form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the quarterly period
ended October 31, 2009
o
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
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For
the transition period from
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to
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Commission
file number 000-19608
ARI
Network Services, Inc.
(Exact
name of registrant as specified in its charter)
WISCONSIN
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39-1388360
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(State
or other jurisdiction of incorporation or organization)
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(IRS
Employer Identification No.)
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10850 West Park Place, Suite 1200, Milwaukee,
Wisconsin 53224
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(Address
of principal executive offices)
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(414) 973-4300
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(Registrant's
telephone number, including area code)
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Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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 NO ü
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (S232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
YES ü NO
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer
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o
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Accelerated
filer
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o
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Non-accelerated
filer
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o
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Smaller
reporting company
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þ
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(Do
not check if a smaller reporting reporting
company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES NO ü
As of
December 8, 2009, there were 7,751,842 shares of the registrant’s common stock
outstanding.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
PART
I - FINANCIAL INFORMATION
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Page
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Item
1
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3-4
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5
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6
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7-16
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Item
2
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17-28
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Item
3
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28
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Item
4T
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28-29
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PART
II - OTHER INFORMATION
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Item
1
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29
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Item
2
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29
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Item
3
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29
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Item
4
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29
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Item
5
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29
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Item
6
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29
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30
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ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
ITEM 1. FINANCIAL STATEMENTS
ARI
Network Services, Inc.
Consolidated
Balance Sheet
(Dollars
in Thousands, Except per Share Data)
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(Unaudited)
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(Audited)
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ASSETS
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October
31
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July
31
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2009
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2009
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Current
assets:
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Cash
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$ |
291 |
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$ |
650 |
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Trade
receivables, less allowance for doubtful accounts of $418 and $410 at
October 31, 2009 and July 31, 2009
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1,286 |
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1,352 |
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Work
in process
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193 |
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156 |
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Prepaid
expenses and other
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310 |
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321 |
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Deferred
income taxes
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513 |
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513 |
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Total
Current Assets
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2,593 |
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2,992 |
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Equipment
and leasehold improvements:
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Computer
equipment
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1,888 |
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1,827 |
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Leasehold
improvements
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538 |
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463 |
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Furniture
and equipment
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2,495 |
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2,479 |
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4,921 |
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4,769 |
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Less
accumulated depreciation and amortization
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3,038 |
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2,827 |
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Net
equipment and leasehold improvements
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1,883 |
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1,942 |
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Capitalized
software product costs:
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Amounts
capitalized for software product costs
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15,114 |
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14,886 |
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Less
accumulated amortization
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12,742 |
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12,489 |
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Net
capitalized software product costs
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2,372 |
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2,397 |
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Deferred
income taxes
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2,141 |
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2,141 |
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Other
long term assets
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59 |
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59 |
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Other
intangible assets
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3,435 |
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3,637 |
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Goodwill
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5,439 |
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5,439 |
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Total
Assets
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$ |
17,922 |
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$ |
18,607 |
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See
accompanying notes
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
ARI
Network Services, Inc.
Consolidated
Balance Sheet
(Dollars
in Thousands, Except per Share Data)
|
|
(Unaudited)
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|
(Audited)
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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October
31
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July
31
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2009
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2009
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Current
liabilities:
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Current
borrowings on line of credit
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$ |
700 |
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$ |
500 |
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Current
portion of notes payable
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58 |
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117 |
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Accounts
payable
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|
408 |
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788 |
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Deferred
revenue
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4,991 |
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5,523 |
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Accrued
payroll and related liabilities
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1,127 |
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1,421 |
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Accrued
sales, use and income taxes
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31 |
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82 |
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Other
accrued liabilities
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619 |
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687 |
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Current
portion of capital lease obligations
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200 |
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109 |
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Total
current liabilities
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8,134 |
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9,227 |
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Non-current
liabilities:
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Notes
payable
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5,000 |
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5,000 |
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Long-term
portion of accrued compensation
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17 |
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36 |
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Capital
lease obligations
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307 |
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115 |
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Other
long term liabilities
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42 |
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42 |
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Total
non-current liabilities
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5,366 |
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5,193 |
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Total
liabilities
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13,500 |
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14,420 |
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Shareholders'
equity:
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Cumulative
preferred stock, par value $.001 per share, 1,000,000 shares authorized; 0
shares issued and outstanding at October 31, 2009 and July 31,
2009
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- |
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- |
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Junior
preferred stock, par value $.001 per share, 100,000 shares authorized; 0
shares issued and outstanding at October 31, 2009 and July 31,
2009
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- |
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- |
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Common
stock, par value $.001 per share, 25,000,000 shares authorized; 7,751,842
and 7,693,510 shares issues and outstanding at October 31, 2009 and July
31, 2009
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8 |
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8 |
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Common
stock warrants and options
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856 |
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816 |
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Additional
paid-in-capital
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95,733 |
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95,681 |
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Accumulated
deficit
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(92,122 |
) |
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(92,284 |
) |
Other
accumulated comprehensive income (loss)
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(53 |
) |
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(34 |
) |
Total
Shareholders' Equity
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4,422 |
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4,187 |
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Total
Liabilities and Shareholders' Equity
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$ |
17,922 |
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$ |
18,607 |
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See
accompanying notes
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
ARI Network Services, Inc.
Consolidated
Statements of Income
(Dollars
in Thousands, Except per Share Data)
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(Unaudited)
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Three months ended October
31
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2009
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2008
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Net
revenue
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$ |
5,470 |
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$ |
4,169 |
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Cost
of revenue
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955 |
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729 |
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Gross
profit
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4,515 |
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3,440 |
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Operating
expenses:
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Sales
and marketing
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1,277 |
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|
948 |
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Customer
operations and support
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|
824 |
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724 |
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Software
development and technical support (net of capitalized product
costs)
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|
458 |
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408 |
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General
and administrative
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1,137 |
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|
840 |
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Restructuring
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|
76 |
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- |
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Depreciation
and amortization (exclusive of amortization of software products included
in cost of revenue)
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|
404 |
|
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|
229 |
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Net
operating expenses
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4,176 |
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|
3,149 |
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Operating
income
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|
339 |
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|
291 |
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Other
income (expense):
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Interest
expense
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(139 |
) |
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(28 |
) |
Other,
net
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(33 |
) |
|
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(7 |
) |
Total
other income (expense)
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(172 |
) |
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(35 |
) |
Income
before provision for income taxes
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|
167 |
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|
256 |
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Income
tax benefit (expense)
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(5 |
) |
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- |
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Net
income
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$ |
162 |
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$ |
256 |
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Basic
and diluted net income per common share:
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Basic
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$ |
0.02 |
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$ |
0.04 |
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Diluted
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$ |
0.02 |
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|
$ |
0.04 |
|
See
accompanying notes
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
ARI Network Services, Inc.
