<TABLE>
<CAPTION> <S> <C>
Securities and Exchange Commission
Washington, DC 20549
__________________________________
Form 10-Q
Quarterly Report pursuant to Section 13 or 15(d)
of the securities exchange act of 1934
For the quarterly period ended March 31, 2000 Commission file number: 0-25326
Ariel Corporation
(exact name of registrant as specified in its charter)
Delaware 13-3137699
(State of incorporation) (IRS employer identification number)
2540 Route 130
Cranbury, New Jersey 08512
(Address of principal executive offices)
609-860-2900
(Telephone number, including area code)
____________________________________________
Indicate by check mark whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ( X ) No ( )
State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock, $.001 par value 13,068,570 shares outstanding
as of March 31, 2000
Documents Incorporated by Reference: Report on Form 8-K dated March 10, 2000.
</TABLE>
<PAGE>
Ariel Corporation
Index
Part I. Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
A. Consolidated balance sheets as of March 31, 2000 and
December 31, 1999
B. Consolidated statements of operations for the three months ended
March 31, 2000 and 1999.
C. Consolidated statements of cash flows for the three months ended
March 31, 2000 and 1999.
D. Notes to consolidated financial statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
<PAGE>
Part II. Other Information
ITEM I. - FINANCIAL STATEMENTS
<TABLE>
<CAPTION> <S> <C> <C>
ARIEL CORPORATION
BALANCE SHEETS
(Unaudited)
March 31, December 31,
2000 1999
------------ ------------
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS .................................................... $ 11,122,527 $ 7,088,431
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $923,763 IN 2000 AND $1,019,731 IN 1999 .................... 1,968,415 3,091,362
OTHER RECEIVABLES ............................................................ 356,993 383,676
INVENTORIES, NET ............................................................. 3,104,783 3,303,057
PREPAID EXPENSES ............................................................. 670,521 775,943
------------ ------------
TOTAL CURRENT ASSETS ............................................. 17,223,239 14,642,469
EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
AND AMORTIZATION ........................................................ 1,460,681 1,387,128
GOODWILL, INTANGIBLES AND OTHER ASSETS .............................................. 3,603,867 3,787,475
------------ ------------
TOTAL ASSETS ................................................................. $ 22,287,787 $ 19,817,072
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE ............................................................. $ 284,240 $ 1,190,807
ACCRUED EXPENSES ............................................................. 2,028,669 3,510,566
CURRENT PORTION OF LONG-TERM DEBT ............................................ 1,821,410 1,895,926
CURRENT PORTION OF CAPITAL LEASE ............................................. 126,438 126,438
ROYALTIES PAYABLE ............................................................ 91,210 91,210
------------ ------------
TOTAL CURRENT LIABILITIES ........................................ 4,351,967 6,814,947
LONG-TERM PORTION OF CAPITAL LEASE .................................................. 188,309 215,901
LONG-TERM DEBT ...................................................................... 1,653,048 1,788,985
STOCKHOLDERS' EQUITY
PREFERRED STOCK, $.001 PAR VALUE:
AUTHORIZED - 2,000,000 SHARES
ISSUED AND OUTSTANDING - NONE
COMMON STOCK, $.001 PAR VALUE:
AUTHORIZED - 20,000,000 SHARES
ISSUED AND OUTSTANDING - 13,068,570 AT MARCH 31, 2000
AND 10,832,597 AT DECEMBER 31, 1999 ................ 13,069 10,833
ADDITIONAL PAID-IN CAPITAL ................................................... 45,769,138 37,627,809
UNREALIZED GAIN / (LOSS) ON FOREIGN CURRENCY TRANSLATION ..................... (726,844) (503,711)
ACCUMULATED DEFICIT .......................................................... (28,960,900) (26,137,692)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ....................................... 16,094,463 10,997,239
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ..................................... 22,287,787 19,817,072
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION> <S> <C> <C>
ARIEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
2000 1999
============ ============
SALES ....................................................................................... $ 2,072,221 $ 3,073,529
COST OF GOODS SOLD .......................................................................... 868,374 1,393,598
------------ ------------
GROSS PROFIT ......................................................................... 1,203,847 1,679,931
EXPENSES:
SALES AND MARKETING .................................................................... 1,266,834 1,524,903
GENERAL AND ADMINISTRATIVE ............................................................. 1,468,396 1,826,855
RESEARCH AND DEVELOPMENT ............................................................... 1,281,626 1,352,127
------------ ------------
TOTAL OPERATING EXPENSES ........................................................... 4,016,856 4,703,885
------------ ------------
LOSS FROM OPERATIONS ................................................................. (2,813,009) (3,023,954)
INTEREST INCOME ............................................................................. 110,918 160,832
INTEREST EXPENSE ............................................................................ (110,133) (142,961)
OTHER EXPENSE ............................................................................... (753) (2,734)
------------ ------------
LOSS BEFORE INCOME TAXES ............................................................. (2,812,977) (3,008,817)
PROVISION FOR INCOME TAXES ............................................................ 0 0
------------ ------------
NET LOSS ............................................................................. ($ 2,812,977) ($ 3,008,817)
------------ ------------
BASIC EARNINGS/ (LOSS) PER SHARE ..................................................... ($ 0.24) ($ 0.31)
