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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____ to ____
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Commission File Number 000-22649
ARIS CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1497147
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
FORT DENT ONE, SUITE 250
6720 FORT DENT WAY
SEATTLE, WASHINGTON 98188-2555 (206) 433-2081
(Address of principal executive office) (Registrant's telephone number,
including area code)
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 for such reports),
and
(2) Has been subject to such filing requirements for the past 90
days. Yes [X] No [_]
The number of shares outstanding of the registrant's common stock as of
September 30, 1997 was 9,757,736.
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ARIS CORPORATION
FORM 10-Q
INDEX PAGE
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
a) Condensed Consolidated Balance Sheets as of 3
September 30, 1997 and December 31, 1996
b) Condensed Consolidated Statements of Income 4
for the Quarters and Nine Months Ended
September 30, 1997 and 1996.
c) Condensed Consolidated Statements of Cash 5
Flows for the Nine Months Ended September
30, 1997 and 1996
d) Condensed Consolidated Statement of Changes 6
in Shareholders' Equity as of September 30,
1997
e) Notes to Condensed Consolidated Financial 6-7
Statements
Item 2 Management's Discussion and Analysis of Financial 8-14
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security 16
Holders
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
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PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
ARIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
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SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- ----------
<S> <C> <C>
Assets
Current assets:
Cash .................................................................... $ 886 $ 177
Cash equivalents and investments in marketable
securities .............................................................. 27,492 1,396
Accounts receivable, net of allowance for
doubtful accounts of $543 and $300 ..................................... 10,558 5,169
Other current assets .................................................. 1,759 1,052
-------- --------
Total current assets ............................................... 40,695 7,794
Property and equipment, net ............................................. 4,293 2,517
Intangible and other assets, net ........................................ 3,430 2,645
-------- --------
Total assets ....................................................... $ 48,418 $ 12,956
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ........................................................ $ 2,694 $ 787
Accrued liabilities ..................................................... 2,729 1,196
Notes payable ........................................................... 1,500
Other current liabilities ............................................... 1,829 550
-------- --------
Total current liabilities ......................................... $ 7,252 $ 4,033
-------- --------
Deferred income taxes .......................................................... 605 713
-------- --------
Commitments and contingencies
Shareholder's equity:
Preferred stock, 5,000,000 shares authorized, none issued and outstanding
Common stock, no par value; 100,000,000 shares authorized; 9,757,736 and
7,555,900 shares outstanding ............................................ 34,522 1,943
Retained earnings ....................................................... 6,070 6,042
Net unrealized holding gain on investments .............................. 1 225
Cumulative foreign currency translation
adjustment .............................................................. (32)
-------- --------
Total shareholders' equity ......................................... 40,561 8,210
-------- --------
Total liabilities and shareholders' equity $ 48,418 $ 12,956
======== ========
See accompanying notes
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</TABLE>
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<TABLE>
<CAPTION>
ARIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for share data)
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------------------------------------------------------------
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
------------------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue, net:
Consulting ....................... $ 7,979 $ 4,532 $ 21,969 $ 10,572
Training ......................... 5,528 2,217 14,144 6,596
Software ......................... 1,075 386 2,386 668
----------- ----------- ----------- -----------
Total revenue ................. 14,582 7,135 38,499 17,836
Cost of sales: ...................... 6,739 3,702 17,948 8,897
----------- ----------- ----------- -----------
Gross profit .................. 7,843 3,433 20,551 8,939
Selling, general and administrative . 5,637 2,462 14,742 5,971
----------- ----------- ----------- -----------
Income from operations ........ 2,206 971 5,809 2,968
Other income, net ................... 442 21 626 67
----------- ----------- ----------- -----------
Income before income tax ...... 2,648 992 6,435 3,035
Income tax expense .................. 1,061 362 2,500 1,110
----------- ----------- ----------- -----------
Net income .......................... $ 1,587 $ 630 $ 3,935 $ 1,925
=========== =========== =========== ===========
Net income per share ................ $ 0.15 $ 0.07 $ 0.43 $ 0.22
=========== =========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding 10,653,995 8,627,122 9,180,445 8,615,351
=========== =========== =========== ===========
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</TABLE>
See accompanying notes
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<CAPTION>
ARIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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FOR THE NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
-------------------- ------------------
<S> <C> <C>
Net cash provided by operating activities ......... $ 2,671 $ 1,219
-------- --------
Cash flows from investing activities:
Purchases of investments in marketable securities . (21,130) (271)
Sales of investments in marketable securities ..... 8,790 221
Acquisition of businesses, net of cash acquired ... (93)
Purchases of property and equipment ............... (1,289) (746)
-------- --------
Net cash provided by (used in) investing activities (13,722) (796)
-------- --------
Cash flows from financing activities:
Proceeds from initial public offering, net of
offering costs .................................... 31,245
Repurchase of common stock ........................ (4,028) (100)
Payments on notes payable ......................... (10,075) (1)
Proceeds from long-term debt ...................... 8,575 441
Proceeds from exercise of stock options ........... 55 2
Other, net ........................................ 8
-------- --------
Net cash provided by financing activities ......... 25,772 350
-------- --------
Net increase in cash .............................. 14,721 773
Effect of exchange rate changes on cash and cash
equivalents ....................................... (32)
Cash and cash equivalents at beginning of period .. 177 1,241
======== ========
Cash and cash equivalents at end of period ........ $ 14,866 $ 2,014
======== ========
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</TABLE>
See accompanying notes
Page 5
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<TABLE>
<CAPTION>
ARIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (In
thousands, except for share data)
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COMMON STOCK
--------------------------
CUMULATIVE
FOREIGN
NET UNREALIZED CURRENCY TOTAL
RETAINED HOLDING GAIN TRANSLATION SHAREHOLDERS'
SHARES ISSUED AMOUNT EARNINGS ON INVESTMENTS ADJUSTMENT EQUITY
------------- ----------- -------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ... 7,555,900 $ 1,943 $ 6,042 $ 225 $ 8,210
Shares issued in initial public 2,300,000 31,245 31,245
offering, net of offering costs
Shares issued in acquisitions .. 280,000 1,400 1,400
Stock redemption ............... (415,000) (121) (3,907) (4,028)
Stock options exercised ........ 36,836 55 55
Unrealized holding loss on ..... (15) (15)
investments
Realization of holding gain upon (209) (209)
sale of investments
Foreign currency translation ... $ (32) (32)
adjustment
Net income ..................... 3,935 3,935
=========== =========== ======== ======== =========== ===========
Balance at September 30, 1997 .. 9,757,736 $ 34,522 $ 6,070 $ 1 $ (32) $ 40,561
=========== =========== ======== ======== =========== ===========
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</TABLE>
ARIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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1. The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments consisting only of normal,
recurring adjustments which are necessary to state fairly the condensed
consolidated balance sheets, and condensed consolidated statements of
income, statements of cash flows and statement of changes in
shareholders' equity of ARIS Corporation ("ARIS" or the "Company") as
of and for the periods indicated. ARIS presumes that users of the
interim financial information herein have read or have access to the
Company's audited consolidated financial statements and Management's
Discussion and Analysis of Financial Condition and Results of
Operations for the preceding fiscal year and that the adequacy of
additional disclosure needed for a fair presentation, except in regard
to material contingencies or recent significant events, may be
determined in that context. Accordingly, footnote and other disclosures
which would substantially duplicate the disclosures contained in the
Company's Form S-1 Registration Statement ("Registration Statement")
filed on May 29, 1997, as amended, have been omitted.
