ARIS CORP/, 10-K405/A, 1999-04-19

ARIS CORP/
10-K405/A, 1999-04-19
COMPUTER PROGRAMMING, DATA PROCESSING, ETC.

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K/A

Amendment No. 1

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

For the fiscal year ended December 31, 1998

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

Commission File Number: 0-22649

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ARIS CORPORATION
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C>
Washington 91-1497147
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>

<TABLE>
<S> <C>
2229 112th Avenue NE
Bellevue, Washington 98004
(Address of principal executive offices) (Zip code)
</TABLE>

(425) 372-2747
(Registrant's telephone number, including area code)

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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:

<TABLE>
<CAPTION>
Name of each exchange
Class on which registered
----------------------------- ----------------------
<S> <C>
Common Stock Nasdaq National Market
Warrants to purchase Common Stock Nasdaq National Market
</TABLE>

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

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

The aggregate market value of the voting stock held by nonaffiliates of the
registrant at March 5, 1999 was approximately $78,038,885.

The number of shares of the registrant's Common Stock outstanding at March
5, 1999 was 11,270,323.

The number of warrants to purchase shares of the registrant's Common Stock
outstanding at March 5, 1999 was 718,997.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Annual Report to Shareholders are incorporated by
reference in Part I and Part II hereof.

The Company's definitive proxy statement for its annual meeting of
shareholders on May 24, 1999, which will be filed with the Securities and
Exchange Commission within 120 days after the close of the fiscal year, is
incorporated by reference in Part III hereof.

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The Company's Annual Report on Form 10-K is being amended to correct
typographical errors contained in the registrant's audited financial
statements.

PART I

ITEM 1. BUSINESS

ARIS Corporation (which may be referred to as ARIS or the Company) was
incorporated in Washington in 1990. ARIS provides an integrated information
technology ("IT") solution consisting of consulting and training services
primarily focused on Oracle, Microsoft, PeopleSoft, Sun and Lotus
technologies. The Company also develops, markets and supports proprietary
software products that enhance Oracle database management and Oracle packaged
applications and the Company's human resource management systems ("HRMS")
consulting practice.

The Company markets its service and product offerings directly through its
Consulting, Education and HRMS divisions, and through the following subsidiary
companies:

. ARIS Software, Inc. ("ASI"), a wholly-owned subsidiary of ARIS, develops,
markets, distributes and sells certain of the Company's software product
offerings (other than TAMS and TAMS/O, which are distributed and sold
through the Company's HRMS division). ASI is a Washington corporation
headquartered in Bellevue, Washington. ASI also has a registered branch
office in Oxford, England.

. ARIS (UK) Limited, formerly Oxford Computer Group Limited ("ARIS (UK)"),
a wholly-owned subsidiary of ARIS, provides training and consulting
services primarily in the United Kingdom and Europe. ARIS (UK) is a
limited company organized under the laws of England and Wales with its
principal offices in Oxford, England.
. ARIS Computer Services GmbH ("ARIS GmbH"), a wholly-owned subsidiary of
ARIS (UK), provides training services in Germany. ARIS GmbH is a German
company with limited liability ("Gesellschaft mit beschrankter Haftung")
with its primary place of business in Heidelberg, Germany.

. ARIS (International), L.L.C. ("ARIS (International)"), a wholly-owned
subsidiary of ARIS, provides training and consulting services outside of
the United States. ARIS (International) is a Washington limited liability
company with its principal place of business in Bellevue, Washington.
ARIS (International) has a registered branch office in Tel Aviv, Israel.

The Company believes that its ability to provide clients with an integrated
IT solution, coupled with its focus on leading-edge technologies, provides it
with a unique competitive advantage.

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:

. 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 ended March
31, 1998, June 30, 1998 and September 30, 1998.

. The Registration Statement on Form S-4 filed May 5, 1998, as amended, in
connection with the Company's merger with InTime Systems International,
Inc. ("InTime"), including the Consolidated Financial Statements and
Notes to Consolidated Financial Statements.

All statements, trend analysis and other information contained herein
relative to markets for the Company's services and products and trends in
revenue, gross margins, expenses, results of operations and other financial
information, 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, market and economic risks, and the
Company's actual results of operations may differ materially from those
contained in the forward-looking statements.

Industry Background

Enterprises face a rapidly changing, highly competitive environment where
access to information through the use of information technology can result in
improvements in products and services, lower costs and increased

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client satisfaction. An enterprise's ability to evaluate, integrate, deploy
and leverage IT systems is a critical competitive issue. International Data
Corporation ("IDC") estimates that the worldwide market for IT consulting is
projected to grow to $53.5 billion by the year 2002.

The complex task of developing and implementing enterprise-wide, mission
critical solutions is a costly and time consuming undertaking. For example,
enterprise resource planning projects, which generally include planning and
integration of manufacturing, distribution, financial and other business
systems, require cooperation and coordination of virtually every department
within an enterprise. Enterprises must also ensure that their IT employees
possess the skills to operate, maintain and maximize performance of their
increasingly complex information systems. Additional employee training is also
required each time an enterprise implements a new technology or updates its
existing technology. In many large enterprises, IT training is virtually
continuous. IDC estimates that the worldwide market for IT education and
training is projected to grow to $28.3 billion by 2002.

Many enterprises do not have adequate personnel with the requisite
technology skills or are reluctant to expand or retool their existing IT
departments for particular implementation projects. Most do not have the
infrastructure to provide the necessary IT training internally. Confronted
with these challenges, many enterprises turn to and rely upon independent IT
service providers, such as ARIS, for their IT consulting and training
requirements.

Strategy

The Company's objective is to be a leading provider of integrated IT
solutions by pursuing the following strategies:

Leverage Synergies Between Consulting and Training. By offering a
combination of consulting and training services, the Company believes it is
able to: (i) capitalize on cross-selling opportunities between training and
consulting; (ii) increase client referrals; (iii) enhance its name
recognition; and (iv) provide a complete solution to its clients. The Company
encourages its instructors to participate in consulting projects, enabling
instructors to improve their technical knowledge with practical software
implementation experience. In addition, the Company offers ongoing training in
the latest technologies to its consultants and project managers.

Focus on Leading-Edge Technologies and Technology Trends. The Company
intends to maintain its alignment with leading-edge technology vendors such as
Oracle, Microsoft, Lotus, PeopleSoft and Sun. ARIS may shift or expand its
vendor focus over time in order to maintain alignment with leading-edge,
emerging technologies. Additionally, the Company continually evaluates
technology trends, such as new products and product releases, new training
delivery mechanisms, and the evolving technology needs of its clients. Vendor-
authorized, instructor-led open enrollment training continues to be an
important aspect of the Company's education business. However, the Company
intends to focus on more consulting-oriented education services and customized
training for larger clients with increasing emphasis on Internet- and
intranet-based training, including audio and video streaming and other
"webcasting" technologies. The Company has also developed a proprietary
performance improvement consulting methodology that assesses the client's
training requirements and current skill levels, develops a curriculum
specifically tailored to such requirements and skills, and evaluates
performance to ensure that the client's training objectives are met. By
focusing on leading-edge technologies and trends, the Company believes it will
be able to continue to offer specialized and value-added services to its
clients, at higher margins.

Attract And Retain Highly Skilled IT Professionals. The Company's success
depends on its ability to attract, train, motivate and retain highly skilled
IT professionals. The Company believes it offers its employees: (i) multiple
professional opportunities and challenges to work in one or more of the
Company's consulting, training and software divisions; (ii) the ability to
work with leading-edge technologies; (iii) attractive compensation plans that
align employees' interests and goals with those of the Company; (iv) a
stimulating, flexible, entrepreneurial work environment; and (v) the
opportunity to train on the latest technologies.

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Maintain High Levels of Client Satisfaction. The Company believes that
satisfying client expectations is critical to expanding relationships with
existing clients and receiving positive references for future sales. To
coordinate this important role, the Company recently appointed a Director of
Project Management and Standards, whose duties include the development of
standardized delivery and reporting requirements and quality assurance
processes for the Company's consulting engagements.

Strategic Growth. The Company intends to continue to expand its operations
by opening or acquiring additional consulting offices and training centers in
strategic geographic locations. During 1998, the Company increased its
activity internationally through the establishment of ARIS GmbH in Heidelberg,
Germany and the formation of ARIS (International) to better service its
multinational clients. In addition to its internal growth, the Company made
several strategic acquisitions of complementary businesses during 1998:

. In February 1998, the Company acquired all of the outstanding capital of
Barefoot Computer Training Limited ("Barefoot"), an IT training company
based in London, England, in exchange for 278,611 shares of ARIS Common
Stock. The transaction was accounted for as a pooling-of-interests. In
April 1998, the Company exchanged its shares of Barefoot for shares of
ARIS (UK), which resulted in Barefoot becoming a wholly-owned subsidiary
of ARIS (UK). In May 1998, the assets and operations of Barefoot were
merged into ARIS (UK).

. In April 1998, ARIS (UK) acquired all of the outstanding share capital
of MMT Computing (Reading) Limited ("MMT"), a consulting company focused
primarily on Lotus technologies, for (Pounds)1,500,000 cash
(US$2,499,000). In May 1998, the assets and operations of MMT were
merged into ARIS (UK).

. In June 1998, InTime merged with and into ARIS (the "InTime Merger") in
exchange for 786,710 shares of ARIS Common Stock and warrants to
purchase 718,997 shares of ARIS Common Stock. The transaction was
accounted for as a pooling-of-interests. InTime provided systems
integration services and software products relating to the selection,
implementation and use of human resources, payroll and selected software
systems.

. In August 1998, ASI acquired substantially all of the assets of db-
Centric, Inc. ("db-Centric"), a software development company located in
San Francisco, California, in exchange for $1,000,000 cash. db-Centric's
primary business involved the development of a distributed data
warehouse query and resource management system.

The Company may continue to pursue additional strategic acquisitions in
order to acquire expertise in new technologies, expand its client base, gain
access to qualified IT professionals and enter new geographic markets.

ARIS Consulting

ARIS provides IT consulting services primarily to clients that require
assistance planning, designing, developing, testing and deploying their
specific technology requirements and infrastructure. ARIS currently focuses on
three core consulting competencies: packaged application implementation,
custom application development (including Internet-based systems), and systems
architecture planning and deployment.

Packaged Application Implementation. ARIS consulting focuses on the packaged
enterprise resource planning (ERP) market, particularly the implementation of
Oracle database management and Oracle packaged applications. Through the
Company's HRMS division, the Company has significant experience in the HRMS
vertical market, using primarily Oracle and PeopleSoft technologies.

Custom Application Development. ARIS consulting provides custom application
development services, particularly client/server and Internet/intranet
projects, primarily involving Oracle and Microsoft technologies.

Systems Architecture Planning and Deployment. ARIS consulting provides
systems architecture planning and deployment for IT architectures including
Microsoft BackOffice, Oracle databases, UNIX and general

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networking architectures. System architecture engagements involve a range of
services including capacity planning, implementation design and planning,
readiness assessment, performance tuning and monitoring, configuration and
installation, infrastructure management, process evaluation and complete
database administration outsourcing.

The Company has organized its consulting operations into the following
practice groups:

. Oracle Consulting Services. The Oracle practice group implements all of
Oracle's suite of ERP software application modules, including Oracle
Financials, Manufacturing, Distribution, Projects and Human Resources.
The Oracle practice group also provides custom application development
services to clients using Oracle's Designer/Developer 2000 and other
developer tools.

. Microsoft Consulting Services. The Microsoft practice group provides
consulting and implementation services including systems architecture,
planning and deployment using the Microsoft Back Office suite of
applications, which include NT, Exchange Server, SQL Server, Internet
Information Server, SiteServer, Commercial Internet Server and Systems
Management Server.

. HRMS Consulting Services. The HRMS practice group provides consulting
and implementation services for HRMS systems developed by Peoplesoft,
Oracle, The US Group, Cyborg and ADP. This group was formed as a result
of the InTime Merger. The HRMS practice group also develops and markets
a proprietary software product called TAMS/O (Time & Attendance
Management System for Oracle) that integrates with Oracle Human
Resources, Oracle Payroll and Oracle Projects applications. The TAMS/O
product is also marketed by Oracle as Oracle Time Management ("OTM")
pursuant to a licensing arrangement with the Company.

. Lotus Technologies. The Lotus consulting practice group provides
consulting and implementation services on Lotus technologies, including
Lotus Notes and Domino.

Each practice group is headed by a Director or Vice President reporting to
the Senior Vice President of North America. The Company's consulting clients
are generally medium to large businesses and governmental agencies.

Consultant utilization, billing rates and headcount are reviewed regularly
by management to monitor whether projects are being completed in accordance
with client expectations and contractual obligations. Most projects are
staffed by Company employees although independent contractors may also be used
depending on project requirements. As projects are completed or as new
consultants are hired, there may be periods when individual consultants or
project managers are not assigned to active client projects. During these
periods of non-assignment, consultants and project managers may receive
training on new technologies, help develop proprietary consulting
methodologies and tools, or assist in developing the Company's internal data
systems.

ARIS Training

ARIS is a leading provider of vendor-certified and custom training to IT
professionals including Microsoft BackOffice, Oracle database and tools, Sun
Solaris and Java, Lotus Notes and Domino, Internet and networking
technologies. ARIS provides instructor-led training through regularly
scheduled open enrollment classes, private classes (using both standard and
customized content), and Internet- and intranet-based training. ARIS also
provides other training related services such as IT skills assessment, "train
the trainer" programs, curriculum development and education consulting
services.

The Company seeks to achieve a high fill rate for each of its public classes
without exceeding a maximum class size in order to preserve a high level of
individual student attention. The Company devotes considerable resources to
maintaining the skills of its instructors, who are required to maintain the
certifications necessary to teach new course titles as a part of ARIS' vendor
authorized training designations.

ARIS uses both vendor-authorized and proprietary courseware and training
methodologies. The Company continually evaluates market demand for training in
its core technologies and updates current course titles or

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develops new course titles to satisfy the changing needs of the market. To
ensure that its course titles and instructors meet the needs of the market and
maintain the Company's quality standards, each class participant is asked to
complete an evaluation of the course materials and of the instructor at the
end of his or her training. These evaluations are used by the Company to
modify course offerings and training techniques in order to improve instructor
performance.

In July 1998, ARIS entered into a strategic alliance with GeoTrain
Corporation to offer certified Cisco Systems training in the ARIS training
centers through out the United States and the United Kingdom.

In the fourth quarter of 1998, ARIS restructured its training division,
significantly reducing its fixed costs and overhead expenses, in response to
decreased demand for IT training services and lower profitability as a result
of the commoditization of open-enrollment IT training, increased competition,
lack of new product releases by software vendors and other market factors.
Traditional open-enrollment, classroom-based training will continue to remain
a significant part of the Company's training strategy. However, the Company
intends to focus more resources on customized private training and education
consulting services for its corporate clients and alternative training
delivery mechanisms, including Internet- and intranet-based training using
audio and video streaming and other "webcasting" technologies. The Company has
recently introduced Performance Improvement Consulting, a comprehensive
training solution marketed to corporate clients. Performance Improvement
Consulting involves assessing a client's training requirements and current
skill levels of its IT staff, developing a customized training curriculum,
delivering the training to the Company's IT staff, and testing the IT staff to
ensure that the training meets the client's previously defined training goals.
The Company believes that these customized, value-added training services
should increase the profitability of its training operations.