Consolidated
Statements of Cash Flows
(Dollars
in Thousands)
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(Unaudited)
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Three months ended October
31
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2009
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2008
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Operating
activities
|
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|
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|
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|
Net
income
|
|
$ |
162 |
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$ |
256 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
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|
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|
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Amortization
of software products
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253 |
|
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|
215 |
|
Amortization
of deferred financing costs, debt discount and excess carrying
value
|
|
|
|
|
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over
face amount of notes payable
|
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|
- |
|
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4 |
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Depreciation
and other amortization
|
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|
404 |
|
|
|
229 |
|
Stock
based compensation related to stock options
|
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|
40 |
|
|
|
76 |
|
Net
change in assets and liabilities:
|
|
|
|
|
|
|
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Trade
receivables, net
|
|
|
66 |
|
|
|
215 |
|
Work
in process
|
|
|
(37 |
) |
|
|
49 |
|
Prepaid
expenses and other
|
|
|
92 |
|
|
|
127 |
|
Accounts
payable
|
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|
(380 |
) |
|
|
(233 |
) |
Deferred
revenue
|
|
|
(532 |
) |
|
|
(440 |
) |
Accrued
payroll related liabilities
|
|
|
(315 |
) |
|
|
(58 |
) |
Accrued
sales, use and income taxes
|
|
|
(51 |
) |
|
|
(35 |
) |
Other
accrued liabilities
|
|
|
(68 |
) |
|
|
45 |
|
Net
cash provided by (used in) operating activities
|
|
|
(366 |
) |
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|
450 |
|
Investing
activities
|
|
|
|
|
|
|
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Purchase
of equipment, software and leasehold improvements
|
|
|
(120 |
) |
|
|
(259 |
) |
Software
product costs capitalized
|
|
|
(260 |
) |
|
|
(226 |
) |
Net
cash used in investing activities
|
|
|
(380 |
) |
|
|
(485 |
) |
Financing
activities
|
|
|
|
|
|
|
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|
Borrowings
under line of credit
|
|
|
200 |
|
|
|
- |
|
Payments
under notes payable
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|
(59 |
) |
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|
(157 |
) |
Proceeds
from capital lease obligations incurred
|
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|
219 |
|
|
|
- |
|
Payments
of capital lease obligations
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|
(17 |
) |
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|
(23 |
) |
Proceeds
from issuance of common stock
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|
52 |
|
|
|
- |
|
Net
cash provided by (used in) financing activities
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|
|
395 |
|
|
|
(180 |
) |
Effect
of foreign currency exchange rate changes on cash
|
|
|
(8 |
) |
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|
(11 |
) |
Net
change in cash
|
|
|
(359 |
) |
|
|
(226 |
) |
Cash
at beginning of period
|
|
|
650 |
|
|
|
1,086 |
|
Cash
at end of period
|
|
$ |
291 |
|
|
$ |
860 |
|
Cash
paid for interest
|
|
$ |
138 |
|
|
$ |
26 |
|
Cash
paid for income taxes
|
|
$ |
54 |
|
|
$ |
28 |
|
|
|
|
|
|
|
|
|
|
Noncash
investing and financing activities
|
|
|
|
|
|
|
|
|
Increase
in amount due from leasing company (recorded as a component of prepaid
expenses and other) and increase in capital lease
obligations
|
|
$ |
81 |
|
|
$ |
- |
|
See
accompanying notes
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Notes to Consolidated Financial Statements
(Unaudited)
October
31, 2009
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial reporting. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for fiscal year end financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended October
31, 2009 are not necessarily indicative of the results to be expected for any
other interim period or the full fiscal year ending July 31,
2010. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
fiscal year ended July 31, 2009.
The
financial statements include the accounts of ARI Network Services, Inc. (the
"Company" or "ARI") and its wholly owned subsidiaries, ARI Europe B. V., located
in the Netherlands, and ARI F&I Services, LLC ("AFIS") an
outsourced finance and insurance business located in Schenectady,
NY. All intercompany transactions and balances have been
eliminated.
The
functional currency of the Company’s subsidiary in the Netherlands is the Euro;
accordingly, monetary assets and liabilities are translated into United States
dollars at the rate of exchange existing at the end of the period, and
non-monetary assets and liabilities are translated into United States dollars at
historical exchange rates. Income and expense amounts, except for
those related to assets translated at historical rates, are translated at the
average exchange rates during the period. Adjustments resulting from
the re-measurement of the financial statements into the functional currency are
charged or credited to comprehensive income.
[This
space intentionally left blank.]
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
2.
|
BASIC
AND DILUTED NET INCOME PER SHARE
|
Basic net
income per common share is computed by dividing net income by the basic weighted
average number of common shares outstanding during the
period. Diluted net income per common share is computed by dividing
net income by the weighted average number of common shares outstanding during
the period and reflects the potential dilution that could occur if all of the
Company’s outstanding stock options and warrants that are in the money were
exercised (calculated using the treasury stock method). The following
table is a reconciliation of basic and diluted net income per common share for
the periods indicated (in thousands, except per share data):
|
|
(Unaudited)
|
|
|
|
Three months ended October
31
|
|
|
|
2009
|
|
|
2008
|
|
Net
income
|
|
$ |
162 |
|
|
$ |
256 |
|
Weighted-average
common shares outstanding
|
|
|
7,711 |
|
|
|
6,972 |
|
Effect
of dilutive stock options and warrants
|
|
|
22 |
|
|
|
106 |
|
Diluted
weighted-average common shares outstanding
|
|
|
7,733 |
|
|
|
7,078 |
|
Net
income per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.02 |
|
|
$ |
0.04 |
|
Diluted
|
|
$ |
0.02 |
|
|
$ |
0.04 |
|
Options
and warrants that could potentially dilute net income per share in the
future that are not included in the computation of diluted net income per
share, as their impact is anti-dilutive
|
|
|
1,402 |
|
|
|
1,156 |
|
3.
|
STOCK-BASED
COMPENSATION PLANS
|
There
were no capitalized stock-based compensation costs at October 31, 2009 or July
31, 2009. Total stock compensation expense recognized by the Company
was approximately $40,000 and $76,000 during the three month periods ended
October 31, 2009 and October 31, 2008, respectively. There was
approximately $183,000 and $451,000 of total unrecognized compensation costs
related to non-vested options granted under its stock option plans as of October
31, 2009 and October 31, 2008, respectively.
The
Company used the Black-Scholes model to value stock options granted. Expected
volatility is based on historical volatility of the Company’s stock. The
expected life of options granted represents the period of time that options
granted are expected to be outstanding. The risk-free rate for periods within
the contractual term of the options is based on the United States Treasury
yields in effect at the time of grant.
As
stock-based compensation expense recognized in the Company’s results is based on
awards ultimately expected to vest, the amount of expense has been reduced for
estimated forfeitures based on the Company’s historical
experience.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
The fair
value of each option granted was estimated in the period of issuance using the
assumptions in the following table for the three months ended October 31, 2009
and October 31, 2008:
|
|
Three months ended October
31
|
|
|
|
2009
|
|
|
2008
|
|
Expected
life (years)
|
|
10
years
|
|
|
10
years
|
|
Risk-free
interest rate
|
|
|
3.6 |
% |
|
|
4.0 |
% |
Expected
volatility
|
|
|
85.1 |
% |
|
|
68.0 |
% |
Expected
forfeiture rate
|
|
|
3.7 |
% |
|
|
12.0 |
% |
Expected
dividend yield
|
|
|
0.0 |
% |
|
|
0.0 |
% |
Employee
Stock Purchase Plans
The
Company’s 2000 Employee Stock Purchase Plan has 175,000 shares of common stock
reserved for issuance, and 158,681 of the shares have been issued as of October
31, 2009. All employees of the Company, other than executive officers, with nine
months of service are eligible to participate. Shares may be purchased at the
end of a specified period at the lower of 85% of the market value at the
beginning or end of the specified period through accumulation of payroll
deductions, not to exceed 5,000 shares per employee per year.
1991
Stock Option Plan
The
Company’s 1991 Stock Option Plan was terminated on August 14, 2001, except
as to outstanding options. Options granted under the 1991 Plan may be either:
(a) options intended to qualify as incentive stock options under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(b) nonqualified stock options.
Any
incentive stock option that was granted under the 1991 Plan could not be granted
at a price less than the fair market value of the stock on the date of grant (or
less than 110% of the fair market value in the case of holders of 10% or more of
the voting stock of the Company). Nonqualified stock options were allowed to be
granted at the exercise price established by the Compensation Committee of the
Board of Directors, which could be less than, equal to or greater than the fair
market value of the stock on the date of grant.
Each
option granted under the 1991 Plan is exercisable for a period of ten years from
the date of grant (five years in the case of a holder of more than 10% of the
voting stock of the Company) or such shorter period as determined by the
Compensation Committee and shall lapse upon the expiration of said period, or
earlier upon termination of the participant’s employment with the
Company.
At its
discretion, the Compensation Committee may require a participant to be employed
by the Company for a designated number of years prior to exercising any options.
The Committee may also require a participant to meet certain performance
criteria, or that the Company meets certain targets or goals, prior to
exercising any options.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Changes
in option shares under the 1991 Plan during the three months ended October 31,
2009 and October 31, 2008 are as follows:
|
|
Number of Options
|
|
|
Wtd. Avg.
Exercise Price
|
|
|
Wtd. Avg. Remaining Contractual Period
(Years)
|
|
|
Aggregate Instrinsic Value
|
|
Outstanding
and exercisable at 7/31/08
|
|
|
93,186 |
|
|
$ |
2.27 |
|
|
|
1.23 |
|
|
$ |
- |
|
Granted
|
|
|
- |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Exercised
|
|
|
- |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Forfeited
|
|
|
(29,936 |
) |
|
|
2.18 |
|
|
|
n/a |
|
|
|
n/a |
|
Outstanding
and exercisable at 10/31/08
|
|
|
63,250 |
|
|
$ |
2.31 |
|
|
|
1.12 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable at 7/31/09
|
|
|
35,500 |
|
|
$ |
2.43 |
|
|
|
1.09 |
|
|
$ |
- |
|
Granted
|
|
|
- |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Exercised
|
|
|
- |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Forfeited
|
|
|
- |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Outstanding
and exercisable at 10/31/09
|
|
|
35,500 |
|
|
$ |
2.43 |
|
|
|
0.84 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
range of exercise prices for options outstanding at October 31, 2009 and
October 31, 2008 was $2.06 to $9.06.
|
|
1993
Director Stock Option Plan
The
Company’s 1993 Director Stock Option Plan has expired and is terminated except
for outstanding options. The 1993 Director Plan originally had 150,000 shares of
common stock reserved for issuance to non-employee directors. Options under the
1993 Director Plan were granted at the fair market value of the stock on the
grant date.
