AROS CORP - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 0-20805
AROS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 23-2476415
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

1160 HAYMAN DRIVE, 21032
CROWNSVILLE, MARYLAND (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (410) 923-6106

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

TITLE OF CLASS

COMMON STOCK $.01 PAR VALUE PER SHARE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting common equity held by
non-affiliates of the registrant as of March 29, 2002 was approximately
$814,197. The number of outstanding shares of the registrant's Common Stock as
of that date was 8,966,966.

DOCUMENTS INCORPORATED BY REFERENCE:

The registrant intends to file a preliminary proxy statement for its annual
meeting of stockholders pursuant to Regulation 14A within 120 days of the end of
the fiscal year ended December 31, 2001. Portions of such proxy statement are
incorporated by reference into this Form 10-K.

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PART I

ITEM 1. BUSINESS

OVERVIEW

Aros Corporation ("Aros", the "Company" or "we"), a Delaware corporation,
was incorporated as APACHE Medical Systems, Inc. on September 1, 1987. We were a
provider of clinically based decision support information systems and consulting
services to the healthcare industry offering a comprehensive line of
outcomes-based products and services, encompassing software, hardware, and
related consulting and disease management services through two operating
divisions: the APACHE Clinical Outcomes Division and the MetaContent Content and
Coding Division.

The Clinical Outcomes Division provided clinically based decision support
information systems, research and consulting services to the healthcare
industry. On July 3, 2001, we sold our APACHE Clinical Outcomes Division
("Clinical Outcomes Division"), which accounted for substantially all of our
assets, for cash to Cerner Corporation and changed our name from APACHE Medical
Systems, Inc. to Aros Corporation. The Clinical Outcomes Division has been
accounted for as discontinued operations for all periods presented.

The MetaContent Content and Coding Division provided consulting services in
the clinical content and medical coding areas. We acquired MetaContent, Inc.
("MetaContent"), a company that develops and markets data management solutions
for healthcare providers, on March 19, 2001 as part of a strategy to enter the
medical coding business. On November 23, 2001, a founder and the sole employee
of MetaContent, Inc. resigned. As a result, the Company has elected to
discontinue all operations under the MetaContent Content and Coding Division,
and has therefore written off the remaining net goodwill associated with the
acquisition of MetaContent, Inc. and accounted for the results as discontinued
operations.

Since the sale of assets to Cerner Corporation was completed on July 3,
2001, the Company continues to evaluate how best to utilize its remaining
assets. The alternatives under consideration include moving the Company from its
historical focus on clinical information systems to areas such as biotechnology,
bio-informatics, medical coding or other healthcare related activities. In
addition, the Company will evaluate any opportunity for a business combination
that will maximize the stockholders' investment, which may include combinations
with companies outside of the Company's traditional market. The Company has not
precluded, if no suitable alternatives are found, the possibility of dissolution
of the Company and distribution of net assets to its shareholders.

See Management's Discussion and Analysis of Financial Conditions and
Results of Operations for further discussion.

EMPLOYEES

On July 3, 2001, all remaining full-time employees of the Clinical Outcomes
Division were terminated and rehired by Cerner Corporation. As of December 31,
2001, there were no remaining employees with the Company.

ITEM 2. PROPERTIES

None.

ITEM 3. LEGAL PROCEEDINGS

The Company is a defendant from time to time in lawsuits incidental to its
business. The Company is not currently subject to, and none of its properties
are subject to, any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters that required a vote of security holders during the
three months ended December 31, 2001.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following persons are or have served as the executive officers of the
Company during the year ended December 31, 2001:

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1. Violet L. Shaffer served as Chief Operating Officer of the Company from
September 2000 to July 3, 2001, and President of the Company effective
January 1, 2001 to July 3, 2001. Previously she was Vice President of
Marketing for the Company since September 1997. Prior to joining the Company,
from January 1997 through September 1997, Ms. Shaffer served as President and
Chief Executive Officer of Competitive Advantage Services, Inc. Ms. Shaffer
served as Vice President of Business Development for Nichols Research
Corporation and of HealthGate Data Corporation, an entity partially owned by
Nichols, from September 1995 through December 1996.

2. Karen C. Miller served as Vice President of Finance and Chief Financial
Officer of the Company from October 1998 to June 30, 2001. From 1997 to 1998,
Ms. Miller served as Controller of the Per-Se Technologies Division of
Medaphis Corporation, now Per-Se Technologies, Inc. Prior to assuming this
role, Ms. Miller was Chief Financial Officer, Vice President of Finance and
Controller of Health Data Sciences Corporation, a company she co-founded in
1983 that was acquired by Medaphis in 1996.