ARIS Software

ASI develops, distributes, markets and sells the Company's proprietary
software products (other than TAMS and TAMS/O, which are developed and
distributed through the Company's HRMS practice group). Currently, the Company
markets and sells the following software products:

. NoetixViews enables users of Oracle Applications to quickly retrieve
non-standard business information from an Oracle database. By
establishing a layer of "meta" data, NoetixViews serves as a platform on
which customers can build their reporting systems, reducing costly re-
design when a new version of an Oracle Application program is released.
Currently, there are NoetixViews products for each of the following
Oracle Applications:

. NoetixViews Accounts Payable . NoetixViews Accounts Receivable
. NoetixViews General Ledger . NoetixViews Fixed Assets
. NoetixViews Inventory . NoetixViews Order Entry
. NoetixViews Purchasing . NoetixViews Bills of Material
. NoetixViews Costing . NoetixViews Work in Progress
. NoetixViews Scheduling . NoetixViews Project Costing
. NoetixViews Human Resources . NoetixDW for Financials
. NoetixViews Project Billing . NoetixViews Application Object
Library

. ARIS DFRAG is a tool used by database administrators to identify and
reorganize "fragmented" data in Oracle databases, thereby improving
performance. ARIS DFRAG includes a graphical user interface based on
Microsoft Windows which can be used to browse and manage database
objects within an Oracle database.

. TAMS and TAMS/O, which are developed, marketed and sold through the
Company's HRMS division, are systems which collect and organize each
employee's "time-worked" in order to produce an accurate paycheck, while
providing management with information to better utilize human resources.

. As a result of the acquisition of db-Centric, ASI is currently
developing a proprietary distributed data warehouse query and resource
management system software application. ASI expects to release this new
product during 1999.

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Management believes its various software products enhance the Company's
consulting services. Through its consulting and training services, ARIS
expects to continue to identify development opportunities for new software
products.

Relationships with Key Vendors

The Company has developed strategic relationships with key vendors of
software. These strategic relationships may allow the Company to gain access
to pre-release versions of software and the software vendor's marketing
channels, as well as to receive discounts on software. Certain of these
software vendors also compete with the Company in providing IT consulting and
training services and software products. Disputes between the Company and
these software vendors could result in the loss of vendor certifications, a
reduction in the number of client referrals, or vendor actions that might
adversely affect the Company's ability to compete successfully with its
competitors.

Sales and Marketing

The Company's consulting and education divisions have separate sales forces.
The Company's consulting sales operations are headed by a Vice President of
Consulting Sales who reports to the Senior Vice President of North America.
The Company's education sales operations are headed by a Vice President of
Education Sales who reports to the Vice President of North America Education.
The Education sales force includes account executives and account managers
focused on selling larger, private training engagements and a telemarketing
group to direct market the Company's public class offerings. Both the
consulting and education sales teams are cross-trained to promote and sell all
of the Company's consulting and education offerings. ASI sells its software
products directly through account executives and internal telemarketing
representatives and through referrals from the Company's consulting
operations. Other important client sources include industry trade shows and
referrals from, and joint marketing events with, Oracle, Microsoft and other
IT vendors. ARIS' sales personnel are compensated through a combination of a
base salary and commissions. Commissions are paid when services are performed
or products are shipped rather than when a contract is signed.

ARIS significantly increased its marketing budget and activities during 1998
to increase awareness of the ARIS brand. The ARIS marketing plan includes
direct mail solicitations, advertising in IT trade journals, trade show
participation and seminars. The Company's course catalogue and Internet web
site are also integral parts of the Company's marketing effort.

Competition

The IT consulting industry and the IT training industry are generally
regarded as separate industries, each of which is rapidly growing and highly
competitive. Within each industry there are a large number of competitors,
many of which have significantly greater financial, technical, marketing and
human resources and greater name recognition than the Company. The Company
believes that its ability to provide clients with an integrated IT solution,
coupled with its focus on leading-edge technologies, provides it with a unique
competitive advantage. Nevertheless, the Company competes with companies in
both the consulting and training industries.

ARIS' principal competitors in the delivery of consulting services are the
consulting divisions of the large multinational accounting firms, the
consulting divisions of software vendors such as Oracle, Microsoft, Lotus and
PeopleSoft, and numerous international, national and regional IT consulting
firms. The Company faces competition in the delivery of IT training services
from the in-house IT departments of its prospective clients, the training
divisions and authorized training channels of software vendors such as Oracle,
Sun, and Microsoft, and independent international, national and regional
companies with IT training operations.

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and functionality during 1999. There can be no assurance that new competitive
products will not be developed by Oracle, third party software vendors or by
in-house IT departments of the Company's current or potential clients.

Intellectual Property

The Company uses certain proprietary consulting and training methodologies,
courseware, software applications and products, trademarks and service marks,
and other proprietary intellectual property rights. The Company relies upon a
combination of copyright, trademark and trade secret laws, as well as
nondisclosure and other contractual arrangements, to protect its proprietary
rights. The Company uses client licensing agreements and employee and third-
party nondisclosure and confidentiality agreements to limit access to and
distribution of its proprietary information.

The Company develops custom software applications and methodologies, and
training courses and training and consulting methodologies for third-party
software products. The training courses, methodologies and courseware are
owned by the Company through agreements with employees and subcontractors, but
ownership of software applications developed for clients is often assigned to
the client, with the Company retaining limited use licenses. The Company also
develops software application tools in the course of its consulting projects.
The Company generally seeks to retain significant ownership or marketing
rights for adaptation and reuse in subsequent projects.

Personnel and Human Resources

As of December 31, 1998, the Company had 810 full-time employees, 618 of
whom were based in the United States and 192 of whom were based in the United
Kingdom. Of this total, 254 employees were involved in the sale, delivery and
support of training services, 421 employees were involved in the sale,
delivery and support of consulting services, 43 employees were involved in the
sale, marketing, development and support of software products, and 92 were
involved in corporate level management and administration. In addition, the
Company from time to time retains the services of subcontractors for certain
consulting and training engagements.

The Company places significant emphasis on the recruitment, training and
professional development of its employees, and believes that it offers a
competitive compensation package. These factors have resulted in attrition
rates which management believes are below the industry average.

The Company devotes considerable resources to its recruiting efforts. The
Company identifies prospective employees through referrals from existing
employees and clients, on-campus recruiting at colleges and universities, and
by advertising at trade shows and over the Internet. The Company currently has
eight full-time recruiters.

The Company believes that its consultants and project managers benefit from
their ability to receive ongoing training in the latest technologies through
the Company's training division. The ability of the Company to train its
consultants and project managers internally provides the Company with a
competitive advantage over its competitors, many of whom must contract with
third-party providers, including the Company, to keep their IT professionals
current in the latest technologies.

The Company's compensation package consists of a combination of salary,
stock options, 401(k) matching, an employee stock purchase plan and other
benefits-related plans. In addition, the Company awards performance-based
bonuses to certain employees, including nearly all of its consultants, project
managers and instructors. The Company believes that by linking employee
compensation to the success of the Company, employees are encouraged to focus
on client satisfaction and to seek continuous professional development.

Effect of Year 2000 (Y2K) Issue and Y2K Readiness Disclosure

The following disclosure shall be considered Y2K Readiness Disclosure to the
maximum extent allowed under the Year 2000 Information and Readiness
Disclosure Act. The Company has developed a phased Y2K

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readiness plan to help it identify and resolve Y2K issues associated with the
Company's internal systems and the services it provides. The plan includes
development of corporate awareness, assessment, implementation, validation
testing and contingency planning.

The Y2K issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or products that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. 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 the Company's operations or
potential problems with its product and service offerings.

The Company's consulting engagements often involve the implementation of
software applications that replace legacy systems of the client that are not
Y2K compliant. In the event that the Company is not able for any reason to
meet its contractual obligations with a client, the Company could be found
liable for damages as a result of that client's Y2K exposure. Such damages
could include costs associated with re-mediating the client's legacy systems
to make them Y2K compliant, and any other direct, indirect, consequential or
incidental damages. The Company endeavors to negotiate appropriate limitations
of liability and disclaimers regarding its Y2K and other liability in its
agreements with clients. Although the Company does not carry any endorsement
or policy specifically written for Y2K liability, the Company believes that
its insurance includes adequate coverage for damages that may result from any
Y2K related claim. However, there can be no guarantee that the Company will
not be found liable for Y2K-related damages as a result of services performed
by the Company on behalf of that client.

The Company has begun its assessment of its IT and non-IT systems, material
client and other third party relationships, and service and product offerings
to determine whether the Company faces any business or financial risk from the
Y2K issue. The Company's reliance on key suppliers, and therefore on the
proper function of their IT and non-IT systems, means that their failure to
address Y2K issues could have a material impact on the Company's operations
and financial results. Through its assessment, the Company has begun to
identify areas where the Company faces any business or financial risk,
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 the Company's Y2K exposure. In addition to the Company's
internal systems, the Company relies on third party relationships in the
conduct of its business. For example, the Company relies on the services of
the landlords of its facilities, telecommunication companies, banks,
utilities, and commercial airlines. The Company intends to devise contingency
plans to ameliorate the negative effects on it in the event the Y2K issue
results in the unavailability of services. There can be no assurance that any
contingency plans developed by the Company will prevent any such service
interruption on the part of one or more of the Company's third party vendors
or suppliers from having a material adverse effect on the Company's business,
results of operations or financial condition. In addition, the failure on the
part of the accounting systems of the Company's clients due to Y2K issues
could result in a delay in the payment of invoices issued by the Company for
services and expenses. A failure of the accounting systems of a significant
number of the Company's clients would have a material adverse effect on the
Company's business, results of operations and financial condition. The Company
has completed its risk assessment of its IT systems and will complete its
assessment of its other Y2K business and financial risks by the end of the
second quarter of 1999, including an assessment of the Y2K exposure and
readiness of material suppliers and vendors with whom the Company does
business. The Company 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, ACETS. If further tests of the
Company's IT and non-IT systems, material third party relationships, and
service and product offerings reveal other Y2K compliance problems, or any of
the Company's material third party suppliers or vendors do not successfully
and in a timely manner achieve Y2K compliance, the Company's business or
operations could be adversely affected.

The foregoing discussion of the Company's Y2K readiness contains forward-
looking statements including estimates of the timeframes and costs for
addressing the known Y2K issues confronting the Company and is

8
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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, the ability of the Company to identify and correct all Y2K
problems and the success of third parties with whom the Company does business
in addressing their Y2K issues.

ITEM 2. PROPERTIES

On March 30, 1998, the Company relocated its corporate headquarters to
Bellevue, Washington. These premises, which the Company purchased in January
1998, consist of approximately 25,000 square feet of office space and house
the Company's corporate, administrative, finance and accounting, human
resources, sales and marketing, research and development, legal and IT
departments, and also serves as the headquarters for ASI and ARIS
(International). The Company and its subsidiaries also lease facilities in
various locations listed in the table below (as of March 1, 1999):

<TABLE>
<CAPTION>
Approximate
Square No. of
Location Footage Classrooms/Seats Function
------------------- ----------- ---------------- --------
<S> <C> <C> <C>
Bellevue, WA 23,500 11/144 seats Training, Consulting
Beaverton, OR 7,800 5/72 Training, Consulting, Software
Bloomington, MN 15,500 9/108 Training
Columbia, SC 2,000 -- Consulting
Dallas, TX 3,600 -- Consulting
Dallas, TX 4,900 8/116 Training
Denver, CO 7,200 5/50 Training, Consulting
Fairfax, VA 17,000 5/90 Training, Consulting
New York, NY 17,800 11/134 Training, Consulting
Oak Brook, IL 7,400 4/61 Training
Renton, WA 6,700 -- Telemarketing
Tampa, FL 4,500 -- Consulting
West Palm Beach, FL 10,529 -- Consulting
Birmingham, UK 7,800 6/66 Training
London, UK 14,400 18/180 Training
Oxford, UK 5,000 -- UK HQ, Consulting
Oxford, UK 8,000 6/80 Training
Reading, UK 3,000 -- Consulting
Heidelberg, Germany 900 2/26 Training
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

The Company is from time to time involved in legal proceedings that arise
out of the normal course of business. As of March 1, 1999, the Company was not
involved in any material legal proceedings.

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

There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of the Company's fiscal year ended December 31,
1998.

9
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

(a) The Company's Common Stock is listed for quotation on the Nasdaq
National Market (symbol "ARSC"). The number of shareholders of record of the
Company's Common Stock at March 5, 1999 was 142. Additionally, the Company has
warrants listed on the Nasdaq National Market (symbol "ARSCW"). Such warrants
were issued as consideration to the former holders of warrants of InTime in
connection with the InTime Merger. The warrants commenced trading on the
Nasdaq National Market on July 16, 1998. Each of these warrants entitle the
holder to purchase one share of ARIS Common Stock at an exercise price of
$22.98. The warrants expire on February 15, 2000. The Company may redeem the
warrants on 30 days notice for $0.16 per share if the average last reported
sales price for the Common Stock equals or exceeds $32.17 per share for
30 consecutive business days. The number of warrants listed for quotation on
the Nasdaq National Market at March 5, 1999 was 718,997 and were held by 13
holders of record.

The Company has not declared or paid any cash dividends on its Common Stock
since 1993. The Company currently anticipates that it will retain all future
earnings for use in the expansion and operations of its business and does not
anticipate paying cash dividends in the foreseeable future.

High and low prices for the Company's Common Stock and warrants to purchase
the Company's Common Stock for each quarter in 1998 are as follows:

COMMON STOCK

<TABLE>
<CAPTION>
Stock Price
---------------
Year High Low
---------------------------------------- ------- -------
<S> <C> <C>
1998
First Quarter........................... $30.500 $21.000
Second Quarter.......................... $36.375 $25.875
Third Quarter........................... $30.375 $21.938
Fourth Quarter.......................... $24.500 $ 8.875

WARRANTS

<CAPTION>
Warrant Price
---------------
Year High Low
---------------------------------------- ------- -------
<S> <C> <C>
1998
First Quarter........................... N/A N/A
Second Quarter.......................... N/A N/A
Third Quarter........................... $ 7.875 $ 4.188
Fourth Quarter.......................... $ 5.063 $ 0.938
</TABLE>

(b) From the effective date of the Company's Registration Statement on Form
S-1 filed on April 18, 1997 and declared effective by the Securities and
Exchange Commission on June 17, 1997 (Registration No. 333-25409), as amended
(the "Registration Statement"), through December 31, 1998, the Company has
applied $4,000,000 of the proceeds from its initial public offering (the
"Offering") to the repayment of the Company's revolving bank loan, $5,376,000
in connection with the acquisition of other companies, and $13,865,000 to
capital expenditures. 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 its has used the Offering proceeds in a manner
consistent with the use of proceeds described in the Registration Statement.
As of December 31, 1998, the remaining $8,001,000 of the Offering proceeds
were invested in short term marketable securities.

10
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

A summary of selected financial data as of and for the years ended December
31, 1994, 1995, 1996, 1997 and 1998 are set forth below.

<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1994 1995 1996 1997 1998
Results of Operations ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $15,079,000 $25,530,000 $43,896,000 $76,286,000 $115,894,000
Expenses and other
income................. $14,028,000 $24,825,000 $41,662,000 $70,387,000 $114,494,000
Net income.............. $ 1,051,000 $ 705,000 $ 2,234,000 $ 5,899,000 $ 1,400,000
Basic earnings per
share.................. $ 0.22 $ 0.09 $ 0.27 $ 0.60 $ 0.13
Diluted earnings per
share.................. $ 0.19 $ 0.09 $ 0.26 $ 0.56 $ 0.12
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1994 1995 1996 1997 1998
Financial Condition ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents
and securities
available for sale..... $ 1,444,000 $ 4,562,000 $ 3,516,000 $26,859,000 $ 11,738,000
Total assets............ $ 7,390,000 $12,306,000 $20,675,000 $60,551,000 $ 69,481,000
Long-term debt, less
current portion........ -- -- -- -- --
Shareholders' equity.... $ 2,781,000 $ 9,358,000 $13,190,000 $50,482,000 $ 55,314,000
</TABLE>

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

Overview

The Company's revenue is derived from the sale and delivery of its
consulting and training services and sales of licenses and maintenance and
support agreements for its 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 price contracts is recognized on
the percentage-of-completion method, measured by the cost incurred to date and
cost to complete compared to estimated total costs for the contract. The
Company bills its 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, the Company is requested to
provide hardware and software in conjunction with its consulting projects. In
such cases, the Company recognizes as revenue only the difference between its
cost and the resale price for the 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. Training is provided
at client facilities, at ARIS' training centers, and over the Internet or
corporate intranets. In its open enrollment classes, the Company seeks to fill
each available seat in each scheduled class. The Company continuously monitors
this fill rate and may cancel or reschedule classes that are under-enrolled.

