4 million was recorded in theyear ended December 31, 2001. Specifically, the significant decline in business activity generally andsoftware license revenues following the terrorist attacks on New York City andWashington, DC as well as the Company’s fourth quarter operating and cash flowlosses required an adjustment to the carrying value of long-lived assets.  Using discounted cash flow projections ofexpected returns from these assets; the Company determined that the carryingvalue of its goodwill and identifiable intangible assets should be reduced toapproximately $14.8 million.  During theyears ended December 31, 2002, December 31, 2001 and March 31, 2000 and thenine months ended December 31, 2000 approximately $4.1 million, $18.8 million,$2.9 million and $6.9 million, respectively, of goodwill and intangible assetswas amortized.  Amortization expenseincurred in 2001 was prior to the aforementioned impairment of intangibleassets in December 2001.  EffectiveJanuary 1, 2002, the Company established a new cost basis for its intangibleassets in accordance with SFAS No. 144, and began amortization of such assetsover management’s new estimated useful economic life of forty two months.

 

We license our software products and require ourcustomers to enter into license agreements that impose restrictions on theirability to utilize the software or transfer the software to other users.Additionally, we seek to avoid disclosure of our trade secrets through a numberof means, including, but not limited to, requiring those persons with access toour proprietary information to execute confidentiality agreements with us andrestricting access to our source code. We protect our software, documentation,templates and other written materials under trade secret and copyright laws,which afford only limited protection.

 

**Note 6. Debt**

 

Foothill CapitalCorporation has extended to the Company a combination of Note Payable and aLine of Credit totaling approximately $4.5 million (the “FoothillFacility”).  This facility bearsinterest at the prime rate (4.25% at December 31, 2002) plus 2%, but not lessthan 9%, and is due in full on June 30, 2003. Borrowings under the Foothill Facility are secured by a securityinterest in the Company’s accounts receivable, equipment, general intangibles,inventories, negotiable collateral, and any other assets that come into thepossession of the Company. Borrowings under the Line of Credit are subject tomaintenance of certain covenants including minimum current ratio, tangible networth, trailing twelve month Earnings Before Interest, Taxes, Depreciation andAmortization, coverage of interest and principal payments and capital expenditurelimitations.  At December 31, 2002,Foothill had waived any of the covenants that were not in compliance for onequarter. The Company expects to be in compliance with the covenants during thequarter ended March 31, 2003. The borrowings under the Line of Credit arelimited by the level and aging of eligible accounts receivable.  At December 31, 2002, there was $0.7 milliondrawn under the Note Payable portion of the Foothill Facility.

 

At December 31,2002, the Company had unused lines of credit equal to $0.9 million.  Interest paid for the years ended December 31, 2002,December 31, 2001, March 31, 2000 and the nine months ended December 31, 2000was approximately $0.2 million, $0.8 million, $1.0 million, and $0.9 million,respectively.

 

F-22

----

 
|                                                                                                                                            |   | **December 31,**    |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|
|                                                                                                                                            |   | **2002**            |   | **2001** |   |
|                                                                                                                                            |   | **(in  thousands)** |   |
|                                                                                                                                            |   |                |   |   |   |
| Liability to  Foothill Capital Corporation.                                                                                                     |   | $                   | 683    |   | $ | 1,766 |   |
|                                                                                                                                            |   |                |   |   |   |
| Note payable to  Proha.  Interest rate of 4% annually  which is payable on demand.                                                         |   | 130                 |   | 423 |   |
|                                                                                                                                            |   |                |   |   |   |
| Finland  government installment loans, average effective interest rate of 3.61% for  2002 and 4.19% for 2001 payable through September 25, 2006 |   | 245                 |   | 161 |   |
|                                                                                                                                            |   |                |   |   |   |
| Bank Societe  Generale term loan due through December 31, 2003, average effective interest  rate of 3.97% for 2002 and 4.32% for 2001.          |   | 127                 |   | 173 |   |
|                                                                                                                                            |   |                |   |   |   |
| Other long-term  liabilities                                                                                                                    |   | —              |   | 95 |   |
|                                                                                                                                            |   | $                   | 1,185  |   | $ | 2,618 |   |
| Less: current  portion of long term debt                                                                                                        |   | (950                | )      | (1,245 | ) |
| Long term debt,  less current portion                                                                                                           |   | $                   | 235    |   | $ | 1,373 |   |

 

**Note 7. Commitments**

 

The Company leases certain facilities and equipmentunder non-cancelable operating lease agreements. Rent expense for the yearsended December 31, 2002, December 31, 2001, March 31, 2000 and the nine monthsended December 31, 2000 was approximately $4.2 million, $3.2 million, $2.0million and $2.1 million, respectively.

 

Future minimum rental commitments for the aboveoperating leases are as follows:

 
| **Year ending  December 31,** |   | **(in thousands)** |   |
|-------------------------------|--------|--------------------|--------|
| 2003                          |   | $                  | 3,522  |   |
| 2004                          |   | 1,407              |   |
| 2005                          |   | 1,070              |   |
| 2006                          |   | 347                |   |
| 2007                          |   | 43                 |   |
| Thereafter                    |   | 7                  |   |
| Total                         |   | $                  | 6,396  |   |

 

The Company has employment agreements and arrangementswith its executive officers and certain other key employees. The agreementsgenerally continue until terminated by the executive or the Company, andprovide for severance payments, bonuses or other benefits under certaincircumstances.

 

F-23

----

 

**Note 8. Earnings and Loss Per Common Share**

 

The followingtable sets forth the computation of basic and diluted earnings and loss percommon share:

 
|                                                 |   |                                          |   |                      |   |    |   | **For the nine********months ended********December 31,********2000** |   |
|------------------------------------------------------|--------|-----------------------------------------------|--------|---------------------------|--------|---------|--------|----------------------------------------------------------------------|--------|
|                                                 |   | **For the years ended**                       |   |                      |
|                                                 |   | **December 31,**                              |   | **March 31,********2000** |   |    |
|                                                 |   | **2002**                                      |   | **2001**                  |   |    |   |
|                                                 |   | **(in  thousands except, per share amounts)** |   |
| Numerator:                                           |   |                                          |   |                      |   |    |   |                                                                 |   |
| Net income  (loss)                                   |   | $                                             | (3,948 | )                         | $      | (59,764 | )      | $                                                                    | 1,060  |   | $ | (10,797 | ) |
|                                                 |   |                                          |   |                      |   |    |   |                                                                 |   |
| Denominator:                                         |   |                                          |   |                      |   |    |   |                                                                 |   |
| Weighted average  outstanding shares of common stock |   | 9,965                                         |   | 8,816                     |   | 7,426   |   | 7,689                                                                |   |
| Dilutive effect  of stock options and warrants       |   | —                                        |   | —                    |   | 100     |   | —                                                               |   |
| Common stock and  equivalents                        |   | 9,965                                         |   | 8,816                     |   | 7,525   |   | 7,689                                                                |   |
|                                                 |   |                                          |   |                      |   |    |   |                                                                 |   |
| Earnings (loss)  per common share                    |   |                                          |   |                      |   |    |   |                                                                 |   |
| Basic                                                |   | $                                             | (0.40  | )                         | $      | (6.78   | )      | $                                                                    | 0.14   |   | $ | (1.40 | ) |
|                                                 |   |                                          |   |                      |   |    |   |                                                                 |   |
| Diluted                                              |   | $                                             | (0.40  | )                         | $      | (6.78   | )      | $                                                                    | 0.14   |   | $ | (1.40 | ) |