Each
option granted under the 1993 Director Plan is exercisable one year after the
date of grant and cannot be exercised later than ten years from the date of
grant.
Changes
in option shares under the 1993 Director Plan during the three months ended
October 31, 2009 and October 31, 2008 are as follows:
|
|
Number of Options
|
|
|
Wtd. Avg. Exercise Price
|
|
|
Wtd. Avg. Remaining Contractual Period
(Years)
|
|
|
Aggregate Instrinsic Value
|
|
Outstanding
and exercisable at 7/31/08
|
|
|
1,313 |
|
|
$ |
2.65 |
|
|
|
1.97 |
|
|
$ |
- |
|
Granted
|
|
|
- |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Exercised
|
|
|
- |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Forfeited
|
|
|
- |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Outstanding
and exercisable at 10/31/08
|
|
|
1,313 |
|
|
$ |
2.65 |
|
|
|
1.72 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable at 7/31/09
|
|
|
1,313 |
|
|
$ |
2.65 |
|
|
|
0.97 |
|
|
$ |
- |
|
Granted
|
|
|
- |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Exercised
|
|
|
- |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Forfeited
|
|
|
- |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Outstanding
and exercisable at 10/31/09
|
|
|
1,313 |
|
|
$ |
2.65 |
|
|
|
0.72 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
range of exercise prices for options outstanding at October 31, 2009 and
October 31, 2008 was $2.00 to $3.56.
|
|
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
2000
Stock Option Plan
The
Company’s 2000 Stock Option Plan has 1,950,000 shares of common stock authorized
for issuance. Options granted under the 2000 Plan may be either:
(a) options intended to qualify as incentive stock options under
Section 422 of the Code, or (b) nonqualified stock
options.
Any
incentive stock option that is granted under the 2000 Plan may not be granted at
a price less than the fair market value of the stock on the date of the grant
(or less than 110% of the fair market value in the case of a participant who is
a 10% shareholder of the Company within the meaning of Section 422 of the
Code). Nonqualified stock options may be granted at the exercise price
established by the Compensation Committee.
Each
incentive stock option granted under the 2000 Plan is exercisable for a period
of not more than ten years from the date of grant (five years in the case of a
participant who is 10% shareholder of the Company, unless the stock options are
nonqualified), or such shorter period as determined by the Compensation
Committee, and shall lapse upon the expiration of said period, or earlier upon
termination of the participant’s employment with the Company.
Eligible
participants include current and prospective employees, non-employee directors,
consultants or other persons who provide services to the Company and whose
performance, in the judgment of the Compensation Committee or management of the
Company, can have a significant effect on the success of the
Company.
Changes
in option shares under the 2000 Plan during the three months ended October 31,
2009 and October 31, 2008 are as follows:
|
|
Number of Options
|
|
|
Wtd. Avg. Exercise Price
|
|
|
Wtd. Avg. Remaining Contractual Period
(Years)
|
|
|
Aggregate Instrinsic Value
|
|
Outstanding
at 7/31/08
|
|
|
1,380,538 |
|
|
$ |
1.51 |
|
|
|
7.36 |
|
|
$ |
150,967 |
|
Granted
|
|
|
58,000 |
|
|
|
1.26 |
|
|
|
n/a |
|
|
|
n/a |
|
Exercised
|
|
|
- |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Forfeited
|
|
|
(128,438 |
) |
|
|
1.24 |
|
|
|
n/a |
|
|
|
n/a |
|
Outstanding
at 10/31/08
|
|
|
1,310,100 |
|
|
$ |
1.52 |
|
|
|
7.44 |
|
|
$ |
70,344 |
|
Exercisable
at 10/31/08
|
|
|
816,233 |
|
|
$ |
1.52 |
|
|
|
6.22 |
|
|
$ |
70,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at 7/31/09
|
|
|
1,213,402 |
|
|
$ |
1.51 |
|
|
|
7.08 |
|
|
$ |
21,337 |
|
Granted
|
|
|
22,000 |
|
|
|
0.85 |
|
|
|
n/a |
|
|
|
n/a |
|
Exercised
|
|
|
- |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Forfeited
|
|
|
(13,875 |
) |
|
|
1.46 |
|
|
|
n/a |
|
|
|
n/a |
|
Outstanding
at 10/31/09
|
|
|
1,221,527 |
|
|
$ |
1.50 |
|
|
|
6.86 |
|
|
$ |
37,456 |
|
Exercisable
at 10/31/09
|
|
|
857,751 |
|
|
$ |
1.56 |
|
|
|
6.06 |
|
|
$ |
30,902 |
|
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Changes
in the 2000 Plan's non-vested option shares included in the outstanding shares
above during the three months ended October 31, 2009 and October 31, 2008 are as
follows:
|
|
Number
of Options
|
|
|
Wtd.
Avg. Exercise Price
|
|
Non-vested
at 7/31/08
|
|
|
443,335 |
|
|
$ |
1.76 |
|
Granted
|
|
|
58,000 |
|
|
|
1.26 |
|
Vested
|
|
|
- |
|
|
|
n/a |
|
Forfeited
|
|
|
(7,468 |
) |
|
|
1.61 |
|
Non-vested
at 10/31/08
|
|
|
493,867 |
|
|
$ |
1.53 |
|
|
|
|
|
|
|
|
|
|
Non-vested
at 7/31/09
|
|
|
341,776 |
|
|
$ |
1.40 |
|
Granted
|
|
|
22,000 |
|
|
|
0.85 |
|
Vested
|
|
|
- |
|
|
|
n/a |
|
Forfeited
|
|
|
- |
|
|
|
n/a |
|
Non-vested
at 10/31/09
|
|
|
363,776 |
|
|
$ |
1.36 |
|
|
|
|
|
|
|
|
|
|
The
range of exercise prices for options outstanding at October 31, 2009 and
October 31, 2008 was $0.15 to $2.74
|
|
On April
27, 2009, the Company acquired substantially all of the assets of Channel Blade
Technologies, Corp. ("Channel Blade"), the leading provider of websites, lead
management and marketing automation solutions in the marine and recreation
vehicle ("RV") markets. Consideration for the acquisition included approximately
$500,000 in cash, 615,385 shares of the Company’s common stock at a market price
of $0.75 per share, $765,000 of assumed liabilities and a $5,000,000 note
payable.
In
connection with the acquisition, the Company entered into one year employment
agreements with Jon M. Lintvet and Charles Lewis (the "Employment Agreements")
to serve as Director of New Business Development and Director of Strategic
Accounts - Marine and RV, respectively.
The
following table shows the actual consolidated results of operations for the
three months ended October 31, 2009 and the pro forma results of operations for
the three months ended October 31, 2008, which assumes the Channel Blade
acquisition occurred at the beginning of that period (in thousands, except per
share data):
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
|
|
(Unaudited)
|
|
|
|
Three months ended October
31
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Actual)
|
|
|
(Pro Forma)
|
|
Net
Revenue
|
|
$ |
5,470 |
|
|
$ |
5,315 |
|
Cost
of revenue
|
|
|
955 |
|
|
|
957 |
|
Gross
profit
|
|
|
4,515 |
|
|
|
4,358 |
|
Net
operating expenses
|
|
|
4,176 |
|
|
|
4,411 |
|
Operating
income (loss)
|
|
|
339 |
|
|
|
(53 |
) |
Interest
income (expense)
|
|
|
(139 |
) |
|
|
(203 |
) |
Other,
net
|
|
|
(33 |
) |
|
|
(7 |
) |
Income
before provision for income taxes
|
|
|
167 |
|
|
|
(263 |
) |
Income
tax expense
|
|
|
(5 |
) |
|
|
- |
|
Net
income (loss)
|
|
$ |
162 |
|
|
$ |
(263 |
) |
|
|
|
|
|
|
|
|
|
Average
common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,711 |
|
|
|
7,587 |
|
Diluted
|
|
|
7,733 |
|
|
|
7,587 |
|
Basic
and diluted net loss per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.02 |
|
|
$ |
(0.03 |
) |
Diluted
|
|
$ |
0.02 |
|
|
$ |
(0.03 |
) |
This pro
forma information does not purport to be indicative of the results that actually
would have been obtained if the combined operations had been conducted during
the periods presented and is not intended to be a projection of future
results.