The Company derives software revenue from the sale of its 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. Revenue is recognized when the software product has
been shipped, collection is probable and there are no significant obligations
of the Company remaining to be performed. Software maintenance and support is
billed at the beginning of the contract period and is recognized ratably
throughout the term of the contract.

11
<PAGE>

Significant Events

In December 1998, the Company announced a plan to restructure its training
operations in order to improve the efficiency and profitability of training
operations. The restructuring includes reorganizing the management of its
training division from eight to three regions, consolidating training centers
in cities having multiple centers to improve classroom utilization and reduce
costs. Incident to the restructuring, the Company incurred expenses
aggregating $2,185,000 in the fourth quarter of 1998. The expenses included
$873,000 for employee severance $559,000 for equipment and asset abandonment,
$593,000 for anticipated lease disposition costs and $160,000 associated with
other aspects of restructuring of the Company's training operations. At
December 31, 1998, $1,280,000 of the amount accrued was paid. The company
fully expects to complete the restructuring and utilize all accrued costs by
June 30, 1999. The Company estimates that the restructuring will result in
annual cost savings of at least $2,000,000 in 1999.

In addition to the training restructuring, the Company settled a litigation
claim and expensed $759,000. Management believes that a portion of the
litigation settlement cost may be recovered from insurance proceeds.

On December 15, 1998, the Company completed its voluntary stock option
exchange with existing employees holding options granted under the Company's
1997 Stock Option Plan. Senior management was precluded from participating in
that exchange. Eligible employees electing to participate in the exchange
surrendered their existing options and received new options to purchase 20%
fewer shares of the Company's Common Stock at an exercise price of $9.75 per
share, upon a modified vesting schedule.

Recent Acquisitions

In addition to its internal growth, the Company has grown through strategic
acquisitions of complementary businesses. A description of the Company's
acquisitions during 1998 is included in Part I, Item 1 of this Form 10-K.

Subsequent Events

In January of 1999, the Company's Board of Directors authorized the Company
to repurchase up to 500,000 shares of the Company's Common Stock. As of March
22, 1999, the Company has repurchased 330,600 shares at a weighted-average
purchase price of $8.60 per share. Shares were purchased on the open-market or
through negotiated transactions. Repurchased shares are expected to be
available for issuance under the Company's 1997 Stock Option Plan and its
Employee Stock Purchase Plan.

1998 COMPARED TO 1997

Total Revenue

Total revenue increased $39,608,000 to $115,894,000 for 1998 from
$76,286,000 for 1997, representing a 52% increase. As discussed below,
increases in revenue were reflected in all three lines of business.

Consulting revenue increased $21,305,000 to $64,036,000 for 1998 from
$42,731,000 for 1997, representing a 50% increase. Consulting revenue
increased as a result of an overall increase in the level of consulting
activity as well as the acquisition of MMT.

Training revenue increased $11,502,000 to $40,398,000 for 1998 from
$28,896,000 for 1997, representing a 40% increase. A significant portion of
the increase in training revenue for 1998 is attributable to businesses
acquired by the Company subsequent to September 30, 1997. Revenue increased in
the comparison period as a result of a significant increase in the number of
classes and class training days offered. The Company offered 7,572 classes and
20,135 training days during 1998 as compared to 5,870 classes and 15,059
training days during 1997.

12
<PAGE>

Software revenue increased $6,801,000 to $11,460,000 for 1998 from
$4,659,000 for 1997, representing an increase of 146%. The increase in revenue
is primarily attributable to sales of the NoetixViews suite of products by
ASI.

Cost of Sales

Cost of sales increased $17,797,000 to $55,263,000 in 1998 from $37,466,000
in 1997, representing an increase of 48%. The increase in cost of sales is
primarily a reflection of the increase in sales and the activities associated
with such sales and restructuring costs included in 1998. Cost of sales as a
percentage of sales decreased from 49% for 1997 to 48% for 1998. Exclusive of
reorganization expenses, cost of sales were 47% of sales in 1998. The
reduction in cost of sales as a percentage of sales was caused by the relative
increase in the sale of software products that have a lower percentage of
costs of sales compared to the Company's training and consulting operations.
During 1998, consulting and training cost of sales was $53,250,000 and 46% of
total revenue compared to $36,635,000 and 48% of total revenue in 1997.
Software cost of sales was $1,710,000 in 1998, representing 1.5% of total
revenue compared to $831,000 and 1.1% of total revenue in 1997.

Selling, General and Administrative Expense

SG&A expense increased $19,906,000 to $48,822,000 and 42% of sales for 1998
from $28,916,000 and 38% of sales for 1997, representing an increase of 69%.
The increase in SG&A expenses is primarily the result of an increased number
of management, sales and administrative staff from 264 at December 31, 1997 to
369 at December 31, 1998 and the Company's increased focus on recruiting and
marketing.

Amortization of Intangible Assets

Amortization of intangibles increased $251,000 to $631,000 during 1998,
compared to $380,000 during 1997. Amortization of intangibles primarily
consists of the amortization of goodwill of acquired companies where the
transactions were accounted for under the purchase method of accounting. The
increase arises primarily as a result of goodwill being amortized throughout
1998 for acquisitions completed in the fourth quarter of 1997.

Acquisition Related Charges

The Company recorded acquisition related charges totaling $5,655,000 during
1998, compared to $428,000 in 1997. For 1998, these acquisition related
charges include costs such as business brokerage, legal and accounting fees as
well as integration costs primarily associated with the acquisitions of
Barefoot and InTime which were accounted for as poolings of interest during
1998.

Restructuring and Other Expenses

As discussed in Part II, Item 7, Significant Events in December 1998, the
Company recorded a charge amounting to $2,944,000, of which $303,000 is
included as a component of cost of sales associated with restructuring of the
Company's training operations and the settlement of a claim. Management
believes that the non-recurring costs expensed in 1998 should be sufficient to
provide for the cost of restructuring its training division. The Company
estimates that the restructuring will result in annual cost savings of at
least $2,000,000 in 1999.

Other Income, Net

Other income, net, increased $17,000 to $1,158,000 during 1998 from
$1,141,000 in 1997. Other income, net, consists primarily of interest income
on cash and cash equivalents and partially from finance charges on accounts
receivable. In 1997 other income, net, included $280,000 from the gain on sale
of investments. During 1998 and 1997, average investments were $14,360,000 and
$14,944,000, respectively.

13
<PAGE>

Income Tax Expense

Income tax expense decreased $1,049,000 to $2,640,000 in 1998 from
$3,689,000 for 1997. As a percentage of revenue, income tax expense decreased
from 4.8% in 1997 to 2.3% in 1998. This decrease is a result of a decrease in
taxable income from $9,588,000 in 1997 to $4,040,000 in 1998. However, the
Company is not allowed deductions from taxable income for certain acquisition
charges incurred during 1998. Such non-deductible charges have caused the
Company's taxable income as a percentage of income subject to tax to increase
from 38% in 1997 to 65% in 1998.

Net Income

Net income decreased $4,499,000 to $1,400,000 (1.2% of revenue) for 1998
from net income of $5,899,000 (7.7% of revenue) for 1997. The decrease is
primarily a result of reorganization charges incurred in connection with the
restructuring of the training division, and acquisition related charges. The
decrease in income as a percentage of sales is primarily a result of lower
gross profit from the Company's training division. Exclusive of acquisition
and reorganization expenses, net income would have been $7,702,000 or
approximately 7% of revenue and $5,987,000 or approximately 8% of revenue for
1998 and 1997, respectively.

1997 COMPARED TO 1996

Total Revenue

Total revenue increased $32,390,000 to $76,286,000 for 1997 from $43,896,000
for 1996, representing a 74% increase. Increases in revenue were reflected in
all three lines of business.

Consulting Revenue

Consulting revenue increased $15,226,000 to $42,731,000 for 1997 from
$27,505,000 for 1996, representing a 55% increase. Consulting revenue
increased as a result of an overall increase in the level of consulting
activity.

Training Revenue

Training revenue increased $14,185,000 to $28,896,000 for 1997 from
$14,711,000 for 1996, representing a 96% increase. A significant portion of
the increase in training revenue for 1997 is attributable to businesses
acquired by the Company subsequent to December 31, 1996. Revenue increased in
the comparison period as a result of a significant increase in the number of
classes and class training days offered. The Company offered 5,870 classes and
15,059 training days during 1997 as compared to 2,200 classes and 6,811
training days during 1996.

Software Revenue

Software revenue increased $2,979,000 to $4,659,000 for 1997 from $1,680,000
for 1996, representing an increase of 177%. The increase in revenue is
primarily attributable to sales of the NoetixViews suite of products by ASI.

Cost of Sales

Cost of sales increased $15,246,000 to $37,466,000 in 1997 from $22,220,000
in 1996, representing an increase of 69%. 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 decreased from 51% for
1996 to 49% for 1997. The reduction in cost of sales as a percentage of sales
was caused by the relative increase in the sale of software products. Software
sales have a lower percentage of costs of sales compared to the Company's
training and consulting operations.

14
<PAGE>

Selling, General and Administrative Expense

SG&A expense increased $12,296,000 to $28,917,000 for 1997 from $16,621,000
for 1996, representing an increase of 74%. The increase in SG&A expenses is
primarily the result of an increased number of management, sales and
administrative staff and the Company's increased focus on recruiting and
marketing.

Amortization of Intangible Assets

Amortization of intangibles increased $262,000 to $380,000 during 1997,
compared to $118,000 during 1996. Amortization of intangibles consists
primarily of amortization of goodwill of acquired companies and amortization
of software development costs.

Research and Development Expenses

Software research and development expenses decreased $468,000 from
$1,117,000 in 1996 to $649,000 in 1997. Software development costs were
incurred in the development of the Company's NoetixViews suite of products and
its TAMS and TAMS/O software products. Product development was substantially
completed during 1997 for these products.

Acquisition Related Charges

The Company recorded acquisition-related charges totaling $428,000 during
1997, compared to $347,000 in 1996. These acquisition-related charges include
costs such as business brokerage, legal and accounting fees, as well as
integration costs primarily associated with the acquisitions of Oxford
Computer Group Limited, Enterprise Computing, Inc., Agiliti, Inc. and
Absolute!, Inc. during 1997, and SofTeach Corporation, SQLSoft, Inc. and
Noetix Corporation during 1996. Such costs, though associated with specific
acquisition transactions, are non-recurring. Management of the Company
believes that the charges were sufficient to substantially provide for the
complete integration of the acquired companies.

Other Income, Net

Other income, net, increased $945,000 from $196,000 for 1996 to $1,141,000
for 1997. Other income, net, consists primarily of investment income, 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. The increase in other income, net, for 1997 is
primarily a result of interest and investment of proceeds from the Company's
initial public offering in June 1997, as well as a gain on the sale of
investments in 1997.

Income Tax Expense

Income tax expense increased $2,254,000 to $3,689,000 in 1997 from
$1,435,000 for 1996. As a percentage of revenue, income tax expense increased
to 4.8% in 1997 from 3.3% in 1996 while the Company's effective tax rate
decreased from 39% in 1996 to 38% in 1997.

Net Income

Net income increased $3,665,000 to $5,899,000 (7.7% of revenue) for 1997
from net income of $2,234,000 (5.1% of revenue) for 1996, primarily as a
result of the increase in the Company's sales, a reduction in cost of sales as
a percentage of sales and a reduction in cost of software development as a
percentage of sales.

The Company's primary financing activity during 1997 was the completion of
its initial public offering which provided cash proceeds of $31.2 million net
of costs of the offering. In February 1997, the Company utilized $4,027,000
cash to repurchase 415,000 shares of its Common Stock. The Company used
$10,161,000 of the proceeds from its initial public offering to repay the
Company's line of credit with US Bank, including $8,575,000 which had been
borrowed during 1997. As a result, financing activities provided cash of
$24,527,000 during 1997 and substantially all of the proceeds from the public
stock offering were invested in marketable debt securities.

15
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1998 the Company had working capital of $28,700,000
including cash and cash equivalents and marketable debt securities of
$11,738,000. At December 31, 1997, the Company had working capital of
$35,659,000 including cash, cash equivalents and marketable debt securities of
$26,859,000. The Company intends to finance its working capital needs, as well
as purchases of additional property and equipment for its operations, from
cash generated by operations and available cash.

Net cash in the amount of $1,742,000 was used during 1998. Cash amounting to
$1,395,000 was used in operating activities including an increase of accounts
receivable of $10,875,000 arising as a result of revenue growth of $39,608,000
during the year. Investing activities included the net sales of investments of
$13,213,000, purchase of property and equipment amounting to $11,700,000 and
the purchases of MMT and db-Centric amounting to $3,650,000. Property and
equipment purchases include $5,220,000 for the Company's headquarters building
in Bellevue, Washington.

During 1997, the Company increased cash in the amount of $5,076,000.
Operating activities provided $3,362,000 including the use of $4,712,000 for
the increase of accounts receivable. The growth in accounts receivable was as
a result of an increase in revenue of $32,390,000 over the prior year. The
Company's primary financing and investment activity during 1997 was the
completion of its initial public offering in June, 1997, which provided cash
proceeds of $31.2 million net of costs of the offering. In February 1997, the
Company utilized $4,027,000 cash to repurchase 415,000 shares of its common
stock. The Company used $10,161,000 of the proceeds from its initial public
offering to repay the Company's line of credit with US Bank, including
$8,575,000 which had been borrowed during 1997. As a result, financing
activities provided cash of $24,527,000 during 1997. Net investing activities
in 1997 decreased cash by $22,813,000, including $1,726,000 used for certain
of the Company's acquisitions and net increases of investments of $18,431,000.

The Company 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. The Company believes that
it will be able to continue to fund all capital required by the Company
including cash needed to acquire new businesses (if management determines to
make further acquisitions) with cash generated from operations, cash currently
on hand, bank financing and/or the issuance of additional debt or equity
securities. The Company has a $10 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. At
December 31, 1998 there were no borrowings against the credit line. The credit
line expires on June 1, 2000.

Management anticipates that during 1999, cash and marketable securities will
continue to be employed for general corporate purposes including the potential
opening of new offices, potential acquisitions of companies and other business
opportunities as they may arise. The Company anticipates that capital
expenditures related to these purposes will continue to be financed by
operational cash flows as well as utilization of invested funds, if needed.

NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," in June 1997. This 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
are not the result of transactions with shareholders. This statement is
effective for fiscal years beginning after December 15, 1997. The Company has
adopted SFAS No. 130 and has provided the disclosures needed to conform with
its requirements.

16
<PAGE>

In June 1997, FASB also 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 also effective for fiscal years
beginning after December 15, 1997. The Company has adopted SFAS No. 131 and
has provided the disclosures needed to conform with its requirements.