 

Diluted loss percommon share for years ended December 31, 2002 and December 31, 2001 as well asthe nine months ended December 31, 2000 does not include the effect of stockoptions and warrants (see Note 15) since their effect would be anti-dilutive.  Options and warrants outstanding at December31, 2002, December 31, 2001 and December 31, 2000 approximated 1.3 million,630,000 and 252,000, respectively.

 

**Note 9.Benefit Plans**

 

The Company has a defined contribution plan (“thePlan”) which qualifies under Section 401(k) of the Internal Revenue Codeof 1986, as amended. The Plan covers all U.S. employees. Employees maycontribute up to 15% of their annual compensation. Employer contributions vestto the participants incrementally over a period of five years. Companycontributions to the Plan were zero during the year ended December 31, 2002 and$0.1 million each during the years ended December 31, 2001 and March 31, 2000and the nine months ended December 31, 2000.

 

F-24

----

 

The Company also has adefined benefit pension plan covering employees of its United Kingdomsubsidiary. Company contributions are determined based upon a percentage, asdetermined by an actuary, of an eligible employee’s annual salary.  Company contributions to the Plan during theyears ended December 31, 2002, December 31, 2001, March 31, 2000, and the ninemonths ended December 31, 2000 were $0.2 million, $.1 million, $.2million, and $.1 million, respectively.

 

Net defined benefit pension cost included thefollowing components:

 
|                                              |   |                    |   |                      |   |   |   | **For the nine********months ended********December 31,********2000** |   |
|---------------------------------------------------|--------|-------------------------|--------|---------------------------|--------|--------|--------|----------------------------------------------------------------------|--------|
|                                              |   | **For the years ended** |   |                      |
|                                              |   | **December 31,**        |   | **March 31,********2000** |   |   |
|                                              |   | **2002**                |   | **2001**                  |   |   |   |
|                                              |   | **(in  thousands)**     |   |
| Service cost  (benefits earned during the period) |   | $                       | 162    |                      | $      | 180    |   | $                                                                    | 265    |   | $ | 169 |   |
| Interest cost on  projected benefit obligation    |   | 322                     |   | 320                       |   | 297    |   | 232                                                                  |   |
| Expected return  on plan assets                   |   | (351                    | )      | (374                      | )      | (346   | )      | (260                                                                 | )      |
|                                              |   | $                       | 133    |                      | $      | 126    |   | $                                                                    | 216    |   | $ | 141 |   |

 

Other pension data follows:

 
|                                                |   | **December  31,**  |   |
|-----------------------------------------------------|--------|--------------------|--------|
|                                                |   | **2002**           |   | **2001** |   |
|                                                |   | **(in thousands)** |   |
| Change in  Benefit Obligation                       |   |               |   |   |   |
| Benefit  obligation at beginning of year            |   | $                  | 5,022  |   | $ | 5,399 |   |
| Service cost                                        |   | 162                |   | 180 |   |
| Interest cost                                       |   | 322                |   | 320 |   |
| Plan  participants’ contribitions              |   | 94                 |   | 120 |   |
| Actuarial loss  (gain)                              |   | 196                |   | (808 | ) |
| Benefits paid                                       |   | (115               | )      | (30 | ) |
| Effect of change  in foreign currency exchange rate |   | 599                |   | (159 | ) |
| Benefit  obligation at end of year                  |   | $                  | 6,280  |   | $ | 5,022 |   |
|                                                |   |               |   |   |   |
| Change in Plan  Assets                              |   |               |   |   |   |
| Fair value of  plan assets at beginning of year     |   | $                  | 4,405  |   | $ | 4,698 |   |
| Actual return on  plan assets                       |   | (974               | )      | (393 | ) |
| Employer  contribution                              |   | 200                |   | 148 |   |
| Plan  participants’ contribitions              |   | 94                 |   | 120 |   |
| Benefits paid                                       |   | (115               | )      | (30 | ) |
| Effect of change  in foreign currency exchange rate |   | 498                |   | (138 | ) |
| Fair value of  plan assets at end of year           |   | $                  | 4,108  |   | $ | 4,405 |   |

 
|                                |   | **December 31,**    |   |
|-------------------------------------|--------|---------------------|--------|
|                                |   | **2002**            |   | **2001** |   |
|                                |   | **(in  thousands)** |   |
| **Reconciliation of Funded Status** |   |                |   |   |   |
| Funded  Status                      |   | $                   | (2,172 | ) | $ | (617 | ) |
| Unrecognized  net actuarial loss    |   | —              |   | — |   |
| Unrecognized  prior service cost    |   | —              |   | — |   |
| Accrued  benefit cost               |   | $                   | (2,172 | ) | $ | (617 | ) |

 

As permitted by SFAS No. 87, *Employers’ Accounting for Pensions,*actuarialgains and losses are generally not amortized to pension expense in the periodin which they arise when the gain/loss is not yet included in themarket-related value of plan assets. GAAP allows such deferral accounting in any period in which thebeginning-of-the-year unrecognized actuarial net gain or loss does not exceedthe greater of 10% of the projected benefit obligation or the market-relatedvalue of plan assets.

 

For the years ended December 31, 2002 and 2001, theCompany’s defined benefit pension plan was eligible for the deferral accountingdescribed in the preceding paragraph. Thus pension expense for such years does not include any amortization ofthe actuarial net change in the market-related value of plan assets.