3. Gerald E. Bisbee, Jr., Ph.D. became Secretary, President and Chief Executive
Officer of the Company as of July 3, 2001. (President and Chief Executive
Officer until December 31, 1997, Chairman of the Board from 1989 through
November 5, 1997, and December 22, 2000 to present, and director since 1989).
Dr. Bisbee is presently Chairman, President and Chief Executive Officer of
ReGen Biologics, Inc., which conducts research and development, manufacturing
and marketing of tissue engineering, biological and other orthopedic products
and services. Before joining us as Chairman and Chief Executive Officer in
December 1989, Dr. Bisbee was the Chairman and Chief Executive Officer of the
Sequel Corporation, which he joined in 1988 and engineered the merger with
the Hanger Orthopedic Group, Inc. He founded and managed the Health Care
Group of the Corporate Finance Department of Kidder, Peabody & Co., leaving
to join Sequel in 1988. From 1978 until moving to Kidder, Peabody in 1984, he
was President of the Hospital Research and Educational Trust, a new venture
and product development company affiliated with the American Hospital
Association. Dr. Bisbee also managed the Yale University Health Services,
which included a 22,000-member health maintenance organization. He is a
director of Cerner Corporation and HealthGate Data Corporation. Dr. Bisbee
received his B.A. from North Central College, his M.B.A. from the Wharton
School of the University of Pennsylvania and his Ph.D. from Yale University,
where his dissertation was instrumental in the development of Diagnosis
Related Groups.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Until February 12, 2001, the Company's common stock was traded on the
Nasdaq SmallCap Market under the symbol AMSI. On February 13, 2001, the
Company's common stock began trading on the OTC Bulletin Board under the symbol
AMSI. On July 3, 2001, the ticker was changed to AROS. The following table sets
forth, for the periods indicated, the range of high and low sale prices for the
common stock as reported by the Nasdaq SmallCap Market and the OTC Bulletin
Board.

As of March 7, 2002, the Company had 76 holders of record of its common
stock.

2

The Company has never paid or declared any cash dividends and does not
anticipate paying cash dividends on its common stock in the foreseeable future.
The amount and timing of any future dividends will depend on the future business
direction of the Company, general business conditions encountered by the
Company, as well as the financial condition, earnings and capital requirements
of the Company and such other factors as the Company's Board of Directors may
deem relevant.

ITEM 6. SELECTED FINANCIAL DATA

All periods have been reclassified to account for the operations of the
Clinical Outcomes Division and the MetaContent Content and Coding Division as
discontinued operations.

SELECTED CONSOLIDATED FINANCIAL DATA

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The Company believes that its Clinical Outcomes Division experienced
material negative impact as a result of two key environmental factors,
including: reductions in expenditures by hospitals stemming from the Balanced
Budget Act's tightening of Medicare reimbursement; and a significant change in
the buying patterns of large healthcare systems, with these buyers now
preferring to do business with large companies offering integrated information
system solutions, thus making substantial business expansion more difficult for
small best-of-breed vendors like the Company's Clinical Outcomes Division.
Additionally, the Company believes that, while a market for its Clinical
Outcomes Division products and services exists, that market, and the business
model required to address it are better and more profitably served by an
organization engaged in a broader approach to the same market. Such an
organization would allow for a sharing of corporate infrastructure, sales and
marketing costs, development and support costs, and market knowledge across a
wider array of products and services. As a consequence of this analysis, in
September of 2000, the Company announced that it had engaged Allen & Company
Incorporated to explore its strategic options, including sale of the Company.
The Company also announced that it had initiated a restructuring plan designed
to manage cost and conserve cash, which plan resulted in a net reduction in
total employees from 69 at the end of 1999 to 24 by July 3, 2001.

During February 2001, the Company announced that it had entered into a
nonbinding letter of intent for Cerner Corporation to acquire certain assets of
the Company. The Company signed an agreement for the sale of assets to Cerner
Corporation on April 7, 2001, subject to shareholder vote, which was obtained by
the Company on June 11, 2001. On July 3, 2001, the Company concluded the sale of
its Clinical Outcomes Division, which accounted for substantially all of the
Company's assets, to Cerner Corporation. In connection with the sale, the
Company received approximately $3.7 million in cash and changed its name from
APACHE Medical Systems, Inc. to Aros Corporation. In June of 2001, the Company
began accounting for the Clinical Outcomes Division as a discontinued operation.
Prior financial statements have been restated to reflect the discontinued
operations for all periods presented.

On March 21, 2001, the Company acquired MetaContent, Inc., a Delaware
corporation engaged in the business of providing consulting services in the
clinical content and medical coding areas to the healthcare industry, whereby
MetaContent, Inc. became a wholly owned subsidiary. The Company exchanged one
million shares of its common stock and warrants to purchase one million shares
of the Company's common stock at $0.50 per share for all of the outstanding
shares of MetaContent for a purchase price of $611,000. The Company's Chairman
and its financial advisor were two of the several owners of MetaContent and
received 32.5% and 28% respectively, of the purchase price. MetaContent became
the foundation for the Company's MetaContent and Coding Division, as part of a
strategy to enter the medical coding business. On November 23, 2001, a founder
and the sole employee of MetaContent, Inc. resigned employment with the Company.
As a result, the Company has discontinued all operations under the MetaContent
and Coding Division. The MetaContent and Coding Division has been accounted for
as a discontinued operation in the 2001 financial statements.

Since the sale of assets to Cerner Corporation was completed on July 3,
2001, the Company continues to evaluate how best to utilize its remaining
assets. The alternatives under consideration include moving the Company from its
historical focus on clinical information systems to other areas involved with
healthcare technology, administration and clinical applications. In addition,
the Company will evaluate any opportunity for a business combination that will
maximize the stockholders' investment, which may include combinations with
companies outside of the Company's traditional market. The Company has not
precluded, if no suitable alternatives are found, the possibility of dissolution
of the Company and distribution of net assets to its shareholders. The Company
has been advised that in order to avoid being deemed an "investment company" it
must either engage in an operating business, either through the purchase or
development of, or investment in an operating business, or it must dissolve and
distribute its net assets to its shareholders within one year from the date of
sale of substantially all of its assets to Cerner Corporation on July 3, 2001.

4

RESULTS OF OPERATIONS

2001 COMPARED TO 2000

General and Administrative. General and administrative expenses decreased
55% to $2.7 million from $5.9 million in the prior year period. This decrease
was due to a reduction in overall salaries and related personnel costs, as well
as an overall reduction in general and administrative expenses due to the sale
of the Clinical Outcomes Division to Cerner Corporation on July 3, 2001.