In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. If
adopted by the Company, the Company expects that SFAS 133 will have no
material impact on its financial statements.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Many of the factors
discussed below and elsewhere in this Form 10-K have been discussed in the
Company's prior filings with the Securities and Exchange Commission.
Management of the Company wishes to caution readers that the following
factors, among others, could in the future cause the Company's actual results
to differ from those expressed in any forward-looking statements made by, or
on behalf of, the Company. Additional discussion of forward-looking statements
is included in Part I, Item 1 of this Form 10-K.

Recruitment and Retention of Information Technology Professionals

The Company's future success will depend in large part on its ability to
attract, develop, motivate and retain highly skilled information technology
("IT") professionals, particularly project managers, consultants and
instructors. Highly skilled IT professionals are in high demand and are likely
to remain a limited resource for the foreseeable future. The Company competes
for consultants and project managers with other consulting firms, software
vendors and consumers of IT consulting services. The Company competes for
instructors with other training service providers, software and hardware
vendors and the in-house IT training departments of major corporations. There
can be no assurance that the Company will be successful in hiring and
retaining a sufficient number of IT professionals to staff its consulting
projects and to meet demand for instructor-led classes.

Ability to Manage Growth

The Company has experienced rapid growth that has placed, and will continue
to place, significant demands on its management and other resources. The
Company expects to continue to hire additional personnel, open new offices and
make acquisitions. To manage its growth effectively, the Company must continue
to improve its operational, financial and other management processes and
systems. In addition, the Company's success depends largely on management's
ability to maintain high levels of employee utilization, project and
instructional quality and competitive pricing for its services. None of the
Company's senior management previously has managed a business of the Company's
size or has any experience managing a public company other than the Company.
No assurance can be given that the Company will be successful in managing its
growth.

Since 1995 the Company has pursued an aggressive growth strategy by
acquiring companies in complementary service, product and geographic markets.
There can be no assurance that the Company will be able to integrate any
acquisition successfully into its organization. The failure to integrate any
of the Company's recent or future acquisitions successfully into the Company
or the inability to achieve anticipated revenue and operating results during
the integration process could have a material adverse effect on the Company's
business, financial condition and results of operations.

Dependence on Key Vendors of Software Technology

The Company relies on formal and informal relationships with key providers
of software technology, in particular, Microsoft, Oracle, Lotus, PeopleSoft
and Sun. The Company participates in a number of Microsoft,

17
<PAGE>

Oracle, Lotus, PeopleSoft and Sun programs that may enable the Company to
obtain early information about new software products and courseware, and to
benefit from the increased credibility and enhanced reputation resulting from
vendor accreditation. Any significant changes to the vendor sponsored programs
in which the Company participates or any deterioration in the relationship
between the Company and a key vendor could result in the loss of vendor
certifications, a reduction in the number of client referrals or render
actions which might adversely affect the Company's ability to compete
successfully.

Profitability of Training Operations

The Company restructured its training division in the fourth quarter of
1998. Although the Company expects that traditional open-enrollment,
classroom-based training will continue to be a significant part of the
Company's training strategy, the Company intends to focus more resources on
customized private training and consulting-based education services for
corporate clients, and alternative training delivery systems, including
Internet- and intranet-based training using audio and video streaming and
other "webcasting" technologies. Although the Company believes that these
initiatives should increase the profitability of its training operations,
there can be no assurance that these initiatives will be successful. Any
failure by the Company to restore the profitability of its training operations
will have a continued material adverse effect on the Company's financial
statements, and may result in the Company exploring other strategic
alternatives, including the possible sale and divestment of its training
operations. If the Company pursues a sale or divestment of the Company's
training operations, the operations and profitability of the Company's
consulting and software business may be adversely impacted due to the shared
resources of the Company's integrated consulting, training and software
strategy.

Rapid Technological Change

The Company's success also depends in part on its ability to identify
emerging IT trends and develop IT solutions that keep pace with continuing
changes in technology, evolving industry standards and changing client
preferences. This may require the Company to make substantial expenditures to
develop new consulting services, course titles and courseware, to hire new
consultants, project managers and instructors and to acquire new software and
hardware. If the Company is unable, for financial or other reasons, to make
those expenditures, hire additional qualified personnel, make the necessary
acquisitions, or timely recognize emerging IT trends, the Company's ability to
compete effectively may be materially and adversely affected.

Project Risks

Most of the Company's consulting agreements permit the client to terminate
an engagement without cause and without significant penalty upon 14 or fewer
days' notice to the Company. Clients may from time to time terminate their
agreements with the Company due to the Company's failure to meet their
expectations or for other reasons. Additionally, contracts to perform services
for the U.S. government may be subject to renegotiation. The termination or
renegotiation of one or more engagements by the Company's clients could
adversely affect revenue and operating results, damage the Company's
reputation, and adversely affect its ability to attract new business.

Additionally, the Company has increasingly undertaken fixed price, fixed
deliverables consulting projects. The Company's failure to accurately estimate
the resources required for such projects or its failure to complete its
contractual obligations in a manner consistent with the project plan upon
which the fixed price/fixed schedule contract is based could have a material
adverse effect on the profitability of such projects.

Many of the Company's engagements involve projects that are critical to the
operations of its clients' businesses and provide benefits that may be
difficult to quantify. Any failure in a client's information system could
result in a claim for substantial damages against the Company, regardless of
the Company's responsibility for such failure. Although the Company generally
attempts to limit contractually its liability for damages arising from
negligent acts, errors, mistakes or omissions in rendering its services, there
can be no assurance that the limitations of liability set forth in its service
contracts will be enforceable or would otherwise protect the

18
<PAGE>

Company from liability for damages. The Company maintains general liability
insurance coverage, including coverage for errors and omissions, against
claims of up to $5.0 million in the aggregate. There can be no assurance,
however, that such coverage will continue to be available on commercially
reasonable terms or will be available in sufficient amounts to cover one or
more large claims, or that the Company's insurer will not disclaim coverage as
to any future claim. The successful assertion of one or more large claims
against the Company that exceed available insurance coverage or changes in the
Company's insurance policies, including premium increases or the imposition of
large deductible or co-insurance requirements, could adversely affect the
Company's business, financial condition and results of operations.

The Company's consulting engagements often involve the implementation of
software applications that replace legacy systems of the client that are not
Y2K compliant. In the event that the Company is not able for any reason to
meet its contractual obligations with a client, the Company 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 legacy systems to
make them Y2K compliant, and any other direct, indirect, consequential or
incidental damages. The Company endeavors to negotiate in its agreements with
clients appropriate limitations of liability and disclaimers regarding its Y2K
and other liability. The Company believes that its insurance includes coverage
for damages that may result from any Y2K related claim, however, the Company
does not carry any specialized coverage for potential Y2K liability. However,
there can be no guarantee that the Company will not be found liable for
damages which relate to the Y2K exposure of its clients as a result of
services performed by the Company on behalf of that client.

International Operations

A substantial portion of the Company's revenue is derived from its
international operations. The Company faces certain risks inherent in
conducting business internationally, such as unexpected changes in regulatory
requirements, difficulties in staffing and managing foreign operations,
differing employment laws and practices in foreign countries, longer payment
cycles, seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world, currency exchange fluctuations
and potentially adverse tax consequences. Any of these factors could adversely
affect the success of the Company's international operations. There can be no
assurance that such factors will not have a material adverse effect on the
Company's international operations and, consequently, on the Company's
consolidated financial condition and results of operations. The Company may
also face risks from foreign currency fluctuations. To date the Company has
not entered into any forward exchange contracts or other hedging activities in
anticipation of foreign currency fluctuations, but it may do so in the future.

Growth Through Acquisitions

The Company may continue to acquire businesses that the Company believes
will complement its operations. The success of any acquisition depends on,
among other things, the Company's ability to (i) identify and acquire
businesses on terms that management considers attractive, (ii) integrate
acquired businesses into its organization; and (iii) retain the acquired
businesses' key personnel and principal clients. Any future acquisitions would
be accompanied by the risks commonly encountered in such transactions,
including difficulties associated with assimilating the personnel and
operations of the acquired business, the Company's inability to achieve
expected financial results or strategic goals for the acquired business, the
potential disruption of the Company's ongoing business, the diversion of
significant management and other resources and the maintenance of uniform
standards, controls, procedures and policies. There can be no assurance that
the Company will be able to identify future acquisition candidates or to
successfully overcome the risks and challenges encountered in completing and
integrating future acquisitions. The Company's failure or inability to
implement and manage its acquisition strategy could have a material adverse
effect on the Company's business, financial condition, and results of
operations. In addition, future acquisitions could require the Company to
issue dilutive equity securities, incur debt or contingent liabilities, and
amortize expenses related to goodwill and other intangible assets, any of
which could have a material adverse effect on the market for and the price of
the Company's Common Stock.

19
<PAGE>

Competition

The IT consulting industry and the IT training industry are generally
regarded as separate industries, each of which is rapidly growing and highly
competitive. Within each industry there are a large number of competitors,
many of which have significantly greater financial, technical, marketing and
human resources and greater name recognition than the Company. 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. Nevertheless, the Company competes with companies in
both the consulting and training industries.

ARIS DFRAG, TAMS and TAMS/O may compete with software products distributed
by other companies. Although the Company believes few commercially available
products currently compete directly with NoetixViews, Oracle has announced
that it will be introducing a software product with some similar features and
functionality during 1999. There can be no assurance that new competitive
products will not be developed by Oracle, third party software vendors or by
in-house IT departments of the Company's current or potential clients.

Generally, there can be no assurance that any future products or services
developed by competitors will not achieve greater market acceptance than the
Company's software products and services. Failure by the Company to compete
successfully in the consulting, training or software market could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Variability of Quarterly Operating Results

The Company's operations and related revenue and operating results
historically have varied from quarter to quarter, and the Company expects
these variations to continue. Factors causing such fluctuations have included
and may include: the number, size and scope of consulting projects; the
contractual terms and degree of completion of such projects; project delays;
variations in utilization rates and average billing rates for consultants and
project managers due to vacations, holidays and the integration of newly hired
consultants; the inability of the Company to conduct as many four- and five-
day courses due to national holidays and vacation schedules, particularly, in
the fourth quarter; frequency of training classes and demand for training
following new software product releases; variations in fill rates in training
classes; integration of acquired entities; and general economic conditions.
Because a significant percentage of the Company's expenses, particularly
personnel costs and rent, are relatively fixed in advance of any particular
quarter, shortfalls in revenue caused by these and other factors may cause
significant variations in operating results in any particular quarter.

Potential Volatility of Stock Price

The market for securities of early stage, small market capitalization
companies is volatile, often as a result of factors unrelated to an issuer's
operations. The Company believes factors such as quarterly variations in
operating results, changes in relationships between the Company and certain
key vendors of software products, general conditions in the IT industry or the
industries in which the Company's clients compete and changes in earnings
estimates by securities analysts could contribute to the volatility of the
price of the Company's Common Stock and cause significant price fluctuations.
These factors, as well as general economic conditions, could adversely affect
the market price of the Common Stock. Furthermore, securities class action
litigation against issuers is not uncommon, particularly following periods of
volatility in the market price of an issuer's securities. There can be no
assurance that such litigation will not occur in the future with respect to
the Company. Such

20
<PAGE>

litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Any adverse
determination in such litigation could subject the Company to significant
liabilities.

Reliance on Key Personnel

The Company's continuing success will depend in large part on the continued
services of a number of key employees including Paul Song, its founder,
President, Chief Executive Officer and Chairman. The loss of the services of
Mr. Song, certain of the Company's senior management or other key personnel
could have a material adverse effect on the Company. The Company has entered
into employment agreements containing non-competition, non-solicitation and
non-disclosure clauses with all of its management, consultants and project
managers and instructors, except Mr. Song. These contracts, however, do not
guarantee that these individuals will continue their employment with the
Company. In addition, there is no guarantee that the non-competition and non-
solicitation provisions of these agreements would be enforced by a court if
the Company were required to seek to enforce its rights thereunder. The loss
of one or more of the Company's key employees to a current or potential
competitor could result in the loss of existing or potential clients to such
competitor adversely affecting revenues and operating income.

Intellectual Property Rights

The Company uses certain proprietary consulting and training methodologies;
courseware; software applications and products; trademarks and service marks
and other proprietary and intellectual property rights. The Company relies
upon a combination of copyright, trademark and trade secret laws, as well as
nondisclosure and other contractual arrangements, to protect these proprietary
rights. The Company uses client licensing agreements and employee and third
party nondisclosure and confidentiality agreements to limit access to, and
distribution of, its proprietary information. There can be no assurance that
the steps taken by the Company to protect its intellectual property rights
will be adequate to deter misappropriation of such rights or that the Company
will be able to detect unauthorized uses and take immediate or effective steps
to enforce its rights. If substantial unauthorized uses of the Company's
proprietary rights were to occur the Company could be required to engage in
costly and time-consuming litigation to enforce its rights. In addition, the
Company does business in countries that do not provide protection or
enforcement of intellectual property rights to the same extent as the United
States, and on the Internet, which is not currently subject to comprehensive
regulation.
The Company develops custom software applications and methodologies, and
training courses and methodologies for third-party software products. The
training courses, methodologies, and courseware are owned by the Company
through agreements with employees and subcontractors, but ownership of
software applications developed for clients is often assigned to the client,
with the Company retaining limited use licenses. The Company also develops
software application tools in the course of its consulting projects. The
Company generally seeks to retain significant ownership or marketing rights
for adaptation and reuse in subsequent projects. Issues relating to the
ownership of and rights to use training courses and methodologies, courseware,
and software applications and other tools can be complicated and there can be
no assurance that disputes will not arise that affect the Company's ability to
resell or reuse such products and methodologies.

There can be no assurance that the Company's competitors will not
independently develop products or methodologies functionally similar to the
Company's products and methodologies, or that third parties will not claim
that the Company's current or future products, courseware or services infringe
their proprietary rights. Although the Company believes that its products,
courseware and services do not infringe on any third-party intellectual
property rights, there can be no assurance that such a claim will not be
asserted against the Company in the future or that, if asserted, any such
claim will be defended successfully.

Control by Principal Shareholders

Paul Song, the Company's founder, President, Chief Executive Officer and
Chairman, is the Company's single largest shareholder. Mr. Song's wife, Tina
Song, is Vice President of Administration, directs Human

21
<PAGE>

Resources and Information Technology for the Company and is the Company's
third largest shareholder. A family limited partnership controlled by Mr. and
Mrs. Song is the Company's second largest shareholder. As of December 31,
1998, Mr. and Mrs. Song beneficially own 38.6% of the Company's outstanding
shares of Common Stock. As a result, Mr. and Mrs. Song will likely be able to
control the affairs and management of the Company and the outcome of any
matters requiring a shareholder vote (other than those matters for which a
supermajority vote is required under Washington law or the Company's Amended
and Restated Bylaws), including the election of the members of the Board of
Directors. Such control could delay or prevent a change in control of the
Company. Other members of Mr. and Mrs. Song's immediate family, including his
brother, John Y. Song, Vice President of North America Education, own at
December 31, 1998, an aggregate of 178,219 shares of the Common Stock and
options vested and exercisable at December 31, 1998, to purchase an additional
26,560 shares of Common Stock.

Effects of Year 2000 Issue

The purchasing patterns of clients or potential clients may be affected by
Y2K issues as companies expend significant resources to ensure that their
current systems are Y2K compliant. These expenditures may result in reduced
funds being available to purchase products and services offered by the
Company, which could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will not experience interruptions of operations because of Y2K
problems. Further, the Company cannot assure that it will not become involved
in disputes with clients regarding Y2K problems involving solutions that the
Company developed or implemented or the interaction of such solutions with
other applications. Y2K problems could require the Company to incur
unanticipated expenses, and such expenses could have a material adverse effect
on the Company's business, financial condition and results of operations. See
Part I, Item 1, for further discussion of Y2K.