 

The primary actuarial assumptions used in determiningthe above benefit obligation amounts were as follows:

 
|                                  |   |                    |   |                      |   |   |   | **For the nine********months ended********December 31,********2000** |   |
|---------------------------------------|--------|-------------------------|--------|---------------------------|--------|--------|--------|----------------------------------------------------------------------|--------|
|                                  |   | **For the years ended** |   |                      |
|                                  |   | **December 31,**        |   | **March 31,********2000** |   |   |
|                                  |   | **2002**                |   | **2001**                  |   |   |   |
| Discount rate                         |   | 6                       | %      | 6                         | %      | 6      | %      | 6                                                                    | %      |
| Increase in  Future Compensation      |   | 4                       | %      | 5                         | %      | 5      | %      | 5                                                                    | %      |
| Annual Rate of  Return on Plan assets |   | 7                       | %      | 8                         | %      | 8      | %      | 8                                                                    | %      |
|                                       |        |                         |        |                           |        |        |        |                                                                      |        |  |  |  |  |

 

F-25

 

----

 

# **Note 10. Income Taxes**

 

The components of the income tax expense (benefit) arepresented below:

 
|                                |   |                    |   |                      |   |   |   | **For the nine********months ended********December 31,********2000** |   |
|-------------------------------------|--------|-------------------------|--------|---------------------------|--------|--------|--------|----------------------------------------------------------------------|--------|
|                                |   | **For the years ended** |   |                      |
|                                |   | **December 31,**        |   | **March 31,********2000** |   |   |
|                                |   | **2002**                |   | **2001**                  |   |   |   |
|                                |   | **(in  thousands)**     |   |
| Current                             |   | $                       | 226    |                      | $      | 702    |   | $                                                                    | 41     |   | $ | (634 | ) |
| Deferred                            |   | 254                     |   | (10,372                   | )      | (2,607 | )      | (1,057                                                               | )      |
|                                |   |                    |   |                      |   |   |   |                                                                 |   |
| Total income tax  expense (benefit) |   | $                       | 480    |                      | $      | (9,670 | )      | $                                                                    | (2,566 | ) | $ | (1,691 | ) |

 

For the year ended December 31, 2002, current incometax expense consists of approximately $0.5 million of foreign expense,approximately $0.3 million of state benefits and no federal expense orbenefit.  The difference between thetotal expected tax expense (benefit) using the federal statutory rate of 34% andthe actual tax expense (benefit) for the years ended December 31, 2002,December 31, 2001, March 31, 2000 and the nine months ended December 31, 2000is accounted for as follows:

 
|                                                                                             |   |                    |   |                      |   |    |   | **For the nine********months ended********December 31,********2000** |   |
|--------------------------------------------------------------------------------------------------|--------|-------------------------|--------|---------------------------|--------|---------|--------|----------------------------------------------------------------------|--------|
|                                                                                             |   | **For the years ended** |   |                      |
|                                                                                             |   | **December 31,**        |   | **March 31,********2000** |   |    |
|                                                                                             |   | **2002**                |   | **2001**                  |   |    |   |
|                                                                                             |   | **(in  thousands)**     |   |
| Expected federal  income tax benefit                                                             |   | $                       | (1,179 | )                         | $      | (23,460 | )      | $                                                                    | (517   | ) | $ | (4,223 | ) |
| Effect of  permanent differences                                                                 |   | 1,953                   |   | 11,550                    |   | 730     |   | 955                                                                  |   |
| State income tax  expense (net of federal benefit)                                               |   | 133                     |   | (1,248                    | )      | 94      |   | (107                                                                 | )      |
| Push down of  in-process research and development expense for which no tax benefit was  received |   | —                  |   | —                    |   | —  |   | 790                                                                  |   |
| Utilization of  foreign loss carryforwards                                                       |   | —                  |   | —                    |   | (659    | )      | —                                                               |   |
| Acquired  temporary differences                                                                  |   | —                  |   | (6,646                    | )      | —  |   | —                                                               |   |
| Other                                                                                            |   | 539                     |   | 489                       |   | (311    | )      | 191                                                                  |   |
| Change in  valuation allowance                                                                   |   | (1,117                  | )      | 9,380                     |   | (1,614  | )      | 101                                                                  |   |
| Foreign tax  differential                                                                        |   | 151                     |   | 265                       |   | (289    | )      | 602                                                                  |   |
|                                                                                             |   |                    |   |                      |   |    |   |                                                                 |   |
| Income tax  expense (benefit)                                                                    |   | $                       | 480    |                      | $      | (9,670  | )      | $                                                                    | (2,566 | ) | $ | (1,691 | ) |

 

Loss before income taxes is as follows:

 
|                            |   |                    |   |                      |   |    |   | **For the nine********months ended********December 31,********2000** |   |
|---------------------------------|--------|-------------------------|--------|---------------------------|--------|---------|--------|----------------------------------------------------------------------|--------|
|                            |   | **For the years ended** |   |                      |
|                            |   | **December 31,**        |   | **March 31,********2000** |   |    |
|                            |   | **2002**                |   | **2001**                  |   |    |   |
|                            |   | **(in  thousands)**     |   |
| Domestic                        |   | $                       | (1,398 | )                         | $      | (63,325 | )      | $                                                                    | (2,307 | ) | $ | (11,318 | ) |
| Foreign                         |   | (2,070                  | )      | (6,204                    | )      | 801     |   | (1,103                                                               | )      |
| Total loss  before income taxes |   | $                       | (3,468 | )                         | $      | (69,529 | )      | $                                                                    | (1,506 | ) | $ | (12,421 | ) |

 

F-26

----

 

The components of the net accumulated deferred incometax assets/(liabilities) as of December 31, 2002 and 2001 are as follows:

 
|                                       |   | **December 31,**    |   |
|--------------------------------------------|--------|---------------------|--------|
|                                       |   | **2002**            |   | **2001** |   |
|                                       |   | **(in  thousands)** |   |
| Deferred tax  assets:                      |   |                |   |   |   |
| Net operating  loss carryforwards          |   | $                   | 7,099  |   | $ | 8,849 |   |
| Stock option  expense                      |   | 2,129               |   | 2,129 |   |
| Expenses based  on issue of stock options  |   | 752                 |   | 752 |   |
| Accumulated  depreciation and amortization |   | 2,000               |   | 2,142 |   |
| Allowance for  doubtful accounts           |   | 118                 |   | 449 |   |
| Accrued expenses                           |   | 401                 |   | 349 |   |
|                                       |   | 12,499              |   | 14,670 |   |
| Deferred tax  liabilities                  |   | (4,236              | )      | (5,543 | ) |
| Subtotal                                   |   | 8,263               |   | 9,127 |   |
| Valuation allowance                        |   | (7,463              | )      | (8,580 | ) |
| Net deferred tax  liability                |   | $                   | (800   | ) | $ | (547 | ) |

 

The components ofdeferred tax liabilities at December 31, 2002 and 2001 relate primarily to therecording of non-deductible identifiable intangible assets from the acquisitionof Legacy Artemis by Proha in August 2000 and the contribution of businesses toLegacy Artemis by Proha in December 2000.

 

Income taxes paidfor the years ended December 31, 2002, December 31 2001, March 31, 2000and the nine months ended December 31, 2000 were less than $0.1 million foreach of the reporting periods.  TheCompany has a U.S. federal tax net operating loss carryforward (“NOL”) ofapproximately $16 million at December 31, 2002, expiring in various yearsthrough 2021 and U.S. state NOL’s with expiration dates ranging from five to 20years.  Foreign NOL’s that may beallowed under the various tax laws in applicable foreign countries are notsignificant.