Restructuring. Restructuring charges decreased from $1.4 million in 2000
to $24,000 in 2001. As a result of the sale of assets to Cerner Corporation on
July 3, 2001, the Company restated its financial results attributable to the
Clinical Outcomes Division as discontinued operations. This restatement resulted
in $1.1 million of the restructuring charge recorded in 2000 being reclassified
to discontinued operations. During the second quarter of 2001, we recognized
additional restructuring charges of $162,000 related to the termination of a
Company officer. We recognized reductions in restructuring charges of $138,000
as a result of sub-leasing part of our corporate office. The net result was an
additional $24,000 in restructuring charges. The following table summarizes the
activity in 2001 related to the restructuring accrual:

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(a) $274,000 of the $595,000 restructuring accrual was reclassified to
liabilities from discontinued operations in 2001.

Other Income (Expense). Other income for 2001 decreased 50% to $107,000
from $216,000 in the prior year period. This decrease was attributed to a
decrease in interest income related to changing the investment strategy from
higher yielding short-term investments to lower yielding cash equivalents as
well as the overall decrease in interest rates in 2001 as compared to 2000.

Income from Discontinued Operations. Income from discontinued operations
increased 9% to $1.3 million in 2001 from $1.2 million in the prior year period.
This increase was due to several factors, including (1) a decrease in revenues
generated by the Clinical Outcomes Division of $4.3 million from $6.7 million in
2000 to $2.4 million in 2001. This was due to the Clinical Outcomes Division
being discontinued in the first half of 2001 and the majority of the division's
assets being sold in 2001. (2) Costs of sales related to the Clinical Outcomes
Division decreased $1.8 million from $2.8 million in 2000 to $1 million in 2001
due to the decrease in revenues. (3) Revenue from the MetaContent Content and
Coding Division increased $189,000 from $0 in 2000 to $189,000 in 2001. This
division was acquired and discontinued in 2001. (4) Other expenses included in
income from discontinued operations, including research & development,
depreciation and restructuring decreased $2.2 million in 2000 to $350,000 in
2001.

Gain from Sale of Discontinued Operations. The gain from the sale of
discontinued operations increased to $3.7 million in 2001 from $0 in the prior
year period. This increase was due to the sale of the Company's APACHE Clinical
Outcomes Division, which accounted for substantially all of the Company's
assets, to Cerner Corporation on July 3, 2001.

Loss on Abandonment. The loss on abandonment increased to $433,000 in 2001
from $0 in the prior year period. This increase was due to the fact that on
November 23, 2001, a founder and the sole employee of MetaContent, Inc. resigned
employment with the Company. The Company has discontinued all operations under
the MetaContent Content and Coding Division. The abandonment loss represents the
write off of goodwill from the MetaContent acquisition which management has
determined was impaired by the decision to discontinue this business.

5

2000 COMPARED TO 1999

General and Administrative. General and administrative expenses for 2000
decreased 6% to $5.9 million from $6.3 million in the prior year period. This
decrease was due to reduction in personnel, travel, phone, and office supplies
in 2000.

Restructuring. During the third and fourth quarters of 2000, the Company
recognized restructuring charges of $1.4 million primarily related to the
Company's decision to revise its business strategy. The Company decided to focus
on the development and selling of its Internet based products and no longer
pursue the development and selling of certain products and strategic consulting
services. As a result, the Company wrote-off the unamortized development costs
and intangible assets associated with those products and its purchase of Health
Research Network. In addition, the Company eliminated approximately 30 positions
and took steps to downsize its corporate office. The revenue related to these
discontinued products and the costs related to the eliminated positions and
excess office rent was $2.1 million and $2.9 million, respectively, for the year
ended December 31, 2000. As a result of the sale of assets to Cerner Corporation
on July 3, 2001, the Company restated its financial statements to account for
the Clinical Outcomes Division as discontinued operations. This restatement
resulted in $1.1 million of the restructuring charge being reclassified to
discontinued operations.

The following table summarizes the activity in 2000 related to the
restructuring accrual:

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2001, the Company has cash and cash equivalents of $3.3
million representing an increase of $1.2 million from the total $2.1 million at
December 31, 2000.

During 2001, the Company's operating activities used approximately $2.6
million in cash. Cash used by operating activities in 2001 was composed
primarily of the loss from continuing operations and payment of restructuring
costs.

The Company's investing activities provided cash of approximately $4.5
million in 2001. Cash acquired from investing activities was mainly from the
proceeds from the sale of the Clinical Outcomes Division.

There was no cash effect from financing activities during 2001.

During 2001, the Company made no capital expenditures. As of December 31,
2001, the Company had a net working capital of $3 million including cash and
cash equivalents in the amount of $3.3 million.

The Company anticipates that its cash and cash equivalents will be
sufficient to meet its planned ongoing operating and working capital
requirements for the next twelve months. Through December 31, 2001, the Company
has incurred cumulative net operating losses of approximately $43.6 million.

Our Clinical Outcomes Division, which included substantially all of our
assets, provided clinically based decision support information systems, research
and consulting services to the healthcare industry. On July 3, 2001, we sold our
Clinical Outcomes Division for cash to Cerner Corporation. Proceeds from the
sale of assets have been invested in money market and other cash accounts.

