<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
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 March 31, 1998
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____ to ____
______________
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)
2229 112TH AVENUE N.E. (425) 372-2747
BELLEVUE, WASHINGTON 98004-2936 (Registrant's telephone number,
(Address of principal executive office) 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
March 31, 1998 was 10,276,611.
- --------------------------------------------------------------------------------
<PAGE>
ARIS CORPORATION
FORM 10-Q
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
a) Condensed Consolidated Balance Sheets
as of March 31, 1998 and December 31, 1997
3
b) Condensed Consolidated Statements of
Income for the Quarters Ended March, 1998
and 1997. 4
c) Condensed Consolidated Statements of
Cash Flows for the Quarters Ended March
31, 1998 and 1997 5
d) Condensed Consolidated Statement of
Changes in Shareholders' Equity as of
March 31, 1998 6
e) Notes to Condensed Consolidated
Financial Statements 6-8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-14
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults Upon Senior Securities 16
Item 4 Submission of Matters to a Vote of 16
Security Holders
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
Page 2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
_______________________________________________________________________________
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $11,740 $ 9,400
Cash equivalents and investments in marketable securities 7,099 15,464
Accounts receivable, net of allowance for
doubtful accounts of $751 and $651 15,645 12,789
Other current assets 2,627 2,621
------- -------
Total current assets 37,111 40,274
Property and equipment, net 11,970 6,619
Intangible and other assets, net 8,514 8,095
------- -------
Total assets $57,595 $54,988
------- -------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 2,337 $ 2,768
Accrued liabilities 3,947 3,438
Deferred revenue 2,759 2,305
Other current liabilities 1,155 257
------- -------
Total current liabilities 10,198 8,768
------- -------
Deferred income taxes 463 585
------- -------
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
Additional paid-in-capital 37,933 37,504
Retained earnings 8,999 8,167
Accumulated other comprehensive income 2 (36)
Total shareholders' equity 46,934 45,635
------- -------
Total liabilities and shareholders' equity $57,595 $54,988
======= =======
</TABLE>
See accompanying notes
________________________________________________________________________________
Page 3
<PAGE>
ARIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for share and per share data) (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
For the Quarter Ended
--------------------------------
MARCH 31, MARCH 31,
1998 1997
----------- ----------
<S> <C> <C>
Revenue, net:
Consulting...................... $ 9,015 $ 6,633
Training........................ 9,602 4,864
Software........................ 2,120 533
----------- ----------
Total revenue................. 20,737 12,030
Cost of sales: 9,033 5,675
----------- ----------
Gross profit.................. 11,704 6,355
Selling, general and
administrative.................. 10,235 4,487
----------- ----------
Income from operations........ 1,469 1,868
Other income (expense), net...... 366 (39)
----------- ----------
Income before income tax...... 1,835 1,829
Income tax expense............... 790 674
----------- ----------
Net income....................... $ 1,045 $ 1,155
=========== ==========
Basic earnings per share......... $0.10 $0.15
=========== ==========
Weighted average number of
common shares outstanding....... 10,235,000 7,940,000
=========== ==========
Diluted earnings per share....... $0.09 $0.14
=========== ==========
Weighted average number of
common and common equivalent
shares outstanding.............. 11,082,000 8,393,000
=========== ==========
</TABLE>
See accompanying notes
________________________________________________________________________________
Page 4
<PAGE>
ARIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
For the Quarter Ended
--------------------------
March 31, March 31,
1998 1997
--------- ---------
<S> <C> <C>
Net cash provided by (used in) operating activities................ $(531) $ 546
------- ------
Cash flows from investing activities:
Sales of investments in marketable securities...................... 8,402 8
Acquisition of businesses, net of cash acquired.................... (93)
Purchases of property and equipment................................ (5,641) (493)
------- ------
Net cash provided by (used in) investing activities................ 2,761 (578)
------- ------
Cash flows from financing activities:
Repurchase of common stock......................................... (4,026)
Payments on notes payable.......................................... (2,100)
Proceeds from long-term debt....................................... 6,450
Proceeds from exercise of stock options............................ 279 1
Tax benefit of stock options exercised............................. 43
------- ------
Net cash provided by financing activities.......................... 322 325
------- ------
Net increase in cash............................................... 2,552 293
Effect of exchange rate changes on cash and cash equivalents....... 1 14
Adjustment to conform fiscal year of Barefoot Computer
Training Limited.................................................. (213)
Cash and cash equivalents at beginning of period................... 9,400 178
