ARIS Ari Network Services, Inc. (MM)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):  July 13, 2015

ARI NETWORK SERVICES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (414) 973-4300

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:

Item 2.01

Completion of Acquisition or Disposition of Assets

This Amendment No. 1 to Current Report on Form 8-K/A is being filed to amend the Current Report on Form 8-K (the "Initial 8-K") filed with the Securities and Exchange Commission on July 14, 2015, by ARI Network Services, Inc. (the "Company" or "ARI") to include the financial information referred to in Item 9.01(a) and (b) with respect to the Company's acquisition of the assets of Direct Communications, Incorporated (“DCi”) on July 13, 2015. The Company hereby amends Item 9.01 of the Initial 8-K to provide in its entirety as follows:

Item 9.01

Financial Statements and Exhibits

(a)  Financial Statements of Businesses Acquired

Attached hereto as exhibits 99.3 and 23.1, respectively, are (x) the audited financial statements of DCi as of and for the fiscal years ended September 30, 2014 and 2013, the independent auditors' report and the unaudited condensed financial statements of DCi for the six months ended March 31, 2015 and 2014, and (y) the consent of independent auditors.

(b)   Pro Forma Financial Information

Attached hereto as exhibit 99.4 are (1) unaudited pro forma condensed combined statements of operations of the nine months ended April 30, 2015 and the year ended July 31, 2014 for the Company, based on the Company’s unaudited statement of operations for the nine-month period ended April 30, 2015 and fiscal year ended July 31, 2014 and DCi’s unaudited statement of operations for the nine-month period ended March 31, 2015 and fiscal year ended September 30, 2014, and (2) the unaudited pro forma condensed balance sheet for ARI as of April 30, 2015, based on the Company’s unaudited balance sheet as of April 30, 2015 and DCi’s unaudited balance sheet as of March 31, 2015.

 (d)   Exhibits

Exhibit No.

Description

2.1

Asset Purchase Agreement, dated July 13, 2015, by and among ARI Network Services, Inc., Direct Communications, Incorporated, the Nile Cornelison Trust, the Jeanette Cornelison Trust, Mark Toebben, et al.*

4.1

Unsecured Non-Negotiable Subordinated Promissory Note, dated July 13, 2015, made by ARI Network Services, Inc. in favor of Direct Communications, Incorporated in the original principal amount of $2,000,000.00.*

23.1

Consent of Independent Registered Public Accounting Firm.

99.1

Investor FAQ.*

99.2

Press release issued July 14, 2015.*

99.3

Audited consolidated financial statements of DCi as of and for the fiscal years ended September 30, 2014 and 2013, independent auditors' report, and the unaudited condensed consolidated financial statements of DCi for the six months ended March 31, 2015 and 2014.

99.4

Unaudited Pro Forma Condensed Combined Financial Statements of the Company.

* Previously filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

ARI Network Services, Inc.

(Registrant)

Date:  September 25, 2015

By:

/s/ William A. Nurthen                           

                William A. Nurthen

                Chief Financial Officer

EXHIBIT INDEX

Exhibit No.

Description

2.1

Asset Purchase Agreement, dated July 13, 2015, by and among ARI Network Services, Inc., Direct Communications, Incorporated, the Nile Cornelison Trust, the Jeanette Cornelison Trust, Mark Toebben, et al.*

4.1

Unsecured Non-Negotiable Subordinated Promissory Note, dated July 13, 2015, made by ARI Network Services, Inc. in favor of Direct Communications, Incorporated in the original principal amount of $2,000,000.00.*

23.1

Consent of Independent Registered Public Accounting Firm.

99.1

Investor FAQ.*

99.2

Press release issued July 14, 2015.*

99.3

Audited consolidated financial statements of DCi as of and for the fiscal years ended September 30, 2014 and 2013, independent auditors' report, and the unaudited condensed consolidated financial statements of DCi  for the six months ended March 31, 2015 and 2014.

99.4

Unaudited Pro Forma Condensed Combined Financial Statements of the Company.

* Previously filed.

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in Registration Statements (No. 333-52176, 333-110104, 333-156380, 333-171491 and 333-193232)  on Form S-8, (No. 333-195379) on Form S-3, and (No. 333-188093) on Form S-1 of ARI Network Services, Inc. of our report dated June 30, 2015, relating to our audits of the financial statements of Direct Communications, Incorporated as of and for the years ended September 30, 2014 and 2013, included in this Current Report on Form 8-K/A of ARI Network Services, Inc.

