<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 March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____ to ____
--------------
Commission File Number 000-22649
ARIS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
WASHINGTON 91-1497147
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification
organization) Number)
2229 - 112TH AVENUE N.E. (425) 372-2747
BELLEVUE, WASHINGTON 98004-2936 (Registrant's telephone number,
(Address of principal executive office) including area code)
</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
May 1, 2000 was 12,859,304.
- --------------------------------------------------------------------------------
<PAGE> 2
ARIS CORPORATION
FORM 10-Q
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
a) Condensed Consolidated Balance
Sheets as of March 31, 2000 and
December 31, 1999 3
b) Condensed Consolidated Statements of
Operations for the Quarters Ended
March 31, 2000 and 1999 4
c) Condensed Consolidated Statements of
Cash Flows for the Quarters Ended
March 31, 2000 and 1999 5
d) Condensed Consolidated Statement of
Changes in Shareholders' Equity as
of March 31, 2000 6
e) Notes to Condensed Consolidated
Financial Statements 6-8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-14
Item 3 Qualitative and Quantitative Disclosures
About Market Risk 14
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of 15
Security Holders
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
Page 2
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- -----------
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,564 $ 10,500
Accounts receivable, net of allowance for
doubtful accounts of $3,031 and $2,497 26,976 27,600
Other current assets 9,841 8,608
-------- --------
Total current assets 45,381 46,708
Property and equipment, net 13,249 14,833
Intangible and other assets, net 10,165 13,041
-------- --------
Total assets $ 68,795 $ 74,582
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 2,711 $ 3,056
Accrued liabilities 7,256 8,480
Deferred revenue 3,536 2,366
-------- --------
Total current liabilities 13,503 13,902
-------- --------
Deferred income taxes 330 546
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized,
none issued and outstanding -- --
Common stock, no par value; 100,000,000 shares
authorized; 12,857,484 issued and outstanding -- --
Additional paid-in-capital 56,322 54,904
Retained (deficit) earnings (1,073) 5,433
Accumulated other comprehensive income (loss) (287) (203)
-------- --------
Total shareholders' equity 54,962 60,134
-------- --------
Total liabilities and shareholders' equity $ 68,795 $ 74,582
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 4
ARIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data) (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
--------------------------
MARCH 31, MARCH 31,
2000 1999
-------- --------
<S> <C> <C>
Revenue, net:
Consulting ...................................... $ 15,495 $ 17,932
Training ........................................ 7,481 9,864
Software ........................................ 1,801 2,424
-------- --------
Total revenue ................................ 24,777 30,220
Cost of revenue ................................... 14,568 14,845
-------- --------
Gross profit ................................. 10,209 15,375
Selling, general and administrative expenses ...... 14,207 12,790
Reorganization costs .............................. 4,000 --
Amortization of intangible assets ................. 995 178
-------- --------
Income (loss) from operations ................ (8,993) 2,407
Other income, net ................................. 203 166
-------- --------
Income (loss) before income tax .............. (8,790) 2,573
Income tax expense (benefit) ...................... (2,284) 980
-------- --------
Net income (loss) ................................. $ (6,506) $ 1,593
======== ========
Basic earnings (loss) per share ................... $ (0.51) $ 0.14
======== ========
Weighted average number of common shares - Basic .. 12,780 11,227
======== ========
Diluted earnings (loss) per share ................. $ ( 0.51) $ 0.14
======== ========
Weighted average number of common and common
potential shares - Diluted ................... 12,780 11,750
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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Page 4
<PAGE> 5
ARIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
--------------------------
