<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____ to ____
Commission File Number 000-22649
ARIS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
WASHINGTON 91-1497147
<S> <C>
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
2229 - 112TH AVENUE N.E. (425) 372-2747
BELLEVUE, WASHINGTON 98004-2936 (Registrant's telephone number,
(Address of principal executive office) including area code)
</TABLE>
Indicate by check mark whether the registrant:
(1) Has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file for such reports), and
(2) Has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock as of
June 30, 1999 was 11,069,508.
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ARIS CORPORATION
FORM 10-Q
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INDEX PAGE
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
a) Condensed Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998 3
b) Condensed Consolidated Statements of Income
for the quarter and six months ended June 30,
1999 and 1998 4
c) Condensed Consolidated Statements of Cash
Flows for the six months ended June 30, 1999
and 1998 5
d) Condensed Consolidated Statement of Changes in
Shareholders' Equity as of June 30, 1999 6
e) Notes to Condensed Consolidated Financial
Statements 6-8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-15
Item 3 Qualitative And Quantitative Disclosures About
Market Risk 16
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 2 Changes in Securities 17
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 19
</TABLE>
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
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<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- --------
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,901 $ 5,225
Investments in marketable securities 2,002 6,513
Accounts receivable, net of allowance for
doubtful accounts of $1,215 and $1,263 27,388 26,734
Other current assets 4,801 4,083
-------- --------
Total current assets 41,092 42,555
Property and equipment, net 15,623 16,075
Intangible and other assets, net 10,440 10,851
-------- --------
Total assets $ 67,155 $ 69,481
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,926 $ 3,345
Accrued liabilities 7,553 8,177
Deferred revenue 2,248 2,333
-------- --------
Total current liabilities 11,727 13,855
-------- --------
Deferred income taxes 287 312
-------- --------
Commitments and contingencies
Shareholder's equity:
Preferred stock, 5,000,000 shares authorized, none issued
and outstanding
Common stock, no par value; 100,000,000 shares authorized
Additional paid-in-capital 45,232 47,347
Retained earnings 10,201 7,956
Accumulated other comprehensive income (loss) (292) 11
-------- --------
Total shareholders' equity 55,141 55,314
-------- --------
Total liabilities and shareholders' equity $ 67,155 $ 69,481
======== ========
</TABLE>
See accompanying notes
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ARIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except for share and
per share data) (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
-------------------------------- --------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenue, net:
Consulting ........................ $ 18,693 $ 15,824 $ 36,626 $ 29,105
Training .......................... 9,005 10,253 18,869 19,855
Software .......................... 2,139 3,085 4,563 5,436
------------ ------------ ------------ ------------
Total revenue ..................... 29,837 29,162 60,058 54,396
Cost of sales: ....................... 15,091 14,084 29,936 25,695
------------ ------------ ------------ ------------
Gross profit ...................... 14,746 15,078 30,122 28,701
Selling, general and administrative
expense ........................... 13,551 11,340 26,305 21,568
Amortization of intangible assets .... 216 150 430 271
Charges related to acquisitions -- 4,399 -- 5,655
------------ ------------ ------------ ------------
Income (loss) from operations ..... 979 (811) 3,387 1,207
Other income, net .................... 191 281 356 692
------------ ------------ ------------ ------------
Income (loss) before income tax ... 1,170 (530) 3,743 1,899
Income tax expense ................... 518 523 1,498 1,553
------------ ------------ ------------ ------------
Net income (loss) ................. $ 652 $ (1,053) $ 2,245 $ 346
============ ============ ============ ============
Basic earnings per share ............. $ 0.06 $ (0.09) $ 0.20 $ 0.03
============ ============ ============ ============
Weighted average number of common
shares outstanding ................. 10,957,000 11,101,000 11,076,000 11,062,000
============ ============ ============ ============
Diluted earnings per share ........... $ 0.06 $ (0.09) $ 0.20 $ 0.03
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding
11,122,000 12,230,000 11,420,000 12,069,000
============ ============ ============ ============
</TABLE>
See accompanying notes
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ARIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-------------------------
JUNE 30, JUNE 30,
1999 1998
<S> <C> <C>
Net cash provided by (used in) operating activities $ 823 $ (512)
-------- --------
Cash flows from investing activities:
Sales of investments in marketable securities 4,512 11,094
Acquisition of businesses, net of cash acquired (2,498)
Purchases of property and equipment (1,240) (9,513)
-------- --------
Net cash provided by (used in) investing activities 3,272 (917)
Cash flows from financing activities:
Repurchase of common stock (3,073)
Proceeds from exercise of stock options 926 550
Tax benefit of stock options exercised 32 121
-------- --------
Net cash provided by (used in) financing activities (2,115) 671
Net increase (decrease) in cash and cash equivalents 1,980 (758)
Effect of exchange rate changes on cash and cash equivalents (304) 2
Adjustment to conform fiscal year of Barefoot Computer Training Limited
(213)
Cash and cash equivalents at beginning of period 5,225 11,395
-------- --------
Cash and cash equivalents at end of period $ 6,901 $ 10,426
======== ========
</TABLE>
See accompanying notes
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ARIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (In
thousands, except for share data) (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
------------------------
ACCUMULATED
ADDITIONAL OTHER TOTAL
SHARES PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
ISSUED AMOUNT CAPITAL EARNINGS INCOME EQUITY
---------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 11,269,000 $ -- $ 47,347 $ 7,956 $ 11 $ 55,314
Shares issued 107,000 757 757
Stock options exercised 49,000 169 169
Stock redemption (356,000) (3,073) (3,073)
Tax benefit related to dispositions
of stock 32 32
Comprehensive income:
Net income 2,245
Other comprehensive income, net of
tax:
Foreign currency translation
adjustments (304)
Unrealized gains on securities,
net of reclassification adjustment 1
Comprehensive income 1,942
---------- --------- -------- --------- --------- --------
Balance at June 30, 1999 11,070,000 $ -- $ 45,232 $ 10,201 $ (292) $ 55,141
========== ========= ======== ========= ========= ========
</TABLE>
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Disclosure of reclassification amount:
Unrealized holding gain (loss) arising during the period $ 1
Less: reclassification adjustment for gains or losses
Included in net income --
---
Net unrealized gains (loss) on securities $ 1
===
</TABLE>
ARIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
1. The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments consisting only of normal, recurring
adjustments which are necessary to state fairly the condensed consolidated
balance sheets, and condensed consolidated statements of income, statements
of cash flows and statement of changes in shareholders' equity of ARIS
Corporation ("ARIS" or the "Company") as of and for the periods indicated.