2. The Registration Statement contained the final prospectus with respect
to 2,320,080 shares of the Company's common stock offered therein. The
initial public offering price was $15.00 per share. Of the total shares
sold, 20,800 shares were sold by selling shareholders. The net proceeds
received by the Company were $31,245,000 after the deduction of
underwriting discounts and commissions and other offering expenses.
From such net proceeds the Company repaid a revolving bank loan in
accordance with repayment terms of the lending agreement in the amount
of $4 million plus accrued interest. The remainder of the net proceeds
(approximately $27,245,000) will be used for general corporate
purposes, acquisitions of businesses and capital expenditures
associated with the expansion of the Company's operations. Prior to the
offering made pursuant to the Registration Statement, there had been no
public market for the Company's common stock.
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3. In February 1997, the Company repurchased 415,000 shares of its common
stock at $8.50 and $9.75 per share from certain shareholders of the
Company. The stock repurchase was financed by the Company's revolving
line of credit.
4. In February 1997, the Company acquired the stock of Oxford Computer
Group Limited ("Oxford"), a company that provides information
technology consulting and training services with offices in Oxford,
London and Birmingham, England. The shareholders of Oxford exchanged
all of their issued and outstanding shares of Oxford for 280,000 shares
of the Company's common stock. The acquisition has been accounted for
using the purchase method. Accordingly, the results of operations of
Oxford are included with the results of operations for the Company for
periods subsequent to the date of acquisition. Subsequent to the
acquisition of Oxford, 207,891 stock options were granted to employees
of Oxford. Terms of the option agreements include an exercise price of
$9.40 and vesting over four years. Oxford had revenues of approximately
$7,384,000 and net income of approximately $170,000 for the year ended
December 31, 1996.
The unaudited pro forma combined results of operations of the Company
and Oxford are as follows:
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For the Nine Months Ended
----------------------------------
September 30, September 30,
1997 1996
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<S> <C> <C>
Revenue $40,085,000 $ 23,160,000
Net income $ 4,030,000 $ 2,155,000
Net income per share $ 0.44 $ 0.25
</TABLE>
Subsequent to September 30, 1997, the Company acquired Enterprise
Computing Inc., Agiliti, Inc. and Absolute!, Inc. in transactions
accounted for as purchase transactions.
5. In February, 1997, Statement of Financial Accounting Standards No. 128,
Earnings per Share (SFAS 128), was issued. This pronouncement modifies
the calculation and disclosure of earnings per share (EPS) and will be
adopted by the Company in its financial statements for the year ended
December 31, 1997. Although early adoption is not permitted, proforma
disclosure is permitted (Exhibit 11). After the adoption date, EPS data
for all periods presented, including quarterly financial data, are
required to be restated to conform with the provisions of SFAS 128.
6. Cash equivalents are comprised primarily of money market funds and
marketable debt securities with maturity dates of 90 days or less.
Investments in marketable equity securities are comprised primarily of
mutual fund shares. A summary of cash equivalents and investments in
marketable securities follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
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<S> <C> <C>
Cash equivalents $13,980,000
Investments in marketable debt securities $13,512,000
Investments in marketable equity securities $1,396,000
----------- ----------
$27,492,000 $1,396,000
=========== ==========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
ARIS provides an integrated information technology ("IT") solution
consisting of consulting and training services primarily focused on Oracle
Corporation ("Oracle") and Microsoft Corporation ("Microsoft") technologies.
ARIS currently focuses on three core consulting competencies: packaged
application implementation, custom application development and systems
architecture planning and deployment. The Company offers instructor-led training
for IT professionals conducted at ARIS' training centers and at client
facilities. The Company also develops, markets and supports proprietary software
products that enhance Oracle database management and Oracle packaged
applications. The Company believes that its ability to provide clients with an
integrated IT solution, coupled with its focus on leading-edge technologies,
provide it with a unique competitive advantage.