 

The utilization of some or all of the domestic NOL’smay be severely restricted now or in the future by the change in ownership provisionsof Section 382 of the Internal Revenue Code of 1986, as amended. In addition,utilization of the Company's California NOLs for years beginning in 2002 and2003 has been suspended under state law.

 

F-27

----

 

**Note 11: Segment and GeographicInformation**

 

Income from operations is assigned by region basedupon management responsibility for such items. The following table presents information about the Company’s operationsby geographic area for the two years ended December 31, 2002, the year endedMarch 31, 2000 and the nine months ended December 31, 2000:

 

**TwelveMonths Ended December 31, 2002**

 
|                    |   | **US** |   | **UK** |   | **Japan** |   | **France** |   | **Germany** |   | **Italy** |   | **Finland** |   | **Asia** |   | **Elimination** |   | **Total** |   |
|-------------------------|--------|--------|--------|--------|--------|-----------|--------|------------|--------|-------------|--------|-----------|--------|-------------|--------|----------|--------|-----------------|--------|-----------|--------|
| Revenue                 |   |   |   |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Software                |   | $      | 3,746  |   | $      | 3,423     |   | $          | 1,612  |        | $      | 1,945     |   | $           | 1,339  |     | $      | 1,598           |   | $         | 2,324  |   | $ | 380 |   | $ | (1,297 | ) | $ | 15,070 |   |
| Support                 |   | 5,726  |   | 3,090  |   | 1,733     |   | 2,242      |   | 1,293       |   | 956       |   | 1,423       |   | 204      |   | (977            | )      | 15,690    |   |
| Services                |   | 18,602 |   | 4,155  |   | 2,990     |   | 3,681      |   | 1,224       |   | 3,132     |   | 3,335       |   | 1,031    |   | (246            | )      | 37,904    |   |
| Total Revenue           |   | 28,074 |   | 10,668 |   | 6,335     |   | 7,868      |   | 3,856       |   | 5,686     |   | 7,082       |   | 1,615    |   | (2,520          | )      | 68,664    |   |
|                    |   |   |   |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Cost of revenue:        |   |   |   |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Software                |   | 228    |   | 110    |   | 305       |   | 329        |   | 53          |   | 23        |   | 668         |   | 18       |   | —          |   | 1,734     |   |
| Support                 |   | 1,901  |   | 1,073  |   | 1,360     |   | 467        |   | 273         |   | 974       |   | 335         |   | 6        |   | —          |   | 6,389     |   |
| Services                |   | 11,454 |   | 2,099  |   | 2,294     |   | 2,428      |   | 1,106       |   | 2,343     |   | 2,819       |   | 44       |   | —          |   | 24,587    |   |
| Total cost of revenue   |   | 13,583 |   | 3,282  |   | 3,959     |   | 3,224      |   | 1,432       |   | 3,340     |   | 3,822       |   | 68       |   | —          |   | 32,710    |   |
|                    |   |   |   |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Operating income (loss) |   | $      | (6,155 | )      | $      | 1,167     |   | $          | 328    |        | $      | 979       |   | $           | 583    |     | $      | 1,080           |   | $         | 485    |   | $ | 307 |   | $ | (2,520 | ) | $ | (3,746 | ) |

 

**Twelve Months Ended December 31, 2001**

 
|                    |   | **US** |    | **UK** |   | **Japan** |   | **France** |   | **Germany** |   | **Italy** |   | **Finland** |   | **Asia** |   | **Elimination** |   | **Total** |   |
|-------------------------|--------|--------|---------|--------|--------|-----------|--------|------------|--------|-------------|--------|-----------|--------|-------------|--------|----------|--------|-----------------|--------|-----------|--------|
| Revenue                 |   |   |    |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Software                |   | $      | 3,795   |   | $      | 3,528     |   | $          | 1,875  |        | $      | 2,007     |   | $           | 925    |     | $      | 1,681           |   | $         | 2,054  |   | $ | 341 |   | $ | (1,101 | ) | $ | 15,105 |   |
| Support                 |   | 5,814  |    | 3,173  |   | 1,907     |   | 2,131      |   | 952         |   | 767       |   | 1,621       |   | 143      |   | (996            | )      | 15,512    |   |
| Services                |   | 16,974 |    | 2,954  |   | 3,465     |   | 3,673      |   | 1,325       |   | 4,020     |   | 3,702       |   | 1,153    |   | (237            | )      | 37,029    |   |
| Total Revenue           |   | $      | 26,583  |   | $      | 9,655     |   | $          | 7,247  |        | $      | 7,811     |   | $           | 3,202  |     | $      | 6,468           |   | $         | 7,377  |   | $ | 1,637 |   | $ | (2,334 | ) | $ | 67,646 |   |
|                    |   |   |    |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Cost of revenue:        |   |   |    |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Software                |   | $      | 179     |   | $      | 281       |   | $          | 767    |        | $      | 317       |   | $           | 43     |     | $      | 55              |   | $         | 819    |   | $ | 61 |   | $ | — |   | $ | 2,522 |   |
| Support                 |   | 2,195  |    | 1,204  |   | 1,586     |   | 812        |   | —      |   | 520       |   | 409         |   | (21      | )      | —          |   | 6,705     |   |
| Services                |   | 10,339 |    | 1,576  |   | 2,273     |   | 3,426      |   | 51          |   | 2,966     |   | 2,814       |   | 425      |   | —          |   | 23,870    |   |
| Total cost of revenue   |   | $      | 12,713  |   | $      | 3,061     |   | $          | 4,626  |        | $      | 4,555     |   | $           | 94     |     | $      | 3,541           |   | $         | 4,042  |   | $ | 465 |   | $ | — |   | $ | 33,097 |   |
|                    |   |   |    |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Operating income (loss) |   | $      | (63,680 | )      | $      | 96        |   | $          | 62     |        | $      | 724       |   | $           | (161   | )        | $      | 1,705           |   | $         | (2,202 | ) | $ | (693 | ) | $ | (2,334 | ) | $ | (66,483 | ) |

 