ARIS presumes that users of the interim financial information herein have
read or have access to the Company's audited consolidated financial
statements and Management's Discussion and Analysis of Financial Condition
and Results of Operations for the preceding fiscal year and that the
adequacy of additional disclosure needed for a fair presentation, except in
regard to material contingencies or recent significant events, may be
determined in that context. Accordingly, footnote and other disclosures
which would substantially duplicate the disclosures contained in the
Company's Annual Report on Form 10-K filed on March 31, 1999, have been
omitted.
2. On February 28, 1998, the Company completed its acquisition of Barefoot
Computer Training Limited ("Barefoot"), a company that provides information
technology training services in London, England. The acquisition was
accounted for as a pooling-of-interests, in which the Company issued 278,611
shares of common stock in exchange for all of the outstanding share capital
of Barefoot. Accordingly, all periods included in the financial information
furnished herein have been restated to give effect to the acquisition.
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<PAGE> 7
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 the Company's 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.
On April 30, 1998, ARIS, through ARIS (UK) Limited, a wholly-owned
subsidiary, acquired all of the outstanding share capital of MMT Computer
(Reading) Limited, an information technology consulting company located in
Reading, England, in exchange for $2,499,000 cash (pound sterling1,500,000).
The acquisition was accounted for under the purchase method of accounting.
Goodwill resulting from this acquisition is amortized over fifteen years.
On August 10, 1998, ARIS, through ARIS Software, Inc., a wholly-owned
subsidiary, acquired all of the assets of db-Centric, Inc., a decision
support systems administrative software company focusing on distributed data
warehouse management, in exchange for $1,000,000 cash. The acquisition was
accounted for under the purchase method of accounting. Goodwill resulting
from this acquisition is amortized over fifteen years.
3. Basic earnings per share is calculated as income available to common
shareholders divided by the weighted average number of common shares
outstanding during the periods. Diluted earnings per share is based on the
weighted average number of shares of common stock and common stock
equivalents outstanding during the periods, including options and warrants
computed using the treasury stock method. All earnings per share amounts
from prior periods have been restated to conform with the current period
presentation.
The difference between the weighted average number of common shares
outstanding used to calculate basic earnings per share and the weighted
average number of common and common equivalent shares outstanding used to
calculate diluted earnings per share is the incremental shares attributed to
outstanding options and warrants to purchase common stock computed using the
treasury stock method:
<TABLE>
<CAPTION>
For the quarter ended June 30, For the six months ended June 30,
------------------------------ -----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 10,957,000 11,101,000 11,076,000 11,062,000
---------- ---------- ---------- ----------
Effect of dilutive securities:
Warrants -- 187,000 -- 187,000
Options 165,000 942,000 344,000 820,000
---------- ---------- ---------- ----------
165,000 1,129,000 344,000 1,007,000
---------- ---------- ---------- ----------
Weighted average number of
common and common equivalent
shares outstanding 11,122,000 12,230,000 11,420,000 12,069,000
========== ========== ========== ==========
</TABLE>
4. ARIS is engaged in three distinct businesses consisting of information
technology consulting services, information technology training and software
sales. Total revenue by segment represents sales to unaffiliated customers.
Inter-segment sales have been eliminated. Operating profit represents total
revenue less operating expenses. Summarized financial information by
business group for the quarters ended June 30, 1998 and 1999 and the
six-months ended June 30, 1998 and 1999 follows:
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<CAPTION>
CONSULTING TRAINING SOFTWARE
GROUP GROUP GROUP CORPORATE TOTAL
<S> <C> <C> <C> <C> <C>
Quarter ended June 30, 1999:
Revenue $ 18,693,000 $ 9,005,000 $ 2,139,000 $ 29,837,000
Operating profit $ 2,239,000 $ (1,114,000) $ 527,000 $ (673,000) $ 979,000
Quarter ended June 30, 1998:
Revenue $ 15,824,000 $ 10,253,000 $ 3,085,000 $ 29,162,000
Operating profit $ (652,000) $ (181,000) $ 2,001,000 $ (1,979,000) $ (811,000)
</TABLE>
<TABLE>
<CAPTION>
CONSULTING TRAINING SOFTWARE
GROUP GROUP GROUP CORPORATE TOTAL
<S> <C> <C> <C> <C> <C>
Six months ended June 30, 1999:
Revenue $ 36,626,000 $ 18,869,000 $ 4,563,000 $ 60,058,000
Operating profit $ 4,463,000 $ (1,683,000) $ 1,315,000 $ (708,000) $ 3,387,000
Six months ended June 30, 1998:
Revenue $ 29,105,000 $ 19,855,000 $ 5,436,000 $ 54,396,000
Operating profit $ 1,550,000 $ (797,000) $ 3,490,000 $ (3,036,000) $ 1,207,000
</TABLE>
5. In August 1999, ARIS announced the closing of training centers in New York,
Minneapolis and Chicago. These centers had not been profitable during the
six months ended June 30, 1999. ARIS estimates that the costs of closing
these centers will be approximately $5,500,000, including estimated future
payments of $1,000,000 for employee severance and relocation, lease
terminations, termination of contract obligations, a bad debt writeoff of
approximately $500,000, and reductions in carrying value of assets of
$4,000,000, comprised of a write off of $3,000,000 in goodwill and
$1,000,000 in leasehold improvements. The estimated cost of closure will be
charged to expense in the quarter ending September 30, 1999, and the amount
of the charge may vary from ARIS' current estimate. Actual costs of closure
also may vary from ARIS' estimates.