This commentary should be read in conjunction with the sections of the
following documents for a full understanding of the Company's financial
condition and results of operations: from the Company's Registration Statement
filed May 29, 1997, as amended, and its Prospectus dated June 18, 1997, the Risk
Factors, pages 3 to 10, Management's Discussion and Analysis of Financial
Condition and Results of Operations, pages 15 to 25, and the Consolidated
Financial Statements and Notes to Consolidated Financial Statements on pages F-1
to F-31; and from the Company's Quarterly Report on Form 10-Q for the period
ending June 30, 1997; from the Company's Quarterly Report on Form 10-Q for the
period ending September 30, 1997, of which this commentary is a part, the
Consolidated Financial Statements and Notes to Consolidated Financial
Statements, pages 3 through 8 and the Company's Form 8-K filed September 26,
1997 in connection with the Company's acquisition of Enterprise Computing Inc.
(doing business as Buller Owens & Associates).
All statements, trend analysis and other information contained herein
relative to markets for the Company's services and products and trends in
revenue, gross margin and anticipated expense levels, as well as other
statements including words such as "seek," "anticipate," "believe," "plan,"
"estimate," "expect," "intend," and other similar expressions, constitute
forward-looking statements. These forward-looking statements are subject to
business and economic risks, and the Company's actual results of operations may
differ materially from those contained in the forward-looking statements.
THIRD QUARTER 1997 COMPARED TO THIRD QUARTER 1996
TOTAL REVENUE
Total revenues increased $7,447,000 to $14,582,000 for the quarter
ended September 30, 1997 from $7,135,000 for the quarter ended September 30,
1996, representing a 104% increase. On a pro forma basis (assuming all companies
acquired by ARIS subsequent to January 1, 1996 had been owned throughout the
comparison periods), total revenues increased approximately 48%. As discussed
below, increases in revenues were reflected in all three lines of business.
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CONSULTING REVENUE
Consulting revenue increased as a result of an overall increase in the
level of consulting activity. The Company employed or contracted for the
services of 164 full-time consultants and project managers at September 30, 1997
compared to 98 at September 30, 1996. Consulting revenues increased $3,447,000
to $7,979,000 for the quarter ended September 30, 1997 from $4,532,000 for the
quarter ended September 30, 1996 representing a 76% increase. Consulting
operations were conducted from seven consulting offices in the United States and
the United Kingdom including three offices which were either newly opened or
which initiated consulting revenue producing activities after September 30,
1996. On a proforma basis, assuming all companies acquired by ARIS subsequent to
January 1, 1996 had been owned throughout the comparison period, total
consulting revenues increased 58%.
TRAINING REVENUE
Training revenue increased $3,311,000 to $5,528,000 for the quarter
ended September 30, 1997 from $2,217,000 for the quarter ended September 30,
1996, representing a 149% increase. A significant portion of the increase in
training revenues for the third quarter of 1997 is attributable to business
units acquired subsequent to January 1, 1996. ARIS acquired SQLSoft Corporation
in May 1996, SofTeach Corporation in October 1996, and Oxford Computer Group,
Ltd. in February 1997. On a pro forma basis (assuming the companies acquired by
ARIS subsequent to January 1996 had been owned throughout the comparison
periods), total revenues increased approximately 33%. In addition, revenues
increased in the comparison period as a result of a significant increase in the
number of classes and class training days offered. The Company offered 961
classes and 2553 training days in the quarter ended September 30, 1997 as
compared to 168 classes and 776 training days in the quarter ended September 30,
1996.
SOFTWARE REVENUE
Software revenue increased $689,000 to $1,075,000 for the quarter ended
September 30, 1997 from $386,000 in the quarter ended September 30, 1996,
representing an increase of 178%. The increase in revenue is primarily
attributable to sales of the NoetixViews suite of products developed by Noetix
Corporation ("Noetix"). ARIS acquired Noetix in October 1996. On a proforma
basis, assuming Noetix had been owned by ARIS throughout the comparison period,
software revenues increased 68%.
COST OF SALES
Cost of sales consists primarily of salaries and employee benefits for
consultants, project managers and instructors; subcontractor fees; and
non-reimbursable travel expenses related to consulting and training activities
as well as cost of production of software modules and amortization of
capitalized software costs. Cost of sales increased $3,037,000 to $6,739,000 in
the quarter ended September 30, 1997 from $3,702,000 in the quarter ended
September 30, 1996. The increase in cost of sales is primarily a reflection of
the increase in sales. Cost of sales as a percentage of sales decreased from 51%
for the quarter ended September 30, 1996 to 46% for the quarter ended September
30, 1997. The reduction in percentage of sales is a result of the relative
increase in proportion of training and software revenues to total revenue.
Training and software
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operations typically have lower cost of sales and higher
selling, general and administrative ("SG&A") expenses when compared to
consulting operations. Training operations utilize a lower proportion of
professional labor and benefits, which are included in cost of sales, and higher
proportions of marketing, facilities and general office administration costs
which are included in SG&A expense. The percentage reduction in cost of sales in
the quarter ended September 30, 1997 is also attributable to the inclusion of
Oxford which derives its principal revenues from training operations and
therefore contributes a lower proportion of cost of sales and higher SG&A
expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative (SG&A) expense consists of salaries
and employee benefits for executive, managerial, administrative and sales
personnel; facility leases; amortization of capitalized computer hardware and
equipment costs; software license fees, travel and business development costs.
SG&A expense increased $3,175,000 to $5,637,000 for the quarter ended September
30, 1997 from $2,462,000 for the quarter ended September 30, 1996, representing
an increase of 128%. This increase is attributable primarily to growth in the
number of management, sales and administrative staff from 86 at September 30,
1996 to 182 at September 30, 1997. SG&A expense as a percentage of total revenue
increased from 34% for the quarter ended September 30, 1996 to 38% for the
quarter ended September 30, 1997. Whereas the growth of SG&A expense is
primarily attributable to increases in the number of staff members employed, the
increase in SG&A expenses as a percentage of revenue is primarily attributable
to the addition of Oxford, which has relatively higher SG&A expenses as a
percentage of revenues than do similar operations in the United States.
