<PAGE> 1
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 September 30, 1999
[ ] 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)
<TABLE>
<S> <C>
WASHINGTON 91-1497147
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
2229 - 112TH AVENUE N.E. (425) 372-2747
BELLEVUE, WASHINGTON 98004-2936 (Registrant's telephone number,
(Address of principal executive office) including area code)
</TABLE>
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, 1999 was 12,630,957.
- --------------------------------------------------------------------------------
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ARIS CORPORATION
FORM 10-Q
<TABLE>
<CAPTION>
INDEX PAGE
- ----- ----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
a) Condensed Consolidated Balance Sheets as of 3
September 30, 1999 and December 31, 1998
b) Condensed Consolidated Statements of 4
Operations for the Quarter and Nine Months
Ended September 30, 1999 and 1998
c) Condensed Consolidated Statements of Cash 5
Flows for the Nine Months Ended September 30,
1999 and 1998
d) Condensed Consolidated Statement of Changes 6
in Shareholders' Equity for the Nine Months
Ended September 30, 1999
e) Notes to Condensed Consolidated Financial 6-9
Statements
Item 2 Management's Discussion and Analysis of Financial 10-19
Condition and Results of Operations
Item 3 Qualitative and Quantitative Disclosures About 20
Market Risk
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 21
Item 2 Changes in Securities and Use of Proceeds 21
Item 3 Defaults Upon Senior Securities 22
Item 4 Submission of Matters to a Vote of Security Holders 22
Item 5 Other Information 22
Item 6 Exhibits and Reports on Form 8-K 22
</TABLE>
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,185 $ 5,225
Investments in marketable securities 0 6,513
Accounts receivable, net of allowance for
doubtful accounts of $2,278 and $1,263 26,652 26,734
Other current assets 6,798 4,083
-------- --------
Total current assets 42,635 42,555
Property and equipment, net 15,620 16,075
Intangible and other assets, net 17,172 10,851
-------- --------
Total assets $ 75,427 $ 69,481
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,842 $ 3,345
Accrued liabilities 9,806 8,177
Other current liabilities 2,736 2,333
-------- --------
Total current liabilities 15,384 13,855
-------- --------
Deferred income taxes 209 312
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized, none issued
and outstanding
Common stock, no par value; 100,000,000 shares authorized,
12,630,957 shares issued and outstanding
Additional paid-in-capital 54,763 47,347
Retained earnings 5,248 7,956
Accumulated other comprehensive income (177) 11
-------- --------
Total shareholders' equity 59,834 55,314
-------- --------
Total liabilities and shareholders' equity $ 75,427 $ 69,481
======== ========
</TABLE>
See accompanying notes
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ARIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for share and per share data) (Unaudited)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
------------ ------------ ------------ ------------
Revenue, net:
Consulting $ 19,400 $ 17,730 $ 56,026 $ 46,591
Training 7,662 10,765 26,531 30,620
Software 1,932 2,993 6,495 8,672
------------ ------------ ------------ ------------
Total revenue, net 28,994 31,488 89,052 85,883
Cost of sales:
Consulting $ 10,624 $ 9,266 $ 30,892 $ 24,315
Training 3,931 4,825 12,740 13,803
Software 381 415 1,240 1,178
------------ ------------ ------------ ------------
Total cost of sales 14,936 14,506 44,872 39,296
------------ ------------ ------------ ------------
Gross profit 14,058 16,982 44,180 46,587
Selling, general and administrative 12,393 12,908 38,698 35,378
Reorganization costs 6,600 0 6,600 0
Amortization of intangible assets 475 169 905 440
Charges related to acquisitions 383 0 383 5,655
------------ ------------ ------------ ------------
Income (loss) from operations (5,793) 3,905 (2,406) 5,114
Other income, net 186 206 542 896
------------ ------------ ------------ ------------
Income (loss) before income tax (5,607) 4,111 (1,864) 6,010
Income tax expense (benefit) (654) 1,654 844 3,207
------------ ------------ ------------ ------------
Net income (loss) $ (4,953) $ 2,457 $ (2,708) $ 2,803
============ ============ ============ ============
Basic earnings (loss) per share $ (0.43) $ 0.22 $ (0.24) $ 0.25
============ ============ ============ ============
Weighted average number of shares of
common stock outstanding 11,583,000 11,125,000 11,257,000 11,083,000
============ ============ ============ ============
Diluted earnings (loss) per share $ (0.43) $ 0.21 $ (0.24) $ 0.23
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 11,583,000 11,928,000 11,257,000 12,022,000
============ ============ ============ ============
</TABLE>
See accompanying notes
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ARIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 4,183 $ (2,133)
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (2,735) (3,498)
Sales of investments in marketable securities 6,513 15,625
Purchases of property and equipment (1,937) (11,137)
Purchases of investments 0 (5,603)
-------- --------
Net cash provided by (used in) investing activities 1,841 (4,613)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 757 668
Proceeds from exercise of stock options 285 455
Tax benefit of stock options exercised 155 121
Repurchase of common stock (3,073) 0
-------- --------
Net cash provided by (used in) financing activities (1,876) 1,244
-------- --------
Net increase (decrease) in cash 4,148 (5,502)
Effect of exchange rate changes on cash and cash equivalents (188) (27)
Adjustment to conform fiscal year of Barefoot Computer Training Limited 0 (213)
Cash and cash equivalents at beginning of period 5,225 11,395
-------- --------
Cash and cash equivalents at end of period $ 9,185 $ 5,653
======== ========
</TABLE>
See accompanying notes
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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
PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY
---------- -------- ------------ ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 11,269,000 $ -- $ 47,347 $ 7,956 $ 11 $ 55,314
Shares issued 1,578,000 10,017 10,017
Stock options exercised 139,000 285 285
Stock redemption (355,000) (3,073) (3,073)
Tax benefit related to stock option 155 155
exercises
Non cash stock-based compensation 32 32
Comprehensive income:
Net loss (2,708)
Other comprehensive income, net of
tax:
Foreign currency translation (188)
adjustments
Comprehensive income (loss) (2,896)
---------- -------- ------------ ----------- ------------- --------------
Balance at September 30, 1999 12,631,000 $ -- $ 54,763 $ 5,248 $ (177) $ 59,834
========== ======== ============ =========== ============= ==============
</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 operations,
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 31, 1999, have
been omitted.