Since the sale of assets to Cerner Corporation was completed on July 3,
2001, the Company continues to evaluate how best to utilize its remaining
assets. The alternatives under consideration include moving the Company from its
historical focus on clinical information systems to other areas involved with
healthcare technology, administration and clinical applications. In addition,
the Company will evaluate any opportunity

7

for a business combination that will maximize the stockholders' investment,
which may include combinations with companies outside of the Company's
traditional market. The Company has not precluded, if no suitable alternatives
are found, the possibility of dissolution of the Company and distribution of net
assets to its shareholders. The Company has been advised that in order to avoid
being deemed an "investment company" it must either engage in an operating
business, either through the purchase or development of, or investment in an
operating business, or it must dissolve and distribute its net assets to its
shareholders within one year from the date of sale of substantially all of its
assets to Cerner Corporation on July 3, 2001. There can be no assurance that we
will find a suitable new business focus, and if so, that we will be profitable
in the future or that present capital will be sufficient to fund our ongoing
operations. If additional financing is required to fund operations, there can be
no assurance that such financing can be obtained or obtained on terms we find
acceptable.

The Company does not believe the impact of inflation has significantly
affected the Company's operations.

CRITICAL ACCOUNTING POLICIES

The Company's accounting policies are more fully described in Note 2 of
Notes to Consolidated Financial Statements. As disclosed in Note 2 of Notes to
Consolidated Financial Statements, the preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions about future events that
affect the amounts reported in the financial statements and accompanying notes.
Future events and their effects cannot be determined with absolute certainty.
Therefore, the determination of estimates requires the exercise of judgment.
Actual results inevitably will differ from those estimates, and such differences
may be material to the financial statements.

The most significant accounting estimates inherent in the preparation of
the Company's financial statements related to its continuing operations include
estimates associated with its pension plan, income tax valuation allowance and
the identification of any contingent liabilities. The most significant
accounting estimates related to the discontinued operations include
determination of contract completion for purposes of revenue recognition,
recoverability of capitalized software costs, recoverability of goodwill and the
collectibility of accounts receivable. Various assumptions and other factors
underlie the determination of these significant estimates. The process of
determining significant estimates is fact specific and takes into account
factors such as historical experience, current and expected economic conditions,
product mix, and in some cases, actuarial techniques. The Company constantly
re-evaluates these significant factors and makes adjustments where facts and
circumstances dictate. Historically, actual results have not significantly
deviated from those determined using the estimates described above.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

Statements in this filing, which are not historical facts, are
forward-looking statements under provisions of the Private Securities Litigation
Reform Act of 1995. All forward-looking statements involve risks and
uncertainties. We wish to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect our
actual results and could cause our actual results in fiscal 2002 and beyond to
differ materially from those expressed in any forward-looking statements made by
us or on our behalf.

Important factors that could cause actual results to differ materially
include but are not limited to our having sufficient sales and timely
collections to meet cash requirements and achieve profitability, our ability to
correctly estimate and address our Year 2002 costs and liabilities, our ability
to attract and retain key employees, our ability to timely develop new products
and enhance existing products, the success of our strategy to concentrate our
new product offerings associated with our limited operating history in the
medical coding business, our ability to obtain additional working capital, risks
inherent in our acquisition strategy, our ability to compete in the competitive
and rapidly evolving healthcare information technology industry, the success of
our marketing and consulting efforts, the occurrence of certain operating
hazards and uninsured

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risks, our ability to protect proprietary information and to obtain necessary
licenses on commercially reasonable terms, our ability to comply with and adopt
products and services to potential regulatory changes, the impact of
governmental regulations, changes in technology, marketing risks and one time
events on our business and our ability to adapt to economic, political and
regulatory conditions affecting the healthcare industry.

Our quarterly revenues and operating results have varied significantly in
the past and are likely to vary from quarter to quarter in the future. Quarterly
revenues and operating results may fluctuate as a result of a variety of
factors, including our relatively long sales cycle, variable customer demand for
our products and services, changes in our product mix and the timing and
relative prices of product sales, loss of our customers due to consolidation in
the healthcare industry, changes in customer budgets, our investments in
marketing or other corporate resources, acquisitions of other companies or
assets, the timing of new product introductions and enhancements by us and our
competitors, changes in distribution channels, sales and marketing promotional
activities and trade shows and general economic conditions. Further, due to the
relatively fixed nature of most of our costs, which primarily include personnel
costs as well as facilities costs, any unanticipated shortfall in revenue in any
fiscal quarter would have an adverse effect on our results of operations in that
quarter. Accordingly, our operating results for any particular quarterly period
may not necessarily be indicative of results for future periods.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to certain financial market risks, the most
predominate being fluctuations in interest rates; however, the Company does not
believe that it is currently exposed to material financial market risks. The
Company maintains all of its cash and cash equivalents with one financial
institution, which, at times, may exceed federally insured amounts.

Proceeds from the sale of assets have been invested in money market and
other cash accounts.

9

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

All other financial statement schedules have been omitted because they are
not applicable or because the required information is otherwise furnished.

10

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Aros Corporation

We have audited the accompanying consolidated balance sheets of Aros
Corporation as of December 31, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2001. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Aros
Corporation, at December 31, 2001 and 2000, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

/s/ ERNST & YOUNG LLP

Baltimore, Maryland
March 7, 2002

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AROS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying Notes to Consolidated Financial Statements.
12

AROS CORPORATION

CONSOLIDATED BALANCE SHEETS

See accompanying Notes to Consolidated Financial Statements.
13

AROS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

See accompanying Notes to Consolidated Financial Statements.