============ ============
OTHER COMPREHENSIVE INCOME / (LOSS), NET OF TAX:
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS .............................................. (147,268) (182,939)
------------ ------------
COMPREHENSIVE (LOSS) ......................................... (2,960,245) (3,191,756)
============ ============
BASIC EARNINGS / (LOSS) PER SHARE .................................................... (0.24) (0.33)
============ ============
DILUTED EARNNGS / (LOSS) PER SHARE ................................................... (0.24) (0.33)
============ ============
BASIC WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ................................... 11,703,359 9,755,150
EFFECT OF DILUTIVE OPTIONS ........................................................... 0 0
------------ ------------
DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ................................... 11,703,359 9,755,150
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION> <S> <C> <C>
ARIEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For The Three Months Ended March 31,
2000 1999
============ ============
Cash flows from operating activities:
Net Loss ........................................................................................... ($ 2,812,977) ($ 3,008,817)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .......................................................... 243,905 226,765
Amortization of goodwill & intangibles ................................................. 233,467 357,182
Amortization of debt issuance costs .................................................... 67,953 16,089
(Recovery) of / provision for doubtful accounts ........................................ (1,793) 206,248
Provision for inventory obsolescence ................................................... 91,659 25,861
(Increase) decrease in assets:
Accounts receivable .................................................................... 1,119,738 467,739
Other accounts receivables ............................................................. (122,392) 190,832
Inventories ............................................................................ 105,548 562,645
Other assets ........................................................................... (251,209) 65,583
Increase (decrease) in liabilities:
Accounts payable and accrued expenses .................................................. (2,340,170) (3,592,153)
Royalties payable, related parties ..................................................... 0 (46,800)
------------ ------------
(3,666,271) (4,528,826)
------------ ------------
Cash flows from investing activities:
Purchase of equipment .................................................................. (320,896) (321,162)
------------ ------------
(320,896) (321,162)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net ............................................ 8,242,142 0
Principal payments on capital lease obligation ......................................... (25,593) 0
Principal payments on long-term debt ................................................... (204,183) (269,463)
Proceeds from exercise of common stock options and warrants ............................ 10,063 0
------------ ------------
8,022,428 (269,463)
------------ ------------
Effect of exchange rate changes on cash ........................................................... (1,166) (18,294)
------------ ------------
Net increase (decrease) in cash ................................................................... 4,034,096 (5,137,745)
Cash and cash equivalents, beginning of year .......................................... 7,088,431 17,996,575
------------ ------------
Cash and cash equivalents, end of period .......................................................... $ 11,122,527 $ 12,858,830
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Ariel Corp
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The financial statements included herein have been prepared by the Company,
pursuant to the Rules and Regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
Company believes, however, that the disclosure contained herein is adequate to
make the information presented not misleading. The financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Form 10-K for the year ended December 31, 1999.
As of March 31, 2000, the Company had working capital of $12,871,272,
including cash and cash equivalents of $11,122,527. The Company has incurred
substantial operating losses and had an accumulated deficit of $28,960,900 as of
March 31, 2000. It expects to continue to incur costs and expenses in excess of
expected revenues as it continues to execute its business strategy in the
Internet Service Provider (ISP) and Original Equipment Manufacturer (OEM)
markets. If the Company does not successfully execute its business strategy in
the ISP and OEM markets, there is no assurance that the Company will generate
sufficient cash flow from operations to meet anticipated operating needs and
liquidate liabilities as they come due. However, the Company believes its
existing cash and cash equivalents will be sufficient to meet its presently
anticipated cash needs through the end of 2000. If necessary, the Company may
delay or eliminate some expenditures and planned operations in both North
America and Europe may be scaled back or the Company may need to raise
additional funds to meet obligations. It would seek to raise such amounts
through a variety of options including borrowings and proceeds from future
equity financing. Additional funding may not be available when needed or on
terms acceptable to the Company, which could have a material adverse effect on
its business, financial condition, and results of operations. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
In the opinion of the management of the Company, the accompanying unaudited
financial statements contain all adjustments, consisting of normal recurring
accruals, necessary to present fairly the financial position of the Company as
of March 31, 2000 and the results of operations for the three months ended March
31, 2000 and 1999. The results for interim periods are not necessarily
indicative of results for the full year.