Anti-Takeover Provisions

The Company is subject to anti-takeover provisions of Chapter 23B.17 of the
Washington Business Corporation Act (the "WBCA") which prohibits, subject to
certain exceptions, a merger, sale of assets or liquidation of a corporation
involving a 20% shareholder unless determined to be at a fair price or
approved by disinterested directors or disinterested shareholders. In
addition, Chapter 23B.19 of the WBCA prohibits a corporation registered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") from
engaging in certain significant transactions with a 10% shareholder.
Significant transactions include, among others, a merger with or disposition
of assets to the 10% shareholder. Further, the Company's Amended and Restated
Articles of Incorporation (the "Restated Articles") provide for a classified
Board of Directors with staggered, three-year terms. Also, the Board has the
authority to issue up to 5,000,000 shares of preferred stock in one or more
series and to fix the preference and other rights thereof without any further
vote or action by the Company's shareholders. The issuance of preferred stock,
together with the effect of other anti-takeover provisions in the Restated
Articles and under the WBCA, may have the effect of delaying, deferring or
preventing a change in control of the Company and could limit the price that
certain investors might be willing to pay in the future for the Common Stock.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

The primary market risks to ARIS are the effects of changes in foreign
currency exchange rates. Income from ARIS' foreign operations is frequently
denominated in foreign currencies, thereby creating exposures 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 small relative to other factors that
also affect earnings, such as sales and operating margins.

22
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
Page in
Form 10-K
---------
<S> <C>
Consolidated Income Statements--years ended December 31, 1996, 1997
and 1998........................................................... 24
Consolidated Balance Sheets--December 31, 1997 and 1998............. 25
Consolidated Statements of Shareholders' Equity--years ended
December 31, 1996,
1997 and 1998...................................................... 26
Consolidated Statements of Cash Flow--years ended December 31, 1996,
1997 and 1998...................................................... 27
Notes to Consolidated Financial Statements.......................... 28
Report of PricewaterhouseCoopers, LLP, Independent Accountants...... 46
Report of BDO Stoy Hayward, Certified Accountants................... 47
</TABLE>

23
<PAGE>

ARIS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues, net:
Consulting............................. $27,505,000 $42,731,000 $64,036,000
Training............................... 14,711,000 28,896,000 40,398,000
Software............................... 1,680,000 4,659,000 11,460,000
----------- ----------- -----------
Total revenues....................... 43,896,000 76,286,000 115,894,000
----------- ----------- -----------
Cost of sales:
Consulting and training................ 21,774,000 36,635,000 53,250,000
Software............................... 446,000 831,000 1,710,000
Restructuring expenses................. 303,000
----------- ----------- -----------
Total cost of sales.................. 22,220,000 37,466,000 55,263,000
----------- ----------- -----------
Gross profit........................... 21,676,000 38,820,000 60,631,000
Selling, general and administrative
expense................................. 16,621,000 28,916,000 48,822,000
Amortization of intangible assets........ 118,000 380,000 631,000
Research and development expense......... 1,117,000 649,000
Charges related to acquisitions.......... 347,000 428,000 5,655,000
Restructuring and other expenses......... 2,641,000
----------- ----------- -----------
Income from operations............... 3,473,000 8,447,000 2,882,000
----------- ----------- -----------
Other income (expense):
Investment income (expense)............ 89,000 280,000 (5,000)
Interest income, net................... 93,000 800,000 1,148,000
Other income........................... 14,000 61,000 15,000
----------- ----------- -----------
196,000 1,141,000 1,158,000
----------- ----------- -----------
Income before income tax................. 3,669,000 9,588,000 4,040,000
Income tax expense....................... 1,435,000 3,689,000 2,640,000
----------- ----------- -----------
Net income............................... $ 2,234,000 $ 5,899,000 $ 1,400,000
=========== =========== ===========
Basic earnings per share................. $0.27 $0.60 $0.13
===== ===== =====
Weighted average number of common shares
outstanding............................. 8,337,000 9,803,000 11,115,000
=========== =========== ===========
Diluted earnings per share............... $0.26 $0.56 $0.12
===== ===== =====
Weighted average number of common and
common equivalent shares outstanding.... 8,497,000 10,532,000 11,900,000
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

24
<PAGE>

ARIS CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
ASSETS ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 7,196,000 $ 5,225,000
Investments in marketable securities................ 19,663,000 6,513,000
Accounts receivable, net of allowance for doubtful
accounts of $917,000 and $1,263,000................ 15,314,000 26,734,000
Consulting contracts in progress.................... 618,000 983,000
Income tax receivable............................... 293,000
Deferred income taxes............................... 263,000 448,000
Prepaid expenses and other assets................... 2,089,000 2,359,000
----------- -----------
Total current assets.............................. 45,143,000 42,555,000
----------- -----------
Property and equipment, net........................... 7,156,000 16,075,000
----------- -----------
Intangible and other assets, net...................... 8,252,000 10,851,000
----------- -----------
Total assets...................................... $60,551,000 $69,481,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 3,270,000 $ 3,345,000
Accrued payroll..................................... 2,147,000 3,385,000
Other accrued expenses.............................. 1,371,000 4,792,000
Deferred revenue.................................... 2,468,000 2,333,000
Income tax payable.................................. 228,000
----------- -----------
Total current liabilities......................... 9,484,000 13,855,000
----------- -----------
Deferred income taxes................................. 585,000 312,000
----------- -----------
Commitments and contingencies (Note 10)
Shareholders' 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.......................... 43,749,000 47,347,000
Retained earnings................................... 6,769,000 7,956,000
Other comprehensive income.......................... (36,000) 11,000
----------- -----------
Total shareholders' equity........................ 50,482,000 55,314,000
----------- -----------
Total liabilities and shareholders' equity........ $60,551,000 $69,481,000
=========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

25
<PAGE>

ARIS CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<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,
1995................... 7,849,000 -- $ 6,625,000 $2,542,000 $ 191,000 $ 9,358,000
Shares issued in
acquisition............ 791,000 1,614,000 1,614,000
Stock redemption........ (40,000) (100,000) (100,000)
Stock options
exercised.............. 18,000 22,000 22,000
Tax benefit related to
stock options
exercised.............. 8,000 8,000
Net income.............. 2,234,000
Other comprehensive
income, net of tax:
Foreign currency
translation
adjustments........... 24,000
Unrealized gains on
securities, net of
reclassification
adjustment............ 30,000
Comprehensive income.... 2,288,000
---------- --------- ----------- ---------- --------- -----------
Balance at December 31,
1996................... 8,618,000 -- 8,169,000 4,776,000 245,000 13,190,000
Shares issued in initial
public offering, net of
offering costs......... 2,300,000 31,242,000 31,242,000
Shares and warrants
issued in
acquisitions........... 434,000 4,371,000 4,371,000
Stock redemption........ (415,000) (121,000) (3,906,000) (4,027,000)
Stock options
exercised.............. 50,000 88,000 88,000
Net income.............. 5,899,000
Other comprehensive
income, net of tax:
Foreign currency
translation
adjustments........... 7,000
Unrealized gains on
securities, net of
reclassification
adjustment............ (288,000)
Comprehensive income.... 5,618,000
---------- --------- ----------- ---------- --------- -----------
Balance at December 31,
1997................... 10,987,000 -- 43,749,000 6,769,000 (36,000) 50,482,000
Adjustment to conform
fiscal year of
Barefoot Computer
Training Limited....... (213,000) (213,000)
Shares issued in
acquisition............ 5,000 150,000 150,000
Shares issued under
employee stock purchase
plan................... 130,000 1,504,000 1,504,000
Stock options
exercised.............. 147,000 1,449,000 1,449,000
Tax benefit related to
stock options
exercised.............. 495,000 495,000
Net income.............. 1,400,000
Other comprehensive
income, net of tax:
Foreign currency
translation
adjustments........... (16,000)
Unrealized gains on
securities, net of
reclassification
adjustment............ 63,000
Comprehensive income.... 1,447,000
---------- --------- ----------- ---------- --------- -----------
Balance at December 31,
1998................... 11,269,000 $ -- $47,347,000 $7,956,000 $ 11,000 $55,314,000
========== ========= =========== ========== ========= ===========
<CAPTION>
1996 1997 1998
---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Disclosure of
reclassification
amount:
Unrealized holding gain
(loss) arising during
the period............ $ 30,000 $ (8,000) $ 59,000
Less: reclassification
adjustment for losses
(gains) included in
net income............ -- (280,000) 4,000
---------- --------- -----------
Net unrealized gains
(losses) on
securities............ $ 30,000 $(288,000) $ 63,000
========== ========= ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

26
<PAGE>

ARIS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 2,234,000 $ 5,899,000 $ 1,400,000
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization....... 1,251,000 2,454,000 3,888,000
Provision for doubtful accounts
receivable......................... 30,000 166,000 346,000
Loss on sale of property and
equipment.......................... 67,000
Gain on sale of investments......... (280,000)
Purchased research and development.. 307,000
Changes in assets and liabilities
net of effects of acquisitions:
Increase in accounts receivable... (2,717,000) (4,712,000) (10,875,000)
Increase in consulting contracts
in progress...................... (408,000) (164,000) (365,000)
(Increase) decrease in income tax
receivable....................... (186,000) 186,000 (293,000)
(Increase) decrease in prepaid
expenses and other assets........ 15,000 (1,069,000) 1,155,000
Increase (decrease) in accounts
payable.......................... 247,000 58,000 (222,000)
Increase in accrued expenses...... 1,608,000 130,000 4,671,000
Increase (decrease) in deferred
revenue.......................... (254,000) 705,000 (224,000)
Increase (decrease) in income
taxes payable.................... (372,000) 441,000 (603,000)
Decrease in deferred taxes........ (217,000) (452,000) (273,000)
----------- ------------ -----------
Net cash provided by (used in)
operating activities............... 1,605,000 3,362,000 (1,395,000)
----------- ------------ -----------
Cash flows from investing activities:
Purchases of investments.............. (462,000) (32,436,000) (11,103,000)
Sales of investments.................. 362,000 14,005,000 24,316,000
Purchase of property and equipment.... (2,454,000) (2,656,000) (11,700,000)
Acquisition of businesses, net of cash
acquired............................. (1,427,000) (1,726,000) (3,650,000)
Proceeds from sale of property and
equipment............................ 307,000
----------- ------------ -----------
Net cash used in investing
activities......................... (3,674,000) (22,813,000) (2,137,000)
----------- ------------ -----------
Cash flows from financing activities:
Proceeds from initial public offering,
net of offering costs................ 31,242,000
Issuance of common stock.............. 668,000
Stock options exercised............... 22,000 88,000 627,000
Repurchase of common stock............ (100,000) (4,027,000)
Tax benefit related to stock options
exercised............................ 8,000 495,000
Payments on borrowings................ (500,000) (12,601,000)
Proceeds from borrowings.............. 1,500,000 9,825,000
----------- ------------ -----------
Net cash provided by financing
activities......................... 930,000 24,527,000 1,790,000
----------- ------------ -----------
Net (decrease) increase in cash and
cash equivalents..................... (1,139,000) 5,076,000 (1,742,000)
Effect of exchange rate changes on
cash................................. (16,000)
Adjustment to conform fiscal year of
Barefoot Computer Training Limited... (213,000)
Cash and cash equivalents at beginning
of year.............................. 3,259,000 2,120,000 7,196,000
----------- ------------ -----------
Cash and cash equivalents at end of
year................................. $ 2,120,000 $ 7,196,000 $ 5,225,000
=========== ============ ===========
</TABLE>

See Note 15 for supplemental cash flow information.

The accompanying notes are an integral part of these consolidated financial
statements.

27
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1996, 1997 and 1998

1. Organization, Operations, and Summary of Significant Accounting Policies

Organization and operations

ARIS Corporation ("ARIS") provides a range of information technology
services including database management, enterprise resource planning, custom
applications development and packaged applications implementation, and
training to clients worldwide, with offices in Bellevue and Renton,
Washington; Beaverton, Oregon; Denver, Colorado; Dallas, Texas; Fairfax,
Virginia; Tampa and West Palm Beach, Florida; Bloomington, Minnesota; New
York, New York; Oak Brook, Illinois; Columbia, South Carolina; Oxford,
Birmingham, Reading and London, England; and Heidelberg, Germany. ARIS also
develops niche software programs which it has licensed worldwide. ARIS
utilizes the significant accounting policies summarized below in preparing its
financial statements.

Consolidation

The consolidated financial statements include the accounts of ARIS and its
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents include short-term investments with an original
maturity of three months or less.

Investment securities

ARIS' investment securities at December 31, 1997 and 1998 are classified as
available-for-sale and are recorded at fair value. Fair value is based upon
quoted market prices. The increase or decrease in market value from period to
period relating to available-for-sale marketable securities, net of deferred
income tax, is included as a separate component of shareholders' equity. Cost
of securities sold is determined using the specific identification method.

Property and equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to income as incurred. Additions, improvements and major
replacements are capitalized. For financial reporting purposes, depreciation
is provided using the straight-line method over the estimated useful lives of
depreciable assets. Estimated useful lives of computers, equipment and
software range from three to eight years and lives of building and
improvements range from 15 to 39 years.

Intangible assets

Intangible assets include the cost of business acquisitions allocated to
capitalized software, non-compete agreements and goodwill which are amortized
over approximately three years for capitalized software,

28
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

approximately two years for non-compete agreements and fifteen years for
goodwill. Capitalized software amortization is computed as described below
while the straight-line method is used for other intangible assets. The
carrying value of intangible assets is assessed for any permanent impairment
by evaluating the operating performance and future undiscounted cash flows of
the underlying assets. Adjustments are made if the sum of the expected future
net cash flows is less than book value in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" which requires
that long-lived assets be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of assets may not be
recoverable.

Software development costs

Software development costs incurred in conjunction with product development
are charged to product development expense until technological feasibility is
established. Thereafter, through general release of product, all software
product development costs are capitalized and reported at the lower of
unamortized cost or net realizable value of each product. The establishment of
technological feasibility and the on-going assessment of the recoverability of
costs require considerable judgment by ARIS with respect to certain external
factors, including, but not limited to, anticipated future gross product
revenues, estimated economic life and changes in the software and hardware
technology. After consideration of the above factors, ARIS amortizes
capitalized software costs at the greater of the amount computed using (a) the
ratio of current revenues for a product to the total of current and
anticipated future revenues, or (b) the straight-line method over the
remaining estimated economic life of the product.

Research and development

Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred. The costs of business acquisitions allocated to in-
process research and development are expensed immediately. The Company
expensed no in-process research and development in 1997 and 1998.

Revenue recognition

Time and material consulting contracts

ARIS recognizes revenue as services are rendered.

Fixed-price consulting contracts

Revenues from fixed-price contracts are recognized on the percentage-of-
completion method, measured by the cost incurred to date and cost to complete
compared to estimated total costs for the contract. This method is used
because management considers expended costs together with estimates of
remaining costs to be the best available measure of contract performance.
Contract costs include all direct labor, material and any other costs related
to contract performance. Selling, general and administrative costs are charged
to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes
in job performance, job conditions and estimated profitability, including
those arising from contract penalty provisions, and final contract settlements
may result in revisions to costs and income and are recognized in the period
in which the revisions are determined.

29
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

Education and training

Tuition revenue is recognized ratably throughout the period that classes are
held.

Software

ARIS accounts for software revenues in accordance with the American
Institute of Certified Public Accountants' Statement of Position 97-2,
Software Revenue Recognition. Revenues earned under software license
agreements with end users are generally recognized when the software has been
shipped, collectibility is probable, and there are no significant obligations
remaining.