14

AROS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying Notes to Consolidated Financial Statements.
15

AROS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000

(1) NATURE OF THE BUSINESS

Aros Corporation ("Aros" or the "Company"), a Delaware corporation, was
incorporated as APACHE Medical Systems, Inc. on September 1, 1987. The Company
was a provider of clinically based decision support information systems and
consulting services to the healthcare industry offering a comprehensive line of
outcomes-based products and services, encompassing software, hardware, and
related consulting and disease management services through two operating
divisions: the APACHE Clinical Outcomes Division and the MetaContent Content and
Coding Division.

The Clinical Outcomes Division provided clinically based decision support
information systems, research and consulting services to the healthcare
industry. On July 3, 2001, the Company sold the Clinical Outcomes Division,
which accounted for substantially all of the Company's assets, for $3.7 million
in cash to Cerner Corporation and changed the Company name from APACHE Medical
Systems, Inc. to Aros Corporation. The Clinical Outcomes Division has been
accounted for as discontinued operations and the financial statements have been
reclassified accordingly. As a result, the Company's fixed assets, operating and
capital leases and capitalized software costs were sold or have been classified
as discontinued operations.

The MetaContent Content and Coding Division provided consulting services in
the clinical content and medical coding areas. MetaContent, Inc.
("MetaContent"), a company that developed and marketed data management solutions
for healthcare providers, was acquired on March 19, 2001 as part of a strategy
to enter the medical coding business, whereby MetaContent became the Company's
wholly owned subsidiary. The Company exchanged one million shares of common
stock and warrants to purchase one million shares of common stock at $0.50 per
share for all of the outstanding shares of MetaContent. The total purchase price
of $611,000, comprised of $570,000 common stock and warrants and $41,000 in
costs associated with the purchase. The chairman of the Company's Board of
Directors and a financial advisor received, for their interests in MetaContent,
32.5% and 28%, respectively, of the common stock and warrant consideration
component of the purchase price. The acquisition was accounted for using the
purchase method of accounting, resulting in net assets assumed of $111,000 and
goodwill totaling $500,000. Results of operations of MetaContent are included in
the accompanying financial statements beginning on the date of acquisition. On
November 23, 2001, a founder and the sole employee of MetaContent, Inc.
resigned. As a result, the Company has elected to discontinue all operations
under the MetaContent Content and Coding Division, has written off the remaining
net goodwill of $432,642 associated with the acquisition of MetaContent as an
asset impairment and the results have been classified as discontinued
operations.

Summary operating results of discontinued operations are as follows:

Liabilities related to discontinued operations of $123,000 at December 31,
2001 consist of liabilities to be held that were part of the APACHE Clinical
Outcomes Division not purchased by Cerner. These liabilities are for the pension
plan liability of the discontinued business.

The assets from discontinued operations of $15,000 at December 31, 2001
include assets to be held of which $13,000 was a part of the APACHE Clinical
Outcomes Division not purchased by Cerner and $2,000

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AROS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

were a part of the MetaContent Content and Coding Division. These assets to be
held are accounts receivable related to the discontinued businesses.

Revenues and net income from discontinued operations for Clinical Outcomes
Division from the measurement date, June 11, 2001 to December 31, 2001 were
$116,000 and $109,000, respectively. Revenues and net income from discontinued
operations for MetaContent Content and Coding Division from the measurement
date, November 23, 2001 to December 31, 2001 were $0 and $0, respectively.

Since the sale of assets to Cerner Corporation was completed on July 3,
2001, the Company continues to evaluate how best to utilize its remaining
assets. The alternatives under consideration include moving the Company from its
historical focus on clinical information systems to areas such as biotechnology,
bio-informatics, medical coding or other healthcare related activities. In
addition, the Company has not precluded, if no suitable alternatives are found,
the possibility of dissolution of the Company and distribution of net assets to
its shareholders.

Through December 31, 2001, the Company has incurred cumulative net
operating losses of approximately $43.6 million. There can be no assurance that
a suitable new business focus will be found, and if one is found, that the
Company will be profitable in the future or that present capital will be
sufficient to fund ongoing operations. If additional financing is required to
fund operations, there can be no assurance that such financing can be obtained
or obtained on acceptable terms.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Use of Estimates

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The preparation of
consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.

Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. As of December 31,
2001, cash equivalents consisted of money market instruments. Cash equivalents
are carried at lower of cost or market. The Company maintains all of its cash
and cash equivalents at one financial institution, which, at times, may exceed
federally insured amounts.

Income Taxes

The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

Employee Stock Options

The Company accounts for its stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, ("APB 25"), using the intrinsic value

17

AROS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

method. Stock-based compensation related to options granted to non-employees is
accounted for using the fair value method in accordance with the Statement of
Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation,
("SFAS 123").

Reclassification

Certain amounts have been reclassified from prior years to conform to the
current year presentation.

Policies Related to Discontinued Operations

The following accounting policies were followed for the discontinued
operations of the APACHE Clinical Outcomes Division and MetaContent Content and
Coding Division prior to their disposition.

Revenue Recognition

Revenues for sales of systems and products were recognized at delivery. For
systems where services were critical to the functionality of the system, revenue
was recognized using contract accounting. Systems support fees were recognized
ratably over the period of performance. Professional services revenue was
recognized as these services were provided and was generally billed on a time
and material basis. Professional services did not involve significant
customization, modification or production of the licensed software. Amounts
received prior to the performance of service or completions of a milestone were
deferred. Revenue recognized for work performed for which billings had not been
presented to customers was recorded as unbilled.