On April
17, 2009, AFIS acquired the assets of Powersports Outsourcing Group, LLC
("PSOG"), valued at approximately $85,000, in partial satisfaction of its debt
to ARI of approximately $185,000, $149,000 of which the Company purchased from
Keybank National Association on April 16, 2009. PSOG, located in
Schenectady, NY and led by Mark L. Taylor, had been offering outsourced finance
and insurance ("F&I") services to power sports, marine and RV customers in
the Northeast United States since 1998. In connection with the
acquisition, AFIS entered into a three year employment agreement with Mark L.
Taylor to serve as Director of F&I Business Development. The Company
included the results of operations of AFIS in its consolidated financial
statements for the three months ended October 31, 2009.
The
following table sets forth certain information related to the Company’s debt,
derived from the Company’s unaudited balance sheet as of October 31, 2009 and
audited balance sheet as of July 31, 2009 (in thousands):
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
October
31
|
|
|
July
31
|
|
|
|
2009
|
|
|
2009
|
|
Notes
payable
|
|
$ |
5,058 |
|
|
$ |
5,117 |
|
Less
current maturities
|
|
|
58 |
|
|
|
117 |
|
Notes
payable - non-current
|
|
$ |
5,000 |
|
|
$ |
5,000 |
|
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
The
Company issued a $5,000,000 secured promissory note in connection with the April
27, 2009 acquisition of Channel Blade. The annual interest rate on
the note is 10% for the first year and 14% thereafter, unless the conditions of
the covenant described below are met. Accrued interest only is due
quarterly commencing July 31, 2009 through April 30, 2011. Twenty
equal quarterly payments of principal plus accrued interest shall then be due,
commencing July 31, 2011. The note contains a covenant that if the
Company pre-pays a minimum principal amount of $3,000,000 on or before April 27,
2010, the interest rate will remain 10% for the remainder of the note’s
term. The Company does not expect to make this early principal
payment by April 27, 2010.
The
Company issued $700,000 of notes and $400,000 of future non-interest bearing
contingent payments in connection with the January 26, 2007 acquisition of
OC-Net, Inc. The interest rate on the notes is prime plus 2%,
adjusted quarterly (effective rate of 5.25% as of October 31,
2009). The notes are payable in quarterly principal installments of
$58,333, commencing March 31, 2007 through December 31, 2009. The
notes do not contain any financial covenants. The Company has paid
all of the contingent payments.
On July
9, 2004, the Company entered into a line of credit agreement with JPMorgan
Chase, N.A. which, as amended, permits the Company to borrow an amount equal to
80% of the book value of all eligible accounts receivable plus 45% of the value
of all eligible open renewal orders (provided the renewal rate is at least 85%)
minus $75,000, up to $1,500,000. Eligible accounts include certain
non-foreign accounts receivable which are outstanding for fewer than 90 days
from the invoice date.
The note
bears interest at 1% per annum above the prime rate (effective rate of 4.25% as
of October 31, 2009) plus an additional 3%, at the bank’s option, upon the
occurrence of any default under the note, and the agreement includes a non-usage
fee of 0.25% per annum on any unused portion of the line of
credit. The line of credit terminates June 30, 2011 and is secured by
substantially all of the Company’s assets. The line of credit limits
repurchases of common stock, the payment of dividends, liens on assets and new
indebtedness. It also contains a financial covenant requiring the
Company to maintain a minimum debt service coverage ratio of 1.2 to 1.0, with
which the Company was in compliance at October 31, 2009. The Company
had $700,000 and $500,000 principal outstanding on the line of credit at October
31, 2009, and July 31, 2009, respectively.
7.
|
SHAREHOLDER
RIGHTS PLAN
|
On August
7, 2003, the Company adopted a Shareholder Rights Plan designed to protect the
interests of common shareholders from an inadequate or unfair takeover, but not
affect a takeover proposal which the Board of Directors believes is fair to all
shareholders. Under the Shareholder Rights Plan adopted by the Board
of Directors, all shareholders of record on August 18, 2003 received one
Preferred Share Purchase Right (each, a “Right”) for each share of common stock
they owned. These Rights trade in tandem with the common stock until and
unless they are triggered. Should a person or group acquire more than 10%
of the Company’s common stock (or if an existing holder of 10% or more of the
common stock were to increase its position by more than 1%), the Rights would
become exercisable for every shareholder except the acquirer that triggered the
exercise. The Rights, if triggered, would give the rest of the
shareholders the ability to purchase additional stock of the Company at a
substantial discount. The Rights will expire on August 18, 2013, and can
be redeemed by the Company for $0.01 per Right at any time prior to a person or
group becoming a 10% shareholder.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
The
provision for income taxes for the three months ended October 31, 2009 and 2008
is composed of the following (in thousands):
|
|
(Unaudited)
|
|
|
|
Three
months ended October 31
|
|
|
|
2009
|
|
|
2008
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$ |
(71 |
) |
|
$ |
102 |
|
State
|
|
|
(13 |
) |
|
|
18 |
|
Utilization
of net operating loss carryforwards
|
|
|
84 |
|
|
|
(120 |
) |
AMT
and other
|
|
|
5 |
|
|
|
- |
|
Deferred,
net
|
|
|
- |
|
|
|
- |
|
Income
tax provision
|
|
$ |
5 |
|
|
$ |
- |
|
The
provision for income taxes is based on taxes payable under currently enacted tax
laws and an analysis of temporary differences between the book and tax bases of
the Company’s assets and liabilities, including various accruals, allowances,
depreciation and amortization, and does not represent current taxes
due. The tax effect of these temporary differences and the estimated
tax benefit from tax net operating losses are reported as deferred tax assets
and liabilities in the balance sheet. An assessment is performed
quarterly of the likelihood that net deferred tax assets will be realized from
future taxable income. To the extent management believes it is more
likely than not that some portion, or all, of the deferred tax asset will not be
realized, a valuation allowance is established. This assessment is
based on all available evidence, both positive and negative, in evaluating the
likelihood of realizability. Issues considered in the assessment
include future reversals of existing taxable temporary differences, estimates of
future taxable income (exclusive of reversing temporary differences and
carryforwards) and prudent tax planning strategies available in future
periods. Because ultimately the realizability of deferred tax assets
is highly subject to the outcome of future events, the amount established as
valuation allowances is considered to be a significant estimate that is subject
to change in the near term. To the extent a valuation allowance is
established or there is a change in the allowance during a period, the change is
reflected with a corresponding increase or decrease in the tax provision in the
Consolidated Statements of Income. The Company made no change in its estimated
total realizable net deferred tax assets in the current quarter ended October
31, 2009. The Company continues to evaluate the realizability of
deferred tax assets on a quarterly basis.
The
Company’s business segments are internally organized primarily by geographic
location of the operating facilities. In accordance with generally
accepted principles regarding disclosures about business segments, the Company
has segregated the Netherlands operation and the United States operations into
separate reportable segments. Segment revenue for the Netherlands
operation includes only revenue generated out of the Netherland subsidiary and
does not include rest of world revenue sold by the United States
operation. The Company evaluates the performance of and allocates
resources to each of the segments based on their operating results excluding
interest and taxes.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Information
concerning the Company’s operating business segments for the three months ended
October 31, 2009 and 2008 is as follows:
|
|
(Unaudited)
|
|
|
|
Three months ended October
31
|
|
|
|
2009
|
|
|
2008
|
|
Revenue
:
|
|
|
|
|
|
|
Netherlands
|
|
$ |
176 |
|
|
$ |
172 |
|
United
States
|
|
|
5,294 |
|
|
|
3,997 |
|
Consolidated
|
|
$ |
5,470 |
|
|
$ |
4,169 |
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
|
|
|
|
|
|
Netherlands
|
|
$ |
(15 |
) |
|
$ |
(36 |
) |
United
States
|
|
|
177 |
|
|
|
292 |
|
Consolidated
|
|
$ |
162 |
|
|
$ |
256 |
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
October
31
|
|
|
July
31
|
|
|
|
2009
|
|
|
2009
|
|
Total
Assets
|
|
|
|
|
|
|
Netherlands
|
|
$ |
184 |
|
|
$ |
228 |
|
United
States
|
|
|
17,738 |
|
|
|
18,379 |
|
Consolidated
|
|
$ |
17,922 |
|
|
$ |
18,607 |
|
In July,
2008 the Company announced a restructuring that consolidated its Virginia data
conversion operations into its Wisconsin location and consolidated its Colorado
software development operations into its California location. The
Company recognized a $529,000 restructuring expense in the fourth quarter of
fiscal 2008 to reflect the lease obligation for the Colorado office, and an
additional $76,000 restructuring expense in the first quarter of fiscal 2010 to
reflect an adjustment resulting from a reduction in the amount of expected
future sub-lease rentals for this property. As of October 31, 2009,
$142,000 of the restructuring reserve remained on the Consolidated Balance
Sheet. Changes to the restructuring reserve since July 31, 2009 are
reflected in the following table (in thousands):
|
|
Restructuring Reserve
|
|
Balance
at 7/31/09
|
|
$ |
93 |
|
Payments
|
|
|
(27 |
) |
Adjustments
|
|
|
76 |
|
Balance
at 10/31/09
|
|
$ |
142 |
|
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Summary
The
Company produced net income of $162,000 for the three months ended October 31,
2009, compared to $256,000 for the same period last year. The
decrease in earnings was primarily due to an expense recorded during the three
months ended October 31, 2009 for an adjustment to the restructuring reserve
related to accrued lease obligations, as well as an increase in interest expense
resulting from the note payable issued as part of the Channel Blade acquisition.