6. Pending Acquisition. On May 18, 1999, the Company announced its intention to
acquire all the outstanding stock of fine.com International Corp., an
e-commerce and web-site development company, with its headquarters located
in Seattle, Washington. The terms of the acquisition, as amended on August
5, 1999, call for the exchange of approximately 1,000,000 shares of the
Company's common stock, plus up to approximately $3,000,000 cash and
additional stock, if necessary, in order to pay a aggregate value of $4.553
per outstanding share of fine.com common stock. The total purchase price for
the outstanding shares would be approximately $12,250,000. In addition,
outstanding options and warrants to purchase common stock of fine.com will
be converted to options to purchase common stock of the Company. The
acquisition is subject to the approval of fine.com's shareholders at a
meeting currently scheduled for August 31, 1999 and certain other
conditions.
7. 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.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes new standards for reporting information about operating
segments in interim and annual financial statements. This statement is
effective for fiscal years beginning after December 15, 1997. The Company
has adopted SFAS No. 131.
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 for hedging activities. If
adopted by the Company, the Company expects that SFAS 133 will have no
material impact on its financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
ARIS' revenue is derived from the sale and delivery of consulting and
training services and sales of licenses and maintenance and support agreements
for software products. Consulting revenue is derived primarily from fees billed
to clients for consulting services. Revenue from contracts that are billed on a
time and materials basis is recognized as services are performed. Revenue from
fixed 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. ARIS bills clients on a monthly or semi-monthly
basis. Where revenue is recognized before an invoice is sent, the revenue in
excess of billings is recorded as work in progress. Occasionally, clients
request that ARIS provide hardware and software in conjunction with consulting
projects. In such cases, ARIS recognizes as revenue only the difference between
its cost and the resale price for the software and hardware.
Training revenue is derived primarily from fees charged to corporate
clients for employee training, fees charged to individual students for open
enrollment classes, fees from curriculum and custom courseware development for
corporate clients and vendors such as Microsoft, fees derived from the licensing
of proprietary courseware to third parties, and fees from performance
improvement consulting and other consulting-based education services. ARIS
provides training at client facilities, at ARIS' training centers, and over the
Internet or corporate intranets. In open enrollment classes, ARIS seeks to fill
each available seat in each scheduled class. ARIS continuously monitors this
fill rate and may cancel or reschedule classes that are under-enrolled.
ARIS 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. ARIS recognizes revenue when the software product has been shipped,
collection is probable and ARIS has no significant obligations remaining to be
performed. ARIS bills clients for software maintenance and support at the
beginning of the contract period and recognizes the related revenue ratably
throughout the term of the contract.
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,
1998.
- - The Company's Quarterly Report on Form 10-Q for the period ended March
31, 1999.
The Company has filed a registration statement on Form S-4 in connection
with its proposed acquisition of fine.com International Corp. Additional
information can be found in that registration statement.
SIGNIFICANT EVENTS
ARIS' training operations were not profitable in the first, second and
fourth quarters of 1998. In December of 1998, ARIS announced a plan to
restructure the training operations in order to improve their efficiency and
profitability. The restructuring included reorganizing the management of the
training division from eight to three regions and consolidating training centers
in cities having multiple centers to improve classroom utilization and reduce
costs. Incident to the restructuring, ARIS 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 and costs and $160,000 associated with other
aspects of restructuring of the training operations. At June 30, 1999,
substantially all of the amount accrued for estimated future payments had been
paid. In addition to the training restructuring, ARIS settled a litigation claim
and expensed $759,000. ARIS recovered $450,000 of the litigation settlement cost
from insurance proceeds.
ARIS' training division continued to be unprofitable for the first six
months of 1999, with an operating loss of $1,683,000. In August 1999, ARIS
announced the closing of training centers in New York, Minneapolis and Chicago.
These centers had not been profitable during the six months ended June 30, 1999.
ARIS estimates that the costs of closing these centers will be approximately
$5,500,000, including estimated future payments of $1,000,000 for employee
severance and relocation, lease terminations, termination of contract
obligations, a bad debt writeoff of approximately $500,000, and reductions in
carrying value of assets of $4,000,000, comprised of a write off of $3,000,000
in goodwill and $1,000,000 in leasehold improvements. The estimated cost of
closure will be charged to expense in the quarter ending September 30, 1999, and
the amount of the charge may vary from ARIS' current estimate. Actual costs of
closure also may vary from ARIS' estimates.
The Chicago center was opened in April 1998 and the New York and
Minneapolis centers were acquired in October 1997 and November 1997,
respectively. Revenue from these centers was $7,438,000 or 18% of total training
revenue for the year ended December 31, 1998, and $2,400,000 or 13% of total
training revenue for the six months ended June 30, 1999.
As of July 1, 1999, ARIS transferred the assets of its United States
training operations into a wholly-owned subsidiary, and aligned its training
divisions worldwide under common management. ARIS is exploring strategic
alternatives for its training business including one or more of the following:
- the possible sale and divestment of some or all of its training
operations;
- additional restructuring, including the possible closure of additional
offices; or
- the closure of ARIS' training center operations in their entirety.
If ARIS' training operations are sold, restructured or discontinued, in
whole or in part, ARIS may be required to take a significant charge to its
earnings for the quarter in which the action occurs.
ARIS recently announced its intention to focus on offering solutions that
extend a client's information systems so that the client can communicate and
collaborate with customers, suppliers and business partners over the Internet
and engage in electronic commerce. In connection with this initiative, ARIS
intends to evaluate the continuing role of its training and software businesses,
its orientation toward particular software vendors, and its vendor-specific
consulting services to determine whether and how each could be integrated to
provide integrated information systems and electronic commerce solutions for
clients.
ARIS plans to devote significant personnel and financial resources and
management attention to this initiative. It is likely that the initiative will
not result in immediate increases in revenue that offset expenses incurred. ARIS
may allocate resources away from revenue-producing activities to manage and plan
the initiative and to participate in developing additional capacity to offer
Internet-based and electronic commerce solutions. The focus on the initiative
also may lead to the de-emphasis of other existing services and software
offerings, or even in ARIS ceasing to offer some existing services or products,
resulting in reduced revenue and the possibility of restructuring or other
charges to income. Accordingly, ARIS' revenues and profits in the short run may
be adversely affected, and its ability to effectively complete existing
consulting assignments within planned budgets may be reduced.