MARCH 31, MARCH 31,
2000 1999
-------- --------
<S> <C> <C>
Net cash (used in) provided by operating activities .... $ (2,761) $ 291
-------- --------
Cash flows from investing activities:
Sales of investments in marketable securities ....... -- 4,506
Purchases of property and equipment ................. (509) (473)
-------- --------
Net cash (used in) provided by investing activities . (509) 4,033
-------- --------
Cash flows from financing activities:
Repurchase of Common Stock .......................... -- (3,073)
Proceeds from issuance of Common Stock .............. 457 --
Proceeds from exercise of stock options ............. 695 125
Tax benefit of stock options exercised .............. 266 27
-------- --------
Net cash provided by (used in) financing activities . 1,418 (2,921)
-------- --------
Net (decrease) increase in cash ........................ (1,852) 1,403
Effect of exchange rate changes on cash and cash
equivalents ..................................... (84) (214)
Cash and cash equivalents at beginning of period ....... 10,500 5,225
======== ========
Cash and cash equivalents at end of period ............. $ 8,564 $ 6,414
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- --------------------------------------------------------------------------------
Page 5
<PAGE> 6
ARIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except for share data) (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ACCUMULATED
OTHER
ADDITIONAL RETAINED COMPREHENSIVE TOTAL
SHARES PAID-IN (DEFICIT) INCOME SHAREHOLDERS'
ISSUED AMOUNT CAPITAL EARNINGS (LOSS) EQUITY
---------- -------- ------------ ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 12,646,000 $ -- $ 54,904 $ 5,433 $ ( 203) $ 60,134
Shares issued under employee stock
purchase plan 146,000 695 695
Stock options exercised 65,000 457 457
Tax benefit related to stock option 266 266
exercises
Comprehensive income (loss):
Net income (6,506)
Other comprehensive income (loss),
net of tax:
Foreign currency translation
adjustments (84)
Comprehensive income (loss) (6,590)
========== ======== ============ =========== ============= ==============
Balance at March 31, 2000 12,857,000 $ -- $ 56,322 $ (1,073) $ (287) $ 54,962
========== ======== ============ =========== ============= ==============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
ARIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
1. The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments consisting only of normal, recurring
adjustments which are necessary to state fairly the condensed consolidated
balance sheets, and condensed consolidated statements of operations, of cash
flows and 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.
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<PAGE> 7
2. Basic earnings per share is calculated as income available to common
shareholders divided by the weighted average number of Common Stock
outstanding during the periods. Diluted earnings per share is based on the
weighted average number of shares of Common Stock and potential common stock
outstanding during the periods, including options and warrants computed
using the treasury stock method.
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 potential shares outstanding used to
calculate diluted earnings per share is the incremental shares attributed to
outstanding options and warrants to purchase Common Stock computed using the
treasury stock method:
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
-------------------------------
2000 1999
----------- ------------
<S> <C> <C>
Weighted average number of common
shares outstanding 12,780,000 11,227,000
Effect of dilutive options -- 523,000
---------- ----------
Weighted average number of common
and potential common shares
outstanding 12,780,000 11,750,000
========== ==========
</TABLE>
Dilutive securities include options and warrants on an as if converted
basis. Potentially dilutive securities totaling 601,000 for the quarter
ended March 31, 2000, were excluded from diluted loss per share because of
their anti-dilutive effect.
3. Aris is engaged in three distinct businesses consisting of information
technology consulting services, information technology training and software
sales. Total net revenue by segment represents sales to unaffiliated
customers. Inter-segment sales have been eliminated. Income (loss) from
operations is used to measure the results of the operating segments.