2. Basic earnings per share is calculated as income available to common
shareholders divided by the weighted average number of shares of common
stock 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.
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The difference between the weighted average number of shares of common
stock 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 For the Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 11,583,000 11,125,000 11,257,000 11,083,000
Effect of dilutive securities:
Warrants 0 79,000 0 90,000
Options 0 724,000 0 849,000
---------- ---------- ---------- ----------
0 803,000 0 939,000
---------- ---------- ---------- ----------
Weighted average number of
common and common equivalent
shares outstanding 11,583,000 11,928,000 11,257,000 12,022,000
========== ========== ========== ==========
</TABLE>
Dilutive securities include options and warrants on an as if converted
basis. Potentially dilutive securities totaling 175,000 for the quarter
ended September 30, 1999 and 288,000 for the nine months ended September
30, 1999, were excluded from diluted loss per share because of their
anti-dilutive effect.
3. ARIS is engaged in three distinct businesses consisting of information
technology consulting services, information technology training and
software sales. Total revenue by segment represents sales to unaffiliated
customers. Inter-segment sales have been eliminated. Operating profit
represents total revenue less operating expenses. Summarized financial
information by business group for the quarters ended September 30, 1999 and
1998 and the nine-months ended September 30, 1999 and 1998 follows:
<TABLE>
<CAPTION>
CONSULTING TRAINING SOFTWARE
GROUP GROUP GROUP CORPORATE TOTAL
---------- -------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
(In Thousands)
Quarter ended
September 30, 1999:
Revenue 19,400 7,662 1,932 0 28,994
Operating profit (loss) 2,404 (8,159) 305 (343) (5,793)
Quarter ended September 30, 1998:
Revenue 17,730 10,765 2,993 0 31,488
Operating profit (loss) 3,370 761 1,599 (1,825) 3,905
</TABLE>
<TABLE>
<CAPTION>
CONSULTING TRAINING SOFTWARE
GROUP GROUP GROUP CORPORATE TOTAL
------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Nine months ended September 30, 1999:
Revenue 56,026 26,531 6,495 0 89,052
Operating profit (loss) 6,603 (9,860) 1,619 (768) (2,406)
Nine months ended September 30, 1998:
Revenue 46,591 30,620 8,672 0 85,883
Operating profit (loss) 5,804 1,824 4,943 (7,457) 5,114
</TABLE>
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4. In August 1999, ARIS announced the closing of training centers in New York,
Minneapolis and Chicago. These centers had not been profitable during the
six months ended June 30, 1999. The cost associated with the closing of
these centers is approximately $6,600,000, including payments of $1,600,000
for employee severance and relocation, lease terminations and termination
of contract obligations, $500,000 for bad debt write-offs, and $4,500,000
for reductions in carrying value of assets, representing a write-off of
$3,500,000 of goodwill and $1,000,000 of leasehold improvements. The cost
of closure was charged to expense in the quarter ending September 30, 1999.
5. On August 31, 1999, fine.com International Corp. ("fine.com"), an
electronic commerce and Web site development company, headquartered in
Seattle, Washington, was merged with and into ARIS Interactive, Inc., a
wholly-owned subsidiary of ARIS, in exchange for 1,470,574 shares of the
Company's common stock, plus approximately $3,003,000 cash, representing an
aggregate value of $4.553 per outstanding share of fine.com common stock
(the "fine.com Merger"). The total purchase price for the outstanding
shares was approximately $12,263,000. In addition, outstanding options and
warrants to purchase common stock of fine.com were converted to options to
purchase common stock of the company. The acquisition was accounted for
under the purchase method of accounting. Excess purchase price was
allocated to identified intangible assets acquired which are amortized over
varying lives by classification, with an average life of approximately four
years.