The degree to which this initiative succeeds will depend in part on the
completion of the acquisition of fine.com. Whether or not the acquisition of
fine.com is completed, it is uncertain whether this strategy will increase ARIS'
revenue or profits from consulting services. If the acquisition of fine.com is
completed, ARIS may incur significant expenses integrating the business of
fine.com with its own, which could adversely affect ARIS' profitability during
the remainder of 1999 and thereafter.
In the year ended December 31, 1998 and the six months ended June 30, 1999,
ARIS' software operations had revenue of $11,460,000 and $4,563,000,
respectively, and operating profits of $6,545,000 and $1,315,000, respectively.
Oracle has recently released a product having some of the features of
NoetixViews, and has announced that it intends to bundle this product, without
additional charge, with its release of Oracle 11i. Sales of NoetixViews account
for substantially all of ARIS' software revenues. Oracle's release of this
competing product and its marketing and bundling strategy could have a material
adverse effect on sales of NoetixViews and the results of operations of ARIS.
RECENT ACQUISITIONS
In addition to internal growth, ARIS has grown through strategic
acquisitions of complementary businesses. In February 1998, ARIS acquired
Barefoot Computer Training Limited and in June 1998, ARIS acquired InTime
Systems International Inc. These acquisitions were accounted for as poolings of
interests, and ARIS's financial results have been restated as if it had owned
Barefoot and InTime during all periods presented. In addition to Barefoot and
InTime, ARIS acquired two companies in 1998, four companies in 1997 and three
companies in 1996.
PENDING ACQUISITION
On May 18, 1999, the Company announced its intention to acquire all the
outstanding stock of fine.com International Corp., an e-commerce and web-site
development company, with its headquarters located in Seattle, Washington. The
terms of the acquisition, as amended on August 5, 1999, call for the exchange of
approximately 1,000,000 shares of the Company's common stock, plus up to
approximately $3,000,000 cash and additional stock, if necessary, in order to
pay a aggregate value of $4.553 per outstanding share of fine.com common stock.
The total purchase price for the outstanding shares would be approximately
$12,250,000. In addition, outstanding options and warrants to purchase common
stock of fine.com will be converted to options to purchase common stock of the
Company. The acquisition is subject to the approval of fine.com's shareholders
at a meeting currently scheduled for August 31, 1999 and certain other
conditions.
ARIS STOCK REPURCHASE
In January 1999, the ARIS board of directors authorized the repurchase
of up to 500,000 shares of ARIS common stock for the purpose of making
additional shares available to ARIS' 1997 Stock Option Plan and its 1998 Stock
Purchase Plan. An aggregate of 355,600 shares were purchased for $3,073,000 at
an average purchase price of $8.64 per share. In April 1999, the ARIS board
of directors formally terminated any further purchases of ARIS' common stock
pursuant to the repurchase authorization.
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All statements, trend analysis and other information contained herein
relative to markets for the Company's services and products and trends in
revenue, gross margin and anticipated expense levels, as well as other
statements including words such as "seek," "anticipate," "believe," "plan,"
"estimate," "expect," "intend," or statements that an event or result "will,"
"may," "could" or "might" occur or be achieved, and other similar expressions,
constitute forward-looking statements. These forward-looking statements are
subject to risks, uncertainties and other factors that may cause the Company's
actual results of operations to differ materially from those contained in the
forward-looking statements.
Some of these risks, uncertainties and other factors are uncertainty as to
the completion of the acquisition of fine.com, the possibility that ARIS and
fine.com will not successfully integrate their businesses, the possibility ARIS
will incur significant integration costs in connection with the merger, the risk
that ARIS' strategy of focusing on solutions that integrate Internet-based and
electronic commerce applications with internal information systems will not be
successful, uncertainties related to the performance and future of ARIS'
training business, the risk to the NoetixViews software product posed by
Oracle's release of a competing product, ARIS' dependence on key management and
technical personnel and competition for hiring and retaining those personnel,
risks relating to relying in the growth and viability of the Internet as a
medium of communication and commerce, ARIS uncertain ability to manage growth,
risks undertaken by ARIS in bidding fixed price contracts, risks posed by
intense competition, uncertainty as to need for and availability of additional
financing, year 2000 risks and risks relating to the business of fine.com.
Forward-looking statements are based on management's estimates, opinions
and projections as of the dates the statements are made. ARIS does not assume
any obligation to update forward-looking statements should management's
estimates, opinions or projections change.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Total Revenue. Total revenue increased $5,662,000 to $60,058,000 for the
six months ended June 30, 1999 from $54,396,000 for the six months ended June
30, 1998, representing a 10% increase. The increase in total revenue is a result
of an increase in revenue for ARIS' consulting business, which offset decreases
in revenue in the training and software businesses.
Consulting Revenue. Consulting revenue increased $7,521,000 to $36,626,000
for the six months ended June 30, 1999 from $29,105,000 for the six months ended
June 30, 1998, representing a 26% increase. Consulting revenue increased as a
result of an overall increase in the level of consulting activity and the
acquisition of MMT Company (Reading) Limited in April 1998. ARIS employed or
contracted for the services of an average of 389 full-time consultants and
project managers during the six months ended June 30, 1999 compared to 277
during the six months ended June 30, 1998.
Training Revenue. Training revenue decreased $986,000 to $18,869,000 for the
six months ended June 30, 1999 from $19,855,000 for the six months ended June
30, 1998, representing a 5% decrease. The decrease was entirely attributable to
lower training revenues in the quarter ended June 30, 1999 than in the quarter
ended June 30, 1998. ARIS offered 4,423 classes and 9,840 training days in the
six months ended June 30, 1999 as compared to 2,978 classes and 8,314 training
days in the six months ended June 30, 1998. Although ARIS held more classes
during the first six months for 1999 compared to 1998, a large number of the
classes were attributable to a single contract in the UK for end user training
at low rates. The number of classes and training days in the US decreased
approximately 15% during the first six months of 1999 compared to the same
period in 1998.