Cost of Operations

Cost of operations consisted primarily of personnel costs, costs of media,
production manuals, telephone support, third party equipment, licenses, software
and other direct costs related to providing systems, support, and professional
services.

Furniture and Equipment

Furniture and equipment are stated at cost. All furniture and equipment is
included in assets from discontinued operations at December 31, 2000. There is
no furniture and equipment at December 31, 2001. Depreciation and amortization
was calculated on the straight-line basis over the estimated useful lives of the
assets ranging from 3 to 7 years. Depreciation and amortization expense included
in discontinued operations was $145,000, $365,000 and $518,000 for the years
ended December 31, 2001, 2000 and 1999 respectively.

Software Capitalization

The Company accounted for software development costs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86 "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." The
Company capitalized certain software development costs subsequent to the
establishment of technological feasibility of its products. Technological
feasibility was established generally upon completion of a working model of a
product. Costs incurred prior to technological feasibility were expensed.
Research and development expenses included in discontinued operations were
$87,000, $659,000 and $701,000 for the years ended December 31, 2001, 2000 and
1999 respectively. Amortization of capitalized costs began when products were
available for general release to customers and was computed on a
product-by-product basis in the amount which is the greater of (a) the ratio
that current revenues bore to the total of the current and future anticipated
revenues, or (b) the straight-line method over the remaining estimated economic
life of the product, not to exceed five years. Such costs are reflected in
discontinued operations.

18

AROS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company capitalized approximately $275,000, $593,000, and $501,000 in
software development costs during 2001, 2000, and 1998, respectively.
Amortization of software development costs included in discontinued operations
approximated $117,000, $378,000, and $196,000, in 2001, 2000, and 1999,
respectively. In the fourth quarter of 2000, the Company wrote-off, as part of
its restructuring charge included in discontinued operations, $423,000 of
capitalized software development costs related to certain non-Internet products.

OTHER

Interest expense included in discontinued operations was $9,000, $39,000,
and $30,000 for the years ended December 31, 2001, 2000 and 1999 respectively.

(3) RESTRUCTURING

During the third and fourth quarters of 2000, the Company recognized
restructuring charges of $1.4 million primarily related to the Company's
decision to revise its business strategy. The Company decided to focus on the
development and selling of its Internet based products and no longer pursue the
development and selling of certain products and strategic consulting services.
As a result, the Company wrote-off the unamortized development costs and
intangible assets associated with those products and its purchase of Health
Research Network. In addition, the Company eliminated approximately 30 positions
and took steps to downsize its corporate office. The revenue related to these
discontinued products and the costs related to the eliminated positions and
excess office rent was $2.1 million and $2.9 million, respectively, for the year
ended December 31, 2000. As a result of the sale of assets to Cerner Corporation
on July 3, 2001, the Company restated its financial results attributable to the
APACHE Clinical Outcomes Division as discontinued operations. This restatement
resulted in the Company reclassifying $1.1 million of the restructuring charge
to discontinued operations.

The following table summarizes the activity in 2000 related to the
restructuring accrual:

- ---------------

(a) $274,000 of the $595,000 restructuring accrual was reclassified to
discontinued operations in 2001.

The following table summarizes the activity in 2001 related to the
restructuring accrual:

- ---------------

(a) $274,000 of the $595,000 restructuring accrual was reclassified to
discontinued operations in 2001.
19

AROS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(4) ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

(5) INCOME TAXES

The Company had no provision for income taxes in 2001, 2000 or 1999 as a
result of its net losses for income tax purposes. The difference between the tax
provision and the amount that would be computed by applying the statutory
federal income tax rate to income before taxes is attributable to the following
(in thousands):

The approximate tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 2001 and 2000 are as follows (in thousands):

20

AROS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company has a net operating loss carryforward for income tax reporting
purposes at December 31, 2001, of approximately $39.2 million, which expires
beginning in 2003. The Company's ability to use the carryforwards is subject to
limitations resulting from changes in ownership, as defined by the Internal
Revenue Code. Lack of future earnings, a change in the ownership of the Company,
or the application of the alternative minimum tax rules could adversely affect
the Company's ability to utilize the net operating loss carryforwards.

(6) STOCKHOLDERS' EQUITY

Restricted Stock

During the first quarter of 2001, the Company granted to Gerald E. Bisbee,
Jr., Ph.D., the Company's Chairman of the Board, 500,000 shares of restricted
stock which fully vest on December 31, 2001. Compensation expense of $78,000 was
recognized over the vesting period.

Stock Options

The Company has an Employee Stock Option Plan (the Plan) that provides up
to 2,700,000 options to be issued to employees, and non-employees (other than
non-employee directors) of the Company. The Company granted 169,500 options to
employees during 2001 and 105,000 options to non-employees during 2001. The
exercise prices of the granted options were equal to the fair value of the
Company's stock on the date of grant. The Company recognized $21,000 in expense
during 2001 related to the options granted to non-employees. All options are
subject to forfeiture until vested, and unexercised options expire on the tenth
anniversary of the year granted. Vesting is generally over five years. All
employee stock options issued by the Company have been granted with exercise
prices equal to or greater than the fair market value of the common stock on the
date of grant; accordingly, the Company has recorded no compensation expense
related to such grants. At December 31, 2001, options for 2,333,245 shares were
available for grant under the Plan. The Company has reserved 2,700,000 shares of
common stock for issuance under the Plan.