A summary of the purchase price paid for this acquisition is as
follows:
<TABLE>
<S> <C>
Consideration:
Cash $ 3,003,000
Stock 9,260,000
Acquisition costs 313,000
-----------
$12,576,000
===========
</TABLE>
The costs allocated to the assets and liabilities at the date of the
acquisition is as follows:
<TABLE>
<S> <C>
Cash $ 581,000
Accounts Receivable 924,000
Prepaid and other current assets 398,000
Intangible assets:
Goodwill $ 5,343,000
Non-compete agreement 1,900,000
Customer list 1,800,000
Trained Work Force 1,100,000
Leasehold valuation 450,000
Trade name 200,000
-----------
Total intangibles 10,793,000
Property and equipment 1,076,000
Notes payable, accounts payable and accrued liabilities (1,196,000)
-----------
$12,576,000
===========
</TABLE>
The allocation of consideration for the acquisition of fine.com is
preliminary and is subject to finalization.
The following unaudited pro forma summary presents the consolidated results
of operations of ARIS as if fine.com had been acquired as of the beginning
of the periods presented, including the impact of adjustments to amortize
intangible assets acquired and record consolidated income tax expense at
ARIS' effective tax rate.
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<TABLE>
<CAPTION>
For the For the
nine months ended nine months ended
September 30, September 30,
1999 1998
----------------- ------------------
<S> <C> <C>
Net Sales $93,919,000 $90,501,000
Net Income $(5,867,000) $(2,450,000)
Basic earnings per share $ (0.52) $ (0.20)
Diluted earnings per share $ (0.52) $ (0.20)
</TABLE>
The pro forma amounts for 1998 above include fine.com's results of
operations for the nine month period ended October 31, 1998. The pro forma
results are not necessarily indicative of what actually would have occurred
if the acquisitions had been in effect for the years presented. In
addition, they are not intended to be a projection of future results and do
not reflect any synergies that might be achieved from combined operations.
ARIS recorded expenses associated with the acquisition of fine.com during
the nine months ended September 30, 1999 of approximately $383,000. These
costs were primarily incurred in connection with the planning and
integration of fine.com's business systems.
6. In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, " Accounting
for Derivative Instruments and Hedging Activities." This statement requires
that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if
it is, the type of hedge transaction. In July 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." SFAS
No. 137 deferred the effective date of SFAS No. 133 until fiscal years
beginning after June 15, 2000. The Company does not use derivative
instruments, therefore the adoption of this statement will not have any
effect on the Company's results of operations or its financial position.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which establishes
guidelines for the accounting for the costs of all computer software
developed or obtained for internal use. This statement is effective for
fiscal years beginning after December 15, 1998. The Company does not expect
the statement to have a material impact on its financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This commentary should be read in conjunction with the following documents
for a full understanding of the Company's financial condition and results of
operations:
o The Company's Annual Report on Form 10-K for the year ended December
31, 1998.
o The Company's Quarterly Reports on Form 10-Q for the periods ended
March 31, 1999 and June 30, 1999.
o The Company's Current Report on Form 8-K filed on September 14, 1999.
o The Registration Statement on Form S-4 filed August 5, 1999 in
connection with the fine.com Merger, including the Consolidated
Financial Statements and Notes to Consolidated Financial Statements,
pages F-1 to F-50.
FORWARD-LOOKING INFORMATION
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.
The forward-looking statements are based on management's estimates,
opinions and projections as of the dates the statements are made. ARIS does not
assume any obligation to update forward-looking statements should management's
estimates, opinions or projections change.
OVERVIEW
ARIS' revenue is derived from the sale and delivery of information
technology consulting and training services and the sales of licenses and
maintenance and support agreements for software products.
Consulting revenue is derived primarily from fees billed to clients for
consulting services. Revenue from contracts that are billed on a time and
materials basis is recognized as services are performed. Revenue from fixed fee
contracts is recognized on the percentage-of-completion method, measured by the
cost incurred to date, the cost to complete compared to estimated total costs
for the contract and the attainment of specific contract milestones. Estimated
earnings from long-term fixed fee contracts are reviewed periodically as work
progresses. ARIS bills clients on a monthly or semi-monthly basis. Where revenue
is recognized before an invoice is sent, the revenue in excess of billings is
recorded as work-in-progress. Occasionally, clients request that ARIS provide
hardware and software in conjunction with consulting projects. In such cases,
ARIS recognizes as revenue only the difference between its cost and the resale
price for the
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software and hardware.
Training revenue is derived primarily from fees charged to corporate
clients for employee training, fees charged to individual students for open
enrollment classes, fees from curriculum and custom courseware development for
corporate clients and vendors such as Microsoft, fees derived from the licensing
of proprietary courseware to third parties, and fees from performance
improvement consulting and other consulting-based education services. ARIS
provides training at ARIS' training centers, at client facilities, and over the
Internet or corporate intranets. In open enrollment classes, ARIS seeks to fill
each available seat in each scheduled class. ARIS continuously monitors this
fill rate and may cancel or reschedule classes that are under-enrolled.