Summarized financial information by business group for the quarters ended
March 31, 2000 and 1999 follows:
<TABLE>
<CAPTION>
CONSULTING TRAINING SOFTWARE
GROUP GROUP GROUP CORPORATE TOTAL
------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Quarter ended
March 31, 2000:
Net Revenue $ 15,495,000 $ 7,481,000 $ 1,801,000 $ -- $ 24,777,000
Reorganization costs $ -- $ (4,000,000) $ -- $ -- $ (4,000,000)
Income (loss) from
operations $ (3,004,000) $ (5,235,000) $ 63,000 $(817,000) $ (8,993,000)
Quarter ended
March 31,1999:
Net Revenue $ 17,932,000 $ 9,864,000 $ 2,424,000 $ -- $ 30,220,000
Reorganization costs $ -- $ -- $ -- $ -- $ --
Income (loss) from
operations $ 2,224,000 $ (569,000) $ 788,000 $ (36,000) $ 2,407,000
</TABLE>
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<PAGE> 8
4. In August 1999, in a continuing effort to improve the profitability of its
training division, Aris closed three unprofitable training centers located
in New York, Minneapolis and Chicago. The estimated costs associated with
the closing of these centers was approximately $6.6 million. A summary of
the related costs and accrual activity is as follows (in thousands):
<TABLE>
<CAPTION>
CONTRACT & REDUCTION IN
EMPLOYEE LEASE CARRYING OTHER
SEVERANCE TERMINATIONS VALUE OF ASSETS RELATED COSTS TOTAL
---------- ------------ --------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Initial Expense $ 175 $ 1,209 $ 4,497 $ 719 $ 6,600
Amounts utilized in 1999 (175) (313) (4,497) (719) (5,704)
------- ------- ------- ------- -------
Accrual, December 31, 1999 -- 896 -- -- 896
Amounts utilized in 2000 -- (456) -- -- (456)
------- ------- ------- ------- -------
Accrual, March 31, 2000 $ -- $ 440 $ -- $ -- $ 440
======= ======= ======= ======= =======
</TABLE>
The remaining balance accrued for contract and lease terminations at March
31, 2000, represents estimated lease payments, net of sublease income, and
estimated brokers commissions. This remaining balance is expected to be
utilized during 2000.
5. In March 2000, the Company announced the closure and divestiture of its U.S.
training operations. The operations in Denver, Dallas and Washington, DC
will be closed or sold during the second quarter of 2000. The operations of
the Bellevue and Portland centers were sold to former members of the
Company's management team on May 1, 2000. Aris estimates the net costs of
this action will be approximately $4.0 million. Actual costs of sale and
closure may vary from Aris' estimates. A summary of the estimated related
costs and accrual activity is as follows (in thousands):
<TABLE>
<CAPTION>
CONTRACT & REDUCTION IN
EMPLOYEE LEASE CARRYING OTHER
SEVERANCE TERMINATIONS VALUE OF ASSETS RELATED COSTS TOTAL
--------- ------------ --------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Initial Expense $ 413 $ 894 $ 2,639 $ 54 $ 4,000
Amounts utilized in 2000 -- -- (2,639) -- (2,639)
------- ------- ------- ------- -------
Accrual, March 31, 2000 $ 413 $ 894 $ -- $ 54 $ 1,361
======= ======= ======= ======= =======
</TABLE>
6. In April 2000, the Company entered into a master services agreement to
provide $6.0 million of eBusiness consulting services to General Electric
Company ("GE") over a period of 12 months. If GE fails to meet its
obligation to purchase such services by June 30, 2001, GE agrees to pay the
Company the difference between the $6.0 million and the total of the amount
paid for actual services provided during such period. In conjunction with
GE's commitment to the aforementioned services, the Company granted GE
warrants to purchase 150,000 shares of the Company's Common Stock at a
purchase price of $6.4375 per share. The warrants vest immediately upon
issuance and expire on April 20, 2003. The fair value of these warrants will
result in a non-cash charge of approximately $523,000 which will be
reflected as a reduction of revenues over the period services are provided.
7. In April 2000, the shareholders of Aris approved the adoption of the 2000
Stock Option Plan (the "2000 Plan") which provides for the granting of
qualified or non-qualified stock options to employees, directors, officers,
certain non-employee advisors and consultants and non-employee directors of
Aris. The Compensation Committee of the Board of Directors (the
"Committee"), whose members are independent, non-employee directors of the
Company, will administer the 2000 Plan. The plan authorizes 2,500,000 shares
of Aris' Common Stock for issuance under the terms of the 2000 Plan. The
date of grant, option price, vesting period and other terms specific to
options granted under the 2000 Plan are to be determined by the Plan
Administrator. Options granted under the 2000 Plan expire 10 years from date
of grant. The 2000 Plan will, for any new grants, replace the Aris 1997
Stock Option Plan.
Page 8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 has announced the divestiture of its U.S.
training operations, but continues to operate its training operations based in
the UK and Germany.