2. In June 1998, the Financial Accounting Standards Board (``FASB'') issued
Statement of Financial Accounting Standards No. 133 (``FAS 133''), Accounting
for Derivative Instruments and Hedging Activities. FAS 133, as amended, is
effective for all fiscal years beginning after June 15, 2000. Due to the FASB's
exposure draft issued March 3, 2000, which would amend FAS 133, the unresolved
status of numerous Derivative Implementation Group interpretations, and the
potential for additional interpretations yet to be issued, Company management
decided not to adopt FAS 133 effective January 1, 2000. Ariel will adopt FAS 133
effective January 1, 2001; however, it does not believe that such adoption will
have a material effect on its consolidated results of operations and financial
position.
In December 1999, the Securities and Exchange Commission (``SEC'')
issued Staff Accounting Bulletin No. 101(``SAB 101''), Revenue Recognition in
Financial Statements. SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements. In
March 2000, the SEC issued Staff Accounting Bulletin No. 101A (``SAB 101A''),
Amendment: Revenue Recognition in Financial Statements. SAB 101A delays the
implementation date of SAB 101 for registrants with fiscal years that begin
between December 16, 1999 and March 15, 2000. The Company will adopt SAB 101 as
required in the second quarter of 2000; however, the Company does not believe it
will have a material effect on the Company's historical results of operations or
financial position.
3. Inventories, net of allowance:
Inventories, net of allowance, consists of the following:
<TABLE>
<CAPTION> <S> <C> <C>
March 31, December 31,
2000 1999
---- ----
Component Materials....................................... $ 594,239 $ 371,821
Work-in process.......................................... 1,703,451 814,923
Finished Goods.......................................... 807,093 2,116,313
------- ---------
$3,104,783 $ 3,303,057
=========== ===========
</TABLE>
4. Debt
As of March 31, 2000 the Company had total debt of $3,474,458 consisting of
notes due to Transamerica Business Credit Corporation's Technology Finance
Division of Farmington Connecticut of $3,373,148 and acquired foreign debt of
$101,310.
Under its credit facility with Transamerica, outstanding debt of $3,373,148
as of March 31,2000 consisted of the following: a $2,173,312 remaining on a Term
Loan payable quarterly in arrears over twenty consecutive quarters commencing
October 1, 1997, and $1,199,836 drawn against a Revolver which matures on June
12, 2000. The interest rate in effect under the Revolver is based on prime rate
plus 2.50% and is payable monthly in arrears. The interest rate in effect on the
term loan at March 31, 2000 was 12.099%. Amounts drawn on the credit facility
are secured by inventory, cash and accounts receivable.
The Transamerica credit agreement includes a material adverse effect
clause, whereby Transamerica can accelerate the due date of the loan if certain
changes in conditions (financial or otherwise) are deemed to have a material
adverse effect on the Company's ability to meet its obligations.
5. Segment Data
Segments are comprised of European and North American operations. The
accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies" in Note 1 of the Company's Form
10K. Segment profit includes operating expenses directly attributable to the
segment including administrative, selling, marketing, research and development
costs and taxes. Certain expenses managed outside the reportable segments are
excluded. Costs excluded from segment profit include charges for in-process
technology and costs related to mergers and acquisitions. The Company does not
include intercompany transfers between segments for management reporting
purposes.