Software Revenue. Software revenue decreased $813,000 to $4,563,000 for the
six months ended March 31, 1999 from $5,436,000 in the six months ended June 30,
1998, representing a decrease of 16%. The decrease in revenue is primarily
attributable to reduced sales of the NoetixViews suite of products. Sales of the
TAMS/O software product were also lower. ARIS believes the decrease in software
sales is due to a general slowdown in enterprise resource planning system sales,
which may be due in part to some customers' desire not to purchase these systems
while dealing with the Y2K issue or to other customers' desire to focus on
Internet-based and electronic commerce applications. Partial saturation of the
potential market due to NoetixViews' successful penetration of the Oracle
customer base also may be a factor.
Cost of Sales. Cost of sales consists primarily of salaries and employee
benefits for consultants, project managers and instructors; subcontractor fees;
non-reimbursable travel expenses related to consulting and training activities,
and the cost of production of software modules and amortization of capitalized
software costs. Cost of sales increased $4,241,000 to $29,936,000 in the six
months ended June 30, 1999 from $25,695,000 in the six months ended June 30,
1998. The increase in cost of sales is primarily a reflection of the increase in
sales and the activities associated with sales. Cost of sales as a percentage of
sales increased from 47% for the six months ended June 30, 1998 to 50% for the
six months ended June 30, 1999. The increase is primarily attributable to a
relative decrease in sales of software products which have a lower percentage
cost of sales than do training and consulting. A portion of the increase is also
attributable to a relative increase in the proportion of consulting sales and
costs. Consulting cost of sales include more labor and benefits costs as a
percentage of revenue than do either training or software operations.
Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expense consists of salaries and employee benefits for
executive, managerial, administrative and sales personnel; facility leases;
amortization of capitalized computer hardware and equipment costs; software
license fees; legal, accounting and other professional fees, and travel and
business development costs. SG&A expenses increased 18% from $21,568,000 in the
six months ended June 30, 1998, to $26,305,000 in the six months ended June 30,
1999, and increased as a percentage of revenue from 40% to 44%
SG&A expenses increased due to the acquisition of MMT and the opening of an
Oracle Consulting practice in the United Kingdom, the opening of a telesales
office and two training offices, increases in selling commissions for the
consulting sales staff and increases in ARIS' internal information technology
staff and software to support personnel growth and new offices and functions.
Amortization of Intangible Assets. Amortization of intangibles was $271,000
during the six months ended June 30, 1998 and $430,000 during the six months
ended June 30, 1999. The increase in amortization of intangibles arises as a
result of an increase in goodwill attributable to companies acquired during
1998.
Charges Related to Acquisitions. Acquisition-related costs include
professional fees to attorneys, accountants, and advisors, compensation charges
for non-qualified stock option exercises, employee severance and retention
payments, and costs related to the integration of an acquired business. During
the six months ended June 30, 1998, acquisition-related costs were $5,655,000.
ARIS incurred no acquisition-related costs in the six months ended June 30,
1999.
Other Income, Net. Other income, net, consists primarily of interest income
on cash and cash equivalents and finance charges due on accounts receivable.
Other income decreased from $695,000 for the six months ended June 30, 1998 to
$357,000 for the six months ended June 30, 1999. The decrease is primarily
attributable to a decrease in investment yield on proceeds from the initial
public offering completed on June 19, 1997.
Income Tax Expense. Income tax expense decreased from $1,553,000 in the six
months ended June 30, 1998 to $1,498,000 in the six months ended June 30, 1999.
As discussed above, ARIS incurred acquisition-related expenses in the six months
ended June 30, 1998 and did not incur any such expenses in the comparable period
in 1999. A significant portion of these acquisition-related expenses are not
deductible in the determination of taxable income and accordingly, the resulting
tax expense for the six months ended June 30, 1998 is higher. ARIS estimates
that exclusive of the effect of acquisition-related charges, the effective tax
rate would have been 40% in the six months ended June 30, 1998 and 1999.
Net Income. Net income increased $1,899,000 to $2,245,000 for the six
months ended June 30, 1999, from $346,000 for the six months ended June 30,
1998. Exclusive of acquisition-related expenses and related taxes, net income
decreased from $2,327,000 and 8% of revenue during the six months ended June 30,
1998 to $2,245,000 and 4% of revenue for the six months ended June 30, 1999.
Page 10
<PAGE> 11
The acquisition will be accounted for as a purchase. The acquisition is subject
to approval by the shareholders of fine.com at a meeting currently scheduled
for August 31, 1999.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Total Revenue. Total revenues increased $676,000 to $29,838,000 for the
quarter ended June 30, 1999 from $29,162,000 for the quarter ended June 30,1998,
representing a 2% increase. During calendar year 1998 and through June 30, 1999,
the Company has acquired the following companies: Barefoot on February 28, 1998;
MMT on April 30, 1998; and InTime on June 30, 1998. The figures have been
restated as though Barefoot and InTime had been owned by ARIS throughout the
periods reported.
Consulting Revenue. Consulting revenues increased $2,870,000 to
$18,693,000 for the quarter ended June 30, 1999 from $15,824,000 for the quarter
ended June 30, 1998 representing an 18% increase. Consulting revenue increased
as a result of an overall increase in the level of consulting activity. The
Company employed or contracted for the services of an average of 391 full-time
consultants and project managers during the quarter ended June 30, 1999
compared to 312 during the quarter ended June 30, 1998.
Training Revenue. Training revenue decreased $1,248,000 to $9,005,000 for
the quarter ended June 30, 1999 from $10,253,000 for the quarter ended June 30,
1998 representing a 12% decrease. Revenues decreased as a result of a
significant decrease in the number of private classes provided corporate
clients. The Company offered 1,781 classes and 4,455 training days in the
quarter ended June 30, 1999 as compared to 1,737 classes and 4,767 training days
in the quarter ended June 30, 1998.
Software Revenue. Software revenue decreased $946,000 to $2,139,000 for the
quarter ended June 30, 1999 from $3,085,000 in the quarter ended June 30, 1998,
representing a decrease of 31%. The decrease in revenue is attributable to
decreased sales of the NoetixViews suite of products by ARIS Software, Inc.