ARIS initially defers revenue on the sale of extended software service
contracts which is then recognized on a straight-line basis over the life of
the contract period.

Income taxes

Provision for income taxes has been recorded in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under the liability method of SFAS 109, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using enacted tax
rates and laws that will be in effect when the differences are expected to be
recovered or settled.

Advertising costs

Advertising costs are expensed as incurred. Advertising expenses amounted to
$212,000, $600,000 and $495,000 in 1996, 1997 and 1998, respectively.

Foreign currency translations

The financial statements of ARIS' foreign subsidiaries have been translated
into U.S. dollars in accordance with Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation" ("SFAS 52"). Under the
provisions of SFAS 52, all assets and liabilities in the balance sheet of the
foreign subsidiaries, whose functional currency is the U.K. Pound Sterling,
are translated at year-end exchange rates, profit and loss accounts are
translated at average exchange rates prevailing during the period and
translation gains and losses are accumulated in a separate component of
shareholders' equity.

Fair value of financial instruments

The carrying amount of cash and cash equivalents and other current assets
and liabilities such as accounts receivable, accounts payable and accrued
liabilities as presented in the consolidated financial statements approximates
fair value based on the short-term nature of these instruments. Investments in
marketable securities are carried at fair value in the accompanying
consolidated balance sheet.

Stock-based compensation

Stock-based compensation is accounted for by following Financial Accounting
Standards Board ("FASB") issued Statement No. 123, "Accounting for Stock-Based
Compensation." Under the provisions of this Statement, employee stock-based
compensation expense is measured using either the intrinsic-value method as
prescribed by Accounting Principles Board Opinion No. 25 or the fair value
method described in Statement

30
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

No. 123. Companies choosing the intrinsic-value method are required to
disclose the pro forma impact of the fair value method on net income. ARIS has
elected to continue accounting for its employee stock-based compensation under
the provisions of Accounting Principles Board Opinion No. 25. Stock-based
awards granted to other than employees are valued at fair market value on the
date of grant.

Net income per share

Statement of Financial Accounting Standards No. 128 ("SFAS 128") was issued
in February 1997. This pronouncement modifies the calculation and disclosure
of earnings per share and was adopted by ARIS during 1997. Under the
provisions of SFAS 128, 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 reflect the adoption of
SFAS 128.

New Accounting Pronouncements

The FASB issued SFAS No. 130, "Reporting Comprehensive Income," in June
1997. This statement establishes new standards for reporting and displaying
comprehensive income in the financial statements and was adopted by ARIS
during the quarter ended March 31, 1998. SFAS No. 130 requires
reclassification of prior periods financial statements to reflect application
of the provisions of this statement. In addition to net income, comprehensive
income includes charges or credits to equity that are not the result of
transactions with shareholders.

The following reflects the composition of accumulated other comprehensive
income at December 31, 1995, 1996, 1997 and 1998:

<TABLE>
<CAPTION>
Accumulated
Foreign Unrealized Other
Currency Gains on Comprehensive
Items Securities Income
-------- ---------- -------------
<S> <C> <C> <C>
Balance at December 31, 1995............. $ (4,000) $ 195,000 $ 191,000
Current-period change.................... 24,000 30,000 54,000
-------- --------- ---------
Balance at December 31, 1996............. 20,000 225,000 245,000
Current-period change.................... 7,000 (288,000) (281,000)
-------- --------- ---------
Balance at December 31, 1997............. 27,000 (63,000) (36,000)
Current-period change.................... (16,000) 63,000 47,000
-------- --------- ---------
Balance at December 31, 1998............. $ 11,000 $ -- $ 11,000
======== ========= =========
</TABLE>

The unrealized gains on securities is shown net of tax of $115,000 and
($35,000) at December 31, 1996 and 1997, respectively.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes

31
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

standards for related disclosures about products and services, geographic
areas, and major customers. The Company has adopted SFAS No. 131 and has
provided the disclosures needed to conform with its requirements.

In June 1998, FASB issued SFAS No 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). FAS 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. If adopted by the Company, the Company expects that SFAS 133 will
have no material impact on its financial statements.

2. Pooling of Interest with Barefoot Computer Training Limited and InTime
Systems International, Inc.

On February 28, 1998, ARIS completed a merger with Barefoot Computer
Training Limited ("Barefoot"), a company that provides information technology
training services in London, England. Under the terms of the merger, ARIS
issued 278,611 shares of Common Stock in exchange for all of the outstanding
shares of Barefoot common stock. The acquisition was accounted for as a
pooling-of-interest and, accordingly, all periods included in these
consolidated financial statements have been restated to give effect to the
merger.

Barefoot had a November 30 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 for the years ended
November 30, 1996 and 1997 have been combined with ARIS' statements of income
for the years ended December 31, 1996 and 1997, respectively. In order to
conform Barefoot's year end to ARIS' year end, Barefoot's financial statements
for the month of December 1997 are not included in the statements of income or
cash flows for 1997. Barefoot's net loss for December 1997 decreases retained
earnings as of January 1, 1998.

On June 30, 1998, the Company completed a merger with InTime Systems
International, Inc. ("InTime"), a Delaware corporation having its principal
offices in West Palm Beach, Florida. InTime, now a division of the Company,
provides information technology and human resource management systems
consulting services focusing primarily on Oracle and PeopleSoft technologies.
The acquisition was accounted for as a pooling-of-interests, in which the
Company issued 786,710 shares of Common Stock in exchange for all of the
outstanding shares of InTime common stock and warrants (the "Warrants") to
purchase 718,997 shares of Common Stock in exchange for all of the outstanding
warrants to purchase shares of InTime common stock. Accordingly, all periods
included in the financial information furnished herein have been restated to
give effect to the merger.

32
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

A reconciliation of amounts of revenue and earnings for the years ended
December 31, 1996 and 1997 and the three months ended March 31, 1998,
previously reported by ARIS to the combined amounts presented herein follows:

<TABLE>
<CAPTION>
ARIS as Adjustment Adjustment
reported Barefoot InTime Combined
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Revenue....................... $26,898,000 $5,326,000 $11,672,000 $43,896,000
=========== ========== =========== ===========
Net income.................... $ 2,014,000 $ 152,000 $ 60,000 $ 2,226,000
Adjustment (1).............. 8,000
-----------
Consolidated net income... $ 2,234,000
===========
Year ended December 31, 1997:
Revenue....................... $55,131,000 $7,419,000 $13,736,000 $76,286,000
=========== ========== =========== ===========
Net income.................... $ 5,345,000 $ 410,000 $ 564,000 $ 6,319,000
Adjustment (1).............. (420,000)
-----------
Consolidated net income... $ 5,899,000
===========
For the three months ended
March 31, 1998
Revenue....................... $20,737,000 $ 4,497,000 $25,234,000
=========== =========== ===========
Net Income.................... $ 1,045,000 $ 355,000 $ 1,400,000
</TABLE>
- --------
(1) The adjustments to previously reported income in 1996 and 1997 are to
reflect the recording of deferred tax assets of InTime in the total
amount of $412,000 as of December 31, 1995 which could be offset with
future reversals of deferred tax liabilities of ARIS upon the merger of
InTime into ARIS effective June 30, 1998.

3. Restructuring and other expense

In December, 1998, the Company restructured its training operations to gain
efficiency and profitability. Incident to the restructuring, the Company
incurred expenses aggregating $2,185,000 including $873,000 for employees
severances, $559,000 for equipment and asset abandonment, $593,000 for
anticipated lease disposition costs and $160,000 associated with other aspects
of the restructuring. At December 31, 1998, $1,280,000 of the amount accrued
was paid. The Company fully expects to complete the restructuring and utilize
all accrued costs by June 30, 1999.

In addition to the restructuring, the Company settled a litigation claim and
expensed $759,000. Management believes that a portion of the litigation
settlement cost may be recovered from insurance proceeds.

4. Acquisitions

ARIS has embarked upon an acquisition program that included the acquisition
of three companies during 1996, four companies during 1997 and two companies
during 1998, which have been accounted for by the purchase method of
accounting. Accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on management's estimates, arms-length
negotiations with the sellers and in some cases, independent appraisals. The
common stock issued as consideration in these acquisitions has been recorded
at its estimated fair value at the date the acquisition was announced. The
results of operations of the acquired

33
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

companies have been included in consolidated results of operations of ARIS
from the date of the acquisitions. The following is a description of the terms
of the various acquisitions:

1996

On May 1, 1996, ARIS acquired the stock of SQLSoft, Inc., a training company
based in Bellevue, Washington in exchange for 707,900 shares of unregistered
Common Stock.

On October 1, 1996, ARIS acquired the assets and liabilities of SofTeach
Corporation, a training company based in Denver, Colorado in exchange for
42,000 shares of unregistered Common Stock and a combination of notes payable
and cash.

On October 1, 1996, ARIS acquired the stock of Noetix Corporation, a
software development company which develops software modules which interface
with Oracle database applications software in exchange for 40,000 shares of
unregistered Common Stock and cash.

A summary of assets acquired, liabilities assumed and purchase price paid
for the 1996 acquisitions is as follows:

<TABLE>
<CAPTION>
SQLSoft, SofTeach Noetix
Inc. Corp. Corp.
---------- ---------- ----------
<S> <C> <C> <C>
Consideration:
Cash...................................... $ 750,000 $ 835,000
Note payable.............................. 500,000
Value of common stock..................... $1,317,000 152,000 145,000
Acquisition costs......................... 26,000
---------- ---------- ----------
$1,317,000 $1,402,000 $1,006,000
========== ========== ==========
</TABLE>

The cost allocated to the assets and liabilities at the date of the
acquisition is as follows:

<TABLE>
<CAPTION>
SQLSoft, SofTeach Noetix
Inc. Corp. Corp.
---------- ---------- ----------
<S> <C> <C> <C>
Cash.................................. $ 60,000 $ 124,000
Accounts receivable................... 537,000 73,000 $ 273,000
Prepaid and other current assets...... 73,000 35,000
Intangible assets: Software
technology--completed................ 384,000
Software technology--in process....... 307,000
(Charged to research and development
expense)
Non-compete agreements................ 150,000
Goodwill.............................. 942,000 956,000 260,000
Property and equipment................ 464,000 226,000 9,000
Accounts payable and accrued
liabilities.......................... (759,000) (12,000) (377,000)
---------- ---------- ----------
$1,317,000 $1,402,000 $1,006,000
========== ========== ==========
</TABLE>

34
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

1997

On February 28, 1997, ARIS acquired the stock of Oxford Computer Group
Limited, now ARIS (UK) Limited ("ARIS (UK)"), a company that provides
information technology consulting and training services with offices in
Oxford, London and Birmingham in exchange for 280,000 shares of unregistered
Common Stock.

On October 1, 1997, ARIS acquired the stock of Enterprise Computing Inc.
(doing business as Buller, Owens and Associates ("Enterprise")), an
information technology training company located in New York, New York, in
exchange for 62,531 shares of unregistered Common Stock, warrants to purchase
20,844 shares of unregistered Common Stock and $1,560,000 cash. In connection
with the acquisition of Enterprise, ARIS entered into a $500,000 earn-out
agreement with the former shareholders based on attainment of certain future
financial goals. During 1998, ARIS paid an aggregate of $255,000 pursuant to
the earn-out agreement.

On November 1, 1997, ARIS acquired the stock of Agiliti, Inc., an
information technology training company located in Bloomington, Minnesota, in
exchange for 50,941 shares of unregistered Common Stock.

On November 1, 1997, ARIS acquired the stock of Absolute!, Inc.
("Absolute!"), an information technology training company located in Dallas,
Texas, in exchange for 40,909 shares of unregistered Common Stock and $100,000
cash. In connection with the acquisition of Absolute!, ARIS entered into a
$500,000 earn-out agreement with the former shareholder based on attainment of
certain future financial goals. During 1998, ARIS paid an aggregate of
$250,000 pursuant to the earn-out agreement, of which $150,000 was exchanged
for approximately 5,000 unregistered shares of Common Stock.

A summary of assets acquired, liabilities assumed and purchase price paid
for the 1997 acquisitions is as follows:

<TABLE>
<CAPTION>
ARIS (UK) Enterprise Agiliti Absolute!
---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Consideration:
Cash.............................. $1,560,000 $100,000
Value of common stock............. $1,400,000 1,125,000 $950,000 709,000
Value of warrants................. 187,000
Acquisition costs................. 96,000 15,000
---------- ---------- -------- --------
$1,496,000 $2,872,000 $965,000 $809,000
========== ========== ======== ========
</TABLE>

The cost allocated to the assets and liabilities at the date of the
acquisition is as follows:

<TABLE>
<CAPTION>
ARIS (UK) Enterprise Agiliti Absolute!
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Cash....................... $ 5,000 $ 40,000
Accounts receivable........ 1,140,000 $ 365,000 $ 493,000 297,000
Prepaid and other current
assets.................... 337,000 39,000 70,000 8,000
Goodwill................... 1,095,000 2,672,000 1,066,000 902,000
Property and equipment..... 1,283,000 212,000 350,000 60,000
Notes payable.............. (930,000) (76,000)
Accounts payable and
accrued liabilities....... (2,364,000) (416,000) (84,000) (422,000)
----------- ---------- ---------- ---------
$ 1,496,000 $2,872,000 $ 965,000 $ 809,000
=========== ========== ========== =========
</TABLE>

35
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

1998

On April 30, 1998, ARIS, through ARIS (UK), acquired all of the outstanding
stock of MMT Computer (Reading) Limited ("MMT"), an information technology
consulting company located in Reading, England, in exchange for $2,499,000
cash ((Pounds)1,500,000).

On August 10, 1998, ARIS, through ARIS Software, Inc. ("ASI"), a wholly-
owned subsidiary, acquired all of the assets of db-Centric, Inc. ("db-
Centric"), a decision support systems administrative software company focusing
on distributed data warehouse management, in exchange for $1,000,000 cash.

A summary of the purchase price paid for the 1998 acquisitions is as
follows:

<TABLE>
<CAPTION>
MMT db-Centric
---------- ----------
<S> <C> <C>
Consideration:
Cash............................................... $2,499,000 $1,000,000
Acquisition costs.................................. 152,000 --
---------- ----------
$2,651,000 $1,000,000
========== ==========
</TABLE>

The cost allocated to the assets and liabilities at the date of the
acquisition is as follows:

<TABLE>
<CAPTION>
MMT db-Centric
---------- ----------
<S> <C> <C>
Cash.............................................. $ 1,000
Accounts receivable............................... 622,000
Prepaid and other current assets.................. 1,077,000
Goodwill.......................................... 1,498,000 $1,000,000
Property and equipment............................ 200,000
Notes payable, accounts payable and accrued
liabilities...................................... (747,000)
---------- ----------
$2,651,000 $1,000,000
========== ==========
</TABLE>

The following unaudited pro forma summary presents the consolidated results
of operations of ARIS as if the entities (described in Note 4) acquired in
1996, 1997 and 1998 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.

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996(1) 1997(2) 1998(3)
----------- ----------- ------------
<S> <C> <C> <C>
Net sales.............................. $60,233,000 $88,532,000 $117,496,000
Net income............................. $ 2,299,000 $ 5,428,000 $ 1,008,000
Basic earnings per share............... $ 0.28 $ 0.55 $ 0.09
Diluted earnings per share............. $ 0.27 $ 0.52 $ 0.08
</TABLE>
- --------
(1) Adjusted to include the results of operations of SQLSoft, Inc., SofTeach
Corporation and Noetix Corporation prior to acquisition and the results
of operations of ARIS (UK), Enterprise, Agiliti and Absolute! for the
year ended December 31, 1996, including the impact of certain
adjustments.