In April 1996, the Company adopted its Non-Employee Director Option Plan
(the Director Option Plan), pursuant to which non-employee directors of the
Company will be granted an option to purchase 2,500 shares of common stock on
January 1, of each calendar year for each year of service. The exercise price of
such options shall be at the fair market value of the Company's common stock on
the date of grant. Options become fully vested and exercisable on the December
31, immediately following the date on which the option is granted. Stock options
granted under the Director Option Plan may not be transferred other than by will
or by the laws of descent and distribution. The Board of Directors may terminate
the Director Option Plan at any time. Upon the occurrence of a Change of
Control, as defined in the Director Option Plan, all outstanding unvested
options under the Director Option Plan immediately vest. As of December 31,
2001, 52,500 shares were outstanding under the Director Option Plan. At December
31, 2001 options for 17,500 shares were available for grant under the Director
Option Plan. The Company has reserved 70,000 shares of common stock for issuance
under the Director Option Plan.

In May 1999, the Company adopted its Non-Employee Director Supplemental
Stock Option Plan (the Director Supplemental Option Plan) that provides up to
500,000 options to be issued to the Directors of the Company as amended. The
exercise price of such options shall not be less than the fair market value of
the Company's common stock on the date of grant. The Board of Directors may
terminate the Director Supplemental Option Plan at any time. Upon occurrence of
a Change in Control as defined in the Director Supplemental Option Plan, all
outstanding unvested options under the Director Supplemental Option Plan vest
immediately. As of December 31, 2001, options for 292,000 shares were
outstanding under the Director Supplemental Option Plan. At December 31, 2001,
options for 208,000 shares were available for grant under the Director
Supplemental Option Plan. The Company has reserved 500,000 shares of common
stock for issuance under the Director Supplemental Option Plan.
21

AROS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following is a summary of the Company's option transactions for the
years ending December 31, 2001, 2000 and 1999:

The following table summarizes information regarding stock options
outstanding at December 31, 2001:

The Company applies APB 25 in accounting for its stock based compensation
plans. Compensation expense recognized in the statements of operations for
stock-based compensation was $99,000, $0 and $0 for years ended December 31,
2001, 2000 and 1999, respectively. Had the Company determined compensation cost
based on the fair value at the grant date for these plans under SFAS 123, the
Company's net income (loss) would have been adjusted to the pro forma amounts
indicated below:

22

AROS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions: January 1, 2001 through December 31, 2001 -- expected dividend
yield of 0%, risk free interest rate of 4.58%, expected volatility factor of
124.54% and an expected life of 5 years; January 1, 2000 through December 31,
2000 -- expected dividend yield of 0%, risk-free interest rate of 5.5%, expected
volatility factor of 124.54%, and an expected life of 6 years; January 1, 1999
through December 31, 1999 -- expected dividend yield of 0%, risk-free interest
rate of 5.86%, expected volatility factor of 202.34%, and an expected life of 6
years.

The effect of applying SFAS 123 on 2001, 2000, 1999 pro forma net income
(loss) as stated above is not necessarily indicative of the effects in reported
net income (loss) for future years due to, among other things, the vesting
period of the stock options and the fair value of additional stock options in
future years.

Stock Warrants

In connection with the purchase of MetaContent, the Company exchanged one
million shares of its common stock and warrants to purchase one million shares
of the Company's common stock at $0.50 per share for all of the outstanding
shares of MetaContent. A value of $240,000 was ascribed to the warrants. The
warrants expire March 19, 2011.

Employee Stock Purchase Plan

Effective May 1, 1996, the Company adopted an Employee Stock Purchase Plan
(the Purchase Plan). A total of 210,000 shares of common stock are available for
purchase under the Purchase Plan. The Purchase Plan permits eligible employees
to purchase common stock through payroll deductions, which may not exceed 8% of
an employee's base compensation, including commissions, bonuses and overtime, at
a price equal to 85% of the fair market value of the common stock at the
beginning of each offering period or the end of a three month purchase period,
whichever is lower. The Board of Directors has the authority to amend or
terminate the Purchase Plan provided no such action may adversely affect the
rights of any participant.

The Employee Stock Purchase Plan was terminated on December 31, 2001.

(7) OTHER COMPREHENSIVE INCOME

The accumulated balances in other comprehensive income at December 31
follow (in thousands):

23

AROS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(8) EARNINGS (LOSS) PER SHARE (EPS)

The following table sets forth the computation of basic and diluted
earnings (loss) per share for the years ended December 31, 2001, 2000, and 1999
(in thousands, except per share data):

Options to purchase 1,146,268 and 1,481,298 shares of common stock were
outstanding at December 31, 2001 and 2000, respectively, but were not included
in the computation of diluted EPS because the options' weighted average exercise
price was greater than the average market price of the common shares and the
affect of including such shares would be anti-dilutive to the per share amount.

The Company has 1,459,722 and 477,205 warrants outstanding at December 31,
2001 and 2000, respectively, that were not included in the computation of
diluted EPS because the warrants' weighted average exercise price was greater
than the average market price of the common shares and the affect of including
such shares would be anti-dilutive to the per share amount.

(9) EMPLOYEE BENEFIT PLANS

The Company sponsors a profit sharing plan ("Plan") intended to qualify
under Section 401(k) of the Internal Revenue Code. All employees are eligible to
participate in the Plan after three months of service. Employees may contribute
a portion of their salary to the Plan, subject to annual limitations imposed by
the Internal Revenue Code. The Company may make matching or discretionary
contributions to the Plan at the discretion of the Board of Directors, but has
made no such contribution to date. Employer contributions generally vest over
seven years. As of July 3, 2001, all contributions to the Plan were
discontinued. The Company is in the process of terminating the Plan.