("ASI"), the Company's wholly-owned subsidiary. The decrease in sales is due to
a general slowdown of ERP sales and partial saturation of the potential market
due to the successful penetration of the NoetixViews product into the Oracle ERP
customer base. The Company's TAMS/O product, which was acquired from InTime
Systems and resold by Oracle, also decreased to $364,000 for the quarter ended
June 30, 1999 compared to $488,000 in the quarter ended June 30, 1998.
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<PAGE> 12
Cost of Sales. Cost of sales increased $1,007,000 to $15,091,000 in the
quarter ended June 30, 1999 from $14,084,000 in the quarter ended June 30, 1998.
Cost of sales as a percentage of sales increased from 48% for the quarter
ended June 30, 1998 to 51% for the quarter ended June 30, 1999. The increase in
cost of sales is primarily a reflection of the decrease in software sales.
Software sales have a lower percentage of costs of sales compared to the
Company's consulting and training operations. Cost of sales as a percentage of
sales for consulting and training was 53% for the quarter ended June 30, 1998
and the quarter ended June 30, 1999.
Selling, General and Administrative Expense. SG&A expense consists of
salaries and employee benefits for executive, managerial, administrative and
sales personnel; facility leases; amortization of capitalized computer hardware
and equipment costs; software license fees, travel and business development
costs. SG&A expense increased $2,211,000 to $13,551,000 for the quarter ended
June 30, 1999 from $11,340,000, for the quarter ended June 30, 1998,
representing an increase of 20%. SG&A expenses increased due to growth in the
number of management, sales and administrative staff from 346 at June 30, 1998
to 365 at June 30, 1999 and the Company's increased focus on recruiting, sales
staffing and marketing. Additionally, SG&A expenses increased due to the
acquisition of MMT and the opening of an Oracle Consulting practice in the
United Kingdom, the opening of a telesales office and a training office,
increases in selling commissions for the consulting sales staff and increases in
ARIS' internal information technology staff and software to support personnel
growth and new offices and functions.
Amortization of Intangible Assets. Amortization of intangibles was
$150,000 for the quarter ended June 30, 1998 and $216,000 during the quarter
ended June 30, 1999. The increase in amortization of intangibles arises as a
result of an increase in goodwill attributable to companies acquired during
1998.
Charges Related to Acquisitions. Acquisition-related costs include
professional fees to attorneys, accountants, and advisors, compensation charges
for non-qualified stock option exercises, employee severance and retention
payments, and costs related to the integration of an acquired business. During
the quarter ended June 30, 1998, acquisition-related costs were $4,399,000. The
Company incurred no acquisition costs in the quarter ended June 30, 1999.
Other Income, Net. Other income, net, consists primarily of interest
income on cash and cash equivalents, partially offset by interest expense
associated with short-term borrowings. Other income, net, decreased $91,000 from
$281,000 for the quarter ended June 30, 1998 to $190,000 for the quarter ended
June 30, 1999. The decrease in interest income is due to the lower amount of
cash during the quarter ended June 30, 1999 compared to the same period last
year.
Income Tax Expense. Income tax expense decreased $5,000 to $518,000 in
the quarter ended June 30, 1999 from $523,000 for the quarter ended June 30,
1998. The effective tax rate for the quarter ended June 30, 1999 was 44%. The
higher tax rate for the quarter ended June 30, 1999 compared to
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<PAGE> 13
historical tax rate is attributable to impact of non-deductible expenses as a
percentage of the total taxable income. For the quarter ended June 30, 1998, the
tax expense on a pretax loss is primarily due to portions of the
acquisition-related charges that are not deductible from federal and certain
state income taxes. Accordingly, there was not a tax benefit at statutory rates
for all of the loss in the quarter ended June 30, 1998. As a percentage of
revenues, income tax expense decreased from 1.8% for the quarter ended June 30,
1998 to 1.7% for the quarter ended June 30, 1999.
Net Income. Net income increased to $652,000 for the quarter ended June
30, 1999 compared to a loss of $1,053,000 for the quarter ended June 30, 1998,
primarily as a result of acquisition-related expenses. Exclusive of acquisition
related expenses and related income taxes, net income decreased from $2,320,000
to $518,000 for the quarters ended June 30, 1998 and 1999, respectively.
Page 13
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LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999 the Company had working capital of $29,365,000
including cash and cash equivalents and marketable debt securities of
$8,903,000. As of December 31, 1998, ARIS had working capital of $28,700,000
including cash and cash equivalents and marketable debt securities of
$11,738,000. ARIS intends to finance its working capital needs, as well as
purchases of additional property and equipment for its operations, from cash
generated by operations and available cash.
Net cash in the amount of $1,676,000 was provided by all activities in the
six months ended June 30, 1999. Operating activities provided cash in the amount
of $823,000. Investing activities provided $3,272,000 of cash, primarily from
the sale of marketable securities in the amount of $4,512,000, a portion of
which was used to purchase $1,240,000 of plant and equipment. Financing
activities used a total of $2,115,000 in the six months ended June 30, 1999.
ARIS paid $3,073,000 to purchase its own stock and received $926,000 from the
exercise of stock options.
Net cash in the amount of $969,000 was used by all activities in the six
months ended June 30, 1998. Operating activities used $512,000. Investing
activities used $917,000. Investing activities included the sale of marketable
securities for $11,094,000, and the use of cash for business acquisitions in the
amount of $2,498,000 and for purchase of property and equipment for $9,513,000
(including ARIS' headquarters office building located in Bellevue, WA).
Financing activities provided $671,000 in cash including $850,000 from the
exercise of options.
At June 30, 1999, ARIS had accounts receivable of $27,388,000 and 84 days
sales outstanding. At June 30, 1998, accounts receivable were $21,850,000 and 68
days sales outstanding. The increase in days sales outstanding is attributable
to over-age accounts acquired in the Company's merger with InTime on June 30,
1998 as well as an increase in accounts receivable from government contracts
which typically pay more slowly than commercial accounts.
ARIS has a $10 million line of credit with US Bank. The credit line
provides funds for general business purposes as well as the acquisition of
companies, and is secured by substantially all of ARIS' assets. The credit line
contains various affirmative and negative covenants, which require, among other
things, maintenance of a certain level of working capital and a certain current
ratio. ARIS is in compliance with all requirements of the credit line. At June
30, 1999 and December 31, 1998 there were no borrowings against the credit line.
