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)
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Wisconsin
(State or other jurisdiction
of incorporation)
| 0-19608
(Commission
File Number)
| 39-1388360
(IRS Employer
Identification No.)
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10850 West Park Place, Suite 1200
Milwaukee, Wisconsin
(Address of principal executive offices)
| 53224
(Zip Code)
|
Registrants 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:
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o
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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o
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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o
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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o
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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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 Companys unaudited statement of operations for the nine-month period ended April 30, 2015 and fiscal year ended July 31, 2014 and DCis 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 Companys unaudited balance sheet as of April 30, 2015 and DCis 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
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Independent Auditors Report
| 1
|
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Financial Statements
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Balance Sheets
| 2
|
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Statements of Income
| 3
|
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Statements of Retained Earnings
| 4
|
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Statements of Cash Flows
| 5
|
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Notes to Financial Statements
| 6-7
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Independent Auditors 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.
Managements 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.
Auditors 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 auditors 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 entitys 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 entitys 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.
![[exh993002.gif]](exh993002.gif)
Des Moines, Iowa
June 30, 2015
1
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Direct Communications, Incorporated
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Balance Sheets
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September 30, 2014 and 2013
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| 2014
| 2013
|
Assets
| | |
| | |
Current Assets
| | |
Cash
| $ 787,243
| $ 890,137
|
Trade receivables, less allowance for doubtful accounts
| | |
2014 $25,000; 2013 $20,000
| 397,609
| 422,825
|
Prepaid expenses
| 16,635
| 7,243
|
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Total current assets
| 1,201,487
| 1,320,205
|
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Leasehold Improvements and Equipment, net of accumulated
| | |
depreciation 2014 $328,693; 2013 $233,736
| 365,534
| 273,881
|
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Other Assets, income tax deposit
| 32,612
| 11,299
|
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| $ 1,599,633
| $ 1,605,385
|
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Liabilities and Stockholders' Equity
| | |
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Current Liabilities
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Accounts payable and accrued expenses
| $ 320,112
| $ 243,653
|
Deferred revenue
| 105,483
| 84,769
|
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| 425,595
| 328,422
|
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Stockholders' Equity
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Common stock, no par value, stated value $1 per share; authorized
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100,000 shares; issued and outstanding 1,111 shares
| 1,111
| 1,111
|
Additional paid-in capital
| 10,814
| 10,814
|
Retained earnings
| 1,162,113
| 1,265,038
|
| 1,174,038
| 1,276,963
|
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| $ 1,599,633
| $ 1,605,385
|
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See Notes to Financial Statements.
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2
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Direct Communications, Incorporated
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Statements of Income
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Years Ended September 30, 2014 and 2013
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| 2014
| 2013
|
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Earned revenue
| $ 3,951,843
| $ 3,891,940
|
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Cost of earned revenue
| 171,043
| 197,052
|
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Gross profit
| 3,780,800
| 3,694,888
|
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Operating expenses
| 3,328,725
| 3,263,459
|
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Operating income
| 452,075
| 431,429
|
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Other income-contract cancellation fee
| 155,000
| -
|
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Net income
| $ 607,075
| $ 431,429
|
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See Notes to Financial Statements.
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3
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Direct Communications, Incorporated
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Statements of Retained Earnings
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Years Ended September 30, 2014 and 2013
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| 2014
| 2013
|
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Balance, beginning of year
| $ 1,265,038
| $ 921,609
|
Cash distributions
| (710,000)
| (88,000)
|
Net income
| 607,075
| 431,429
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Balance, end of year
| $ 1,162,113
| $ 1,265,038
|
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See Notes to Financial Statements.
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4
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Direct Communications, Incorporated
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Statements of Cash Flows
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Years Ended September 30, 2014 and 2013
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| 2014
| 2013
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Cash Flows from Operating Activities
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Net income
| $ 607,075
| $ 431,429
|
Adjustments to reconcile net income to net cash provided by
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operating activities:
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Depreciation
| 94,957
| 72,367
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Bad debts
| 44,774
| 41,549
|
Changes in working capital components:
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Trade receivables
| (19,558)
| 46,605
|
Prepaid expenses
| (9,392)
| (441)
|
Income tax deposit
| (21,313)
| 19,338
|
Accounts payable and accrued expenses
| 76,459
| 8,992
|
Deferred revenue
| 20,714
| 58,705
|
Net cash provided by operating activities
| 793,716
| 678,544
|
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Cash Flows from Investing Activities, purchase of equipment
| (186,610)
| (143,897)
|
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Cash Flows from Financing Activities, cash distributions
| (710,000)
| (88,000)
|
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Net increase (decrease) in cash
| (102,894)
| 446,647
|
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Cash
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Beginning
| 890,137
| 443,490
|
|
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Ending
| $ 787,243
| $ 890,137
|
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See Notes to Financial Statements.
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5
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 Companys 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 customers 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.