**Twelve Months Ended March 31, 2000**

 
|                    |   | **US** |   | **UK** |   | **Japan** |   | **France** |   | **Germany** |   | **Italy** |   | **Finland** |   | **Asia** |   | **Elimination** |   | **Total** |   |
|-------------------------|--------|--------|--------|--------|--------|-----------|--------|------------|--------|-------------|--------|-----------|--------|-------------|--------|----------|--------|-----------------|--------|-----------|--------|
| Revenue                 |   |   |   |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Software                |   | $      | 10,243 |   | $      | 4,810     |   | $          | 3,244  |        | $      | —    |   | $           | — |     | $      | —          |   | $         | — |   | $ | — |   | $ | — |   | $ | 18,297 |   |
| Support                 |   | 5,469  |   | 3,810  |   | 2,278     |   | —     |   | —      |   | —    |   | —      |   | —   |   | —          |   | 11,557    |   |
| Services                |   | 10,244 |   | 3,501  |   | 5,704     |   | —     |   | —      |   | —    |   | —      |   | —   |   | —          |   | 19,449    |   |
| Total Revenue           |   | 25,956 |   | 12,121 |   | 11,226    |   | —     |   | —      |   | —    |   | —      |   | —   |   | —          |   | 49,303    |   |
|                    |   |   |   |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Cost of revenue:        |   |   |   |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Software                |   | 754    |   | 189    |   | 554       |   | —     |   | —      |   | —    |   | —      |   | —   |   | —          |   | 1,497     |   |
| Support                 |   | 2,219  |   | 1,544  |   | 1,486     |   | —     |   | —      |   | —    |   | —      |   | —   |   | —          |   | 5,249     |   |
| Services                |   | 6,062  |   | 2,180  |   | 5,323     |   | —     |   | —      |   | —    |   | —      |   | —   |   | —          |   | 13,565    |   |
| Total cost of revenue   |   | 9,035  |   | 3,913  |   | 7,363     |   | —     |   | —      |   | —    |   | —      |   | —   |   | —          |   | 20,311    |   |
|                    |   |   |   |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Operating income (loss) |   | $      | (2,522 | )      | $      | 1,793     |   | $          | 771    |        | $      | —    |   | $           | — |     | $      | —          |   | $         | — |   | $ | — |   | $ | — |   | $ | 42 |   |

 

F-28

----

 

**Nine Months Ended December 31, 2000**

 
|                    |   | **US** |    | **UK** |   | **Japan** |   | **France** |   | **Germany** |   | **Italy** |   | **Finland** |   | **Asia** |   | **Elimination** |   | **Total** |   |
|-------------------------|--------|--------|---------|--------|--------|-----------|--------|------------|--------|-------------|--------|-----------|--------|-------------|--------|----------|--------|-----------------|--------|-----------|--------|
| Revenue                 |   |   |    |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Software                |   | $      | 5,994   |   | $      | 3,223     |   | $          | 1,865  |        | $      | 329       |   | $           | 170    |     | $      | 173             | )      | $         | 560    |   | $ | — |   | $ | (180 | ) | $ | 12,134 |   |
| Support                 |   | 4,314  |    | 2,558  |   | 1,709     |   | 160        |   | 127         |   | 52        |   | 362         |   | —   |   | (161            | )      | 9,121     |   |
| Services                |   | 6,515  |    | 2,418  |   | 2,997     |   | 343        |   | 60          |   | 270       |   | 1,006       |   | —   |   | (42             | )      | 13,567    |   |
| Total Revenue           |   | 16,823 |    | 8,199  |   | 6,571     |   | 832        |   | 357         |   | 495       |   | 1,928       |   | $        | — |            | (383   | )         | 34,822 |   |
|                    |   |   |    |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Cost of revenue:        |   |   |    |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Software                |   | 405    |    | 10     |   | 639       |   | (39        | )      | (43         | )      | 47        |   | 138         |   | —   |   | —          |   | 1,157     |   |
| Support                 |   | 1,649  |    | 985    |   | 1,366     |   | 60         |   | 30          |   | 38        |   | 84          |   | —   |   | —          |   | 4,212     |   |
| Services                |   | 4,494  |    | 2,123  |   | 2,294     |   | 320        |   | 52          |   | 209       |   | 678         |   | —   |   | —          |   | 10,170    |   |
| Total cost of revenue   |   | 6,548  |    | 3,118  |   | 4,299     |   | 341        |   | 39          |   | 294       |   | 900         |   | $        | — |            | $      | —    |   | 15,539 |   |
|                    |   |   |    |   |   |      |   |       |   |        |   |      |   |        |   |     |   |            |   |      |   |
| Operating income (loss) |   | $      | (11,297 | )      | $      | 415       |   | $          | 127    |        | $      | 185       |   | $           | 183    |     | $      | 106             |   | $         | (734   | ) | $ | — |   | $ | (383 | ) | $ | (11,398 | ) |

 

Identifiable assets are assigned by region based uponmanagement responsibility for such items. The following table presents information about the Company’sidentifiable assets by geographic region:

 
|           |   | **December 31, 2002** |   | **December 31, 2001** |   |
|----------------|--------|-----------------------|--------|-----------------------|--------|
|           |   | **(in  thousands)**   |   |
| USA            |   | $                     | 20,312 |                  | $      | 23,478 |   |
| United Kingdom |   | 4,402                 |   | 2,473                 |   |
| Japan          |   | 2,477                 |   | 2,892                 |   |
| France         |   | 5,018                 |   | 3,243                 |   |
| Italy          |   | 5,140                 |   | 4,009                 |   |
| Other          |   | 4,524                 |   | 4,098                 |   |
| Consolidated   |   | $                     | 41,873 |                  | $      | 40,193 |   |

 

See Note 13 for disclosures regarding major customers.

 

**Note 12. Related Party Transactions**

 

Prior to August 2000, Legacy Artemis had entered intoa management agreement with Gores Technology Group, the former parent companyof Legacy Artemis (“Gores”.)  Themanagement agreement called for Gores to provide certain management services toLegacy Artemis.  In August 2000, LegacyArtemis entered into a management agreement with Proha pursuant to which Prohais required to provide certain management services to Legacy Artemis. On August24, 2000, Legacy Artemis terminated the agreement with Gores in conjunctionwith its acquisition by Proha.  Inconnection with the Share Exchange Agreement, the management agreement withProha was terminated.  Management feesincurred and paid for each of the two years in the period ended December 31,2002, the year ended March 31 2000 and the nine months ended December 2000 wereapproximately zero, $0.8 million, $2.0 million and $1.0 million, respectively.

 

At December 31, 2002 and 2001, the Company had otherreceivables of zero and $0.2 million, respectively, from Proha, which ownsapproximately 80% of the Company’s outstanding common stock.  At December 31, 2002, the Company had otherpayables to Proha of $ 0.1 million.

 

At December 31 2002 and 2001, the Company maintainedthe following equity holdings in joint ventures, which are accounted for underthe equity method, with the exception of Scandinavia and the Netherlands, whichare accounted for under the cost method. The Company records its equity interest in losses first to theinvestment balance, then against loans or advances receivable.