/s/ McGladrey L.L.P.

Des Moines, IA

September 25, 2015

Exhibit 99.3

Direct Communications,

Incorporated

Financial Report

September 30, 2014

Contents

Independent Auditor’s Report

To the Board of Directors

Direct Communications, Incorporated

Des Moines, Iowa

Report on the Financial Statements

We have audited the accompanying financial statements of Direct Communications, Incorporated which comprise the balance sheets as of September 30, 2014 and 2013, and the related statements of income, retained earnings and cash flows for the years then ended and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Direct Communications, Incorporated as of September 30, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Des Moines, Iowa

June 30, 2015

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Direct Communications, Incorporated

Notes to Financial Statements

Note 1.

Nature of Business and Significant Accounting Policies

Nature of business: Direct Communications, Incorporated (the Company) provides telemedia, electronic cataloging database development and internet delivery processes to customers throughout the United States.

A summary of the Company’s significant accounting policies follows:

Revenue recognition: Revenue is derived primarily from monthly fees associated with maintenance of developed databases. Obligations to provide customers with future services are deferred and recognized either over the term of the respective agreements or, in the case of revenue associated with specific services, upon performance of the service. The Company considers all arrangements with payment terms extending beyond 12 months not to be fixed or determinable.

Income from contract cancellation represents payment received from a counterparty whom cancelled a merger agreement that was originally entered into with the Company in 2013.

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

Trade receivables: Trade receivables are carried at original invoice amount less an estimate made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received.

Leasehold improvements and equipment: Leasehold improvements and equipment are stated at cost. Depreciation is computed primarily by straight-line methods over useful lives of 3 to 7 years.

Concentration of credit risk: The Company maintains cash with a financial institution. Account balances were in excess of insured amounts during the years ended September 30, 2014 and 2013. The Company has experienced no losses as a result of the excess.

Subsequent events: Subsequent events have been evaluated through June 30, 2015, the date of financial statements.

Note 2.

Rent Commitments and Related Party Transactions

The Company leases a portion of its office premises under a noncancelable agreement which expires April 30, 2017, and requires a monthly payment of $3,802 plus normal maintenance, operating expenses, and property taxes.  

The remaining portion of its office premises is leased under a noncancelable agreement with officer-stockholders which expires November 30, 2017, and requires a monthly rental payment of approximately $3,500 plus normal maintenance, operating expenses and property taxes.

The Company also leases office storage space under month-to-month operating lease agreements.

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Direct Communications, Incorporated

Notes to Financial Statements

Note 2.

Rent Commitments and Related Party Transactions (Continued)

Rent expense for the years ended September 30, 2014 and 2013 totaled approximately $93,000 and $85,000, respectively, of which $42,000 and $41,000 was paid to the officer-stockholders for the years ended September 30, 2014 and 2013, respectively.

Approximate future minimum payments under operating leases are as follows:

Note 3.

Employee Benefits

The Company has a qualified 401(k) profit sharing plan covering all of its employees. The Company matches 25% up to the first 4% of employee contributions. The plan provides for additional contributions in such amounts as the Board of Directors may annually determine. The amounts charged to expense totaled approximately $5,700 and $7,200 for the years ended September 30, 2014 and 2013, respectively.

Note 4.

Income Tax Status

The Company, with the consent of its stockholders, elected to be taxed under sections of the federal and

state income tax laws which provide that, in lieu of corporate income taxes, the stockholders separately account for their pro rata shares of the Company’s items of income, deduction, losses and credits. Therefore, these statements do not include any provision for corporate income taxes.

The Company follows the accounting guidance for uncertainty in income taxes. Management has evaluated their material tax positions and determined no income tax effects with respect to the financial statements. The Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years prior to the year ended September 30, 2011. The Company has not been notified of any impending examinations by tax authorities, and no examinations are in process.

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Direct Communications,

Incorporated

Financial Report

March 31, 2015

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Direct Communications, Incorporated

Notes to Condensed Financial Statements

Note 1.

Nature of Business and Significant Accounting Policies

Nature of business: Direct Communications, Incorporated (the Company) provides telemedia, electronic cataloging database development and internet delivery processes to customers throughout the United States.