Professional information technology wages in the United Kingdom, which are
included in cost of sales, are relatively lower than in the United States while
the cost of facilities and the Company's administration costs are relatively
higher than comparable costs in the Company's United States operations. SG&A
expenses as a percentage of revenues also increased because the Company's
revenues from training and software as a percentage of all revenues increased.
These business lines typically have higher SG&A costs and lower cost of sales
when compared to consulting operations.
OTHER INCOME, NET
Other income, net, consists primarily of interest income on cash and
cash equivalents and gain on sale of equity investments which is partially
offset by interest associated with short term borrowings. Other income
(expense), net, increased $421,000 from $21,000 for the quarter ended September
30, 1996 to $442,000 for the quarter ended September 30, 1997. The increase is
primarily attributable to the Company's investment yield on approximately
$28,000,000 of proceeds from the companies initial public stock offering
completed on June 19, 1997.
INCOME TAX EXPENSE
Income tax expense increased $699,000 to $1,061,000 in the quarter
ended September 30, 1997 from $362,000 for the quarter ended September 30, 1996
as a result of increased revenues and net income before tax. As a percentage of
revenues, income tax expense increased from 5.0% to 7.2% and the effective tax
rate increased from 36.4% to 40%. The effective tax rate is
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influenced by the mix of United Kingdom and United States tax rates, as well as
the tax rates of the various states in which the Company conducts its
operations. The higher effective tax rate is principally the result of the
Company conducting operations in an increasing number of states with income
taxes, amortization of non-deductible goodwill associated with companies
acquired and expenditure of certain non-deductible leasing costs in the
United Kingdom. From October 1, 1996, through September 30, 1997, the Company
has opened offices or acquired operating companies in Oregon, Florida, Colorado,
Washington DC and United Kingdom; each of which has caused the Company to pay
incremental taxes based on revenues in those locations.
NET INCOME
Net income increased $957,000 to $1,587,000 for the quarter ended
September 30, 1997 from $630,000 for the quarter ended September 30, 1996. Net
income as a percentage of sales increased from 8.8% to 10.8% as a result of
increasing maturity and profitability of offices opened or acquired in the
comparison period, increases in revenues attributable to software operations,
increases in gross profit from all operations, and interest income earned on
proceeds from the Company's initial public stock offering.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
TOTAL REVENUE
Total revenues increased $20,663,000 to $38,499,000 for the nine months
ended September 30, 1997 from $17,836,000 for the nine months ended September
30, 1996, representing a 116% increase. On a pro forma basis (assuming all
companies acquired by ARIS subsequent to January 1, 1996 had been owned
throughout the comparison periods), total revenues increased approximately 51%.
As discussed below, increases in revenues were reflected in all three lines of
business.
CONSULTING REVENUE
Consulting revenue increased as a result of an overall increase in the
level of consulting activity. The Company employed or contracted for the
services of 164 full-time consultants and project managers at September 30, 1997
compared to 98 at September 30, 1996. Consulting revenues increased $11,397,000
to $21,969,000 for the nine months ended September 30, 1997 from $10,572,000 for
the nine months ended September 30, 1996 representing a 108% increase.
Consulting operations were conducted from seven consulting offices in the United
States and United Kingdom including three offices which were either newly opened
or which initiated consulting revenue producing activities after September 30,
1996. On a proforma basis, assuming all companies acquired by ARIS subsequent to
January 1, 1996 had been owned throughout the comparison period, total
consulting revenues increased 88%.
TRAINING REVENUE
Training revenue increased $7,547,000 to $14,143,000 for the nine
months ended September 30, 1997 from $6,596,000 for the nine months ended
September 30, 1996, representing a 114% increase. A significant portion of the
increase in training revenues for the
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nine months ended September 30, 1997 is attributable to business units acquired
subsequent to May 1, 1996. ARIS acquired SQLSoft Inc. in May 1996, SofTeach
Corporation in October 1996, and Oxford in February 1997. On a pro forma basis
(assuming the companies acquired by ARIS subsequent to January 1, 1996 had been
owned throughout the comparison periods), total revenues increased approximately
16%. In addition, revenues increased in the current period as a result of a
significant increase in the number of classes and class training days offered.
The Company offered 2767 classes and 7319 training days in the nine months ended
September 30, 1997 as compared to 622 classes and 2581 training days in the nine
months ended September 30, 1996.
SOFTWARE REVENUE
Software revenue increased $1,718,000 to $2,386,000 for the nine months
ended September 30, 1997 from $668,000 for the nine months ended September 30,
1996, representing an increase of 257%. The increase in revenue is primarily
attributable to sales of the NoetixViews suite of products developed by Noetix
Corporation ("Noetix"). ARIS acquired Noetix in October 1996. On a proforma
basis, assuming Noetix had been owned by ARIS throughout the comparison period,
software revenues increased 60%.
COST OF SALES
Cost of sales increased $9,051,000 to $17,948,000 in the nine months
ended September 30, 1997 from $8,897,000 in the nine months ended September 30,
1996. The increase in cost of sales is primarily a reflection of the increase in
sales. Cost of sales as a percentage of sales decreased from 50% for the nine
months ended September 30, 1996 to 47% for the nine months ended September 30,
1997. The reduction in cost of sales as a percentage of sales is a result of the
relative increase in proportion of training and software revenues to total
revenue and the maturity of the Company's recent office openings and
improvements in operating margins of acquired companies or operations. The
percentage reduction in cost of sales is also attributable to inclusion of
Oxford in the nine months ended September 30, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative (SG&A) expense increased $8,771,000
to $14,742,000 for the nine months ended September 30, 1997 from $5,971,000 for
the nine months ended September 30, 1996, representing an increase of 147%. This
increase is attributable primarily to growth in the number of management, sales
and administrative staff from 86 at September 30, 1996 to 182 at September 30,
1997. SG&A expense as a percentage of total revenue increased from 33% for the
nine months ended September 30, 1996 to 38% for the quarter ended September 30,
1997. The increase is primarily attributable to the addition of Oxford, which
has relatively higher SG&A expenses as a percentage of revenues than do similar
operations in the United States.