Software revenue is derived from the sale of ARIS' proprietary software
products, ARIS DFRAG, TAMS, TAMS/O, and the NoetixViews suite of products, and
from maintenance and support contracts with clients who purchase the software
products. ARIS recognizes revenue when the software product has been shipped,
collection is probable and ARIS has no significant obligations remaining to be
performed. ARIS bills clients for software maintenance and support at the
beginning of the contract period and recognizes the related revenue ratably
throughout the term of the contract.
SIGNIFICANT EVENTS
In August 1999, in a continuing effort to improve the profitability of its
Education division and focus corporate resources on the Company's overall
eBusiness strategy, ARIS announced the closing of three unprofitable training
centers located in New York, Minneapolis and Chicago. The costs associated with
the closing of these centers is approximately $6,600,000, including payments of
$1,600,000 for employee severance and relocation, lease terminations and
termination of contract obligations, $500,000 for bad debt write-offs, and
$4,500,000 for reductions in carrying value of assets, representing a write-off
of $3,500,000 of goodwill and $1,000,000 of leasehold improvements. The cost of
closure was charged to expense in the quarter ending September 30, 1999. Revenue
from these centers was $7,438,000 or 18% of total training revenue for the year
ended December 31, 1998, and $2,997,000 or 11% of total training revenue for the
nine months ended September 30, 1999.
As of July 1, 1999, ARIS transferred the assets of its United States
training operations into a wholly owned subsidiary, ARIS Information Technology
Training, Inc. and aligned its training divisions worldwide under common
management.
On August 31, 1999, fine.com was merged with and into ARIS Interactive,
Inc., a wholly-owned subsidiary of ARIS, in exchange for 1,470,574 shares of the
Company's common stock, plus approximately $3,003,000 cash, representing an
aggregate value of $4.553 per outstanding share of fine.com common stock. The
consideration for the outstanding shares was approximately $12,263,000 plus
related acquisition costs. In addition, outstanding options and warrants to
purchase common stock of fine.com were converted to options to purchase common
stock of the Company. The acquisition was accounted for under the purchase
method of accounting. Excess purchase price was allocated to identified
intangible assets acquired which
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are amortized over varying lives by classification with an average life of
approximately four years.
RISK FACTORS
There are some risks, uncertainties and other factors that could affect our
future operating results. Some of these include future client demand for
integrated eBusiness and IT solutions; competition from other businesses
providing similar services to that of the Company; the Company's ability to
successfully execute its business strategy and management and operational
re-alignment of its consulting and training businesses; ARIS' dependence on key
management; the Company's ability to attract, retain and motivate highly skilled
eBusiness and IT professionals; the Company's dependence upon key vendors of
software technology; the continued unprofitable operations of the Company's
training division and efforts to identify and execute strategic alternatives for
that business; the Company's ability to successfully integrate the acquisition
of fine.com; issues that may arise in product development and possible decisions
by third parties to delay or cancel the release of products under development;
the risk that ARIS' strategy of focusing on solutions that integrate
Internet-based and electronic commerce applications with internal information
systems will not be successful; the risk to the NoetixViews software product
posed by Oracle's release of a competing product; risks relating to relying on
the growth and viability of the Internet as a medium of communication and
commerce; ARIS' uncertain ability to manage growth; risks undertaken by ARIS in
bidding fixed price contracts; uncertainty as to need for and availability of
additional financing and year 2000 risks.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
TOTAL REVENUE
Total revenue decreased $2,494,000 to $28,994,000 for the quarter ended
September 30, 1999 from $31,488,000 for the quarter ended September 30, 1998,
representing a 7.9% decrease. During calendar year 1998 and through September
30, 1999, the Company has merged with or acquired the following companies:
Barefoot Computer Training Limited ("Barefoot") on February 28, 1998; MMT
Computing (Reading) Limited ("MMT") on April 30, 1998; InTime Systems
International, Inc. ("InTime") on June 30, 1998; db-Centric, Inc. ("db-Centric")
on August 10, 1998 and fine.com on August 31, 1999. The 1998 figures have been
restated as though Barefoot and InTime had been owned by ARIS throughout the
periods reported since each of these acquisitions was accounted for as a
"pooling-of interests".
CONSULTING REVENUE
Consulting revenue increased $1,670,000 to $19,400,000 for the quarter
ended September 30, 1999 from $17,730,000 for the quarter ended September 30,
1998, representing a 9.4% increase. Consulting revenue increased as a result of
an overall increase in the level of consulting activity and the acquisition of
fine.com. The Company employed or contracted for the services of an average of
409 full-time consultants and project managers during the quarter ended
September 30, 1999 compared to 375 during the quarter ended September 30, 1998.
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TRAINING REVENUE
Training revenue decreased $3,103,000 to $7,662,000 for the quarter ended
September 30, 1999 from $10,765,000 for the quarter ended September 30, 1998,
representing a 28.8% decrease. Revenues decreased as a result of a significant
reduction in the number of private classes provided to corporate clients
combined with the three training center closures. The Company offered 1,372
classes and 3,821 training days in the quarter ended September 30, 1999 as
compared to 2,279 classes and 5,676 training days in the quarter ended September
30, 1998.