 

The interests in Scandinavia and the Netherlands werethe result of investments by Proha contributed to Legacy Artemis on August 24,2000.  A joint venture investment inChangepoint-France was entered into on January 3, 2001,

 

F-29

----

 

and is accounted for under the equity method of accounting.  Proha contributed the Finnish minorityequity holdings to Legacy Artemis on August 24, 2000.

 
|                                            |   |                |   | **At December 31, 2002** |   | **For the year ended  December 31,2002** |   |
|-------------------------------------------------|--------|---------------------|--------|--------------------------|--------|------------------------------------------|--------|
|                                            |   | **Percent  Held**   |   | **Investment**           |   | **Total  Investee  Assets**              |   | **Artemis  Receivable** |   | **Total  Investee  Revenue** |   | **Investee  Net Income  (Loss)** |   |
|                                            |   | **(in  thousands)** |   |
| Metier  Scandinavia AS (Norway)                 |   | 9.9                 | %      | $                        | 44     |                                     | $      | 4,081 |   | $ | 221 |   | $ | 3,783 |   | $ | 800 |   |
| Metier  International Holdings BV (Holland)     |   | 19.0                | %      | 121                      |   | 960                                      |   | 58 |   | 3,356 |   | (4 | ) |
| Accountor Oy  (See note 2) & Intellisoft Oy |   | 19.9                | %      | —                   |   | 714                                      |   | — |   | 1,011 |   | (536 | ) |
| DA Management  Solutions                        |   | 29.0                | %      | 4                        |   | —                                   |   | — |   | — |   | — |   |
| Changepoint  France                             |   | 40.0                | %      | 204                      |   | 909                                      |   | — |   | 660 |   | (910 | ) |
| Other  Distributors                             |   | 0                   | %      | —                   |   | —                                   |   | 143 |   | — |   | — |   |
|                                            |   |                |   | $                        | 373    |                                     | $      | 6,664 |   | $ | 422 |   | $ | 8,810 |   | $ | (650 | ) |

 
|                                        |   |                |   | **At December 31, 2001** |   | **For the year ended  December 31,2001** |   |
|---------------------------------------------|--------|---------------------|--------|--------------------------|--------|------------------------------------------|--------|
|                                        |   | **Percent  Held**   |   | **Investment**           |   | **Total  Investee  Assets**              |   | **Artemis  Receivable** |   | **Total  Investee  Revenue** |   | **Investee  Net Income  (Loss)** |   |
|                                        |   | **(in  thousands)** |   |
| Metier  Scandinavia AS (Norway)             |   | 9.9                 | %      | $                        | 44     |                                     | $      | 3,536 |   | $ | 233 |   | $ | 3,035 |   | $ | 415 |   |
| Metier  International Holdings BV (Holland) |   | 19.0                | %      | 121                      |   | 1,325                                    |   | 89 |   | 3,517 |   | 110 |   |
| Accountor Oy  & Intellisoft Oy          |   | 19.9                | %      | 168                      |   | 1,671                                    |   | — |   | 5,222 |   | (396 | ) |
| DA Management  Solutions                    |   | 29.0                | %      | 4                        |   | —                                   |   | — |   | — |   | — |   |
| Changepoint  France                         |   | 40.0                | %      | —                   |   | 763                                      |   | 394 |   | 626 |   | (863 | ) |
| Other  Distributors                         |   | 0                   | %      | —                   |   | —                                   |   | 353 |   | — |   | — |   |
|                                        |   |                |   | $                        | 337    |                                     | $      | 7,295 |   | $ | 1,069 |   | $ | 12,400 |   | $ | (734 | ) |

 

**Note 13.Concentration of Credit Risk**

 

During the years ended December 31, 2002 and 2001, oneclient, Lockheed Martin Corporation, accounted for approximately $12.3 million(about 18%) and $8.1 million (about 12%), respectively, of consolidatedrevenue.  Substantially all of thisrevenue was recorded in the United States.

 
|                          |   | **December 31,**    |   |
|-------------------------------|--------|---------------------|--------|
|                          |   | **2002**            |   | **2001** |   |
|                          |   | **(in  thousands)** |   |
| United States                 |   | $                   | 4,404  |   | $ | 2,908 |   |
| United Kingdom                |   | 2,093               |   | 805 |   |
| Japan                         |   | 1,647               |   | 2,056 |   |
| France                        |   | 3,306               |   | 1,998 |   |
| Germany                       |   | 1,559               |   | 320 |   |
| Italy                         |   | 3,459               |   | 3,484 |   |
| Finland                       |   | 455                 |   | 1,104 |   |
| Other countries               |   | 397                 |   | 413 |   |
| Total trade  receivables, net |   | $                   | 17,320 |   | $ | 13,088 |   |

 

The Company generally does not require collateral fromits customers.

 

F-30

----

 

**Note 14. Stockholders’ Equity**

 

Proha contributedvarious subsidiaries, valued at $0.4 million to Legacy Artemis on January 3,2001. During the year ended December 31, 2001, Proha cancelled shares it hadissued to Legacy Artemis, resulting in a decrease of approximately $2.8 millionin additional paid in capital.

 

On July 31, 2001,the date Opus360 was acquired by Legacy Artemis, Opus360 had approximately 2million shares of common stock outstanding. Stockholders’ equity has beenretroactively restated to reflect the shares issued by Opus360 in connectionwith the Share Exchange Agreement; (See Note 1). The retroactively restatedshares reflect the combined amount of shares issued to Proha in connection withboth the first tranche of approximately 3.0 million shares and the secondtranche of approximately 5 million shares totaling approximately 8.0 millionshares. The shares newly issued by Opus360 were valued at approximately $8.0million and represented the purchase price. The Company’s aggregate common shares outstanding on a retroactivelyrestated basis at December 31, 2002 of approximately 10 million includes thehistorical Opus360 2.0 million shares and the additional 3.2 million sharesissued in connection with the acquisition. (See Notes 1 and 2.)

 

During the year ended December 31, 2002 the Companyrecovered certain notes and accounts receivable, carried at approximately $0.7million, which had been written off prior to the Company’s reverse mergertransaction.  Since the recoveredamounts had not been included in the calculation of net assets in conjunctionwith accounting for the merger, the recoveries were recorded as adjustments tothe Company’s paid in capital.

 

**Note 15. Stock Options and Warrants:**

 

*Stock Options*

 

The Company hasgranted options to purchase the Company’s common stock under various plans toemployees and directors.  All stockoption plans are administered by the compensation committee of the Board ofDirectors, which determines the terms of the options granted, including theexercise price, the number of shares subject to option, and the vestingperiod.  Options generally vest overterms of three to five years and have a maximum life of ten years.

 

The stock optionplans adopted by Opus360 prior to the consummation of the Share ExchangeTransactions, and the related stock options continue in full force andeffect.  Even though Legacy Artemis isthe acquiror for accounting purposes in the Share Exchange Transactions,Opus360 as a legal entity survived the consummation of such transaction.Options granted under Opus 360 plans are redeemable in the common stock ofArtemis. The following description of the Company’s stock option plans reflectsthe stock option plans of Opus 360 and Legacy Artemis prior to the merger, andthe status of the following plans after July 31, 2001.