OTHER INCOME, NET
Other income, net, increased $559,000 from $67,000 for the nine months
ended September 30, 1996 to $626,000 for the nine months ended September 30,
1997. The increase is
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primarily attributable to the Company's investment yield on approximately
$28,000,000 of proceeds from the companies initial public stock offering
completed on June 19, 1997 and a gain amounting to $282,000 realized on the sale
of $1,337,000 of equity securities immediately prior to the Company's stock
offering.
INCOME TAX EXPENSE
Income tax expense increased $1,390,000 to $2,500,000 in the nine
months ended September 30, 1997 from $1,110,000 for the nine months ended
September 30, 1996 as a result of increased revenues and net income before tax.
As a percentage of revenues, income tax expense increased from 6.2% to 6.4% and
the effective tax rate increased from 36.6% to 39%. The effective tax rate is
influenced by the mix of United Kingdom and United States tax rates, as well as
the tax rates of the various states in which the Company conducts its
operations. The higher effective tax rate is principally the result of the
Company conducting operations in an increasing number of states with income
taxes, the increase in federal taxes attributable to non-deductible amortization
of goodwill associated with companies acquired and expenditure of certain
non-deductible leasing costs in the United Kingdom. From October 1, 1996
and through September 30, 1997, the Company has opened offices or acquired
operating companies in Oregon, Florida, Colorado, Washington DC and United
Kingdom; each of which has caused the Company to pay incremental taxes based on
revenues in those locations.
NET INCOME
Net income increased $2,010,000 to $3,935,000 for the nine months ended
September 30, 1997 from $1,925,000 for the nine months ended September 30, 1996.
Net income as a percentage of sales decreased from 10.7% to 10.2% primarily as a
result of higher selling, general and administrative costs as a percentage of
sales and lower net income of United Kingdom operations compared to net income
of United States operations and expenditure of acquisition and integration
charges incurred in connection with the Company's acquisition of three
businesses and two office openings in the comparison period. These cost
increases were substantially offset by increasing gross margins within the
comparison period and interest income earned on proceeds from the Company's
initial public stock offering.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997 the Company had working capital of $33,443,000
including cash or cash equivalents and marketable debt securities of
$28,378,000. The Company intends to finance its working capital needs, as well
as purchases of additional property and equipment for its operations, from cash
generated by operations and available cash.
Net cash provided by operating activities was $2,671,000 for the nine
months ended September 30, 1997. Cash was also provided by the sale of equity
securities in the net amount of $1,337,000 while cash was utilized for the
purchase of property and equipment in the amount of $1,289,000 and the
acquisition of a business in the amount of $93,000. The Company's primary
financing activity in the nine months ended September 30, 1997 was the
completion of its initial public offering which provided $31,391,000 of cash
proceeds net of costs of the offering. The Company utilized $4,028,000 to
repurchase 415,000 of its common stock. Additionally,
Page 13
<PAGE>
$10,075,000 was utilized to repay debt of which $8,575,000 had been initially
borrowed in the same period. As a result, cash and cash equivalents increased
$28,099,000 in the nine months ended September 30, 1997.
The Company has financed its acquisitions of businesses through cash
generated by operating activities, offering debt instruments to sellers and by
exchange of its common stock. The Company believes that it will be able to
continue to fund all capital required to acquire new businesses with cash
generated from operations, cash currently on hand and a bank borrowing facility
in the amount of $8,000,000. To continue its growth strategy, however, the
Company may need to issue additional debt or equity securities.
SUBSEQUENT EVENTS:
On September 13, 1997, the Company entered into an Agreement and Plan
of Merger to acquire Enterprise Computing Inc. (doing business as Buller Owens &
Associates), an information technology training company located in New York, New
York. The transaction, which was effective October 1, 1997, will be accounted
for as a purchase transaction. In a transaction valued at $2,812,000, the
Company issued 62,531 shares of its restricted common stock, 20,844 warrants to
purchase the Company's common stock at $23.99 per share and $1,500,000 in cash
for all outstanding shares of Enterprise Computing Inc. The Company filed Form
8-K on September 26, 1997 in connection with this transaction. The Company did
not file any financial statements with that initial report on Form 8-K. The
Company will provide the required financial statements by filing a Form 8-K/A
within the time prescribed by Item 7(a)(4) of the instructions to Form 8-K.
On October 21, 1997 the Company entered into an Agreement and Plan of
Merger to acquire Absolute!, Inc., an information technology training company
located in Dallas, Texas. The Company issued 40,909 shares of its restricted
common stock and $100,000 in cash for all outstanding shares of Absolute!, Inc.
The merger, which was effective November 4, 1997, will be accounted for as a
purchase transaction.
On October 22, 1997 the Company entered into a Stock Purchase
Agreement to purchase all of the outstanding shares of capital stock of Agiliti,
Inc., an information technology training company located in Bloomington,
Minnesota. The Company issued 50,941 shares of its restricted common stock for
all outstanding shares of Agiliti, Inc. The transaction, which was effective
November 3, 1997, will be accounted for as a purchase transaction.
Page 14
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved from time to time in routine legal proceedings
incidental to its business. As of September 30, 1997, the Company was not
involved in any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
In connection with the Company's initial public offering (the
"Offering") of its common stock, without par value (the "Common Stock"), the
Company filed a Registration Statement on Form S-1 on April 18, 1997
(Registration No. 333-25409), as amended (the "Registration Statement"),
pursuant to which the Company registered 2,320,800 shares of its Common Stock,
of which 2,300,000 shares were sold by the Company, and the remaining 20,800
shares were sold by certain selling shareholders. The Registration Statement was
declared effective by the Securities and Exchange Commission on June 17, 1997.