The credit line expires, if not earlier renewed on June 1, 2000.
ARIS has financed its acquisitions of businesses through cash generated by
operating activities and its initial public offering, promissory notes and the
issuance of warrants and common stock. ARIS believes that it should be able to
satisfy the cash requirements of its existing business and the business of
fine.com from its existing cash resources, its bank credit facilities and cash
flow from operations as well as cash acquired in the merger with fine.com.
However, if results of operations after the merger are less favorable than ARIS
now anticipates or if unanticipated costs or expenses are incurred, ARIS may
require additional financing. ARIS also may encounter opportunities for
acquisitions of businesses or products, joint ventures or other business
initiatives that may require the commitment of cash in excess of ARIS' available
resources. If ARIS requires cash in addition to its available resources, ARIS
may have to obtain additional equity or debt financing. Financing may not be
available on a timely basis, on favorable terms or at all. If ARIS obtains
financing through the sale of equity securities, holders of ARIS common stock
may experience significant dilution. Failure to obtain financing if and when
needed could require ARIS to restrict its operations or forego available
opportunities.
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<PAGE> 15
YEAR 2000 READINESS DISCLOSURE
The following disclosure shall be considered ARIS' Y2K Readiness Disclosure
to the maximum extent allowed under the Year 2000 Information and Readiness
Disclosure Act. ARIS has developed a phased Y2K readiness plan to help identify
and resolve Y2K issues associated with the its internal systems and the services
it provides. The plan includes development of corporate awareness, assessment,
implementation, validation testing and contingency planning.
Even if ARIS' systems are fully Y2K compliant, if any of its material
suppliers or vendors are not fully Y2K compliant, it is possible that a system
failure or miscalculations could cause disruptions to ARIS' operations or
potential problems with its product and service offerings. Although assessment
and testing is ongoing, ARIS believes that its software products, ARIS DFRAG,
TAMS, and the NoetixViews suite of products are Y2K compliant.
ARIS' consulting engagements often involve the implementation of software
applications that replace existing systems of the client that are not Y2K
compliant. In the event that ARIS is not able for any reason to meet its
contractual obligations with a client, ARIS could be found liable for damages as
a result of that client's Y2K exposure. Such damages could include costs
associated with remediating the client's existing systems to make them Y2K
compliant, and any other direct, indirect, consequential or incidental damages.
ARIS endeavors to negotiate appropriate limitations of liability and disclaimers
regarding its Y2K and other liability in its agreements with clients. Although
ARIS does not carry any endorsement or policy specifically written for Y2K
liability, ARIS believes that its insurance includes adequate coverage for
damages that may result from any Y2K-related claim. However, ARIS might be found
liable for Y2K-related damages as a result of services performed on behalf of
clients, and ARIS' insurers might deny coverage of liabilities based on
Y2K-related claims.
ARIS has begun an assessment of its information technology and
non-information technology systems, material client and other third party
relationships, and service and product offerings to determine whether ARIS faces
any business or financial risk from the Y2K issue. ARIS' reliance on key
suppliers, and therefore on the proper function of their information technology
and non-information technology systems, means that their failure to address Y2K
issues could have a material impact on ARIS' operations and financial results.
Through its assessment, ARIS has begun to identify areas where it faces any
business or financial risk, to identify potential solutions to address those
risks, and to implement the solutions or develop a comprehensive contingency
plan in a timely manner in an effort to minimize its Y2K exposure. In addition
to its internal systems, ARIS relies on third party relationships in the conduct
of its business. For example, ARIS relies on the services of the landlords of
its facilities, telecommunication companies, banks, utilities, and commercial
airlines. ARIS intends to devise contingency plans to ameliorate the negative
effects on it in the event the Y2K issue results in the unavailability of
services. Any contingency plans ARIS develops may not prevent service
interruption on the part of one or more of ARIS' third party vendors or
suppliers from having a material adverse effect on ARIS' business, results of
operations or financial condition. The failure on the part of the accounting
systems of ARIS' clients due to Y2K issues could result in a delay in the
payment of invoices issued by ARIS for services and expenses. A failure of the
accounting systems of a significant number of its clients would have a material
adverse effect on ARIS' business, results of operations and financial condition.
ARIS has completed its risk assessment of its information technology
systems and expects to complete its assessment of ARIS' other Y2K business and
financial risks during the third quarter of 1999, including an assessment of the
Y2K exposure and readiness of material suppliers and vendors with whom ARIS does
business. ARIS has completed its upgrade to a Y2K compliant version of both its
proprietary internal accounting software and its proprietary time and billing,
class registration and operational software. If further tests of the information
technology and non-information technology systems, material third party
relationships, and service and product offerings reveal other Y2K compliance
problems, or any of ARIS' material third party suppliers or vendors do not
successfully and in a timely manner achieve Y2K compliance, ARIS' business or
operations could be adversely affected.
ARIS estimates that costs incurred through March 31, 1999 on the Y2K issue
are approximately $138,000, and that the remaining cost of its Y2K preparedness
program after July 30, 1999 should not exceed $75,000.
The foregoing discussion of ARIS' Y2K readiness contains forward-looking
statements including estimates of the timeframes and costs for addressing the
known Y2K issues confronting ARIS and is based on management's current
estimates, which were derived using numerous assumptions. There can be no
assurance that these estimates will be achieved and actual events and results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, ARIS' ability
to identify and correct all Y2K problems and the success of third parties with
whom ARIS does business in addressing their Y2K issues.
Page 15
<PAGE> 16
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk to ARIS is the effect of changes in foreign
currency exchange rates. Income from the foreign operations is frequently
denominated in foreign currencies, thereby creating exposures to changes in
exchange rates. This foreign currency exposure is monitored by ARIS as an
integral part of the overall risk management program, which recognizes the
unpredictability of financial markets and seeks to reduce the potentially
adverse effect on ARIS' results. The effect of changes in exchange rates on
earnings has been immaterial relative to other factors that also affect
earnings, such as sales and operating margins.