 

•                  The 1998 Stock Option Plan (the“1998 Plan”) provided for the issuance of 0.2 million options.  Options granted, exercised or cancelledunder the plan are 0.2 million, 35,000 and 0.2 million, respectively, leaving0.2 million options available under the plan and 40,000 outstanding as ofDecember 31, 2002. As options become available due to cancellation andforfeiture, they are added to the pool of options available for grant under the2000 Stock Option Plan.

 

•                  The 2000 Stock Option Plan (the“2000 Plan”) provides for the granting of incentive and non-qualified stockoptions to employees, board members and advisors.  When the 2000 Plan was adopted in March of 2000 it provided forthe issuance of 0.3 million options. However, the 2000 Plan includes scheduled increases in options availablefor grant equal to 5% of the Company’s outstanding common stock to a maximum of1.2 million options.  On January 1, 2003the 2000 Plan reached the maximum of 1.2 million options available forgrant.  In addition, 0.2 million optionsgranted under the 1998 Plan and subsequently cancelled are available for grantunder the 2000 Plan.  Including theaforementioned scheduled increase of stock options effective January 1, 2003,options granted, exercised and cancelled under the 2000 Plan are 1.3 million,0.0 million and 0.3 million, respectively, leaving 0.4 million optionsavailable under the 2000 Plan, including the cancelled 1998 Plan options, andapproximately 1.0 million options outstanding as of December 31, 2002.

 

F-31

----

 

•                  The 2000 Non-Employee Directors’Plan (the “Non-Employee Directors Plan”) provides for automatic, non-discretionarygrants of up to 42,000 non-qualified stock options to non-employee boardmembers.  Approximately 42,000 optionsgranted under the Non-Employee Directors Plan remain outstanding at December31, 2002.

 

•                  The Company assumed non-qualifiedstock options granted to certain key former employees of Opus360.  Approximately 47,000 of these stock optionswith an exercise price of $250.00 are outstanding and exercisable as ofDecember 31, 2002.  The options areexercisable until February 2010.

 

•                  The Company also assumednon-qualified stock options granted to other employees of Opus360 who becameArtemis employees after the Share Exchange Transactions.  At December 31, 2002, approximately 4,000 ofthe options with a weighted average exercise price of $146.25 remainedoutstanding.

 

F-32

----

 

*Warrants*

 

There were 224,000warrants to purchase Company stock outstanding and exercisable at December 31,2002.  Of those, 221,000 warrants, withan exercise price of $18.50, were issued by Opus360 to LucentTechnologies Inc. ascompensation for Lucent’s participation on the Opus360 Customer AdvisoryCouncil.  The estimated value of thesewarrants was recorded as a prepaid expense and amortized until July 31, 2001.  At that time it was determined that in lightof the discontinuation of the product licensed to Lucent and the absence of anyinteraction with Lucent, the remaining asset should be written off. Thesewarrants will expire on December 3, 2003. The exercise prices of the remaining warrants range from $20.75 to$83.25 and they expire in 2004 through 2006.

 

The following tables summarize information concerningoutstanding options and warrants at December 31, 2002:

 
|                              |   | **Stock Options  and Warrants** |   | **Weighted  Average  Exercise  Price** |   |
|-----------------------------------|--------|---------------------------------|--------|----------------------------------------|--------|
|                              |   | **(In thousands)**              |   |                                   |   |
| Outstanding at  March 31, 2000    |   | 5,965                           |   | $                                      | 1.24   |   |
| Granted                           |   | 221                             |   | 18.50                                  |   |
| Exercised                         |   | (299                            | )      | 7.98                                   |   |
| Cancelled                         |   | (5,635                          | )      | 0.05                                   |   |
| Outstanding at  December 31, 2000 |   | 252                             |   | 34.36                                  |   |
| Opus 360 options  assumed         |   | 378                             |   | 51.00                                  |   |
| Granted                           |   | 202                             |   | 7.25                                   |   |
| Exercised                         |   | —                          |   | —                                 |   |
| Forfeited                         |   | (202                            | )      | 85.43                                  |   |
| Outstanding at  December 31, 2001 |   | 630                             |   | 71.01                                  |   |
| Granted                           |   | 836                             |   | 1.43                                   |   |
| Exercised                         |   | —                          |   | —                                 |   |
| Forfeited                         |   | (156                            | )      | 51.49                                  |   |
| Outstanding at  December 31, 2002 |   | 1,310                           |   | 28.88                                  |   |
|                              |   |                            |   |                                   |   |
| Exercisable at  December 31, 2000 |   | 252                             |   |                                   |   |
| Exercisable at  December 31, 2001 |   | 413                             |   |                                   |   |
| Exercisable at  December 31, 2002 |   | 466                             |   |                                   |   |
|                                   |        |                                 |        |                                        |        |  |

 
|                          |   |                                            |   | **Options and Warrants Outstanding**                          |   | **Options and Warrants  Exercisable**  |   |
|-------------------------------|--------|-------------------------------------------------|--------|---------------------------------------------------------------|--------|----------------------------------------|--------|
| **Range of  Exercise Prices** |   | **Number  Outstanding  at  December 31,  2002** |   | **Weighted  Average  Remaining  Contractual  Life  in Years** |   | **Weighted  Average  Exercise  Price** |   | **Number  Exercisable  at  December 31,  2002** |   | **Weighted  Average  Exercise  Price** |   |
|                          |   |                                            |   | **(In thousands)**                                            |   |                                   |   |   |   | **(In thousands)** |   |   |   |
| $                             | — |                                            | $      | 27.50                                                         |   | 1,153                                  |   | 7.2 |   | $ | 5.19 |   | 337 |   | $ | 13.94 |   |
| 27.50                         |   | 55.00                                           |   | 3                                                             |   | 5.7                                    |   | 39.20 |   | 3 |   | 39.65 |   |
| 55.00                         |   | 82.50                                           |   | 9                                                             |   | 7.0                                    |   | 70.86 |   | 6 |   | 72.24 |   |
| 82.50                         |   | 110.00                                          |   | 36                                                            |   | 7.6                                    |   | 94.49 |   | 28 |   | 94.67 |   |
| 110.00                        |   | 137.50                                          |   | 3                                                             |   | 7.4                                    |   | 123.06 |   | 3 |   | 123.02 |   |
| 220.00                        |   | 247.50                                          |   | 10                                                            |   | 5.9                                    |   | 227.75 |   | 9 |   | 227.75 |   |
| 247.50                        |   | 275.00                                          |   | 96                                                            |   | 7.0                                    |   | 260.04 |   | 80 |   | 258.55 |   |
|                          |   |                                            |   | 1,310                                                         |   | 7.2                                    |   | 28.88 |   | 466 |   | 66.46 |   |
|                               |        |                                                 |        |                                                               |        |                                        |        |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-33