Revenues for the three months ended October 31, 2009 were $5,470,000, compared
to $4,169,000 for the same period last year. This represents an
increase of $1,301,000, or 31%. The increase was primarily due to the
addition of Channel Blade, but also resulted from increased marketing services
revenue and increased renewal rates. Management expects revenue to
increase for the remainder of the fiscal year, compared to the same period in
fiscal 2009, as a result of the Company's two April 2009 acquisitions and as the
Company continues to sustain high contract renewal rates and generate new
sales.
Current
Global Economic Downturn
The
Company’s customers are equipment manufacturers, distributors and dealers,
primarily in the outdoor power, power sports, motorcycles, marine, RV,
appliances, agricultural equipment markets, floor maintenance and
construction. Industry trade publications continue to report that the
current global economic downturn is having a substantial negative effect on the
revenues, earnings and cash flow of customers within the Company’s primary
markets, which in turn, may weaken some of the Company’s customers’ ability to
timely pay their obligations. Management believes the Company has adequately
reserved against this possibility in its allowance for doubtful
accounts. It should be noted that, despite the economic downturn, ARI
has continued to grow its business and remained profitable.
The
Company sells the majority of its products on a subscription basis with terms of
one or more years. These products are considered essential to
enabling more efficient operations and enhancing the sale of parts, whole goods
and accessories throughout the distribution channels. In addition,
the electronic catalog portion of the Company’s business is primarily tied to
equipment repair, which becomes more important during difficult economic times,
as consumers retain and repair their current equipment rather than purchase new
units. The combination of these factors generally has been and is expected to
continue to moderate the effect of the economic downturn on the Company’s
revenue and earnings when compared to businesses which manufacture or distribute
equipment and other capital goods.
Critical
Accounting Policies and Estimates
General
The
Company's discussion and analysis of its financial condition and results of
operations are based upon its financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates,
including, among others, those related to customer contracts, valuation of
intangible assets, bad debts, valuation of deferred tax assets, capitalized
software product costs, financing instruments, stock option expense, revenue
recognition and other accrued expenses. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
The
Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its financial
statements.
Reclassification
Beginning
in the fourth quarter of fiscal 2009, the Company reclassified the components of
operating expenses on its Statement of Income. The Statement of
Income for the three months ended October 31, 2008 has been reclassified to
conform to the fiscal 2010 presentation.
Revenue
Recognition
Revenue
for use of the network and for information services is recognized on a
straight-line basis over the period of the contract.
Revenue
from annual or periodic maintenance fees is recognized ratably over the period
the maintenance is provided. Revenue from catalog subscriptions is recognized on
a straight-line basis over the subscription term.
Revenue
from software licenses in multiple element arrangements is recognized ratably
over the contractual term of the arrangement. The Company considers all
arrangements with payment terms extending beyond 12 months not to be fixed or
determinable and evaluates other arrangements with payment terms longer than
normal to determine whether the arrangement is fixed or determinable. If the fee
is not fixed or determinable, revenue is recognized as payments become due from
the customer. Arrangements that include acceptance terms beyond the Company’s
standard terms are not recognized until acceptance has occurred. If
collectability is not considered probable, revenue is recognized when the fee is
collected.
Arrangements
that include professional services are evaluated to determine whether those
services are essential to the functionality of other elements of the
arrangement. Types of services that are considered essential include customizing
complex features and functionality in a product’s base software code or
developing complex interfaces within a customer’s environment. When professional
services are not considered essential, the revenue allocable to the professional
services is recognized as the services are performed. When professional services
are considered essential, revenue under the arrangement is recognized pursuant
to contract accounting using the percentage-of-completion method with
progress-to-completion measured based upon labor hours incurred. When the
current estimates of total contract revenue and contract cost indicate a loss, a
provision for the entire loss on the contract is made in the period the amount
is determined.
Amounts
invoiced to customers prior to recognition as revenue as discussed above are
reflected in the accompanying balance sheets as deferred revenue.
The
Company incurred a deferred revenue liability related to setup fees charged for
hosted websites of approximately $1,300,000 from the Channel Blade acquisition,
which is amortized over the terms of the customer
contracts. Approximately $394,000 was recognized during the three
months ended October 31, 2009.
Allowance
for Doubtful Accounts
The
Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. The
Company currently reserves for most amounts due over 90 days, unless there is
reasonable assurance of collectability. If the financial condition of the
Company’s customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required. In
fiscal 2009 the Company increased its allowance for doubtful accounts due to
general economic conditions. The allowance remained relatively the
same at October 31, 2009, compared to the previous quarter.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Legal
Provisions
The
Company is periodically involved in legal proceedings arising from contracts,
patents or other matters in the normal course of business. The Company reserves
for any material estimated losses if the outcome is probable, in accordance with
accounting principles generally accepted in the United
States. The Company had no legal provisions at October 31, 2009
and 2008.
Impairment
of Long-Lived Assets
Equipment
and leasehold improvements, capitalized software product costs and other
identifiable assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected undiscounted cash flows is less than the carrying value of
the related asset or group of assets, a loss is recognized for the difference
between the fair value and carrying value of the asset or group of
assets. No impairment of long-lived assets occurred during the
quarters ended October 31, 2009 and 2008.
Fair
Value Measurements
The
Company measures certain financial instruments and other items using fair value
measurements. Unrealized gains and losses on items for which the fair value
option has been elected are recognized in earnings. The Company had
no unrealized gains or losses related to the fair value option during the
quarters ended October 31, 2009 and 2008.
Goodwill and Other Intangible
Assets
The
Company does not amortize goodwill and intangible assets deemed to have
indefinite lives. Rather, the Company performs impairment tests
annually or more frequently if facts and circumstances warrant a
review. The Company determined that there was a single reporting unit
for the purpose of goodwill impairment tests. For purposes of
assessing the impairment of goodwill, the Company estimates the value of the
reporting unit using the best evidence available, consideration of recent
transaction values and market capitalization. This fair value is then compared
with the carrying value of the reporting unit. No impairment of
goodwill occurred during the quarters ended October 31, 2009 and
2008.
Impairment
tests are also performed annually for those intangible assets with estimable
useful lives. These assets are amortized over their estimated useful
lives to their estimated residual values. Intangible assets with
estimable useful lives consist primarily of customer relationships and trade
names, which are amortized over their estimated useful lives of 4-8 years, and
employee non-compete agreements, which are amortized over their estimated useful
lives of two years. No impairment of intangible assets with estimable useful
lives occurred during the quarters ended October 31, 2009 and 2008.