Summary information by segment as of and for the three months ending March 31:
<TABLE>
<CAPTION> <S> <C> <C>
NORTH AMERICA:
For the three months ending and as of: March 31, 2000 March 31, 1999
-------------- --------------
Revenues from external customers $1,954,617 $2,919,974
Intersegment revenues 0 5,250
Segment profit / (loss) (2,579,509) (2,162,827)
Segment assets 19,725,473 24,268,657
EUROPE:
For the three months ending and as of: March 31, 2000 March 31, 1999
-------------- --------------
Revenues from external customers $117,604 $153,555
Intersegment revenues 0 0
Segment profit / (loss) (233,468) (843,715)
Segment assets 2,562,314 6,472,523
A reconciliation of the Company's segment losses to the corresponding
consolidated amounts for the three months ending March 31, 2000 is as follows:
Segment profit / (loss) ($2,812,977) ($3,006,542)
Profit margins on intersegment revenues 0 (2,275)
------------------- -----------------
Net loss ($2,812,977) ($3,008,817)
=================== =================
</TABLE>
6. Stock Purchase Agreement
On February 24, 2000 the Company entered into an agreement with a number of
investors to sell 2,151,000 shares of our common stock at a purchase price of
$4.00 per share in a private placement. The Company also issued 2,151,000
warrants to purchase common stock with an exercise price of $6.875. The warrants
are not exercisable until August 24, 2000. The exercise price of the warrants
will be reset to the average market price for the five trading days preceding
the one year anniversary date of the agreement provided the average price is
less than $6.875. Under the terms of the agreement, the Company filed a
registration statement on April 4, 2000 to register the shares sold and those
underlying the warrants. That registration statement was declared effective on
April 20, 2000.
The agreement also calls for the issuance of additional shares at no cost
to these investors should we sell shares of common stock, or securities
convertible into common stock, at a price less than $4.00 per share within
twenty four months of the this agreement. This provision requires the Company to
issue additional shares such that the average share price of these investors is
equal to the then offered price.
Additionally, these investors have the right of first refusal to
participate in any sale of our common stock, or securities convertible into
common stock, within the next twenty four months.
<PAGE>
<TABLE>
<CAPTION> <S> <C> <C>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
COMPARISON OF RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage relationship that certain items of the Company's results
of operations bear to total sales.
Three months ended
March 31,
2000 1999
---- ----
Sales 100% 100%
Cost of goods sold 42 45
----------- ---------
Gross profit 58 55
Expenses
Sales and marketing 61 50
General and administrative 71 59
Research and development 62 44
----------- ----------
Total Operating Expenses 194 153
Loss from operations (136) (98)
Interest income 5 5
Interest expense (5) (5)
Other (expense) income * *
----------- ----------
Loss before income taxes (136) (98)
----------- ----------
Net Loss (136)% (98)%
=========== ==========
o Total is less than 1%
</TABLE>
<PAGE>
Three months ended March 31, 2000 as Compared to three months ended
March 31, 1999
Net Sales
Worldwide sales were $2,072,221 for the three months ended March 31, 2000,
a decrease of $1,001,308 compared to net sales of $3,073,529 for the three
months ended March 31, 1999. Domestic sales were $1,797,907 for the three months
ended March 31, 2000 compared to $2,682,539 for the three months ended March 31,
1999. In 1998 the Company began a shift from digital signal processing (DSP) to
products and markets for dial-up remote access equipment (RAS). The domestic
sales decrease of $884,632 was due to reduced demand for the Company's DSP
products from original equipment manufacturers (OEMs) resulting from this shift.
Such increases were partially offset by sales of the Company's RAS products to
Internet Service Providers (ISPs) of approximately $200,000. International sales
were $274,314 for the first quarter of 2000 including U.S. exports of $156,710
and sales from European operations of $117,604. This as compared to $390,990 for
the first quarter of 1999. The decrease of $116,676 in international sales is a
result of a decrease in sales by international subsidiaries.
Gross Profit
Gross profit decreased by $476,084 to $1,203,847 for the three months ended
March 31, 2000 from $1,679,931 for the three months ended March 31, 1999. Gross
profit was 58% as a percent of sales for the three months ended March 31, 2000
compared to 55% for the three months ended March 31, 1999. The decrease in gross
profit was due to a reduction in sales that was partially offset by higher gross
profit rates that reflect the effect of OEM price increases initiated in 1999.
Sales and marketing
Sales and marketing expenses were $1,266,834 or 61% of sales for the three
months ended March 31, 2000 compared to $1,524,903 or 50% of sales for the three
months ended March 31,1999. The decrease of $258,069 or 17% includes a decrease
in sales commission of approximately $105,000 due to lower revenues as well as a
reduction in wages of approximately $168,000 due to a restructuring of the sales
organization completed in August of 1999. Decreases in European sales and
marketing expenses of approximately $105,000 reflect the integration of sales
and marketing functions at the Company's foreign subsidiaries with the parent
company. The Company also realized a reduction of approximately $38,000 in
advertising and marketing programs as the RS4200 product release was delayed
until late in March 2000. Such decreases were partially offset by increases in
public and investor relations of approximately $157,000.