The Company derives software revenue from the sale of its proprietary
software products, Aris DFRAG, TAMS, TAMS/O, Noetix Web Query and the
NoetixViews suite of products, and from maintenance and support contracts with
clients who purchase the software products. We recognize revenue earned under
software license agreements when persuasive evidence of a contract exists,
software has been delivered and accepted, the fee is fixed or determinable and
collectability is probable. We defer revenue for maintenance and support and
amortized over the support period, generally 12 months.
This commentary should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 for a full
understanding of the Company's financial condition and results of operations.
All statements, trend analysis and other information contained herein
relative to markets for the Company's services and products and trends in
revenue, gross margin and anticipated expense levels, as well as other
statements including words such as "seek," "anticipate," "believe," "plan,"
"estimate," "expect," "intend," and other similar expressions, constitute
forward-looking statements. These forward-looking statements are subject to
business and
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<PAGE> 10
economic risks, and the Company's actual results of operations may differ
materially from those contained in the forward-looking statements.
SIGNIFICANT EVENTS
During the third quarter of 1999 Aris closed three unprofitable training
centers located in New York, Minneapolis and Chicago. The estimated costs
associated with the closing of these centers was approximately $6.6 million. All
but $896,000 was utilized during 1999. The remaining balance accrued for
contract and lease terminations at March 31, 2000 was approximately $440,000 and
is anticipated to be substantially utilized during 2000.
In March 2000, the Company announced the closing and divestiture of its
U.S. training operations. The operations in Denver, CO, Dallas, TX and
Washington, DC will be closed or sold during the second quarter of 2000. The
operations of the Bellevue, WA and Portland, OR centers were sold to former
members of the Company's management team on May 1, 2000. The Company estimates
approximately 140 employees will be terminated related to this event. Aris
estimates the net costs of this divestiture will be approximately $4.0 million,
including payments of $413,000 in employee severance expenses, $894,000 in lease
and contract termination costs, and reductions in the carrying value of assets
of $5.0 million, comprised of a write off of $2.4 million in goodwill and $2.6
million of fixed assets, net of estimated proceeds related to the sale of
certain operations. The net cost of closure was charged to expense in the
quarter ending March 31, 2000. Revenue from these centers was $14.7 million or
12.5% of total revenues for the year ended December 31, 1999 and $3.7 million or
15% of total revenues for the quarter ended March 31, 2000. Management estimates
annual cost savings to be $1.4 million for 2000.
In April 2000, the Company entered into a master services agreement to
provide $6.0 million of eBusiness consulting services to General Electric
Company ("GE") over a period of 12 months. If GE fails to meet its obligation to
purchase such services by June 30, 2001, GE agrees to pay the Company the
difference between the $6.0 million and the total of the amount paid for actual
services provided during such period. In conjunction with GE's commitment to the
aforementioned services, the Company granted GE warrants to purchase 150,000
shares of the Company's Common Stock at a purchase price of $6.4375 per share.
The warrants vested immediately upon issuance and expire on April 20, 2003. The
fair value of these warrants will result in a non-cash charge of approximately
$523,000, which will be reflected as a reduction of revenues over the period
services are provided.
In April 2000, the shareholders of Aris approved the adoption of the 2000 Stock
Option Plan (the "2000 Plan") which provides for the granting of qualified or
non-qualified stock options to employees, directors, officers, certain
non-employee advisors and consultants and non-employee directors of Aris. The
Compensation Committee of the Board of Directors (the "Committee"), whose
members are independent, non-employee directors of the Company, will administer
the 2000 Plan. The plan authorizes 2,500,000 shares of Aris' Common Stock for
issuance under the terms of the 2000 Plan. The date of grant, option price,
vesting period and other terms specific to
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<PAGE> 11
options granted under the 2000 Plan are to be determined by the Plan
Administrator. Options granted under the 2000 Plan expire 10 years from date of
grant. The 2000 Plan will, for any new grants, replace the Aris 1997 Stock
Option Plan.
FIRST QUARTER 2000 COMPARED TO FIRST QUARTER 1999
TOTAL REVENUE
Total revenues decreased $5,443,000 to $24,777,000 for the quarter ended
March 31, 2000 from $30,220,000 for the quarter ended March 31, 1999,
representing a 18% decrease. The decrease in total revenue is a result of a
decrease in revenue for all divisions over the comparison period as discussed
below.