Deferred
Income Taxes
The tax
effect of the temporary differences between the book and tax bases of assets and
liabilities and the estimated tax benefit from tax net operating losses is
reported as deferred tax assets and liabilities in the balance sheet. An
assessment of the likelihood that net deferred tax assets will be realized from
future taxable income is performed. Because the ultimate realizability of
deferred tax assets is highly subject to the outcome of future events, the
amount established as valuation allowance is considered to be a significant
estimate that is subject to change in the near term. To the extent a valuation
allowance is established or there is a change in the allowance during a period,
the change is reflected with a corresponding increase or decrease in the tax
provision in the income statement. There was no change in the
deferred tax asset between July 31, 2009 and October 31, 2009.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Stock-Based
Compensation
The
Company uses the Black-Scholes model to value stock options granted. Expected
volatility is based on historical volatility of the Company’s stock. The
expected life of options granted represents the period of time that options
granted are expected to be outstanding. The risk-free rate for periods within
the contractual term of the options is based on the U.S. Treasury yields in
effect at the time of grant. As stock-based compensation expense recognized in
our results of operations is based on awards ultimately expected to vest, the
amount has been reduced for estimated forfeitures, which were estimated based on
our historical experience. There were no capitalized stock-based compensation
costs at October 31, 2009 or July 31, 2009.
Revenues
ARI is a
leading provider of technology enabled services that help dealers, distributors
and manufacturers reduce costs and increase sales in selected vertical markets
worldwide, including outdoor power, power sports, motorcycles, marine, RV,
appliances, agricultural equipment, floor maintenance and
construction. ARI currently serves more than 20,000 dealers, 100
manufacturers and 150 distributors in more than 100 countries
worldwide.
ARI
offers four basic types of products and services to our customers: (i) electronic catalogs for
publishing and viewing technical reference information about the equipment; (ii)
marketing services,
including website creation, lead management, and email marketing, all of which
are designed to allow dealers to grow their businesses and increase
profitability through efficient and effective marketing of their products; (iii)
professional services,
including project management, data conversion, and software
customization; and (iv) outsourced F&I services,
which facilitate dealers' sales by obtaining financing for their customers and
providing them with after-sale products such as extended service
agreements. For a complete listing of the products and services
offered and for more information refer to Item 1, "Description of the Business",
of the Company’s annual report on Form 10-K for the year ended July 31,
2009. You may also visit the Company's website at
www.arinet.com.
The
following table sets forth, for the periods indicated, certain revenue
information derived from the Company's unaudited financial
statements. In the table below, revenue is categorized by customer
location, rather than by Company subsidiary. Since some non-North
American customers are billed from the United States parent company, the
presentation is different from the segment reporting discussed in Note 9 to the
Consolidated Financial Statements.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
|
|
(Unaudited)
|
|
|
|
Three months ended October
31
|
|
|
|
2009
|
|
|
2008
|
|
|
Percent Change
|
|
North
America
|
|
|
|
|
|
|
|
|
|
Catalog
subscriptions
|
|
$ |
2,660 |
|
|
$ |
2,546 |
|
|
|
4.5 |
|
Catalog
professional services
|
|
|
265 |
|
|
|
255 |
|
|
|
3.9 |
|
Marketing
services
|
|
|
1,982 |
|
|
|
650 |
|
|
|
204.9 |
|
Marketing
professional services
|
|
|
154 |
|
|
|
325 |
|
|
|
(52.6 |
) |
Other
revenues
|
|
|
193 |
|
|
|
165 |
|
|
|
17.0 |
|
Subtotal
North America
|
|
|
5,254 |
|
|
|
3,941 |
|
|
|
33.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest
of the World
|
|
|
|
|
|
|
|
|
|
|
|
|
Catalog
subscriptions
|
|
|
215 |
|
|
|
216 |
|
|
|
(0.5 |
) |
Catalog
professional services
|
|
|
1 |
|
|
|
12 |
|
|
|
(91.7 |
) |
Subtotal
Rest of the World
|
|
|
216 |
|
|
|
228 |
|
|
|
(5.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Catalog
subscriptions
|
|
|
2,875 |
|
|
|
2,762 |
|
|
|
4.1 |
|
Catalog
professional services
|
|
|
266 |
|
|
|
267 |
|
|
|
(0.4 |
) |
Marketing
services
|
|
|
1,982 |
|
|
|
650 |
|
|
|
204.9 |
|
Marketing
professional services
|
|
|
154 |
|
|
|
325 |
|
|
|
(52.6 |
) |
Other
revenues
|
|
|
193 |
|
|
|
165 |
|
|
|
17.0 |
|
Total
Revenue
|
|
$ |
5,470 |
|
|
$ |
4,169 |
|
|
|
31.2 |
|
North
America
Catalog
Subscriptions
North
America catalog subscription revenues are derived from software license fees,
license renewal fees, software maintenance and support fees, catalog
subscription fees, shipping and handling fees and other miscellaneous
subscription fees charged to dealers, distributors and manufacturers for the use
of the Company’s catalog products in the United States and Canada. Catalog
subscription revenues increased for the three month period ended October 31,
2009, compared to the same period last year. This increase resulted
from the realization of the benefits from several revenue enhancement
initiatives that were put in place in fiscal 2009. Management expects
revenues from catalog subscriptions in North America for the remainder of fiscal
2010 to remain relatively the same compared to fiscal 2009.
Catalog
Professional Services
Revenues
from North American catalog professional services are derived from software
customization labor, data conversion labor, data conversion replication fees,
and shipping fees primarily charged to manufacturers and distributors in the
United States and Canada. Revenues from catalog professional services in North
America stayed relatively constant for the three months ended October 31, 2009,
compared to the same period last year. Management expects catalog
professional services revenue to be lower in the second quarter of fiscal 2010
than the previous year and higher for the second half of fiscal 2010, due to a
partial recovery from the economic impact affecting the Company's professional
services revenues in the latter half of fiscal 2009, as customers postponed or
cancelled projects.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Marketing
Services
Revenues
from the Company’s North American marketing services are derived from start-up,
hosting and access fees charged to dealers for the Company's website products,
commissions from on-line sales through the use of these products, as well as
set-up and postage fees for the Company's lead management and advertising
products sold in the United States and Canada. Revenues from
marketing services in North America increased significantly for the three months
ended October 31, 2009, compared to the same period last year, due to the
addition of revenues from the Company's April 2009 acquisition of Channel Blade
as well as new products introduced during fiscal 2009, including
SearchEngineSmartä. Management
expects revenues from marketing services in North America to increase for the
remainder of fiscal 2010 due to the realization of a full year's revenue from
Channel Blade and ARI's new service offerings.
Marketing
Professional Services
Revenues
from the Company’s North American marketing professional services are derived
from website customization labor primarily charged to manufacturers,
distributors and other customers in the United States. These professional
services engagements are for two types of work: (i) set-up, integration, and
customization of ARI marketing services products for use by the customer; and
(ii) custom development services. The latter type represents the
majority of marketing professional services revenue. The Company views these
projects as important not only because they generate additional revenues, but
due to the nature of the projects, some partially fund new capabilities which
can later be incorporated into ARI products and sold to other
customers. Revenues from marketing professional services in North
America decreased for the three months ended October 31, 2009, compared to the
previous year, due to customers' reduced spending on these services as a result
of general market conditions. Management expects revenues from
marketing professional services to approximate fiscal 2009 revenues for the
remainder of the year, and to represent a decreasing percentage of the Company’s
total revenues as the subscription side of the business continues to
grow.
Other
Revenues
Other
revenues are derived from license renewal fees, software maintenance,
customization labor and other communication fees charged for dealers and
distributors to communicate with manufacturers in the manufactured equipment
industry and the agricultural inputs industry. Revenues from ARI's F&I
services are also included within this category. Other revenues
increased for the three months ended October 31, 2009, compared to the same
period last year due to the addition of revenues from F&I services.
Management expects other revenues will increase compared to the prior year for
the remainder of fiscal 2010 due to revenue from F&I services.
Rest of the World
Catalog
Subscriptions
Catalog
subscription revenues from the rest of the world are derived from software
license fees, license renewal, software maintenance and support fees, catalog
subscription fees, and other miscellaneous subscription fees charged to dealers,
distributors and manufacturers outside of North America for the use of the
Company’s catalog products. Catalog subscription revenues for the rest of the
world remained relatively the same for the three months ended October 31, 2009,
compared to the same period last year. Management expects catalog
subscription revenues from the rest of the world to remain relatively constant
in fiscal 2010 relative to the prior year.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Catalog
Professional Services
Revenues
from the Company’s rest of the world catalog professional services are derived
from software customization labor, data conversion labor and data conversion
replication fees. These revenues represent a very small portion of the Company's
overall business and management does not expect significant dollar changes in
this category from period to period; however, given the total size of this
category, even small dollar swings in revenue will reflect large percentage
swings.