General and administrative
General and administrative expenses were $1,468,396 for the three months
ended March 31, 2000 compared to $1,826,855 for the three months ended March 31,
1999. The decrease of $358,459 reflects a reduction in allowances for doubtful
accounts of approximately $200,000 as compared to the first quarter of the prior
year. Other decreases include reduced consulting and recruiting costs of
approximately $86,000 related to the appointment of a new management team in
December 1998 and a reduction in sales and franchise taxes from the three months
ended March 31, 1999 of approximately $40,000. The Company also reduced general
and administrative costs at its European subsidiaries of approximately $22,000.
Research and Development
Research and development expenses were $1,281,626 for the three months
ended March 31, 2000 compared to $1,352,127 for the three months ended March 31,
1999, a decrease of $70,501. Decreases include a reduction of approximately
$123,000 as compared with the three months ended March 31, 1999 for bonuses
payable to certain engineers in conjunction with employment contracts.
Additionally, decreases of $83,000 resulted from the integration of the
Company's European research and development projects with those at its U.S.
headquarters. These reductions were partially offset by increases in expenses
comprised primarily of wages and wage related costs of approximately $143,000
for engineers related to development of Linux operating system software, the
Company's SS7 Gateway enabled remote access products and the vice-president of
engineering appointed in May of 1999.
For the foregoing reasons the Company incurred a net loss of $2,812,977 for
the three months ended March 31, 2000 as compared to losses of $3,008,817 for
the three months ended March 31, 1999.
Liquidity and Capital Resources
On February 24, 2000 the Company entered into an agreement with a number of
investors to sell 2,151,000 shares of our common stock at a purchase price of
$4.00 per share in a private placement. The Company also issued 2,151,000
warrants to purchase common stock with an exercise price of $6.875. The warrants
are not exercisable until August 24, 2000. The exercise price of the warrants
will be reset to the average market price for the five trading days preceding
the one year anniversary date of the agreement provided the average price is
less than $6.875. Under the terms of the agreement, the Company filed a
registration statement on April 4, 2000 to register the shares sold and those
underlying the warrants. That registration statement was declared effective on
April 20, 2000.
The agreement also calls for the issuance of additional shares at no cost
to these investors should we sell shares of common stock, or securities
convertible into common stock, at a price less than $4.00 per share within
twenty four months o f the this agreement. This provision requires the Company
to issue additional shares such that the average share price of these investors
is equal to the then offered price.
Additionally, these investors have the right of first refusal to
participate in any sale of our common stock, or securities convertible into
common stock, within the next twenty four months.
As of March 31, 2000, the Company had working capital of $12,871,272,
including cash and cash equivalents of $11,122,527. The Company has incurred
substantial operating losses and had an accumulated deficit of $28,960,900 as of
March 31, 2000. It expects to continue to incur costs and expenses in excess of
expected revenues as it continues to execute its business strategy in the
Internet Service Provider (ISP) and Original Equipment Manufacturer (OEM)
markets. If the Company does not successfully execute its business strategy in
the ISP and OEM markets, there is no assurance that the Company will generate
sufficient cash flow from operations to meet anticipated operating needs and
liquidate liabilities as they come due. However, the Company believes its
existing cash and cash equivalents will be sufficient to meet its presently
anticipated cash needs through the end of 2000. If necessary, the Company may
delay or eliminate some expenditures and planned operations in both North
America and Europe may be scaled back or the Company may need to raise
additional funds to meet obligations. It would seek to raise such amounts
through a variety of options including borrowings and proceeds from future
equity financing. Additional funding may not be available when needed or on
terms acceptable to the Company, which could have a material adverse effect on
its business, financial condition, and results of operations.
As of March 31, 2000 the Company had total debt of $3,474,458 consisting of
notes due to Transamerica Business Credit Corporation's Technology Finance
Division of Farmington Connecticut of $3,373,148 and acquired foreign debt of
$101,310.