SOFTWARE REVENUE
Software revenue decreased $1,061,000 to $1,932,000 for the quarter ended
September 30, 1999 from $2,993,000 in the quarter ended September 30, 1998,
representing a decrease of 35.4%. The decrease in revenue is primarily
attributable to a reduction in the sales of the NoetixViews suite of products by
ARIS Software, Inc. ("ASI"), the Company's wholly-owned subsidiary. The decrease
in sales is due to a general slowdown of ERP sales and partial saturation of the
potential market due to the successful penetration of the NoetixViews product
into the Oracle ERP customer base. Sales of the Company's TAMS/O product, which
was acquired from InTime Systems and resold by Oracle, also decreased to
$136,000 for the quarter ended September 30, 1999 compared to $413,000 for the
quarter ended September 30, 1998.
COST OF SALES
Cost of sales increased $430,000 to $14,936,000 in the quarter ended
September 30, 1999 from $14,506,000 in the quarter ended September 30, 1998,
representing a increase of 3.0%. 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. The increase in cost of sales is
primarily a reflection of the increase in sales and the activities associated
with such sales. Cost of sales as a percentage of sales increased from 46.1% for
the quarter ended September 30, 1998 to 51.5% for the quarter ended September
30, 1999. The increase is a result of a relative decrease in sales of software
products. Software sales have a lower percentage of cost of sales compared to
the Company's consulting and training operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AND OTHER OPERATING EXPENSES
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.
Exclusive of reorganization costs, amortization of intangible assets, and
charges related to acquisitions, SG&A expense decreased $515,000 to $12,393,000
for the quarter ended September 30, 1999 from $12,908,000 for the quarter ended
September 30, 1998, representing a decrease of 4.0%. The Company also incurred
$6,600,000 of expenses related to closing the training centers in New York,
Minneapolis and Chicago, amortization of intangibles amounting to $475,000 and
$169,000, for the quarters ended September 30, 1999 and 1998, respectively, and
$383,000 of charges related to the integration of fine.com during the quarter
ended September 30, 1999.
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SG&A expenses, exclusive of costs associated with acquisitions, training
center closures and amortization of intangible assets, as a percentage of sales
are 42.7% and 41.0% in the quarters ended September 30, 1999 and 1998,
respectively.
OTHER INCOME, NET
Other income, net, consists primarily of interest income on cash and cash
equivalents and partially from finance charges on accounts receivable. These are
offset by interest expense associated with short-term borrowings. Other income,
net, decreased $20,000 to $186,000 for the quarter ended September 30, 1999 from
$206,000 for the quarter ended September 30, 1998, representing a decrease of
9.7%. The reduction in other income is primarily the result of a decrease in
invested cash, cash equivalents and marketable securities. Average invested
amounts during the quarters ended September 30, 1999 and 1998 were $7,807,576
and $12,421,469, respectively.
INCOME TAX EXPENSE
Income tax expense decreased $2,308,000 to a tax benefit of $654,000 in the
quarter ended September 30, 1999 from a tax expense of $1,654,000 for the
quarter ended September 30, 1998, primarily as a result of the decrease in the
amount of income subject to tax. As a percentage of revenue, income tax expense
decreased from 5.3% for the quarter ended September 30, 1998 to a tax benefit of
2.3% for the quarter ended September 30, 1999. The decrease in the tax expense
as a percentage of revenue is due to the write-off of non-deductible goodwill
related to the training center closures and non-deductible goodwill
amortization.
NET INCOME
Net income decreased $7,410,000 to a net loss of $4,953,000 (-17.1% of
revenue) for the quarter ended September 30, 1999 from net income of $2,457,000
(7.8% of revenue) for the quarter ended September 30, 1998. The decrease in net
income is primarily a result of the training center closures and decreased
software revenues.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangibles was $475,000 during the quarter ended September
30, 1999 and $169,000 for the quarter ended September 30, 1998. The increase in
amortization of intangibles arises as a result of an increase in goodwill
attributable to the fine.com acquisition in August of 1999.
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CHARGES RELATED TO ACQUISITIONS
Charges related to acquisitions relate to the integration of an acquired
business. There were $383,000 of acquisition-related costs during the quarter
ended September 30, 1999 and no acquisition-related costs during the quarter
ended September 30, 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
TOTAL REVENUE
Total revenue increased $3,169,000 to $89,052,000 for the nine months ended
September 30, 1999 from $85,883,000 for the nine months ended September 30,
1998, representing a 3.7% increase.
CONSULTING REVENUE
Consulting revenue increased $9,435,000 to $56,026,000 for the nine months
ended September 30, 1999 from $46,591,000 for the nine months ended September
30, 1998, representing a 20.3% increase. Consulting revenue increased as a
result of an overall increase in the level of consulting activity as well as the
acquisition of fine.com.