Page 16
<PAGE> 17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved from time to time in routine legal proceedings
incidental to its business. As of June 30, 1999, the Company was not involved in
any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
In connection with the Company's initial public offering (the
"Offering") of its Common Stock, the Company filed a Registration Statement on
Form S-1 on April 18, 1997 (Registration No. 333-25409), as amended (the
"Registration Statement"), pursuant to which the Company registered 2,320,800
shares of its Common Stock, of which 2,300,000 shares were sold by the Company,
and the remaining 20,800 shares were sold by certain selling shareholders. The
Registration Statement was declared effective by the Securities and Exchange
Commission on June 17, 1997. Deutsche Morgan Grenfell was the managing
underwriter of the Offering. The Offering commenced on June 18, 1997, and
terminated following the sale of all of the securities registered under the
Registration Statement. The Common Stock was offered, and sold, to the public at
$15.00 per share, for aggregate consideration of $34,812,000, of which the
Company received gross proceeds of $32,085,000, the selling shareholders
received gross proceeds of $290,160, and the remaining $2,436,840 was allocated
as the underwriting discount.
From the effective date of the Registration Statement through June 30,
1999, the Company has incurred an estimated $3,255,000 in expenses for the
Company's account in connection with the issuance and distribution of the Common
Stock, including underwriting discounts and commissions ($2,415,000) and other
expenses ($840,000). No finders' fees or expenses were paid to or for the
underwriters. The Company believes that none of these payments were made,
directly or indirectly, to: (i) directors or officers of the Company, or their
associates; (ii) persons owning ten percent or more of any class of equity
securities of the Company; or (iii) affiliates of the Company.
From the effective date of the Registration Statement through June 30,
1999, the Company has applied $4,000,000 of the Offering proceeds to the
repayment of the Company's revolving credit line. The Company has used $19.2
million of the Offering proceeds for working capital and expansion of the
Company's business, including acquiring and investing in complementary
businesses and the purchase of the Company's headquarters in Bellevue,
Washington. The Company believes that none of these payments were made, directly
or indirectly, to: (i) directors or officers of the Company, or their
associates; (ii) persons owning ten percent or more of any class of equity
securities of the Company; or (iii) affiliates of the Company. To date, the
Company believes that it has used the Offering proceeds in a manner consistent
with the use of proceeds described in the Registration Statement. The remaining
$8.9 million of the Offering proceeds is held in cash or invested in short term
marketable debt securities and money market funds.
Page 17
<PAGE> 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of ARIS Corporation was held on May
24, 1999. A total of 10,155,739 shares of the Company's Common Stock were
represented in person or by proxy at the meeting, which comprised 92.77% of the
total number of shares of the Company's Common Stock outstanding as of April 1,
1999, the record date for the meeting. The following three proposals were
considered and voted on by the shareholders of the Company.
Election of Directors. At the meeting, Kenneth A. Williams and Barry L.
Rowan were re-elected to serve as a Class II directors of the Company, each for
a term of three years until the Company's Annual Meeting of Shareholders in
2002. Mr. Williams received 10,105,855 votes, which represents 99.51% of the
shares present at the meeting in person or by proxy and Mr. Rowan received
10,100,526 votes, which represents 99.46% of the shares present at the meeting
in person or by proxy. Continuing as directors of the Company are Paul Y. Song
and Bruce R. Kennedy, both Class I directors whose terms expire in 2000 and
Kendall W. Kunz, the sole Class II director whose term expires in 2001.
Amendment to 1997 Stock Option Plan. The Company's shareholders approved
an amendment to the Company's 1997 Stock Option Plan to increase the number of
shares available for issuance under the plan from 2,000,000 to 2,225,000. Of the
votes represented at the meeting, 9,093,175 votes were cast in favor of the
amendment, 1,049,714 votes were cast against the amendment, and 804,808 votes
abstained or were withheld from voting.
1998 Employee Stock Purchase Plan. The Company's shareholders approved
an amendment to the Company's 1998 Employee Stock Purchase Plan to increase the
number of shares available for issuance under the plan from 300,000 to 500,000
shares. Of the votes represented at the meeting, 9,842,186 votes were cast in
favor of the amendment, 301,265 votes were cast against the amendment, and
804,246 votes abstained or were withheld from voting.
ITEM 5. OTHER INFORMATION
None.
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<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
See Exhibit Table on page 23.
(B) REPORTS ON FORM 8-K
None.
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<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated this 6th day of ARIS Corporation
August, 1999.
By: /s/ Thomas W. Averill
---------------------------------
Thomas W. Averill
Vice President, Finance;
Chief Financial Officer
(Principal Financial and
Accounting Officer and Duly
Authorized Officer)
Page 20
<PAGE> 21
EXHIBITS
<TABLE>
<CAPTION>
PAGE EXHIBIT NUMBER EXHIBIT NAME
- ---- -------------- ------------
<S> <C> <C>
2.1 An Amended and Restated Agreement and
Plan of Merger for the acquisition
of fine.com International Corp. dated
as of August 5, 1999, among ARIS
Corporation, fine.com International
Corp., ARIS Interactive, Inc., Daniel
M. Fine, Frank Hadam and Herbert L.
Fine, was filed by ARIS Corporation
with the Securities and Exchange
Commission as Exhibit 2.4 to the
Company's registration statement on
Form S-4 (No. 333-84595) on August 5,
1999, and is incorporated herein by
reference.
27.1 Financial Data Schedule
</TABLE>
Page 21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,901
<SECURITIES> 2,002
<RECEIVABLES> 28,603
<ALLOWANCES> (1,215)
<INVENTORY> 0
<CURRENT-ASSETS> 41,092
<PP&E> 15,623
<DEPRECIATION> 0
<TOTAL-ASSETS> 67,155
<CURRENT-LIABILITIES> 11,727
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 55,141
<TOTAL-LIABILITY-AND-EQUITY> 67,155
<SALES> 0
<TOTAL-REVENUES> 60,058
<CGS> 29,936
<TOTAL-COSTS> 56,671
<OTHER-EXPENSES> (356)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,743
<INCOME-TAX> 1,498
<INCOME-CONTINUING> 2,245
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,245
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.20
</TABLE>