Deutsche Morgan Grenfell was the managing underwriter of the Offering. The
Offering commenced on June 18, 1997, and terminated following the sale of all of
the securities registered under the Registration Statement. The Common Stock was
offered, and sold, to the public at $15.00 per share, for aggregate
consideration of $34,812,000, of which the Company received gross proceeds of
$32,085,000, the selling shareholders received gross proceeds of $290,160, and
the remaining $2,436,840 was allocated as the underwriting discount.
From the effective date of the Registration Statement through September
30, 1997, the Company has incurred an estimated $3,255,000 in expenses for the
Company's account in connection with the issuance and distribution of the Common
Stock, including underwriting discounts and commissions ($2,415,000) and other
expenses ($840,000). No finders' fees or expenses were paid to or for the
underwriters. The Company believes that none of these payments were made,
directly or indirectly, to: (i) directors or officers of the Company, or their
associates; (ii) persons owning ten percent or more of any class of equity
securities of the Company; or (iii) affiliates of the Company.
From the effective date of the Registration Statement through September
30, 1997, the Company has applied $4,000,000 of the Offering proceeds to the
repayment of the Company's revolving bank loan. The Company believes that none
of these payments were made, directly or indirectly, to: (i) directors or
officers of the Company, or their associates; (ii) persons owning ten percent or
more of any class of equity securities of the Company; or (iii) affiliates of
the Company. To date, the Company believes that it has used the Offering
proceeds in a manner consistent with the use of proceeds described in the
Registration Statement. The remaining $27,245,000 of the Offering proceeds is
invested in short term marketable debt securities and money market funds.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Page 15
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
See Exhibit Table on page 18.
(B) REPORTS ON FORM 8-K
The Company filed a Form 8-K on September 26, 1997, reporting
its merger with Enterprise Computing Inc. dba Buller Owens & Associates, which
is incorporated by reference herein. The Company did not file any financial
statements with that initial report on Form 8-K. The Company will provide the
required financial statements by filing a Form 8-K/A within the time prescribed
by Item 7(a)(4) of the instructions to Form 8-K.
Page 16
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
Dated this 13th day of ARIS Corporation
November 1997.
By: /s/ Thomas W. Averill
---------------------------------
Thomas W. Averill
Vice President, Finance;
Chief Financial Officer
(Principal Financial and
Accounting Officer and
Duly Authorized Officer)
Page 17
<PAGE>
EXHIBITS
PAGE EXHIBIT NUMBER EXHIBIT NAME
---- -------------- ------------
2.1 Plan of Acquisition, Reorganization,
Arrangement, Liquidation
or Succession
10.1 Form of Indemnification Agreement
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
Page 18
<PAGE>
ARIS CORPORATION
Exhibit 2.1
Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
The Agreement and Plan of Merger by and among ARIS Corporation,
Enterprise Computing Inc. and the Stockholders of Enterprise Computing Inc.
dated September 13, 1997, was filed by the Company with the Securities and
Exchange Commission on Form 8-K on September 26, 1997, and is incorporated
herein by reference.
<PAGE>
ARIS CORPORATION
Exhibit 10.1
Form of Indemnification Agreement
ARIS CORPORATION
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT, dated as of August 1, 1997, between ARIS
CORPORATION, a Washington corporation (the "Company"), and , a director and/or
officer of the Company (the "Indemnitee").
RECITALS
A. Indemnitee is a director and/or officer of the Company and in such
capacity is performing valuable services for the Company.
B. The Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance, the significant cost of such
insurance and the general reduction in the coverage of such insurance.
C. The Company and Indemnitee further recognize the substantial
increase in litigation subjecting directors and officers to expensive litigation
risks at the same time that such liability insurance has been severely limited.
D. The shareholders of the Company have adopted bylaws (the "Bylaws")
providing for the indemnification of the directors, officers, agents and
employees of the Company to the full extent permitted by the Business
Corporation Law of Washington (the "Statute").
E. The Bylaws and the Statute specifically provide that they are not
exclusive, and thereby contemplate that contracts may be entered into between
the Company and the members of its Board of Directors and its officers with
respect to indemnification of such directors and officers.
F. In order to induce Indemnitee to serve, or to continue to serve, as
a director and/or officer of the Company, the Company has agreed to enter into
this Agreement with Indemnitee.
AGREEMENTS
In consideration of the recitals above, the mutual covenants and
agreements herein contained, and Indemnitee's continued service as a director
and/or officer after the date hereof, the parties to this Agreement agree as
follows:
1. INDEMNITY OF INDEMNITEE
1.1. SCOPE
The Company agrees to hold harmless and indemnify Indemnitee to the
full extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by this Agreement, the Company's Articles of
Incorporation, the Bylaws, the Statute or otherwise. In the
1
<PAGE>
event of any change, after the date of this Agreement, in any applicable law,
statute or rule regarding the right of a Washington corporation to indemnify a
member of its board of directors or an officer, such changes, to the extent that
they would expand Indemnitee's rights hereunder, shall be within the purview of
Indemnitee's rights and the Company's obligations hereunder, and, to the extent
that they would narrow Indemnitee's rights hereunder, shall be excluded from
this Agreement; provided, however, that any change that is required by
applicable laws, statutes or rules to be applied to this Agreement shall be so
applied regardless of whether the effect of such change is to narrow
Indemnitee's rights hereunder.
1.2. NONEXCLUSIVITY
The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Company's
Articles of Incorporation, the Bylaws, any agreement, any vote of shareholders
or disinterested directors, the Statute, or otherwise, whether as to action in
Indemnitee's official capacity or otherwise.
1.3. INCLUDED COVERAGE
If Indemnitee was or is made a party, or is threatened to be made a
party, to or is otherwise involved (including, without limitation, as a witness)
in any Proceeding (as defined below), the Company shall hold harmless and
indemnify Indemnitee from and against any and all losses, claims, damages,
liabilities or expenses (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties, amounts paid in settlement and other expenses
incurred in connection with such Proceeding) (collectively, "Damages").