(2) Adjusted to include the results of operations of ARIS (UK), Enterprise,
Agiliti and Absolute! prior to acquisition and the results of operations
of MMT and db-Centric for the year ended December 31, 1997, including the
impact of certain adjustments.

(3) Adjusted to include the results of operations of MMT and db-Centric prior
to acquisition, including the impact of certain adjustments.

36
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 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 acquisition of businesses during
1996, 1997 and 1998 [including mergers with Barefoot and InTime (see Note 2)
during 1998] of $347,000, $428,000 and $5,655,000 respectively. In 1996 and
1997 such costs were primarily incurred in connection with the integration of
business systems of acquired companies. In 1998, costs were primarily for
investment banking and professional fees and expenditures to facilitate
integration of business systems of acquired businesses with ARIS following the
mergers.

During 1996 ARIS expensed $307,000 of in-process research and development
costs following the acquisition of Noetix Corporation.

5. Property and Equipment

Property and equipment consists of the following:

<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Land and building................................ $ 5,220,000
Computer equipment............................... $ 6,752,000 9,817,000
Furniture and fixtures........................... 1,630,000 2,869,000
Software......................................... 250,000 582,000
Leasehold improvements........................... 921,000 2,857,000
Other............................................ 906,000 410,000
----------- -----------
10,459,000 21,755,000
Less: Accumulated depreciation................... (3,303,000) (5,680,000)
----------- -----------
$ 7,156,000 $16,075,000
=========== ===========
</TABLE>

6. Intangible and Other Assets

Intangible and other assets consist of the following:

<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Goodwill........................................ $ 7,957,000 $11,205,000
Capitalized software costs...................... 1,025,000 1,025,000
Non-compete agreements.......................... 150,000 150,000
Prepaids and other.............................. 2,269,000 2,770,000
----------- -----------
11,401,000 15,150,000
Less: Accumulated amortization.................. (1,060,000) (1,940,000)
----------- -----------
10,341,000 13,210,000
Less: Current portion........................... (2,089,000) (2,359,000)
----------- -----------
Total noncurrent intangibles and other
assets..................................... $ 8,252,000 $10,851,000
=========== ===========
</TABLE>

7. Investments

Investments in marketable securities at December 31, 1997 and 1998 consist
of investments in debt securities totaling $19,663,000 and $6,513,000,
respectively. These investments have been classified as available-

37
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

for-sale and, accordingly, the excess of fair value over cost, net of tax, has
been included as a separate component of shareholders' equity at December 31,
1997 and 1998. The debt securities held at December 31, 1998 have maturities
ranging from January 1999 to August 1999.

8. Income Taxes

Income tax expense consists of the following:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1997 1998
----------- ---------- ----------
<S> <C> <C> <C>
Current: Federal........................ $ 1,429,000 $3,023,000 $2,532,000
State................................. 110,000 328,000 354,000
Foreign............................... 65,000 370,000 98,000
----------- ---------- ----------
1,604,000 3,721,000 2,984,000
----------- ---------- ----------
Deferred: Federal....................... (212,000) 32,000 (372,000)
State................................. 12,000 (52,000) (55,000)
Foreign............................... 31,000 (12,000) 83,000
----------- ---------- ----------
(169,000) (32,000) (344,000)
----------- ---------- ----------
Total tax expense................... $ 1,435,000 $3,689,000 $2,640,000
=========== ========== ==========
</TABLE>

Pretax operating results of ARIS' foreign subsidiaries are income of
$232,000, $1,082,000 and $472,000 in 1996, 1997 and 1998, respectively. The
principal reasons for the variation from the customary relationship between
income taxes at the statutory federal rate and that shown in the consolidated
statements of income are as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Statutory federal income tax rate........ $1,248,000 $3,260,000 $1,374,000
Goodwill................................. 17,000 66,000 178,000
Nondeductible acquisition costs.......... 794,000
State income taxes, net of federal income
tax benefit............................. 82,000 224,000 179,000
Purchased research and development....... 104,000
Nondeductible meals and entertainment.... 32,000 53,000 88,000
Other.................................... (48,000) 86,000 27,000
---------- ---------- ----------
$1,435,000 $3,689,000 $2,640,000
========== ========== ==========
</TABLE>

38
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
----------- ---------
<S> <C> <C>
Adjustments to cash basis accounting for tax
purposes......................................... $ (641,000) $(281,000)
Depreciation and amortization..................... (365,000) (374,000)
Intangible assets................................. (166,000) (46,000)
----------- ---------
Gross deferred tax liabilities.................. (1,172,000) (701,000)
----------- ---------
Bad debt allowance................................ 240,000 585,000
Accrued vacation and bonuses...................... 76,000 68,000
Unrealized loss on marketable securities.......... 40,000
NOL carry-forward................................. 432,000 86,000
Other............................................. 62,000 98,000
----------- ---------
Gross deferred tax assets....................... 850,000 837,000
----------- ---------
$ (322,000) $ 136,000
=========== =========
</TABLE>

9. Debt

At December 31, 1998, ARIS had a $10,000,000 line of credit that was
collateralized by substantially all of ARIS' assets. All of this line was
available at December 31, 1998. Borrowings against the line of credit bear
interest at the lender's prime rate.

10. Commitments and Contingencies

Lease commitments

ARIS rents office space under non-cancelable operating leases with initial
terms in excess of one year. Future minimum rental commitments under operating
leases for years ending December 31 are as follows:

<TABLE>
<S> <C>
1999......................................... $ 2,899,000
2000......................................... 3,094,000
2001......................................... 3,074,000
2002......................................... 2,709,000
2003......................................... 1,841,000
Thereafter................................... 8,714,000
-----------
$22,331,000
===========
</TABLE>

Rent expense for 1996, 1997 and 1998 was $995,000, $2,159,000 and
$3,907,000, respectively.

Legal proceedings

ARIS is involved in certain legal proceedings that have arisen in the normal
course of business. Based on the advice of legal counsel, management does not
anticipate that these matters will have a material effect on ARIS'
consolidated financial position or results of operations.

39
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

11. Shareholders' Equity

In June 1997, ARIS completed an initial public offering of 2,300,000 shares
of Common Stock with net proceeds of approximately $31,242,000.

The Company initiated on January 1, 1998, the 1998 Employee Stock Purchase
Plan (the "ESPP"). Under the ESPP, employees may elect to set aside up to 10%
of their gross compensation to purchase shares of Common Stock annually at a
15% discount to market price. The ESPP is a two year plan expiring on January
1, 2000. Executive officers (other than the Chief Executive Officer) may
participate in the ESPP on the same terms as eligible, non-executive
employees.

12. Earnings Per Share

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>
Year Ended December 31,
-------------------------------
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Weighted-average number of common shares
outstanding.................................. 8,337,000 9,803,000 11,115,000
Effect of dilutive securities:
Warrants.................................... 3,000 68,000
Options..................................... 160,000 726,000 717,000
--------- ---------- ----------
160,000 729,000 785,000
--------- ---------- ----------
Weighted-average number of common and common
equivalent shares outstanding................ 8,497,000 10,532,000 11,900,000
========= ========== ==========
</TABLE>

Options to purchase shares of Common Stock were outstanding in 1997 and
1998, but were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price
of the common shares.

13. Stock Options and Warrants

Prior to January 1995, ARIS from time to time granted non-qualified stock
options to key employees. These grants were not part of any formal plan.

In January 1995, ARIS adopted the ARIS Corporation 1995 Stock Option Plan
(the "1995 Plan") which provides for the granting of qualified or non-
qualified stock options to employees, directors, officers and certain non-
employees of ARIS as determined by the Plan Administrator. ARIS authorized
1,600,000 shares of its Common Stock for issuance under the 1995 Plan. The
date of grant, option price, vesting period and other terms specific to
options granted under the 1995 Plan are to be determined by the Plan
Administrator. The option price for stock options granted is based on the fair
market value of ARIS' stock on the date of grant. Options granted under the
1995 Plan expire seven years from the date of grant and vest over periods of
up to four years. ARIS ended grants under the 1995 Plan in March 1997.

In March 1997, ARIS adopted the ARIS Corporation 1997 Stock Option Plan (the
"1997 Plan") which provides for the granting of qualified or non-qualified
stock options to employees, directors, officers and

40
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

non-employee directors of ARIS as determined by the Plan Administrator. ARIS
authorized 2,000,000 shares of its Common Stock for issuance under the 1997
Plan, subject to certain adjustments, reduced by the number of shares that
have been granted and have not subsequently become available for grant under
the 1995 Plan. The 1997 Plan provides for automatic, non-discretionary grants
of 5,000 non-qualified stock options to non-employee directors for each year
of service. For all other grants under the 1997 Plan, the date of grant,
option price, vesting period and other terms specific to options granted under
the 1997 Plan are to be determined by the Plan Administrator. The option price
for stock options granted is based on the fair market value of ARIS' stock on
the date of grant. Options granted under the 1997 Plan expire ten years from
the date of grant and vest over periods of up to four years. On April 28,
1998, the shareholders of the Company approved an increase in the number of
shares of Common Stock available for issuance under the 1997 Plan to 2,000,000
shares.

In connection with the acquisition of Enterprise (as discussed in Note 4),
ARIS issued warrants to purchase 20,844 shares of Common Stock with an
exercise price of $23.988 and a fair value of $8.95 during 1997. Additionally,
during 1997 ARIS issued warrants to purchase 4,000 Shares of Common Stock with
an exercise price of $10.00 to certain consultants of ARIS.

In connection with the acquisition of InTime (as discussed in Note 2), ARIS
issued warrants to purchase 718,997 shares of Common Stock as consideration to
the former holders of warrants of InTime. The warrants commenced trading on
the Nasdaq National Market on July 16, 1998. Each of these warrants entitle
the holder to purchase one share of the Company's Common Stock at an exercise
price of $22.98. The warrants expire on February 15, 2000.

A summary of the activity for non-qualified stock options granted prior to
1995, the 1995 Plan, and the 1997 Plan is presented below:

<TABLE>
<CAPTION>
1996 1997 1998
------------------ -------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 134,000 $0.30 354,000 $ 2.12 1,452,000 $9.63
Granted................. 262,000 2.79 1,259,000 11.34 1,822,000 18.91
Exercised............... (14,000) 0.09 (47,000) 1.47 (147,000) 4.42
Forfeited............... (28,000) 0.78 (114,000) 8.22 (1,209,000) 23.79
------- --------- ----------
Outstanding at end of
year................... 354,000 2.12 1,452,000 9.65 1,918,000 9.94
======= ===== ========= ====== ========== =====
Options exercisable at
year-end............... 69,775 $0.89 162,000 $ 1.10 394,000 $8.72
======= ========= ==========
Weighted-average fair
value of options
granted during the
year................... $2.20 $11.34 $19.65
</TABLE>

41
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- ---------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.19 - $ 3.62 201,000 4.24 $ 1.81 148,000 $ 1.35
$5.00 - $ 9.40 670,000 5.43 $ 6.55 108,000 $ 6.28
$9.75 - $32.35 1,047,000 8.99 $13.68 138,000 $18.52
</TABLE>

ARIS applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations in accounting for stock
options issued to employees. Had compensation cost for the 1995 Plan and the
1997 Plan been determined based upon the fair value at the grant date
consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, ARIS'
net income and net income per share would have been as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net income as reported................. $2,234,000 $5,899,000 $1,400,000
Net (loss) income pro forma............ $1,947,000 $5,615,000 $ (694,000)
Basic earning per share as reported.... $0.27 $0.60 $0.13
Diluted earning per share as reported.. $0.26 $0.56 $0.12
Basic earnings (loss) per share pro
forma................................. $0.26 $0.57 $(0.06)
Diluted earnings (loss) per share pro
forma................................. $0.25 $0.53 $(0.06)
</TABLE>

The fair value of each stock option granted in 1996, 1997 and 1998 was
estimated on the date of grant using the Black-Scholes single option method.
The following weighted average assumptions were used for grants in 1996, 1997
and 1998:

<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Assumptions:
Risk free interest rate................... 6.0% 6.75% 4.54%
Expected holding period................... 4.75 years 4.75 years 4.75 years
Dividend yield............................ 0% 0% 0%
Expected volatility....................... 0% 59.0% 94.0%
</TABLE>

14. Profit Sharing Plan

ARIS maintains a qualified defined contribution profit sharing 401(k) plan
which covers full time employees with at least one month of service. There
were no employer contributions to the plan for 1996 or 1997. In 1998, the
Company instituted a 401(k) matching contribution program whereby the Company
matched each employees' contribution on a dollar-for-dollar basis up to $800
per participating employee. During 1998, the Company contributed $256,000 to
the 401(k) plan.

42
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

15. Supplemental Disclosure of Cash Flow Information and Non-cash Investing
and Financing Activities

ARIS paid interest of $66,000, $194,000 and $49,000 during 1996, 1997 and
1998, respectively. ARIS paid $2,208,000, $3,375,000 and $3,045,000 in income
taxes during 1996, 1997 and 1998, respectively.

As more fully described in Note 2, ARIS merged with Barefoot and InTime in
transactions accounted for as poolings of interest. As more fully described in
Note 4, ARIS has acquired nine companies in transactions accounted for as
purchases in exchange for Common Stock, cash, warrants and/or notes payable.

16. Operating Business Groups

ARIS is engaged in three distinct businesses consisting of database
consulting services, information technology training and software sales. Total
revenue by segment represents sales to unaffiliated customers. Inter-segment
sales are not material. Operating profit represents total revenue less
operating expenses. In computing operating profit none of the following items
has been added or deducted: general corporate expenses, interest income or
expense or income taxes.

Identifiable assets are those assets used in the operations of each industry
segment. Corporate assets primarily consist of cash, investments and certain
prepaid expenses.

Summarized financial information by business group for 1996, 1997 and 1998
is as follows:

<TABLE>
<CAPTION>
Consulting Training Software
Group Group Group Corporate Total
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1996:
Revenue................. $27,505,000 $14,711,000 $ 1,680,000 $ 43,896,000
Operating profit........ 9,074,000 1,613,000 (1,009,000) $(6,205,000) 3,473,000
Identifiable assets..... 7,773,000 6,520,000 2,113,000 4,269,000 20,675,000
Depreciation and
amortization........... 42,000 635,000 250,000 324,000 1,251,000
Capital expenditures.... 34,000 2,171,000 41,000 208,000 2,454,000
1997:
Revenue................. $42,731,000 $28,896,000 $ 4,659,000 $ 76,286,000
Operating profit........ 12,824,000 3,607,000 836,000 $(8,820,000) 8,447,000
Identifiable assets..... 10,453,000 18,584,000 2,581,000 28,933,000 60,551,000
Depreciation and
amortization........... 173,000 1,401,000 435,000 445,000 2,454,000
Capital expenditures.... 401,000 1,600,000 137,000 518,000 2,656,000
1998:
Revenue................. $64,036,000 $40,398,000 $11,460,000 $115,894,000
Operating profit........ 2,712,000 (5,641,000) 6,545,000 $ (734,000) 2,882,000
Identifiable assets..... 20,701,000 21,087,000 4,093,000 23,600,000 69,481,000
Depreciation and
amortization........... 702,000 2,402,000 432,000 352,000 3,888,000
Capital expenditures.... 2,564,000 3,352,000 131,000 5,653,000 11,700,000
</TABLE>

17. Geographic Segment Information

Major operations outside the United States include ARIS(UK) which was
purchased by ARIS in 1997. Substantially all of ARIS(UK)'s business relates to
sales in the United Kingdom and Europe. Certain information

43
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

regarding operations in this geographic segment is presented in the table
below. Intercompany sales between ARIS(UK) and ARIS are not material.