TRAINING REVENUE
Training revenue decreased $4,089,000 to $26,531,000 for the nine months
ended September 30, 1999 from $30,620,000 for the nine months ended September
30, 1998, representing a 13.4% decrease. Revenues decreased as a result of a
significant decrease in the number of private classes provided to corporate
clients combined with three training center closures. The Company offered 5,795
classes and 13,661 training days in the nine months ended September 30, 1999 as
compared to 5,637 classes and 14,650 training days in the nine months ended
September 30, 1998.
SOFTWARE REVENUE
Software revenue decreased $2,177,000 to $6,495,000 for the nine months
ended September 30, 1999 from $8,672,000 for the nine months ended September 30,
1998, representing an decrease of 25.1%. The decrease in revenue is primarily
attributable to a reduction in the sales of the NoetixViews suite of products by
ARIS Software, Inc. ("ASI"), the Company's wholly-owned subsidiary. The decrease
in sales is due to a general slowdown of ERP sales and partial saturation of the
potential market due to the successful penetration of the NoetixViews product
into the Oracle ERP customer base. Sales of the Company's TAMS/O product, which
was acquired from InTime Systems and resold by Oracle, also decreased to
$763,000 for the nine months ended September 30, 1999 compared to $1,138,000 for
the nine months ended September 30, 1998.
COST OF SALES
Cost of sales increased $5,576,000 to $44,872,000 in the nine months ended
September 30, 1999 from $39,296,000 in the nine months ended September 30, 1998,
representing a decrease of 14.2%. The increase in cost of sales is primarily a
reflection of the
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increase in sales and the activities associated with such sales. Cost of sales
as a percentage of sales increased from 45.8% for the nine months ended
September 30, 1998 to 50.4% for the nine months ended September 30, 1999. The
increase in cost of sales as a percentage of sales was caused by a relative
decrease in sales of software products. Software sales have a lower percentage
of cost of sales compared to the Company's consulting and training operations
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
SG&A expense increased $3,320,000 to $38,698,000 for the nine months ended
September 30, 1999 from $35,378,000 for the nine months ended September 30,
1998, representing an increase of 9.4%. The increase in SG&A expense is
primarily the result of the Company's general growth in sales and increased
focus on recruiting, sales staffing and marketing. The Company also incurred
costs associated with acquisitions completed during the nine months ended
September 30, 1999 amounting to $383,000 (0.4% of revenue) and $5,655,000 during
the nine months ended September 30, 1998 (6.6% of revenue), amortization of
intangibles of $905,000 during the nine months ended September 30, 1999 and
$440,000 during the nine months ended September 30, 1998, and reorganization
costs associated with the training center closures of $6,600,000 during the nine
months ended September 30, 1999.
Exclusive of costs associated with acquisitions, training center closures
and amortization of intangibles, SG&A expenses increased to 43.5% of revenue for
the nine months ended September 30, 1999 up from 41.2% of revenue for the nine
months ended September 30, 1998 due to the Company's increased focus on
recruiting, sales staffing and marketing.
OTHER INCOME, NET
Other income, net, decreased $354,000 to $542,000 for the nine months ended
September 30, 1999 from $896,000 for the nine months ended September 30, 1998,
representing a decrease of 39.5%. Other income, net, consists primarily of
interest income on cash and cash equivalents and partially from finance charges
on accounts receivable. These are offset by interest expense associated with
short-term borrowings. In the nine months ended September 30, 1999, other
income, net, included approximately $48,000 from the gain on sale of investments
as compared to a gain of $282,000 for the nine months ended September 30, 1998.
Average invested amounts during the nine months ended September 30, 1999 and
1998 were $8,322,868 and $15,800,893, respectively.
INCOME TAX EXPENSE
Income tax expense decreased $2,363,000 to $844,000 in the nine months
ended September 30, 1999 from $3,207,000 for the nine months ended September 30,
1998. As a percentage of revenue, income tax expense decreased from 3.7% in the
nine months ended September 30, 1998 to 0.9% in the nine months ended September
30, 1999. There is no tax benefit at statutory rates for the write-off of
goodwill and amortization of goodwill during the nine months ended September 30,
1999. Management estimates that exclusive of the acquisition-related charges and
reorganization costs, the Company's effective tax rate increased from 39.7% in
the nine months ended September 30, 1998 to 43.5% for the comparable period
ended September 30, 1999. The increase in the
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effective tax rate is primarily attributable to an increase in state income
tax expense as a result of the Company doing business in more states having
state income taxes.
NET INCOME
Net income decreased $5,511,000 to a net loss of $2,708,000 (-3.0% of
revenue) for the nine months ended September 30, 1999 from net income of
$2,803,000 (3.3% of revenue) for the nine months ended September 30, 1998,
primarily as a result of acquisition-related expenses and reorganization costs.