1.4. DEFINITION OF PROCEEDING
For purposes of this Agreement, "Proceeding" shall mean any actual,
pending or threatened action, suit, claim or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal, in
which Indemnitee is, was or becomes involved by reason of the fact that
Indemnitee is or was a director, officer, employee or agent of the Company or
that, being or having been such a director, officer, employee or agent,
Indemnitee is or was serving at the request of the Company as a director,
officer, employee, trustee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise (collectively a "Related Company"),
including service with respect to an employee benefit plan, whether the basis of
such proceeding is alleged action (or inaction) by Indemnitee in an official
capacity as a director, officer, employee, trustee or agent or in any other
capacity while serving as a director, officer, employee, trustee or agent;
provided, however, that, except with respect to an action to enforce the
provisions of this Agreement, "Proceeding" shall not include any action, suit,
claim or proceeding instituted by or at the direction of Indemnitee unless such
action, suit, claim or proceeding is or was authorized by the Company's Board of
Directors.
1.5. DETERMINATION OF ENTITLEMENT
In the event that a determination of Indemnitee's entitlement to
indemnification is required pursuant to Section 23B.08.550 of the Statute or a
successor statute or pursuant to other applicable law, the appropriate
decision-maker shall make such determination; provided, however, that Indemnitee
shall initially be presumed in all cases to be entitled to indemnification, that
Indemnitee may establish a conclusive presumption of any fact necessary to such
a determination by delivering to the Company a declaration made under penalty of
perjury that
2
<PAGE>
such fact is true and that, unless the Company shall deliver to Indemnitee
written notice of a determination that Indemnitee is not entitled to
indemnification within twenty (20) days after the Company's receipt of
Indemnitee's initial written request for indemnification, such determination
shall conclusively be deemed to have been made in favor of the Company's
provision of indemnification and Company hereby agrees not to assert otherwise.
1.6. SURVIVAL
The indemnification provided under this Agreement shall apply to any
and all Proceedings, notwithstanding that Indemnitee has ceased to be a
director, officer, employee, trustee or agent of the Company or a Related
Company.
2. EXPENSE ADVANCES
2.1. GENERALLY
The right to indemnification of Damages conferred by Section 1 shall
include the right to have the Company pay Indemnitee's expenses in any
Proceeding as such expenses are incurred and in advance of such Proceeding's
final disposition (such right is referred to hereinafter as an "Expense
Advance").
2.2. CONDITIONS TO EXPENSE ADVANCE
The Company's obligation to provide an Expense Advance is subject to
the following conditions:
2.2.1 UNDERTAKING
If the Proceeding arose in connection with Indemnitee's service as a
director or an officer of the Company (and not in any other capacity in which
Indemnitee rendered service, including service to any Related Company), then
Indemnitee or his representative shall have executed and delivered to the
Company an undertaking, which need not be secured and shall be accepted without
reference to Indemnitee's financial ability to make repayment, by or on behalf
of Indemnitee to repay all Expense Advances if and to the extent that it shall
ultimately be determined by a final, unappealable decision rendered by a court
having jurisdiction over the parties and the question that Indemnitee is not
entitled to be indemnified for such Expense Advance under this Agreement or
otherwise.
2.2.2. COOPERATION
Indemnitee shall give the Company such information and cooperation as
it may reasonably request and as shall be within Indemnitee's power.
2.2.3. AFFIRMATION
Indemnitee shall furnish, upon request by the Company and if required
under applicable law, a written affirmation of Indemnitee's good faith belief
that any applicable standards of conduct have been met by Indemnitee.
3
<PAGE>
3. PROCEDURES FOR ENFORCEMENT
3.1. ENFORCEMENT
In the event that a claim for indemnity, an Expense Advance or
otherwise is made hereunder and is not paid in full within sixty days (twenty
days for an Expense Advance) after written notice of such claim is delivered to
the Company, Indemnitee may, but need not, at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim (an "Enforcement
Action").
3.2. PRESUMPTIONS IN ENFORCEMENT ACTION
In any Enforcement Action the following presumptions (and limitation on
presumptions) shall apply:
(a) The Company shall conclusively be presumed to have entered into
this Agreement and assumed the obligations imposed on it hereunder in order to
induce Indemnitee to continue as a director and/or officer of the Company;
(b) Neither (i) the failure of the Company (including the Company's
Board of Directors, independent or special legal counsel or the Company's
shareholders) to have made a determination prior to the commencement of the
Enforcement Action that indemnification of Indemnitee is proper in the
circumstances nor (ii) an actual determination by the Company, its Board of
Directors, independent or special legal counsel or shareholders that Indemnitee
is not entitled to indemnification shall be a defense to the Enforcement Action
or create a presumption that Indemnitee is not entitled to indemnification
hereunder; and
(c) If Indemnitee is or was serving as a director, officer, employee,
trustee or agent of a corporation of which a majority of the shares entitled to
vote in the election of its directors is held by the Company or in an executive
or management capacity in a partnership, joint venture, trust or other
enterprise of which the Company or a wholly owned subsidiary of the Company is a
general partner or has a majority ownership, then such corporation, partnership,
joint venture, trust or enterprise shall conclusively be deemed a Related
Company and Indemnitee shall conclusively be deemed to be serving such Related
Company at the request of the Company.
3.3. ATTORNEYS' FEES AND EXPENSES FOR ENFORCEMENT ACTION
In the event Indemnitee is required to bring an Enforcement Action, the
Company shall indemnify and hold harmless Indemnitee against all of Indemnitee's
fees and expenses in bringing and pursuing the Enforcement Action (including
attorneys' fees at any stage, including on appeal); provided, however, that the
Company shall not be required to provide such indemnity for such attorneys' fees
or expenses if a court of competent jurisdiction determines that each of the
material assertions made by Indemnitee in such Enforcement Action was not made
in good faith or was frivolous.