----

 

**Note 16. Contingencies/Litigation**

 

As previously reported, on April 6, 2001, a putativeclass action lawsuit captioned *Charles Bland vs. Opus360 Corporation, et al.,*01 Civ. 2938, was filed in the United States District Court for the SouthernDistrict of New York.  Ten similarputative class actions also were filed in the Court.  By Order dated August 10, 2001, the Court consolidated all elevenactions and on September 24, 2001, the plaintiff served a consolidated amendedclass action complaint (the “Amended Complaint”).  The Amended Complaint was brought on behalf of all persons whoacquired securities of the Company between April 7, 2000 and March 20,2001.  Named as defendants in theAmended Complaint were the Company, ten current and former officers anddirectors of the Company, the underwriters of the Company’s initial publicoffering (“IPO”) and two shareholders who sold stock in a secondary offeringconcurrent with the IPO.  The AmendedComplaint alleged that, among other things, the plaintiff and members of theproposed class were damaged when they acquired securities of the Company becausefalse and misleading information and material omissions in the registrationstatement relating to the IPO and the secondary offering caused the prices ofthe Company’s securities to be inflated artificially.  It asserted violations of Section 11, 12(a)(2), and 15 of theSecurities Act of 1933.  Damages inunspecified amounts and certain rescission rights were sought.

 

In October 2001, the Company and all other defendantsfiled motions to dismiss the Amended Complaint.  By Opinion and Order dated October 2, 2002, the Court granted allof the motions and dismissed the Amended Complaint, but granted plaintiffsleave to serve a second consolidated amended class action complaint (the“Second Amended Complaint”).  On October30, 2002, plaintiffs served their Second Amended Complaint, which containsallegations similar to those in the Amended Complaint.  Briefing on defendants’ motion to dismissthe Second Amended Complaint is scheduled to be completed by April 25,2003.  In the interim, the parties havereached an agreement in principle to settle all claims asserted and that couldhave been asserted in this litigation. Under the terms of the proposed settlement, which is still subject tofurther documentation and court approval, most of the settlement proceeds wouldbe paid by the insurance carrier pursuant to the Company’s D&O coverage,and the Company would pay an immaterial amount.

 

The Company is a party to a number of additional legalclaims arising in the ordinary course of its business.  The Company believes the ultimate resolutionof these claims will not have a material effect on its financial position,results of operations or cash flows.

 

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**Note 17.Quarterly Financial Data (Unaudited)**

 

The following table sets forth certain unaudited quarterlyconsolidated financial data for each of the eight quarters in the period endedDecember 31, 2002.  In the opinion ofthe Company’s management, this unaudited information has been prepared on thesame basis as the audited consolidated financial statements contained hereinand includes all adjustments (consisting only of normal recurring adjustments,except for the $43.4 million impairment charge relating to intangible assetsrecorded during the quarter ended December 31, 2001) necessary to present fairlythe information set forth therein when read in conjunction with theconsolidated financial statements and notes thereto.  The operating results for any quarter are not necessarilyindicative of results for any future period.

 
|                                                                         |   | **Quarter Ended**                          |       |
|------------------------------------------------------------------------------|--------|--------------------------------------------|------------|
|                                                                         |   | **Dec. 31  2002**                          |       | **Sept. 30  2002** |   | **Jun. 30  2002** |   | **Mar. 31  2002** |   |
|                                                                         |   | **(In  thousands, except per share data)** |       |
| **Consolidated  Statement of Operations Data:**                              |   |                                       | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Revenues                                                                     |   | $                                          | 19,546     |   | $ | 15,790 |   | $ | 17,592 |   | $ | 15,736 |   |
| Operating income  (loss)                                                     |   | 16                                         |       | (1,788 | ) | (334 | ) | (1,640 | ) |
| Net income  (loss)                                                           |   | 554                                        |       | (1,786 | ) | (603 | ) | (2,113 | ) |
| Basic earnings  (loss) per common share:                                     |   | $                                          | 0.06       |   | $ | (0.18 | ) | $ | (0.06 | ) | $ | (0.21 | ) |
| Shares used in  computing basic and diluted earnings (loss) per common share |   | 9,965                                      |       | 9,965 |   | 9,965 |   | 9,965 |   |

 
|                                            |   | **Quarter  Ended**                         | ** ** |
|-------------------------------------------------|--------|--------------------------------------------|------------|
|                                            |   | **Dec. 31  2001**                          |       | **Sept. 30  2001** | ** ** | **Jun. 30  2001** | ** ** | **Mar. 31  2001** | ** ** |
|                                            |   | **(In  thousands, except per share data)** | ** ** |
| **Consolidated  Statement of Operations Data:** |   |                                       | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Revenues                                        |   | $                                          | 17,269     |   | $ | 15,915 |   | $ | 16,922 |   | $ | 17,540 |   |
| Operating loss                                  |   | (50,047                                    | )          | (7,450 | ) | (4,721 | ) | (4,219 | ) |
| Net loss                                        |   | (42,636                                    | )          | (7,702 | ) | (4,626 | ) | (4,800 | ) |
| Basic and  diluted loss per common share        |   | $                                          | (4.28      | ) | $ | (0.83 | ) | $ | (0.58 | ) | $ | (0.60 | ) |
| Shares used in  computing loss per common share |   | 9,965                                      |       | 9,306 |   | 7,977 |   | 7,977 |   |

 

**Note 18.Report on Audit of the Company’s December 31, 2001 Financial Statements**

 

On January 28, 2003, the Company dismissed itsindependent accountants, KPMG LLP (“KPMG”), and engaged the services of SquarMilner Reehl & Williamson LLP (“Squar Milner”) as the Company’s newindependent accountants for its current fiscal year ended December 31,2002.  The Audit Committee of theCompany’s Board of Directors approved the dismissal of KPMG and the appointmentof Squar Milner.  The dismissal was notdue to a difference of opinion with respect to accounting principles orpractices, financial statement disclosures, audit scope or auditprocedure.  Rather, KPMG was dismissedbecause fees charged to the Company were considered excessive and the level ofservice provided to the Company was considered unsatisfactory.

 

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KPMG has subsequently informed management that it willnot authorize the Company to include KPMG’s audit report on the Company’s 2001audited financial statements in the Company’s annual report on Form 10-K for2002.  In response, management haslabeled all 2001 financial statements and related data included herein as“unaudited”.  In addition managementplans to engage Squar Milner to “re-audit” the Company’s December 31, 2001 consolidated financialstatements as soon as possible.  Uponcompletion of Squar Milner’s audit, the Company will file an amended annualreport on Form 10-K to include the audited results for 2001.

 

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