------- ------
Cash and cash equivalents at end of period......................... $11,740 $ 485
======= ======
</TABLE>
See accompanying notes
________________________________________________________________________________
Page 5
<PAGE>
ARIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except for share data) (Unaudited)
______________________________________________________________________________
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
-------------------- ADDITIONAL OTHER TOTAL
SHARES PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
ISSUED AMOUNT CAPITAL EARNINGS INCOME EQUITY
---------- ------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 10,200,461 $ - $37,504 $8,167 $(36) $45,635
Adjustment to conform fiscal
year of Barefoot Computer
Training Limited (213) (213)
Shares issued 5,357 150 150
Stock options exercised 70,993 279 279
Comprehensive income:
Net income 1,045
Other comprehensive income,
net of tax:
Foreign currency translation
adjustments 1
Unrealized gains on securities,
net of reclassification
adjustment 37
Comprehensive income 1,083
---------- ------ ---------- -------- ------------- -------------
Balance at March 31, 1998 10,276,811 $ - $37,933 $8,999 $ 2 $46,934
========== ====== ========== ======== ============= =============
</TABLE>
<TABLE>
<S> <C>
Disclosure of reclassification amount:
Unrealized holding gain arising during the period $33
Less: reclassification adjustment for losses
included in net income 4
---
Net unrealized gains on securities $37
===
</TABLE>
ARIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
______________________________________________________________________________
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 Annual Report on Form 10-K filed on March 30, 1998, have been
omitted.
2. On February 28, 1998, the Company completed its acquisition of Barefoot
Computer Training Limited ("Barefoot"), a company that provides information
technology training services in London, England. The acquisition was
accounted for as a pooling of interests, in which the Company issued
278,611 shares of common stock in exchange for all of the outstanding
shares of Barefoot common stock. Accordingly, all
Page 6
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periods included in the financial information furnished herein have been
restated to give effect to the acquisition. Barefoot had a November 30
fiscal year end and, accordingly, the Barefoot balance sheet at November
30, 1997, has been combined with the balance sheet of ARIS at December 31,
1997, and Barefoot's statements of income and cash flows for the quarter
ended February 28, 1997, have been combined with the ARIS statements of
income and cash flows, respectively, for the quarter ended March 31, 1997.
In order to conform Barefoot's year end to ARIS's year end, Barefoot's
financial statements for the month of December are not included in the
statements of income or cash flows for the quarter ended March 31, 1998.
A reconciliation of amounts of revenue and earnings for the quarter ended
March 31, 1997, previously reported by ARIS to the combined amounts
presented herein follows:
<TABLE>
<CAPTION>
AS REPORTED ADJUSTMENT COMBINED
----------- ---------- --------
ARIS BAREFOOT
----------- ----------
<S> <C> <C> <C>
Revenue $10,409,000 $1,621,000 $12,030,000
Net income $ 1,044,000 $ 111,000 $ 1,155,000
</TABLE>
3. Basic earnings per share is calculated as income available to common
stockholders divided by the weighted average number of common shares
outstanding during the periods. Diluted earnings per share is based on the
weighted average number of shares of common stock and common stock
equivalents outstanding during the periods, including options and warrants
computed using the treasury stock method. All earnings per share amounts
from prior periods have been restated to conform with the current period
presentation.
The difference between the weighted average number of common shares
outstanding used to calculate basic earnings per share and the weighted
average number of common and common equivalent shares outstanding used to
calculate diluted earnings per share is the incremental shares attributed
to outstanding options and warrants to purchase common stock computed using
the treasury stock method:
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
-------------------------------
1998 1997
---------- ---------
<S> <C> <C>
Weighted average number of
common shares outstanding 10,235,000 7,940,000
---------- ---------
Effect of dilutive securities:
Warrants 4,000
Options 843,000 453,000
---------- ---------
847,000 453,000
---------- ---------
Weighted average number of
common and common equivalent
shares outstanding 11,082,000 8,393,000
========== =========
</TABLE>
4. On May 5, 1998, the Company filed a Registration Statement on Form S-4 (the
"S-4") in connection with the proposed merger (the "Merger") of InTime
Systems International, Inc. ("InTime") with and into the Company. The
Company will be the surviving entity in the Merger. The Merger, Merger
Agreement and the transactions contemplated thereby have been approved by
the Board of Directors of both the Company and InTime. The S-4 must be
declared effective by the Securities and Exchange Commission prior to the
mailing of the proxy statement/prospectus contained in the S-4 to the
stockholders of InTime. In order for the Merger to be consummated it must
also be approved by the stockholders of InTime, as well as the completion
of other conditions precedent to closing or contained in the Merger
Agreement.