A summary of the Company’s significant accounting policies follows:

Revenue recognition: Revenue is recognized when product is delivered or as services are rendered.

Basis of presentation: The accompanying financial statements are prepared in conformity with GAAP. Certain information and footnote disclosures normally included in statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations, although it is the Company’s belief that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company’s audited financial statements and notes for the year ended September 30, 2014.

The preparation of the condensed financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed financial statements and accompanying notes. These estimates are based on the Company's management team's knowledge of current events and actions that the Company may take in the future. Estimates, by their nature, are based on judgment and available information. Actual results could differ from those estimates.

The accompanying condensed financial statements presented herewith reflect all adjustments (consisting of only normal and recurring adjustments unless otherwise disclosed) which, in the opinion of the Company’s management team, are necessary for a fair presentation of the results of operations for the six months ended March 31, 2015 and 2014. The results of operations for interim periods are not necessarily indicative of results to be expected for an entire year.

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

Trade receivables: Trade receivables are carried at original invoice amount less an estimate made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received.

Leasehold improvements and equipment: Leasehold improvements and equipment are stated at cost. Depreciation is computed primarily by straight-line methods over useful lives of 3 to 7 years.

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Direct Communications, Incorporated

Notes to Condensed Financial Statements

Concentration of credit risk: The Company maintains cash with a financial institution. Account balances were in excess of insured amounts at times during the six months ended March 31, 2015 and 2014. The Company has experienced no losses as a result of the excess.

Subsequent events: Subsequent events have been evaluated through September 25, 2015, the date of financial statements were available to be issued.

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Direct Communications, Incorporated

Notes to Condensed Financial Statements

Note 2.

Rent Commitments and Related Party Transactions

The Company leases a portion of its office premises under a noncancelable agreement which expires April 30, 2017, and requires a monthly payment of $3,802 plus normal maintenance, operating expenses, and property taxes.

The remaining portion of its office premises is leased under a noncancelable agreement with officer-stockholders which expires November 30, 2017, and requires a monthly rental payment of approximately $3,500, plus normal maintenance, operating expenses and property taxes.

The Company also leases the remaining office premises and additional storage space under month-to-month operating lease agreements.

Rent expense for the for the six months ended March 31, 2015 and 2014 totaled approximately $49,000 and $44,000, respectively, of which $21,500 and $21,000 was paid to the officer-stockholders for the for the six months ended March 31, 2015 and 2014, respectively.

Approximate future minimum payments under operating leases are as follows:

Note 3.

Employee Benefits

The Company has a qualified 401(k) profit sharing plan covering all of its employees. The Company matches 25 percent up to the first 4 percent of employee contributions. The plan provides for additional contributions in such amounts as the Board of Directors may annually determine. The amounts charged to expense totaled approximately $3,700 and $2,900 for the six months ended March 31, 2015 and 2014, respectively.

Note 4.

Income Tax Status

The Company, with the consent of its stockholders, elected to be taxed under sections of the federal and state income tax laws which provide that, in lieu of corporate income taxes, the stockholders separately account for their pro rata shares of the Company’s items of income, deduction, losses and credits. Therefore, these statements do not include any provision for corporate income taxes.

The Company follows the accounting guidance for uncertainty in income taxes. Management has evaluated their material tax positions and determined no income tax effects with respect to the financial statements. The Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years prior to the year ended September 30, 2011. The Company has not been notified of any impending examinations by tax authorities, and no examinations are in process.

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Direct Communications, Incorporated

Notes to Condensed Financial Statements

Note 5.

Subsequent Event

On July 13, 2015, ARI Network Services, Inc.(ARI) acquired substantially all of the assets of the Company pursuant to the terms of an Asset Purchase Agreement made and effective as of July 13, 2015. Consideration for the acquisition included cash of (1) $3,750,000; plus (2) the issuance of 159,795 shares of the ARI stock; plus (3) a promissory note made by the ARI in favor of DCi in the aggregate principal amount of $2,000,000, subject to the set off rights of the Company as described the Purchase Agreement, and subject to adjustment in accordance with the terms of the Purchase Agreement; plus (4) the ARI assumption of the Assumed Liabilities, as defined in the Purchase Agreement.

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