CONSULTING REVENUE
Consulting revenues decreased $2,437,000 to $15,495,000 for the quarter
ended March 31, 2000 from $17,932,000 for the quarter ended March 31, 1999
representing a 14% decrease. Consulting revenue decreased as a result of an
overall decrease in the level of consulting activity related to a slower than
anticipated rebound from clients' focus on Y2K issues. The Company employed or
contracted for the services of an average of 394 full-time consultants and
project managers during the quarter ended March 31, 2000 compared to 387 during
the same quarter in 1999.
TRAINING REVENUE
Training revenue decreased $2,383,000 to $7,481,000 for the quarter
ended March 31, 2000 from $9,864,000 for the quarter ended March 31, 1999,
representing a 24% decrease. Revenues decreased in the first quarter of 2000 as
a result of a significant decrease in the number of classes and class training
days offered. The Company offered 1,096 classes and 3,143 training days in the
quarter ended March 31, 2000 as compared to 2,642 classes and 5,385 training
days in the quarter ended March 31, 1999.
SOFTWARE REVENUE
Software revenue decreased $623,000 to $1,801,000 for the quarter ended
March 31, 2000 from $2,424,000 in the quarter ended March 31, 1999, representing
a decrease of 26%. The decrease in revenue is primarily attributable to reduced
sales of the NoetixViews suite of products developed by the Company's software
subsidiary.
COST OF REVENUES
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 remained relatively flat decreasing $277,000 (2%)
to $14,568,000 in the quarter ended March 31, 2000 from $14,845,000 in the
quarter ended March 31, 1999. Cost of sales as a percentage of sales increased
from 49% for the
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<PAGE> 12
quarter ended March 31, 1999 to 59% for the quarter ended March 31, 2000. This
increase is a result of the relative even level of staffing as compared to a
lower volume of revenues. Relative to the Company's training and software
operation, consulting operations utilize a higher proportion of professional
labor and benefits, which are included in cost of sales, and lower proportions
of marketing, facilities and general office administration costs which are
included in SG&A expense.
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 and related costs; bad debt expense;
depreciation of fixed assets; software license fees and maintenance contracts;
travel and related expenses; and business development costs. SG&A expense
increased $1,417,000 to $14,207,000 for the quarter ended March 31, 2000 from
$12,790,000 for the quarter ended March 31, 1999 which represents an increase of
11%. This increase is primarily the result of additional bad debt expense of
approximately $1.0 million during the quarter and costs associated with the
growth related to the fine.com acquisition in the third quarter of 1999. Total
SG&A expense as a percentage of total revenue increased from 42% for the quarter
ended March 31, 1999 to 57% for the quarter ended March 31, 2000.
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
increased from $166,000 for the quarter ended March 31, 1999 to $203,000 for the
quarter ended March 31, 2000. The increase is primarily attributable to an
increase in the finance charges on accounts receivable. Average investment
balances during the quarter ended March 31, 2000 were $8,108,000 compared to
$9,280,000 during the quarter ended March 31, 1999.
INCOME TAX EXPENSE/(BENEFIT)
Income tax expense decreased from $980,000 expense in the quarter ended
March 31, 1999 to a tax benefit of $2,284,000 in the quarter ended March 31,
2000. The shift to a tax benefit is the result of the Company experiencing a tax
loss for the quarter. The effective tax rate in the quarter ended March 31, 1999
was 38% compared to a tax benefit of 26% in the quarter ended March 31, 2000.
NET INCOME/(LOSS)
The Company recognized a net loss of $6,506,000 for the quarter ended
March 31, 2000 as compared to net income of $1,593,000 for the quarter ended
March 31, 1999. Excluding the reorganization costs and amortization of goodwill
(net of tax) the loss for the quarter was $2,121,000.
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LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had working capital of $31.9 million
including cash and cash equivalents of $8.6 million. As of December 31, 1999,
Aris had working capital of $32.8 million including cash and cash equivalents of
$10.5 million. Aris intends to finance its working capital needs, as well as
purchases of additional property and equipment for its operations, from existing
cash balances and any cash generated by operations.