5. On April 30, 1998, Oxford Computer Group Limited, the Company's wholly-
owned United Kingdom subsidiary ("OCG"), entered into an Agreement for the
Sale and Purchase of the Entire Issued Share
Page 7
<PAGE>
Capital of MMT Computing (Reading) Limited ("MMT"), among OCG and the
shareholders of MMT. The Board of Directors of the Company approved a
contribution of capital to OCG of up to $3 million to acquire MMT. The
acquisition will be accounted for under the purchase method of accounting.
Goodwill resulting from this acquisition will be amortized over fifteen
years.
6. The Financial Accounting Standards Board issued SFAS No. 130, "Reporting
Comprehensive Income," in June 1997. The statement establishes new
standards for reporting and displaying comprehensive income in the
financial statements. In addition to net income, comprehensive income
includes charges or credits to equity that is not the result of
transactions with shareholders. This statement is effective for fiscal
years beginning after December 15, 1997. The Company has adopted this
standard as of March 31, 1998.
Page 8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ARIS provides an integrated information technology ("IT") solution
consisting of consulting and training services primarily focused on Oracle
Corporation ("Oracle"), Microsoft Corporation ("Microsoft") and Lotus
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
on Form S-1 filed April 18, 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; the Company's Annual Report on Form 10-K for the year
ended December 31, 1997; the Company's Quarterly Reports on Form 10-Q for the
periods ending September 31, 1997 and June 30, 1997; the Company's Current
Report on Form 8-K filed September 26, 1997 in connection with the Company's
acquisition of Enterprise Computing Inc. (doing business as Buller Owens &
Associates) and the Company's Registration Statement on Form S-4 filed May 5,
1998 in connection with the Company's proposed acquisition of InTime Systems
International, Inc., including the Consolidated Financial Statements and Notes
to Consolidated Financial Statements, pages F1 to F40.
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.
FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997
RECENT ACQUISITION AND RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL
STATEMENTS
Effective February 28, 1998 the Company acquired all of the outstanding
stock of Barefoot Computer Training Limited ("Barefoot"), an IT training company
with operations in
Page 9
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London, England in exchange for 278,611 shares of the Company's common stock.
The acquisition has been accounted for as a pooling of interests of the Company
and Barefoot. Accordingly, financial statements of the Company have been
restated to include the accounts of Barefoot for all periods and for all
comparable statistics presented.
TOTAL REVENUE
Total revenues increased $8,707,000 to $20,737,000 for the quarter ended
March 31, 1998 from $12,030,000 for the quarter ended March 31, 1997,
representing a 72% increase. Revenues during the first quarter of 1998 include
revenues from the following acquisitions: Oxford Computer Group Limited acquired
in February 1997, Enterprise Computing Inc. acquired in October 1997, Absolute!,
Inc. and Agiliti, Inc. acquired in November 1997. Both 1997 and 1998 first-
quarter revenues include those of Barefoot Computer Training Limited acquired in
February 1998. On a pro forma basis (assuming all companies acquired by ARIS
subsequent to February 28, 1997 had been owned during the first quarter of
1997), total revenues increased approximately 32%. 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 an average of 208 full-time consultants and project managers during
the quarter ended March 31, 1998 compared to 152 during the same quarter in
1997. Consulting revenues increased $2,382,000 to $9,015,000 for the quarter
ended March 31, 1998 from $6,633,000 for the quarter ended March 31, 1997
representing a 36% increase. Consulting operations were conducted from seven
consulting offices in the United States and the United Kingdom. Comparative
consulting revenues were negligibly impacted by acquisitions.