Exclusive of acquisition-related expenses, training center closure costs,
amortization of goodwill and related taxes, net income and net income as a
percentage of sales decreased from $7,299,000 and 8.5% of revenue to $3,674,000
and 4.1% of revenue for the nine months ended September 30, 1998 and 1999,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had working capital of $27,251,000
including cash and cash equivalents and marketable debt securities of
$9,185,000. As of December 31, 1998, ARIS had working capital of $28,700,000
including cash and cash equivalents and marketable debt securities of
$11,738,000. ARIS 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 in the amount of $4,148,000 was provided by all activities in the
nine months ended September 30, 1999. Operating activities provided cash in the
amount of $4,183,000. Investing activities provided $1,841,000 of cash,
including cash used in the acquisition of fine.com in the amount of $2,735,000
net of cash received in the acquisition, and proceeds from the sale of
marketable securities in the amount of $6,513,000, a portion of which was used
to purchase $1,937,000 of property and equipment. Financing activities used a
total of $1,876,000 in the nine months ended September 30, 1999. ARIS paid
$3,073,000 to purchase its own stock and received $285,000 from the exercise of
stock options and $757,000 from the issuance of stock related to the Company's
1997 Employee Stock Purchase Plan (the "ESPP").
Net cash in the amount of $5,502,000 was used by all activities in the nine
months ended September 30, 1998. Operating activities used $2,133,000. Investing
activities used $4,613,000. Investing activities included the sale of marketable
securities for $15,625,000, and the use of cash for business acquisitions in the
amount of $3,498,000 and for purchase of property and equipment for $11,137,000.
Financing activities provided $1,244,000 in cash including $455,000 from the
exercise of options and $668,000 from the issuance of stock related to the
Company's ESPP.
At September 30, 1999, ARIS had accounts receivable of $26,652,000 and 84
days sales outstanding. At September 30, 1998, accounts receivable were
$26,734,000 and 77 days sales outstanding. The increase in days sales
outstanding is attributable to over-age accounts acquired in the Company's
merger with InTime on June 30, 1998 as well as an increase in accounts
receivable from government contracts which typically pay more slowly than
commercial accounts.
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ARIS has a $10 million line of credit with US Bank. The credit line
provides funds for general business purposes as well as the acquisition of
companies, and is secured by substantially all of ARIS' 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. ARIS is in compliance with all requirements of the credit line. At
September 30, 1999 and December 31, 1998 there were no borrowings against the
credit line. The credit line expires, if not earlier renewed, on June 1, 2000.
ARIS has financed its acquisitions of businesses through cash generated by
operating activities and its initial public offering, promissory notes and the
issuance of warrants and common stock. ARIS believes that it should be able to
satisfy the cash requirements of its existing business and the business of
fine.com from its existing cash resources, its bank credit facilities and cash
flow from operations as well as cash acquired in the merger with fine.com.
However, if results of operations after the merger are less favorable than ARIS
now anticipates or if unanticipated costs or expenses are incurred, ARIS may
require additional financing. ARIS also may encounter opportunities for
acquisitions of businesses or products, joint ventures or other business
initiatives that may require the commitment of cash in excess of ARIS' available
resources. If ARIS requires cash in addition to its available resources, ARIS
may have to obtain additional equity or debt financing. Financing may not be
available on a timely basis, on favorable terms or at all. If ARIS obtains
financing through the sale of equity securities, holders of ARIS common stock
may experience significant dilution. Failure to obtain financing if and when
needed could require ARIS to restrict its operations or forego available
opportunities.
YEAR 2000 READINESS DISCLOSURE
The following disclosure shall be considered ARIS' Y2K Readiness Disclosure
to the maximum extent allowed under the Year 2000 Information and Readiness
Disclosure Act. ARIS has developed a phased Y2K readiness plan to help identify
and resolve Y2K issues associated with the its internal systems and the services
it provides. The plan includes development of corporate awareness, assessment,
implementation, validation testing and contingency planning.
Even if ARIS' systems are fully Y2K compliant, if any of its material
suppliers or vendors are not fully Y2K compliant, it is possible that a system
failure or miscalculations could cause disruptions to ARIS' operations or
potential problems with its product and service offerings. Although assessment
and testing is ongoing, ARIS believes that its software products, ARIS DFRAG,
TAMS, and the NoetixViews suite of products are Y2K compliant.
ARIS' consulting engagements often involve the implementation of software
applications that replace existing systems of the client that are not Y2K
compliant. In the event that ARIS is not able for any reason to meet its
contractual obligations with a client, ARIS could be found liable for damages as
a result of that client's Y2K exposure. Such damages could include costs
associated with remediating the client's existing systems to make them Y2K
compliant, and any other direct, indirect, consequential or incidental damages.
ARIS endeavors to negotiate appropriate limitations of liability and disclaimers
regarding its Y2K and other liability in its agreements with clients. Although
ARIS does not carry any endorsement or policy specifically written for Y2K
liability, ARIS believes that its insurance includes adequate coverage for
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damages that may result from any Y2K-related claim. However, ARIS might be found
liable for Y2K-related damages as a result of services performed on behalf of
clients, and ARIS' insurers might deny coverage of liabilities based on
Y2K-related claims.
ARIS has begun an assessment of its information technology and
non-information technology systems, material client and other third party
relationships, and service and product offerings to determine whether ARIS faces
any business or financial risk from the Y2K issue. ARIS' reliance on key
suppliers, and therefore on the proper function of their information technology
and non-information technology systems, means that their failure to address Y2K
issues could have a material impact on ARIS' operations and financial results.