Under its credit facility with Transamerica, outstanding debt of $3,373,148
as of March 31,2000 consisted of a term loan and a revolving credit line
(Revolver). The remaining balance under the term loan is $2,173,312. Principal
and interest are payable quarterly in arrears. The final payment is due October
1, 2002. There is $1,199,836 drawn against a Revolver which matures on June 12,
2000. The interest rate in effect under the Revolver is based on prime rate plus
2.50% and is payable monthly in arrears. The interest rate in effect on the term
loan at March 31, 2000 was 12.099%.
The Transamerica credit agreement includes a material adverse effect
clause, whereby Transamerica can accelerate the due date of the loan if certain
changes in conditions (financial or otherwise) are deemed to have a material
adverse effect on the Company's ability to meet its obligations.
During the three months ended March 31, 2000, there was a net increase in
cash and cash equivalents of $4,033,935. At March 31, 2000, cash and cash
equivalents amounted to $11,122,527. Working capital amounted to $12,871,272 at
March 31, 2000 compared to cash and equivalents of $7,088,431 and working
capital of $7,827,522 at December 31, 1999.
Net cash used in operating activities for the three months ended March 31,
2000 amounted to $3,663,000. The negative cash flows from operations were the
due, in part, to the Company's net loss of $2,812,977 which was offset by
non-cash expenditures related to depreciation, amortization, reserves and
allowances of $635,191. Other operating cash uses included decreases in accounts
payable and accrued liabilities of $2,340,170 as the Company paid down
obligations of its subsidiary and accrued costs related to fiscal year end
bonuses and accrued compensation and increases in inventory of $247,938 related
to the introduction of the RS4200. Such decreases were partially offset by
increases in operating cash due to reduced accounts receivable of $1,119,738.
Net cash used in investing activities for the three months ended March 31,
2000 amounted to $320,896 due to the purchases of computer and peripheral
equipment related primarily to engineering equipment for the SS7 Gateway project
and acquisition of trade show booth equipment.
Net cash increases due to financing activities for the three months ended
March 31, 2000 amounted to $8,022,428 which included proceeds of $8,242,142 from
the February 24, 2000 stock purchase agreement net of costs and fees related to
the transaction. The increase was partially offset by principal payments on debt
and capital lease obligations of $229,776 during the three month period.
Readiness of Year 2000
As of the date of this filing, we have not experienced any problems with
our internal business systems or products and have not been notified of any
problems by our suppliers.
Qualitative and Quantitative Disclosures About Market Risk
The results of our operations and the valuation of some of our assets and
liabilities are sensitive to changes in the general level of interest rates in
the United States and foreign exchange rate fluctuations.
Interest rate risk. Our interest income is sensitive to changes in the
general level of interest rates in the United States, as our investments are in
United States dollar cash equivalents and short-term instruments.
Our interest expense is sensitive to changes in the general level of
interest rates in the United States, because the computation of interest due on
our debt in the United States is based on key interest rate indicators used in
the United States such as the prime rate.
Foreign exchange risk. We currently have foreign subsidiaries that conduct
and report their operations in local currency. The primary foreign currency is
the French Franc. Other currencies include the British Pound and the German
Deutschmark. On January 1, 1999, eleven member countries (including France and
Germany) of the European Union established fixed conversion rates between their
existing, or local, currencies and one common currency, the euro. The euro
trades on currency exchanges and may be used in business transactions.
Conversion to the euro eliminates currency exchange risk between the
participating member countries.
Due to the limited contribution of our foreign subsidiaries to our results
of operations and the short-term nature of our cash equivalents, investments and
debt, we do not believe we have material market risk exposure.
Part II. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - Exhibit 27 Schedule of Financial Data
(Filed Electronically)
The follinwing reports on Form 8-K are incorporated by reference as
part of this report:
Incorporated herein by reference to Form 8-K dated March 10, 2000 -
The Company raised $8.6 million through the private placement of
2,151,000 shares of common stock.
The offering included a matching number of warrants. The description
and terms of the placement are set forth in a registration statement
dated April 4, 2000.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Ariel Corporation
-------------------------
Registrant
/s/ John R. Loprete
-------------------------
John R. Loprete
Vice President of Finance
and Principal Accounting
Officer
Date: May 15, 2000
<PAGE>
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(Replace this text with the legend)
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<CIK> 0000911167
<NAME> Ariel Corporation
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<CURRENCY> US
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
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<PP&E> 5,730,947
<DEPRECIATION> 4,270,266
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0
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<SALES> 2,072,221
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<CGS> 868,374
<TOTAL-COSTS> 868,374
<OTHER-EXPENSES> 4,016,856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,133
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<NET-INCOME> (2,812,977)
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