Cost
of Revenue
The
following table sets forth, for the periods indicated, certain information
regarding revenue and cost of products and services sold, which is derived from
the Company's unaudited financial statements.
|
|
(Unaudited)
|
|
|
|
Three months ended October
31
|
|
|
|
2009
|
|
|
2008
|
|
|
Percent Change
|
|
Catalog
subscriptions
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
2,875 |
|
|
|
2,762 |
|
|
|
4.1 |
|
Cost
of revenue
|
|
|
304 |
|
|
|
415 |
|
|
|
(26.7 |
) |
Gross
profit
|
|
|
2,571 |
|
|
|
2,347 |
|
|
|
9.5 |
|
Gross
margin percentage
|
|
|
89.4 |
% |
|
|
85.0 |
% |
|
|
|
|
Catalog
professional services
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
266 |
|
|
|
267 |
|
|
|
(0.4 |
) |
Cost
of revenue
|
|
|
124 |
|
|
|
102 |
|
|
|
21.5 |
|
Gross
profit
|
|
|
142 |
|
|
|
165 |
|
|
|
(13.9 |
) |
Gross
margin percentage
|
|
|
53.4 |
% |
|
|
61.8 |
% |
|
|
|
|
Marketing
services
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
1,982 |
|
|
|
650 |
|
|
|
204.9 |
|
Cost
of revenue
|
|
|
444 |
|
|
|
115 |
|
|
|
285.9 |
|
Gross
profit
|
|
|
1,538 |
|
|
|
535 |
|
|
|
187.5 |
|
Gross
margin percentage
|
|
|
77.6 |
% |
|
|
82.3 |
% |
|
|
|
|
Marketing
professional services
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
154 |
|
|
|
325 |
|
|
|
(52.6 |
) |
Cost
of revenue
|
|
|
77 |
|
|
|
92 |
|
|
|
(16.4 |
) |
Gross
profit
|
|
|
77 |
|
|
|
233 |
|
|
|
(66.9 |
) |
Gross
margin percentage
|
|
|
50.1 |
% |
|
|
71.7 |
% |
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
193 |
|
|
|
165 |
|
|
|
17.0 |
|
Cost
of revenue
|
|
|
6 |
|
|
|
5 |
|
|
|
20.0 |
|
Gross
profit
|
|
|
187 |
|
|
|
160 |
|
|
|
16.9 |
|
Gross
margin percentage
|
|
|
96.9 |
% |
|
|
97.0 |
% |
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
5,470 |
|
|
|
4,169 |
|
|
|
31.2 |
|
Cost
of revenue
|
|
|
955 |
|
|
|
729 |
|
|
|
31.0 |
|
Gross
profit
|
|
$ |
4,515 |
|
|
$ |
3,440 |
|
|
|
31.3 |
|
Gross
margin percentage
|
|
|
82.5 |
% |
|
|
82.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Cost
of Catalog Subscriptions
Cost of
catalog subscriptions consists of reseller fees, software amortization costs,
catalog data conversion, replication and distribution costs. Cost of catalog
subscriptions, as a percentage of catalog subscription revenue, decreased for
the three months ended October 31, 2009, compared to the same period last year,
due to a decrease in catalog data conversion costs as a result of the Company’s
restructuring of its publishing operation. Management expects catalog
subscription gross margins to vary slightly from quarter to quarter due to the
timing of data shipments as well as the fact that software amortization is a
fixed cost, which is expensed on a straight-line basis.
Cost
of Catalog Professional Services
Cost of
catalog professional services consists of customization and catalog production
labor. Gross margin on catalog professional services decreased for the three
months ended October 31, 2009, compared to the same period last year. The
decline in gross margin is primarily due to work performed for manufacturers to
support various projects in excess of the contracted time
billed. Management expects gross margins from catalog professional
services to improve over the current quarter but to continue to be less than the
previous year for the remainder of fiscal 2010.
Cost
of Marketing Services
Cost of
marketing services consists of website setup labor, network communication costs,
software amortization costs, and printing and distribution
costs. Gross margin on marketing services decreased for the three
months ended October 31, 2009, compared to the same period last year, due to the
fact that gross margin on the Company's new SearchEngineSmartä service is lower
than the gross margins of ARI's other marketing services. Management
expects gross margins from marketing services to fluctuate from quarter to
quarter depending on the mix of services sold as well as the fact that software
amortization is a fixed cost, which is expensed on a straight-line
basis.
Cost
of Marketing Professional Services
Cost of
revenues for marketing professional services consists of website customization
labor associated primarily with large contracts. Gross margin from marketing
professional services decreased for the three months ended October 31, 2009,
compared to the same period last year. The higher margin for the
three months ended October 31, 2008 was due to efficiencies realized on billable
work performed for a customer for which part of the labor was utilized in the
Company’s capitalized software products. Management expects gross
margins from marketing professional services to improve over the current quarter
but to continue to be less than the previous year for the remainder of fiscal
2010.
Cost
of Other Revenues
Cost of
other revenues consists primarily of telecommunication costs, royalties,
software customization labor, and cost of sales associated with the Company's
F&I services revenue. Gross margin from other revenues remained relatively
the same for the three months ended October 31, 2009, compared to the same
period last year. Management expects gross margins on other revenue
to remain relatively the same as fiscal 2009 for the remainder of the
year.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Operating
Expenses
The
following table sets forth, for the periods indicated, certain operating expense
information derived from the Company's unaudited financial
statements.
|
|
(Unaudited)
|
|
|
|
Three months ended October
31
|
|
|
|
2009
|
|
|
Percent of Revenue
|
|
|
2008
|
|
|
Percent of Revenue
|
|
|
Percent Change
|
|
Sales
and marketing
|
|
$ |
1,277 |
|
|
|
23.3 |
|
|
$ |
948 |
|
|
|
22.7 |
|
|
|
34.7 |
|
Customer
operations and support
|
|
|
824 |
|
|
|
15.1 |
|
|
|
724 |
|
|
|
17.4 |
|
|
|
13.8 |
|
Software
development and technical support (1)
|
|
|
458 |
|
|
|
8.4 |
|
|
|
408 |
|
|
|
9.8 |
|
|
|
12.3 |
|
General
and administrative
|
|
|
1,137 |
|
|
|
20.8 |
|
|
|
840 |
|
|
|
20.1 |
|
|
|
35.4 |
|
Restructuring
|
|
|
76 |
|
|
|
1.4 |
|
|
|
- |
|
|
|
0.0 |
|
|
|
n/a |
|
Depreciation
and amortization (2)
|
|
|
404 |
|
|
|
7.4 |
|
|
|
229 |
|
|
|
5.5 |
|
|
|
76.4 |
|
Net
operating expenses
|
|
$ |
4,176 |
|
|
|
76.3 |
|
|
$ |
3,149 |
|
|
|
75.5 |
|
|
|
32.6 |
|
(1)
|
Net
of capitalized software product costs of $260 and $226 for the three
months ended October 31, 2009 and 2008,
respectively.
|
(2)
|
Exclusive
of amortization of software products of $253 and $215 in for the three
months ended October 31, 2009 and 2008, respectively, which are included
in cost of revenue.
|
Summary
Net
operating expenses increased for the three months ended October 31, 2009,
compared to the same period last year, primarily due to expenses related to the
Company's April 2009 acquisitions of Channel Blade and
PSOG. Management expects net operating expenses to increase for the
remainder of fiscal 2010, compared to the previous year, due to the additional
costs associated with the Company’s April 2009 acquisitions.
Sales
and Marketing
Sales and
marketing expenses increased for the three month period ended October 31, 2009,
compared to the same period last year, due to the addition of the Channel Blade
and PSOG operations as well as additional investments made in product
management, which have resulted in two new service offerings:
SearchEngineSmartä and PartStreamä
.. Management expects sales and marketing costs to be higher for the
first three quarters of fiscal 2010, as compared to the same periods last year,
due to the inclusion of payroll expense from the Company's April 2009
acquisitions, and thereafter to gradually decline as a percentage of revenue, as
the acquisitions become fully integrated.
Customer
Operations and Support
Customer
operations and support costs consist of server room operations, software
maintenance agreements for the Company’s core network, and customer support
labor. Customer operations and support costs increased for the three months
ended October 31, 2009, compared to the same period last year, due to the
additional support costs related to the Channel Blade
acquisition. Management expects customer operations and support costs
to increase for the remainder of fiscal 2010 compared to fiscal 2009, due to the
additional support costs associated with the Company’s recent
acquisitions.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Software
Development and Technical Support
The
Company’s software development staff (both in-house and contracted) performs
software development, escalated technical support, software customization and
data conversion services for customer applications. Management
expects fluctuations in these costs from period to period, as the mix of
development and customization activities will change based on customer
requirements, even if the total software development costs remain relatively
constant. Software development and technical support costs increased
for the three month period ended October 31, 2009, compared to the same period
last year, due to additional technical resources from the Channel Blade
acquisition. The increase in software development and technical
support costs was partially offset by an increase in the utilization rates of
the Company's development staff.