TRAINING REVENUE
Training revenue increased $4,738,000 to $9,602,000 for the quarter ended
March 31, 1998 from $4,864,000 for the quarter ended March 31, 1997,
representing a 97% increase. A significant portion of the increase in training
revenues for the first quarter of 1998 is attributable to business units
acquired subsequent to February 28, 1997. Training revenues for the first
quarter of 1998 includes revenue from the following acquisitions: Oxford
Computer Group Limited acquired in February 1997, Enterprise Computing Inc.,
Absolute!, Inc. and Agiliti, Inc. Both 1997 and 1998 first-quarter revenues
include those of Barefoot Computer Training Limited acquired in February 1998.
On a pro forma basis (assuming the companies acquired by ARIS subsequent to
February 28, 1997 had been owned during the first quarter of 1997), total
training revenues increased approximately 14%. Revenues increased in the first
quarter of 1998 as a result of a significant increase in the number of classes
and class training days offered. The Company offered 1,621 classes and 4,207
training days in the quarter ended March 31, 1998 as compared to 527 classes and
1,438 training days in the quarter ended March 31, 1997.
Page 10
<PAGE>
SOFTWARE REVENUE
Software revenue increased $1,587,000 to $2,120,000 for the quarter ended
March 31, 1998 from $533,000 in the quarter ended March 31, 1997, representing
an increase of 298%. The increase in revenue is primarily attributable to sales
of the NoetixViews suite of products developed by ARIS Software, Inc. (formerly
Noetix Corporation), a wholly-owned subsidiary of the Company.
COST OF SALES
Cost of sales consists primarily of salaries and employee benefits for
consultants, project managers and instructors; subcontractor fees; non-
reimbursable travel expenses related to consulting and training activities and
the cost of production of software modules and amortization of capitalized
software costs. Cost of sales increased $3,358,000 to $9,033,000 in the quarter
ended March 31, 1998 from $5,675,000 in the quarter ended March 31, 1997. 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 47% for the quarter ended
March 31, 1997 to 44% for the quarter ended March 31, 1998. This reduction is a
result of the relative increase in proportion of training and software revenues
to total revenue. Training and software 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
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 $5,748,000 to $10,235,000
for the quarter ended March 31, 1998 from $4,487,000 for the quarter ended March
31, 1997 which represents an increase of 128%. Total SG&A expense as a
percentage of total revenue increased from 37% for the quarter ended March 31,
1997 to 49% for the quarter ended March 31, 1998.
The increase in SG&A is primarily the result of four factors: (i) expenses
associated with acquisitions completed during the quarter ended March 31, 1998,
amounting to $1,257,000 or 6% of revenue, compared to $21,000 in acquisition-
related costs during the quarter ended March 31, 1997; (ii) a change in the
revenue mix, with software increasing from 4% of total revenue during the
quarter ended March 31, 1997 to 10% of total revenue during the quarter ended
March 31, 1998 and training increasing from 40% of total revenue to 46% of total
revenue during the same periods. Both software and training operations have
lower cost of sales but higher SG&A; (iii) general increase in the number of
management, sales and administrative staff from 194 at March 31, 1997 to 285 at
March 31, 1998 required to support the growth of the company; and (iv) an
increase in the amortization of intangible assets resulting from companies
Page 11
<PAGE>
acquired from $64,000 during the quarter ended March 31, 1997 to $121,000 during
the quarter ended March 31, 1998.
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 $405,000 from ($39,000) for the quarter ended March 31, 1997 to
$366,000 for the quarter ended March 31, 1998. The increase is primarily
attributable to the Company's investment yield on proceeds from the Company's
initial public offering completed on June 19, 1997. Proceeds from the offering,
net of underwriters discount, amounted to $31,200,000. Average invested proceeds
during the quarter ended March 31, 1998 were $20,285,000.
INCOME TAX EXPENSE
Income tax expense increased $116,000 to $790,000 in the quarter ended
March 31, 1998 from $674,000 in the quarter ended March 31, 1997, as a result of
increased revenues and net income before tax. As a percentage of revenues,
income tax expense decreased from 5.6% to 3.8% and the effective tax rate
increased from 37% to 43%. The effective tax rate increase is primarily
attributable to the costs incurred for acquisition of Barefoot Computer Training
Ltd., a substantial portion of which are not deductible in determination of
United States or United Kingdom taxes. The effective tax rate is additionally
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.