4. LIMITATIONS ON INDEMNITY; MUTUAL ACKNOWLEDGMENT
4.1. LIMITATION ON INDEMNITY
No indemnity pursuant to this Agreement shall be provided by the
Company:
4
<PAGE>
(a) On account of any suit in which a final, unappealable judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of securities of the Company in violation of the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto; or
(b) For Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company.
4.2. MUTUAL ACKNOWLEDGMENT
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the Securities and Exchange
Commission (the "SEC") has taken the position that indemnification is not
permissible for liabilities arising under certain federal securities laws, and
federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
5. NOTIFICATION AND DEFENSE OF CLAIM
5.1. NOTIFICATION
Promptly after receipt by Indemnitee of notice of the commencement of
any Proceeding, Indemnitee will, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the commencement
thereof; but the omission so to notify the Company will not relieve the Company
from any liability which it may have to Indemnitee under this Agreement unless
and only to the extent that such omission can be shown to have prejudiced the
Company's ability to defend the Proceeding.
5.2. DEFENSE OF CLAIM
With respect to any such Proceeding as to which Indemnitee notifies the
Company of the commencement thereof:
(a) The Company may participate therein at its own expense;
(b) The Company, jointly with any other indemnifying party similarly
notified, may assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so to
assume the defense thereof, the Company shall not be liable to Indemnitee under
this Agreement for any legal or other expenses (other than reasonable costs of
investigation) subsequently incurred by Indemnitee in connection with the
defense thereof unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company and Indemnitee in the
conduct of the defense of such action, or (iii) the Company shall not in fact
have employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of counsel shall be at the expense of the Company.
The Company shall not be entitled to assume the defense of any action, suit or
proceeding brought by
5
<PAGE>
or on behalf of the Company or as to which Indemnitee shall have made the
conclusion provided for in (ii) above;
(c) The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any Proceeding effected without
its written consent;
(d) The Company shall not settle any action or claim in any manner
which would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent; and
(e) Neither the Company nor Indemnitee shall unreasonably withhold its,
his or her consent to any proposed settlement.
6. SEVERABILITY
Nothing in this Agreement is intended to require or shall be construed
as requiring the Company to do or fail to do any act in violation of applicable
law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable, as provided in
this Section 6. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
7. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION
(a) This Agreement shall be interpreted and enforced in accordance with
the laws of the state of Washington.
(b) This Agreement shall be binding upon Indemnitee and upon the
Company, its successors and assigns, and shall inure to the benefit of
Indemnitee, Indemnitee's heirs, personal representatives and assigns and to the
benefit of the Company, its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
ARIS CORPORATION
By
-----------------------------------------------
Paul Song, President and Chief Executive Officer
INDEMNITEE:
--------------------------------------------------
6
<PAGE>
<TABLE>
<CAPTION>
ARIS CORPORATION
Exhibit 11.1
Computation of Net Income Per Common and Common Equivalent Share
-------------------------------------------------------
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
-------------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income ........................... $ 1,587,000 $ 630,000 $ 3,935,000 $ 1,925,000
=========== =========== =========== ===========
Applicable common shares:
Weighted average outstanding during
the period ..................... 9,748,951 8,504,361 8,364,007 8,503,710
Weighted average outstanding stock
options (1) .................... 905,044 122,761 816,438 111,641
----------- ----------- ----------- -----------
Weighted average number of
common and common share
equivalent shares
outstanding ............... 10,653,995 8,627,122 9,180,445 8,615,351
=========== =========== =========== ===========
Net income per common share .......... $ 0.15 $ 0.07 $ 0.43 $ 0.22
=========== =========== =========== ===========
</TABLE>
Pro Forma Computation of Per Share Earnings
In February 1997, Statement of Financial Accounting Standards No. 128, Earnings
per Share (SFAS 128), was issued. This pronouncement modifies the calculation
and disclosure of earnings per share (EPS) and will be adopted by the Company in
its financial statements for the year ending December 31, 1997. The following
discloses the earnings per share calculations in accordance with the provisions
of SFAS 128.
<TABLE>
<CAPTION>
-------------------------------------------------------
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
-------------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income ........................... $ 1,587,000 $ 630,000 $ 3,935,000 $ 1,925,000
=========== =========== =========== ===========
Applicable common shares:
Weighted average outstanding during
the period ..................... 9,748,951 8,504,361 8,364,007 8,503,710
Dilutive effect of outstanding stock
options
Weighted average outstanding stock
options (1) .................... 905,044 122,761 816,438 111,641
----------- ----------- ----------- -----------
Weighted average number of
common shares outstanding
for use in computing
earnings per share -
assuming dilution ......... 10,653,995 8,627,122 9,180,445 8,615,351
=========== =========== =========== ===========
Net income per common share .......... $ 0.16 $ 0.07 $ 0.47 $ 0.23
=========== =========== =========== ===========
Net income per common share --
assuming dilution ................ $ 0.15 $ 0.07 $ 0.43 $ 0.22
=========== =========== =========== ===========
</TABLE>
(1) Based on the treasury stock method.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 886
<SECURITIES> 27,492
<RECEIVABLES> 11,101
<ALLOWANCES> (543)
<INVENTORY> 0
<CURRENT-ASSETS> 40,695
<PP&E> 4,293
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,418
<CURRENT-LIABILITIES> 7,252
<BONDS> 0
0
0
<COMMON> 34,522
<OTHER-SE> 6,039
<TOTAL-LIABILITY-AND-EQUITY> 48,418
<SALES> 38,499
<TOTAL-REVENUES> 38,499
<CGS> 17,948
<TOTAL-COSTS> 32,690
<OTHER-EXPENSES> (626)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,435
<INCOME-TAX> 2,500
<INCOME-CONTINUING> 3,935
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,935
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