General
and Administrative
General
and administrative costs ("G&A") increased for the three month period ended
October 31, 2009, compared to the same period last year, primarily due to
increased resources and facility costs associated with the Channel Blade and
PSOG acquisitions. Management expects G&A costs to be higher for
the first three quarters of fiscal 2010, as compared to the same periods last
year, due to the inclusion of costs related to the Company's April 2009
acquisitions, and thereafter to decline as a percentage of revenue, as the
Company continues to grow, achieves synergies from its acquisitions, and
leverages the reduced cost structure that resulted from its fiscal 2008
restructuring.
Restructuring
In July
2008 the Company announced a restructuring that consolidated its Virginia data
conversion operation into its Wisconsin location and consolidated its Colorado
software development operations into its California location. The
Company recognized a $529,000 restructuring expense in the fourth quarter of
fiscal 2008 to reflect the lease obligation for the Colorado office, and an
additional $76,000 restructuring expense in the first quarter of fiscal 2010 to
reflect an adjustment resulting from a reduction in the amount of expected
future sub‐lease rentals for this property. As of October 31, 2009,
$142,000 of the restructuring reserve remained on the Consolidated Balance
Sheet.
Depreciation
and Amortization
Depreciation
and amortization expense increased for the three months ended October 31, 2009,
compared to the same period last year, due to the amortization of software,
equipment and intangible assets associated with the Channel Blade acquisition.
Management expects depreciation and amortization to continue to be higher in
fiscal 2010, compared to the previous year, due to the aforementioned
acquisition-related costs.
Other
Items
Interest
expense includes both cash and non-cash interest. Interest paid increased for
the three months ended October 31, 2009, compared to the same period last year,
due to the addition of debt related to the Channel Blade
acquisition. Management expects interest expense for the first three
quarters of fiscal 2010 to be higher than the same periods in fiscal 2009 for
this same reason.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Liquidity
and Capital Resources
The
following table sets forth, for the periods indicated, certain cash flow
information derived from the Company’s unaudited financial
statements.
|
|
(Unaudited)
|
|
|
|
Three months ended October
31
|
|
|
|
2009
|
|
|
2008
|
|
|
Percent Change
|
|
Net
income
|
|
$ |
162 |
|
|
$ |
256 |
|
|
|
(36.7 |
) |
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of software products
|
|
|
253 |
|
|
|
215 |
|
|
|
17.7 |
|
Amortization
of debt discount and other
|
|
|
- |
|
|
|
4 |
|
|
|
(100.0 |
) |
Depreciation
and other amortization
|
|
|
404 |
|
|
|
229 |
|
|
|
76.4 |
|
Stock
based compensation
|
|
|
40 |
|
|
|
76 |
|
|
|
(47.4 |
) |
Net
change in working capital
|
|
|
(1,225 |
) |
|
|
(330 |
) |
|
|
(271.2 |
) |
Net
cash provided by (used in) operating activities
|
|
|
(366 |
) |
|
|
450 |
|
|
|
(181.3 |
) |
Net
cash used in investing activities
|
|
|
(380 |
) |
|
|
(485 |
) |
|
|
21.6 |
|
Net
cash provided by (used in) financing activities
|
|
|
395 |
|
|
|
(180 |
) |
|
|
319.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of foreign currency exchange rate changes on cash
|
|
|
(8 |
) |
|
|
(11 |
) |
|
|
27.3 |
|
Net
change in cash
|
|
$ |
(359 |
) |
|
$ |
(226 |
) |
|
|
(58.8 |
) |
At
October 31, 2009, the Company had cash and cash equivalents of $291,000 compared
to $650,000 at July 31, 2009. Cash used in operations was $366,000
for the three months ended October 31, 2009, compared to cash provided by
operations of $450,000 for the three months ended October 31,
2008. The decrease in net cash from operating activities was partly
due to a decline in earnings but largely due to the timing of short term
obligations which were primarily related to payroll, legal and accounting and
other vendor related costs which were paid during the first quarter in fiscal
2010, but which were not paid until the second quarter in fiscal
2009. The effect of net changes in working capital is dependent on
the timing of payroll and other cash disbursements, accruals and the timing of
invoices and may vary significantly from quarter to quarter.
Net cash
used in investing activities was $380,000 for the three months ended October 31,
2009, compared to $485,000 for the same period last year. Management
expects cash used in investing activities to fluctuate from quarter to quarter,
depending on the level of capital expenditures and the timing of
acquisitions.
Net cash
provided by financing activities was $395,000 for the three months ended October
31, 2009, compared to cash used in financing activities of $180,000 for the same
period last year. The funds generated in the first quarter of fiscal 2010
included the financing of capital investments that the Company purchased during
the quarter and in the fourth quarter of fiscal 2009.
Management
believes that funds generated from operations will be adequate to fund the
Company’s operations, investments and debt payments for the foreseeable future.
The Company renewed its bank line of credit on April 6, 2009, lengthening its
term to June 30, 2011, filed as exhibit 10.1 to the Company’s Form 10-Q for the
period ended April 30, 2009.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Acquisitions
Since
December 1995 the Company has had a formal corporate development program
aimed at identifying, evaluating and closing acquisitions that augment and
strengthen the Company’s market position, product offerings, and personnel
resources. Since the program’s inception, nine business acquisitions and one
software asset acquisition have been completed, seven of which were fully
integrated into the Company’s operations prior to fiscal 2010. No
acquisitions were made during the first quarter of fiscal
2010. However, the corporate development program remains an important
component of the Company’s long-term growth strategy.
Specific
details related to the Company's April 2009 acquisitions of Channel Blade and
PSOG are discussed in Note 4 to the Company's Consolidated Financial
Statements.
Off-Balance
Sheet Arrangements
The
Company has no significant off-balance sheet arrangements that have or are
reasonably likely to have a material current or future effect on its financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
Forward
Looking Statements
Certain
statements contained in this Form 10-Q are forward looking statements including
revenue growth, income, future cash flows, cash generation and sources of
liquidity. Expressions such as “believes,” “anticipates,” “expects,”
and similar expressions are intended to identify such forward looking
statements. Several important factors can cause actual results to
materially differ from those stated or implied in the forward looking
statements. Such factors include, but are not limited to the factors
listed on Exhibit 99.1 of the Company’s annual report on Form 10-K for the year
ended July 31, 2009, which is incorporated herein by reference. The
forward-looking statements are made only as of the date hereof, and the Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Not
Applicable.
Evaluation
of Disclosure Controls and Procedures
The
Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed,
summarized, and reported within the required time periods and that such
information is accumulated and communicated to its management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
for timely decisions regarding required disclosure.
As
required by Rule 13a-15 under the Exchange Act, the Company has completed an
evaluation, under the supervision and with the participation of its management,
including its Chief Executive Officer and its Chief Financial Officer, of the
effectiveness and the design and operation of its disclosure controls and
procedures as of October 31, 2009. Based upon this evaluation, the Company’s
management, including its Chief Executive Officer and its Chief Financial
Officer, has concluded that its disclosure controls and procedures were
effective as of October 31, 2009.
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Changes
in Internal Controls
There
were no changes to the Company’s internal control over financial reporting
during the quarter ended October 31, 2009 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
II - OTHER INFORMATION
From time
to time, the Company may be involved in litigation relating to claims arising
out of its operations in the usual course of business. No material
legal proceedings to which the Company is a party arose during the three months
ended October 31, 2009.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
None.
|
DEFAULTS
UPON SENIOR SECURITIES
|
None.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
None.
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer.
|
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.
|
|
Section
1350 Certification of Chief Executive
Officer.
|
|
Section
1350 Certification of Chief Financial
Officer.
|
|
ARI
NETWORK SERVICES, INC.
Form
10-Q
For
the Three Months Ended October 31,
2009
|
Pursuant
to the requirements of Section 13 or 15(d) 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, on this 15th day
of December 2009.
ARI
NETWORK SERVICES, INC.
|
(Registrant)
|
|
|
By:
|
/s/ Roy W. Olivier
|
|
Roy W. Olivier
|
|
President
and Chief Executive Officer
|
|
|
By:
|
/s/ Brian E. Dearing
|
|
Brian
E. Dearing
|
|
Chairman
of the Board and Interim Chief Financial
Officer
|