The Company sponsors a defined benefit pension plan ("Pension Plan")
covering all former employees of National Health Advisors, a subsidiary of the
Company acquired in 1997. The Pension Plan was amended to

24

AROS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

freeze benefit accruals and the entry of new participants effective October 31,
1997. The sale of the Company's APACHE Clinical Outcomes Division in 2001
resulted in the termination of all remaining participants in the Pension Plan
thereby constituting a further curtailment. During 2001, all unamortized
actuarial losses were also recognized and a curtailment gain of $89,765 was
recorded.

The benefits under the Pension Plan are based on final average compensation
and are offset by each employee's interest in the Company's profit sharing plan.
The Company's funding policy is to contribute annually an amount that can be
deducted for federal income tax purposes and meets minimum funding standards,
using an actuarial cost method and assumptions which are different from those
used for financial reporting.

The Company's pension expense is as follows (in thousands):

Rollforwards of the benefit obligation, fair value of plan assets and a
reconciliation of the pension plan's funded status at November 30, the
measurement date, and significant assumptions follow (in thousands):

25

AROS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(10) SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest was approximately $9,000, $41,000, and $30,000 for
the years ended December 31, 2001, 2000 and 1999, respectively.

(11) FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments included in current assets and current liabilities,
which include cash and cash equivalents, accounts payable and accrued expenses,
approximate fair value.

(12) SUBSEQUENT EVENTS

None.

26

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning the directors and executive officers of the Company
is incorporated herein by reference from the Company's Proxy Statement for the
2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission.

ITEM 11. EXECUTIVE COMPENSATION

Information concerning management compensation is incorporated herein by
reference from the Company's Proxy Statement for the 2002 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the Company's Proxy
Statement for the 2002 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning certain relationships and related transactions is
incorporated herein by reference from the Company's Proxy Statement for the 2002
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) List of documents filed as part of this report.

1. The consolidated financial statement required by Part IV, Item 14 is
included in Part II, Item 8.

2. The financial statement schedules required by Part IV, Item 14 are
included in Part II, Item 8.

(b) Reports on Form 8-K.

27

During the quarter ended December 31, 2001, Aros did not file any current
reports on Form 8-K.

(c) Exhibits

- ---------------
(1) Incorporated herein by reference to the Company's Current Report on Form
8-K filed on January 14, 1997 (File No. 0-20805)
(2) Incorporated herein by reference to the Company's Registration Statement on
Form S-1 (File No. 333-04106)
(3) Incorporated herein by reference to the Company's Current Report on Form
8-K filed on June 4, 1997 (File No. 0-20805)

28

(4) Incorporated herein by reference to the Company's Report on Form 10-Q for
the quarter ended March 31, 1997 (File No. 0-20805)
(5) Incorporated herein by reference to the Company's Report on Form 10-Q for
the quarter ended June 30, 1997 (File No. 0-20805)
(6) Incorporated herein by reference to the Company's Report on Form 10-K for
the year ended December 31, 1997 (File No. 0-20805)
(7) Incorporated herein by reference to the Company's Report on Form 10-Q for
the quarter ended June 30, 1998 (File No. 0-20805)
(8) Incorporated herein by reference to the Company's Report on Form 10-K for
the year ended December 31, 1998 (File No. 0-20805)
(9) Incorporated herein by reference to the Company's Report on Form 10-Q for
the quarter ended March 31, 1999 (File No. 0-20805)
(10) Incorporated herein by reference to the Company's Report on Form 10-Q for
the quarter ended September 30, 1999 (File No. 0-20805)
(11) Incorporated herein by reference to the Company's Report on Form 10-K for
the year ended December 31, 1999 (File No. 0-20805)
(12) Incorporated herein by reference to the Company's Report on Form 10-Q for
the quarter ended June 30, 2000 (File No. 0-20805)
(13) Incorporated herein by reference to the Company's Report on Form 10-K for
the year ended December 31, 2000 (File No. 0-20805)
(14) Incorporated herein by reference to the Company's Definitive Proxy
Statement filed pursuant to Schedule 14A on May 1, 2001 (File No. 0-20805)
(15) Incorporated herein by reference to the Company's Report on Form 10-Q/A for
the quarter ended March 31, 2001 (File No. 0-20805)
(16) Incorporated herein by reference to the Company's Report on Form 8-K dated
April 12, 2001 (File No. 0-20805)
(17) Incorporated herein by reference to the Company's Current Report on Form
8-K filed on July 18, 2001 (File No. 0-20805)
(18) Incorporated herein by reference to the Company's Current Report on Form
8-K/A filed on September 17, 2001 (File No. 0-20805)
(19) Incorporated herein by reference to the Company's Report on Form 10-Q for
the quarter ended June 30, 2001 (File No. 000-20805)
(20) Incorporated herein by reference to the Company's Report on Form 10-Q for
the quarter ended September 30, 2001 (File No. 000-20805)

(d) Financial Statement Schedules

Not applicable.

29

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 1, 2002.

APACHE MEDICAL SYSTEMS, INC.

By:
/s/ GERALD E. BISBEE, JR., PH.D.
------------------------------------
Gerald E. Bisbee, Jr.
President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on April 1, 2002 by the following persons on behalf
of the Registrant in the capacities indicated.

AROS CORPORATION

BOARD OF DIRECTORS

Gerald E. Bisbee, Jr., Ph.D.
President, Chairman &
Chief Executive Officer
ReGen Biologics, Inc.

William R. Lewis
Financial Consultant

Alan W. Baldwin
Chief Executive Officer
Alcore Inc.