During the quarter ended March 31, 2000, the Company used net cash of
$1,852,000. Net cash of $2,761,000 was used in operations related primarily to
the net loss. Investing activities used $509,000 for the purchase of equipment.
Financing activities provided $1,418,000 net cash comprised of $457,000 cash
from the sale of stock for the Employee Stock Purchase Plan, $695,000 cash from
stock option exercises and $266,000 from the tax benefit related to stock option
exercises.
At March 31, 2000, the Company had accounts receivable of $26,976,000
equivalent to 99 days sales outstanding. At March 31, 1999, accounts receivable
were $26,766,000 equivalent to 80 days sales outstanding. The change in days
sales outstanding is primarily a function of lower revenues year to year.
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
and is collateralized 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. The credit line expires on June 1, 2000. There are no amounts
outstanding on the credit line at March 31, 2000. Management anticipates that
the credit line will be renewed in an amount suitable to meet its requirements
upon expiration of the existing agreement.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, " Accounting for
Derivative Instruments and Hedging Activities." This statement requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No.
133 until fiscal years beginning after June 15, 2000. The Company does not use
derivative instruments, therefore the adoption of this statement will not have
any effect on the Company's results of operations or its financial position.
Page 13
<PAGE> 14
In December 1999, the Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." This pronouncement summarizes certain of the SEC staff's
views on applying generally accepted accounting principles to revenue
recognition. We are required to adopt SAB No. 101 for our fiscal year ending
December 31, 2001. We are currently reviewing the requirements of SAB No. 101,
but do not expect such adoption to have an impact on our results of operations,
financial position or cash flows.
EFFECT OF YEAR 2000 (Y2K) ISSUE
We have completed our corporate-wide Year 2000 readiness project. As a
result of these efforts, we have experienced no significant problems at the turn
of the century with either our own technology or that of our infrastructure
providers. Contingency plans to manage all identified areas of perceived risk
will remain in place throughout 2000. The costs incurred by the Company in
connection with our Year 2000 compliance program have been and are expected to
remain immaterial to our financial position, results of operations and cash
flows.
ITEM 3. 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 immaterial relative to other factors that also affect
earnings, such as sales and operating margins.
Page 14
<PAGE> 15
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved from time to time in routine legal proceedings
incidental to its business. As of March 31, 2000, the Company was not involved
in any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
See Exhibit Table on page 17.
(B) REPORTS ON FORM 8-K
On April 10, 2000, the Company filed a Current Report Form 8-K
under Item 5 reporting the signing of a letter of intent to sell its Portland
and Seattle training facilities to Company management and the announcement that
the Company expects to report lower than anticipated results for the first
quarter of fiscal 2000 and that it is restructuring its U.S. sales organization.
The Company did not file financial statements with that Current Report on Form
8-K.
Page 15
<PAGE> 16
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 12th day of Aris Corporation
May 2000.
By: /s/ Timothy J. Carroll
-------------------------------------
Timothy J. Carroll
Vice President, Finance;
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
Page 16
<PAGE> 17
EXHIBITS
PAGE EXHIBIT NUMBER EXHIBIT NAME
---- -------------- ------------
18 27.1 Financial Data Schedule
Page 17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 8,564
<SECURITIES> 0
<RECEIVABLES> 30,007
<ALLOWANCES> (3,031)
<INVENTORY> 0
<CURRENT-ASSETS> 45,381
<PP&E> 20,600
<DEPRECIATION> (7,351)
<TOTAL-ASSETS> 68,795
<CURRENT-LIABILITIES> 13,503
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 54,962
<TOTAL-LIABILITY-AND-EQUITY> 68,795
<SALES> 24,777
<TOTAL-REVENUES> 24,777
<CGS> 14,568
<TOTAL-COSTS> 33,770
<OTHER-EXPENSES> (13)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (190)
<INCOME-PRETAX> (2,284)
<INCOME-TAX> (6,506)
<INCOME-CONTINUING> (6,506)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,506)
<EPS-BASIC> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