Through its assessment, ARIS has begun to identify areas where it faces any
business or financial risk, to identify potential solutions to address those
risks, and to implement the solutions or develop a comprehensive contingency
plan in a timely manner in an effort to minimize its Y2K exposure. In addition
to its internal systems, ARIS relies on third party relationships in the conduct
of its business. For example, ARIS relies on the services of the landlords of
its facilities, telecommunication companies, banks, utilities, and commercial
airlines. ARIS intends to devise contingency plans to ameliorate the negative
effects on it in the event the Y2K issue results in the unavailability of
services. Any contingency plans ARIS develops may not prevent service
interruption on the part of one or more of ARIS' third party vendors or
suppliers from having a material adverse effect on ARIS' business, results of
operations or financial condition. The failure on the part of the accounting
systems of ARIS' clients due to Y2K issues could result in a delay in the
payment of invoices issued by ARIS for services and expenses. A failure of the
accounting systems of a significant number of its clients would have a material
adverse effect on ARIS' business, results of operations and financial condition.
ARIS has completed its risk assessment of its information technology
systems and its assessment of ARIS' other Y2K business and financial risks. ARIS
has completed its upgrade to a Y2K compliant version of both its internal
accounting software and its proprietary time and billing, class registration and
operational software. If further tests of the information technology and
non-information technology systems, material third party relationships, and
service and product offerings reveal other Y2K compliance problems, or any of
ARIS' material third party suppliers or vendors do not successfully and in a
timely manner achieve Y2K compliance, ARIS' business or operations could be
adversely affected.
The foregoing discussion of ARIS' Y2K readiness contains forward-looking
statements including estimates of the timeframes and costs for addressing the
known Y2K issues confronting ARIS and is based on management's current
estimates, which were derived using numerous assumptions. There can be no
assurance that these estimates will be achieved and actual events and results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, ARIS' ability
to identify and correct all Y2K problems and the success of third parties with
whom ARIS does business in addressing their Y2K issues.
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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk to which ARIS' operations are exposed is the
effects of changes in foreign currency exchange rates. Income from ARIS' foreign
operations is frequently denominated in foreign currencies, thereby creating
exposure to changes in exchange rates. This foreign currency exposure is
monitored by the Company as an integral part of the Company's overall risk
management program, which recognizes the unpredictability of financial markets
and seeks to reduce the potentially adverse effect on the Company's results. The
effect of changes in exchange rates on ARIS' earnings has been immaterial
relative to other factors that also affect earnings, such as sales and operating
margins.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved from time to time in legal proceedings incidental
to its business. As of September 30, 1999, the Company was not involved in any
material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the Company's initial public offering (the "Offering")
of its 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,
1999, 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,
1999, the Company has applied $4,000,000 of the Offering proceeds to the
repayment of the Company's revolving credit line. The Company has used $22.7
million of the Offering proceeds for working capital and expansion of the
Company's business, including acquiring and investing in complementary
businesses and the purchase of the Company's headquarters in Bellevue,
Washington. 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
$5.4 million of the Offering proceeds is held in cash or invested in short term
marketable debt securities and money market funds.
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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
Financial Data Schedule
(B) REPORTS ON FORM 8-K
Form 8-K filed on September 14, 1999 related to the merger of fine.com
with and into ARIS Interactive, Inc. with the following pro forma
financial information and related footnote disclosure:
o Unaudited pro forma Combined Balance Sheet at June 30, 1999 for
ARIS and April 30, 1999 for fine.com;
o Unaudited pro forma Combined Statement of Operations for the year
ended December 31, 1998 for ARIS and January 31, 1999 for fine.com;
and
o Unaudited pro forma Combined Statement of Operations for the six
months ended June 30, 1999 for ARIS and April 30, 1999 for
fine.com.
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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.
<TABLE>
<S> <C>
Dated this 15th day of ARIS Corporation
November, 1999.
By: /s/ Timothy J. Carroll
------------------------
Timothy J. Carroll
Vice President, Secretary and
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
</TABLE>
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EXHIBITS
<TABLE>
<CAPTION>
PAGE EXHIBIT NUMBER EXHIBIT NAME
- ---- -------------- ------------
<S> <C> <C>
27.1 Financial Data Schedule
</TABLE>
Page 24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,185
<SECURITIES> 0
<RECEIVABLES> 28,930
<ALLOWANCES> (2,278)
<INVENTORY> 0
<CURRENT-ASSETS> 42,635
<PP&E> 23,293
<DEPRECIATION> (7,673)
<TOTAL-ASSETS> 75,427
<CURRENT-LIABILITIES> 15,384
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 59,834
<TOTAL-LIABILITY-AND-EQUITY> 75,427
<SALES> 89,052
<TOTAL-REVENUES> 89,052
<CGS> 44,872
<TOTAL-COSTS> 91,458
<OTHER-EXPENSES> (542)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,864)
<INCOME-TAX> 844
<INCOME-CONTINUING> (2,708)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,708)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