NET INCOME
Net income decreased $110,000 to $1,045,000 for the quarter ended March 31,
1998, from $1,155,000 for the quarter ended March 31, 1997. Net income as a
percentage of sales decreased from 10% to 5%, primarily as a result of the
inclusion of acquisition costs in the quarter ended March 31, 1998. The
cumulative effect of acquisition costs including taxes amounted to $852,000 or
4.1% of revenue. Excluding costs of acquisitions, net income in the quarter
ended March 31, 1997 was $1,168,000 or 10% of revenue, compared to net income of
$1,897,000 or 9% of revenue for the quarter ended March 31, 1998.
SUBSEQUENT EVENTS
On April 30, 1998, Oxford Computer Group Limited, the Company's wholly-
owned United Kingdom subsidiary ("OCG"), entered into an Agreement for the Sale
and Purchase of the Entire Issued Share Capital of MMT Computing (Reading)
Limited ("MMT") among OCG and the shareholders of MMT. The Board of Directors of
the Company approved a contribution of capital to OCG of up to $3 million to
acquire MMT. The acquisition will be accounted for under the purchase method of
accounting. Goodwill resulting from this acquisition will be amortized over
fifteen years.
Page 12
<PAGE>
On May 5, 1998 the Company filed a Registration Statement on Form S-4 (the
"S-4") in connection with the proposed merger (the "Merger") of InTime Systems
International, Inc. ("InTime") with and into the Company whereby the Company
will be the surviving entity in the Merger. The Merger, Merger Agreement and the
transactions contemplated thereby have been approved by the Board of Directors
of both the Company and InTime. The S-4 must be declared effective by the
Securities and Exchange Commission prior to the mailing of the proxy
statement/prospectus contained in the S-4 to the stockholders of InTime. At
closing and subject to the provisions contained in the Merger Agreement, each
outstanding share of InTime common stock (the "InTime Stock") will be exchanged
for 0.266 shares (the "Exchange Ratio") of the Company's common stock. Options
and warrants to purchase InTime Stock will be converted into options and
warrants of like tenor and quality to purchase that number of shares of the
Company's Common Stock at a price and in an amount as determined by applying the
Exchange Ratio. The Exchange Ratio is subject to adjustment in the event that
the average closing price for one share of the Company's common stock (as
reported by the Nasdaq National Market) for the 10 trading days immediately
preceding the closing date has dropped below $31.50, in which case the Exchange
Ratio shall be adjusted to reflect the lower average closing price. If the
Exchange Ratio is adjusted, each outstanding InTime option and warrant will also
be adjusted into the right to receive a greater number of the Company's shares
of Common Stock at a lesser exercise price.
LIQUIDITY AND CAPITAL RESOURCES
Operating cash flows decreased $1,077,000 from $546,000 in the quarter
ended March 31, 1997 to an operational cash flow deficit of $531,000 for the
quarter ended March 31, 1998. This deficit is primarily attributable to the
Company's expenditures in the quarter ended March 31, 1998 for the acquisition
of Barefoot Computer Training Limited. Acquisition costs included fees paid to
advisors of Barefoot, legal and accounting fees for both parties to the
transaction, and other costs associated with the acquisition.
On June 18, 1997, the company completed an initial public offering of its
common stock. Net proceeds from the offering provided $31,242,000, $4,000,000 of
which was immediately used to pay down a bank loan during the second quarter of
1997. The Company has retained a substantial portion of the proceeds (the
average invested balance during the quarter ended March 31, 1998 was
$20,285,000). A portion of the proceeds were used during 1997 for the
acquisition of Enterprise Computing Inc., Absolute!, Inc. and Agiliti, Inc. In
the quarter ended March 31, 1998 the Company expended $5,641,000 for property
and equipment, including the acquisition of an office building and related
furniture and fixtures.
Cash flows from investing activities increased $3,339,000 to $2,761,000 in
the quarter ended March 31, 1998, compared to an investing cash flow deficit of
$578,000 in the quarter ended March 31, 1997. The Company sold $8,402,000 of its
investments in short term debt securities in the first quarter of 1998 to
finance capital expenditures.