<TABLE>
<CAPTION>
As of and for the Year Ended
December 31,
------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Net sales:
United States............................ $38,570,000 $59,604,000 $ 90,479,000
Europe................................... 5,326,000 16,682,000 25,415,000
----------- ----------- ------------
$43,896,000 $76,286,000 $115,894,000
=========== =========== ============
Operating profit:
United States............................ $ 3,241,000 $ 7,319,000 $ 2,354,000
Europe................................... 232,000 1,128,000 528,000
----------- ----------- ------------
$ 3,473,000 $ 8,447,000 $ 2,882,000
=========== =========== ============
Identifiable assets:
United States............................ $18,035,000 $53,076,000 $ 58,711,000
Europe................................... 2,640,000 7,475,000 10,770,000
----------- ----------- ------------
$20,675,000 $60,551,000 $ 69,481,000
=========== =========== ============
</TABLE>

18. Quarterly Information (Unaudited)

The previously reported quarterly information has been adjusted to reflect
the poolings of interest with Barefoot and InTime (Note 2).

<TABLE>
<CAPTION>
1997
------------------------------------------------
Q1 Q2 Q3 Q4
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
As previously reported:
Net sales.................... $10,409,000 $13,507,000 $14,582,000 $16,633,000
Gross profit................. 5,460,000 7,248,000 7,843,000 8,798,000
Net income................... 1,044,000 1,303,000 1,587,000 1,411,000
Basic earnings per share..... $0.14 $0.17 $0.16 $0.14
Diluted earnings per share... $0.13 $0.16 $0.15 $0.13
Adjustment:
Net sales.................... $ 4,855,000 $ 5,225,000 $ 5,264,000 $ 5,811,000
Gross profit................. 2,027,000 2,382,000 2,344,000 2,718,000
Net income................... 179,000 515,000 (240,000) 100,000
As adjusted:
Net sales.................... $15,264,000 $18,732,000 $19,846,000 $22,444,000
Gross profit................. 7,487,000 9,630,000 10,187,000 11,516,000
Net income................... 1,223,000 1,818,000 1,347,000 1,511,000
Basic earnings per share..... $0.14 $0.21 $0.12 $0.13
Diluted earnings per share... $0.13 $0.19 $0.11 $0.13
</TABLE>

44
<PAGE>

ARIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1996, 1997 and 1998

<TABLE>
<CAPTION>
1998
------------------------------------------------
Q1 Q2 Q3 Q4
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
As previously reported:
Net sales.................. $20,737,000 $29,162,000 $31,488,000 $29,894,000
Gross profit............... 11,704,000 15,078,000 16,982,000 14,011,000
Net income (loss).......... 1,045,000 (1,053,000) 2,457,000 (1,404,000)
Basic earnings (loss) per
share..................... $0.10 $(0.09) $0.22 $(0.13)
Diluted earnings (loss) per
share..................... $0.09 $(0.09) $0.21 $(0.13)
Adjustment:
Net sales.................. $ 4,486,000 $ 127,000 -- --
Gross profit............... 2,008,000 848,000 -- --
Net income................. 401,000 (46,000) -- --
As adjusted:
Net sales.................. $25,223,000 $29,289,000 $31,488,000 $29,894,000
Gross profit............... 13,712,000 15,926,000 16,982,000 14,011,000
Net income (loss).......... 1,446,000 (1,099,000) 2,457,000 (1,404,000)
Basic earnings (loss) per
share..................... $0.14 $(0.10) $0.22 $(0.13)
Diluted earnings (loss) per
share..................... $0.13 $(0.10) $0.21 $(0.13)
</TABLE>

45
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of ARIS Corporation

In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated
statements of income, of changes in shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of ARIS
Corporation and its subsidiaries at December 31, 1997 and 1998 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Barefoot Computer Training Limited for the two years ended
November 30, 1997 which statements reflect total assets of $3,018,000 at
November 30, 1997, and total revenues of $5,326,000 and $7,419,000 for the
years ended November 30, 1996 and 1997, respectively. Those statements were
audited by other auditors whose report thereon has been furnished to us, and
our opinion expressed herein, insofar as it relates to the 1996 and 1997
amounts included for Barefoot Computer Training Limited is based solely on the
report of the other auditors. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Seattle, Washington
January 28, 1999

46
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Barefoot Computer Training Limited

In our opinion, the balance sheet and the related statements of income, of
cash flows and of changes in stockholders' equity of Barefoot Computer
Training Limited (not presented separately herein) present fairly, in all
materials respects, the financial position of Barefoot Computer Training
Limited at 30 November 1997 and 1996 and the results of its operations and its
cash flows for each of the three years ended 30 November 1997, in conformity
with accounting principles generally accepted in the United States, all
expressed in British Pound Sterling. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

/s/ BDO Stoy Hayward

BDO Stoy Hayward
Chartered Accountants
London, England

April 23, 1998

47
<PAGE>

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

There have been no changes in or disagreements with accountants on
accounting and financial disclosure.

PART III

Part III is incorporated herein by reference from the Company's definitive
proxy statement issued in connection with the Company's 1999 Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange Commission
within 120 days after the close of the Company's 1998 fiscal year. Certain
information regarding the executive officers of the Company is set forth in
Part I of this Report.

PART IV

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

(a) Documents filed as part of this Report:

(1) Financial Statements--all consolidated financial statements of the
Company as set forth under Item 8 of this Report.

(2) The independent auditor's report with respect to the financial
statement schedules appears on page 49 of this Report. All other
financial statements and schedules not listed are omitted because
either they are not applicable or not required, or the required
information is included in the consolidated financial statements.

(3) Financial statement schedules--see index on page 50 of this Report.

(b) Reports on Form 8-K: A current report on Form 8-K was filed with the
Securities and Exchange Commission on December 1, 1998, solely for the purpose
of incorporating by reference the financial statements in the Registration
Statement on Form S-4 (333-51859) in connection with the filing of a
Registration Statement on Form S-8 (333-68199) to register additional shares
of the Company's Common Stock reserved for issuance under the 1997 Stock
Option Plan as approved by the shareholders of the Company on April 28, 1998.

48
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of ARIS Corporation

Our audits of the consolidated financial statements referred to in our
report dated January 28, 1999 appearing in the 1998 Annual Report to
Shareholders of ARIS Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item
14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

Seattle, Washington
March 29, 1999

49
<PAGE>

INDEX TO FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
Schedule
--------
<C> <S> <C>
Schedule II Valuation and Qualifying Accounts Exhibit 99.1
</TABLE>

50
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated September 13, 1997, among the
Company, Enterprise Computing Inc., d/b/a Buller Owens &
Associates and each of the stockholders of Enterprise Computing
Inc. (Exhibit 2.1) (C)
2.2 Agreement and Plan of Merger dated as of April 26, 1998, between
the Company and InTime Systems International, Inc. (Exhibit 2.1) (D)
2.3 Amendment No. 1 to Agreement and Plan of Merger dated as of May
27, 1998 between the Company and InTime Systems International,
Inc. (Exhibit 2.2) (D)
3.1 Amended and Restated Articles of Incorporation. (Exhibit 3.1) (A)
3.2 Amended and Restated Bylaws. (Exhibit 3.2) (A)
4.1 Articles IV and V of the Amended and Restated Articles. (Exhibit
4.1) (A)
4.2 Articles II, IV, VI, VII, IX, X and XI of the Amended and
Restated Bylaws. (Exhibit 4.2) (A)
10.1 Applied Relational Information Systems, Inc. 1995 Stock Option
Plan. (Exhibit 10.1) + (A)
10.2 ARIS Corporation 1997 Stock Option Plan. (Exhibit 10.2) + (A)
10.3 ARIS Corporation 1998 Employee Stock Purchase Plan. (Exhibit
99.1) + (B)
10.4 Amendment Dated March 24, 1998 to ARIS Corporation 1998 Employee
Stock Purchase Plan. (Exhibit 99.1) + (F)
10.5 Employment Agreement dated July 22, 1992 between the Company and
Kendall W. Kunz. (Exhibit 10.4) + (A)
10.6 Employment Agreement effective as of December 31, 1994 between
the Company and Jeffrey W. Gilles. (Exhibit 10.5) + (A)
10.7 Employment Agreement dated February 11, 1991 between the Company
and John Y. Song. (Exhibit 10.6) + (A)
10.8 Form of Indemnification Agreement for Directors and Officers. (E)
10.9 Summary of Insurance held by the Company prepared by Acordia
Northwest, Inc. on March 10, 1997. (Exhibit 10.8) (A)
10.10 Credit Agreement between the Company and U.S. Bank of
Washington, National Association, dated March 14, 1997. (Exhibit
10.9) (A)
10.11 Registration Rights Agreement dated as of February 28, 1997 by
and between the Company and certain holders of Common Stock.
(Exhibit 10.10) (A)
10.12 Registration Rights Agreement dated as of February 28, 1997 by
and between the Company and Charles Henderson Cunningham.
(Exhibit 10.11) (A)
10.13 Purchase and Sale Agreement dated as of December 19, 1997
between Vangard Management Company, Jeff Foushee, Lock Anderson
and Richard Barker and the Company. (E)
10.14 Agreement for the sale and purchase of the entire issued share
capital of Oxford Computer Group Limited dated February 14,
1997, by and among the Company and the Shareholders of Oxford
Computer Group Limited. (Exhibit 10.35) (A)
10.15 Sun Microsystems Educational Services U.S. Strategic Alliance
Agreement by and between SunService, a division of Sun
Microsystems Inc. and the Company. (Exhibit 10.36) (A)
10.16 Microsoft vendor contracts (Exhibit 10.37) (A)
10.17 Oracle vendor contracts (Exhibit 10.38) (A)
</TABLE>

51
<PAGE>

<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S> <C>
*21.1 List of the Company's Subsidiaries.
*23.1 Consent of PricewaterhouseCoopers LLP, independent certified
public accountants for the Company.
*23.2 Consent of BDO Stoy Hayward, Chartered Accountants.
**24.1 Power of Attorney (Included in the signature page to this
Registration Statement).
*27.1 Financial Data Schedule.
*99.1 Schedule II--Valuation and Qualifying Accounts and Reserves.
</TABLE>
- --------
+ Management contract or compensatory plan

* Included herewith

** See signature page.

(A) Incorporated by reference to designated exhibit included with the
Company's Registration Statement on Form S-1, registration number 333-
25409.

(B) Incorporated by reference to designated exhibit included with the
Company's Registration Statement on Form S-8, registration number 333-
40923.

(C) Incorporated by reference to designated exhibit included with the
Company's Registration Statement on Form 8-K dated September 24, 1997
(SEC File number 000-22649.)

(D) Incorporated by reference to designated exhibit included with the
Company's Registration Statement on Form S-4 filed with the Securities
and Exchange Commission on May 5, 1998, registration statement number
333-51859.

(E) Incorporated by reference to designated exhibit included with the
Company's Annual Report on Form 10-K for the fiscal year ending December
31, 1997.

(F) Incorporated by reference to designated exhibit included with the
Company's Registration Statement on Form S-8 filed with the SEC on
December 1, 1998, registration statement number 333-68199.

52
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 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.

ARIS CORPORATION
<TABLE>
<C> <S>

/s/ Paul Y. Song
By: _____________________________________
Paul Y. Song
Chairman of the Board
Chief Executive Officer and President
</TABLE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Paul Y. Song and Thomas W. Averill, or either
of them, such person's true and lawful attorneys-in-fact and agents, with full
power of substitution, and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as
such person might or could do in person, hereby ratify and confirming all that
said attorneys-in-fact and agents, or any substitute or substitutes of any of
them, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated below on the 30th day of March,
1999.

<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Paul Y. Song Chairman of the Board, Chief Executive
___________________________________________ Officer and President (Principal Executive
Paul Y. Song Officer)

/s/ Thomas W. Averill Vice President, Finance and Chief Financial
___________________________________________ Officer (Principal Financial and Accounting
Thomas W. Averill Officer)

/s/ Kendall W. Kunz Senior Vice President of North America and
___________________________________________ Director
Kendall W. Kunz

/s/ Bruce R. Kennedy Director
___________________________________________
Bruce R. Kennedy

/s/ Kenneth A. Williams Director
___________________________________________
Kenneth A. Williams
</TABLE>

53
<PAGE>

INDEX TO EXHIBITS

51
<PAGE>

* Included herewith

** See signature page.

(A) Incorporated by reference to designated exhibit included with the
Company's Registration Statement on Form S-1, registration number 333-
25409.

(B) Incorporated by reference to designated exhibit included with the
Company's Registration Statement on Form S-8, registration number 333-
40923.

(C) Incorporated by reference to designated exhibit included with the
Company's Registration Statement on Form 8-K dated September 24, 1997
(SEC File number 000-22649.)

(E) Incorporated by reference to designated exhibit included with the
Company's Annual Report on Form 10-K for the fiscal year ending December
31, 1997.

(F) Incorporated by reference to designated exhibit included with the
Company's Registration Statement on Form S-8 filed with the SEC on
December 1, 1998, registration statement number 333-68199.

<PAGE>

EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
(WITH PRINCIPAL OFFICE LOCATION)

ARIS Software, Inc.
Incorporated under the laws of Washington
2229 - 112th Avenue NE
Bellevue, WA 98004

ARIS UK Limited
(formerly Oxford Computer Group Limited)
Incorporated under the laws of England and Wales
Wolsey Hall
66 Banbury Road
Oxford, England OX2 6PR

ARIS (International), L.L.C.
A limited liability company organized under the laws of Washington
2229 - 112th Avenue NE
Bellevue, WA 98004

ARIS Computer Services GmbH.
A German company with limited liability (Gesellschaft mit beschrankter Haftung)
Hebelstrase 22d
Heidelberg, Germany. 69115

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 333-40923 and No. 333-68199) of ARIS Corporation
of our report dated January 28, 1999 appearing in the Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 49 of this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Seattle, Washington
January 28, 1999

<PAGE>

Exhibit 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Annual Report on Form 10-K of ARIS
Corporation for the fiscal year ending December 31, 1998 (the "Form 10-K"), of
our report dated 23 April 1998 relating to the financial statements of
Barefoot Computer Training Limited for the years ended November 30, 1997 and
1996.

/s/ BDO Stoy Hayward

BDO Stoy Hayward
Chartered Accountants
London, England

March 30, 1999

<PAGE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,225,000
<SECURITIES> 6,513,000
<RECEIVABLES> 27,997,000
<ALLOWANCES> (1,263,000)
<INVENTORY> 0
<CURRENT-ASSETS> 42,555,000
<PP&E> 21,755,000
<DEPRECIATION> (5,680,000)
<TOTAL-ASSETS> 69,481,000
<CURRENT-LIABILITIES> 13,855,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 55,314,000
<TOTAL-LIABILITY-AND-EQUITY> 69,481,000
<SALES> 115,894,000
<TOTAL-REVENUES> 115,894,000
<CGS> 55,263,000
<TOTAL-COSTS> 113,012,000
<OTHER-EXPENSES> (1,158,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,040,000
<INCOME-TAX> 2,640,000
<INCOME-CONTINUING> 1,400,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,400,000
<EPS-PRIMARY> .13
<EPS-DILUTED> .12

</TABLE>

<PAGE>

EXHIBIT 99.1

ARIS CORPORATION

FINANCIAL STATEMENT SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF CHARGE TO COSTS END OF
PERIOD AND EXPENSES DEDUCTIONS PERIOD
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts...... $61,000 $95,000 $(15,000) $141,000

YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts...... $141,000 $271,000 $(61,000) $351,000

YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts...... $351,000 $81,000 $(29,000) $403,000

YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts...... $403,000 $676,000 $(162,000) $917,000

YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts...... $917,000 $706,000 $(360,000) $1,263,000
</TABLE>