During the quarter ended March 31, 1997, the Company borrowed $6,450,000,
in part to acquire its own common stock and in part to repay other borrowings
within the period. As a
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result of these transactions, financing activities provided cash of $325,000
during the first quarter of 1997. In the first quarter of 1998, the Company
received cash in the amount of $279,000 from holders exercising stock options
and $43,000 as a tax benefit on the stock options exercised for a net increase
in cash from financing activities of $322,000.
At March 31, 1998, the Company had cash and equivalents of $11,740,000
compared to $485,000 for the quarter ended March 31, 1997.
The Company anticipates that capital expenditures related to expected
expansion will continue in the coming year and will continue to be financed by
operational cash flows generated as well as utilization of invested funds, if
needed. Management anticipates that in 1998 cash and marketable securities will
be employed for general corporate purposes including the opening of new offices,
potential acquisitions of companies and other business opportunities which may
arise.
At March 31, 1998, the Company had accounts receivable of $15,645,000 and
days sales outstanding of 69 days. At March 31, 1997, accounts receivable were
$12,789,000 and days sales outstanding were 97 days. The substantial improvement
of days sales outstanding is a result of improvement of collection and account
maintenance procedures.
The Company has an $8 million line of credit with US Bank, a division of
First Bank Systems. The credit line provides funds for general business purposes
as well as the acquisition of companies and is secured by substantially all of
the Company's assets. The credit line contains various affirmative and negative
covenants, which require, among other things, maintenance of a certain level of
working capital and a certain current ratio. The Company is in compliance with
all requirements of the agreement. During 1997 the Company utilized the line of
credit to acquire 415,000 shares of its common stock and borrowed $4 million on
the line of credit. Proceeds from the Company's initial public offering were
utilized to repay the borrowing in June 1997. At March 31, 1998 there were no
borrowings against the credit line. The credit line expires on June 1, 1998.
Management anticipates that the credit line will be renewed in an amount
suitable to meet its requirements upon expiration of the existing agreement.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1997 the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS no.
131 establishes new standards for reporting information about operating segments
in interim and annual financial statements. This statement is effective for
fiscal years beginning after December 15, 1997. The Company is currently
evaluating the impact, if any, this statement will have on disclosures in the
consolidated financial statements.
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 March 31, 1998, 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 March 31,
1998, 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 March 31,
1998, 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 $18,839,000 of the Offering proceeds is
invested in short term marketable debt securities and money market funds.
Page 15
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
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 Current Report Form 8-K on March 13, 1998, reporting
the issuance of shares of the Company's common stock pursuant to Regulation S of
the Securities Act of 1933, as amended. The issuance was made in connection
with the acquisition of Barefoot Computer Training Limited ("Barefoot") whereby
the entire share capital of Barefoot was exchanged for 278,611 shares of common
stock of ARIS. Because the filing was to report the issuance of shares in
reliance upon Regulation S, the Company did not file financial statements with
that Current Report on 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 15th day of ARIS Corporation
May 1998.
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
27.1 Financial Data Schedule
Page 18
<PAGE>
ARIS CORPORATION
Exhibit 2.1
Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
The Agreement for the Sale and Purchase of the Entire Issued Share Capital
of Barefoot Computer Training Limited dated February 28, 1998 between ARIS
Corporation and Barefoot, Computer Training Limited, was filed by the Company
with the Securities and Exchange Commission on Form 8-K on March 13, 1998, and
is incorporated herein by reference.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,740
<SECURITIES> 7,099
<RECEIVABLES> 16,396
<ALLOWANCES> (751)
<INVENTORY> 0
<CURRENT-ASSETS> 37,111
<PP&E> 11,970
<DEPRECIATION> 0
<TOTAL-ASSETS> 57,595
<CURRENT-LIABILITIES> 10,198
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 46,934
<TOTAL-LIABILITY-AND-EQUITY> 57,595
<SALES> 20,737
<TOTAL-REVENUES> 20,737
<CGS> 9,033
<TOTAL-COSTS> 19,268
<OTHER-EXPENSES> (366)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,835
<INCOME-TAX> 790
<INCOME-CONTINUING> 1,045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,045
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
</TABLE>