6
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:
| | | |
| Related
| | |
Year Ending September 30:
| Party
| Other
| Total
|
| | | |
2015
| $ 43,000
| $ 46,000
| $ 89,000
|
2016
| 45,000
| 46,000
| 91,000
|
2017
| 46,000
| 27,000
| 73,000
|
2018
| 8,000
| -
| 8,000
|
| $ 142,000
| $ 119,000
| $ 261,000
|
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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 Companys 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.
7
Direct Communications,
Incorporated
Financial Report
March 31, 2015
| | |
Direct Communications, Incorporated
| | |
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Condensed Balance Sheets
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March 31, 2015 and September 30, 2014
| | |
| | |
| March 31, 2015
| September 30,
|
| (Unaudited)
| 2014
|
Assets
| | |
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Current Assets
| | |
Cash
| $ 329,694
| $ 787,243
|
Trade receivables, less allowance for doubtful accounts
| | |
2015 and 2014 $25,000
| 490,194
| 397,609
|
Prepaid expenses and other
| 28,282
| 16,635
|
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Total current assets
| 848,170
| 1,201,487
|
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Leasehold Improvements and Equipment, net of accumulated
| | |
depreciation 2015 $403,247; 2014 $328,693
| 491,055
| 365,534
|
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Other Assets, income tax deposit
| 32,612
| 32,612
|
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| $ 1,371,837
| $ 1,599,633
|
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Liabilities and Stockholders' Equity
| | |
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Current Liabilities
| | |
Accounts payable and accrued expenses
| $ 260,580
| $ 320,112
|
Deferred revenue
| 127,206
| 105,483
|
|
|
|
Total current liabilities
| 387,786
| 425,595
|
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Stockholders' Equity
| | |
Common stock, no par value, stated value $1 per share;
authorized 100,000 shares; issued and outstanding
| | |
1,111 shares
| 1,111
| 1,111
|
Additional paid-in capital
| 10,814
| 10,814
|
Retained earnings
| 972,126
| 1,162,113
|
| 984,051
| 1,174,038
|
| | |
| $ 1,371,837
| $ 1,599,633
|
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See Notes to Condensed Financial Statements.
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1
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Direct Communications, Incorporated
| | |
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Condensed Statements of Income (Unaudited)
| | |
Six Months Ended March 31, 2015 and 2014
| | |
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| March 31,
|
| 2015
| 2014
|
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Earned revenue
| $ 1,934,353
| $ 2,012,619
|
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Cost of earned revenue
| 79,926
| 91,298
|
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Gross profit
| 1,854,427
| 1,921,321
|
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Operating expenses
| 1,744,414
| 1,623,826
|
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Operating income
| 110,013
| 297,495
|
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Other income
| -
| 155,000
|
| | |
Net income
| $ 110,013
| $ 452,495
|
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See Notes to Condensed Financial Statements.
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2
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Direct Communications, Incorporated
| | |
| | |
Condensed Statements of Cash Flows (Unaudited)
| | |
Six Months Ended March 31, 2015 and 2014
| | |
| | |
| March 31,
|
| 2015
| 2014
|
Cash Flows from Operating Activities
| | |
Net income
| $ 110,013
| $ 452,495
|
Adjustments to reconcile net income to net cash provided by
| | |
operating activities:
| | |
Depreciation
| 74,554
| 43,407
|
Bad debts (recovery)
| (6,000)
| 23,661
|
Changes in working capital components:
| | |
Trade receivables
| (86,585)
| (46,504)
|
Prepaid expenses
| (11,647)
| 5,536
|
Deferred revenue
| 21,723
| 57,553
|
Accounts payable and accrued expenses
| (59,532)
| (60,584)
|
Net cash provided by operating activities
| 42,526
| 475,564
|
| | |
Cash Flows from Investing Activities, purchase of equipment
| (200,075)
| (25,582)
|
| | |
Cash Flows from Financing Activities, cash distributions
| (300,000)
| (60,000)
|
| | |
Net increase (decrease) in cash
| (457,549)
| 389,982
|
| | |
Cash
| | |
Beginning
| 787,243
| 890,137
|
|
|
|
Ending
| $ 329,694
| $ 1,280,119
|
| | |
| | |
See Notes to Condensed Financial Statements.
| | |
3
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 Companys 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 Companys belief that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Companys 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 Companys 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 customers 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.
4
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.
5
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:
| | | |
| Related
| | |
| Party
| Other
| Total
|
| | | |
Six Months Ending September 30, 2015
| $ 22,000
| $ 23,000
| $ 45,000
|
Year Ending September 30, 2016
| 45,000
| 46,000
| 91,000
|
Year Ending September 30, 2017
| 46,000
| 27,000
| 73,000
|
Year Ending September 30, 2018
| 8,000
| -
| 8,000
|
| $ 121,000
| $ 96,000
| $ 217,000
|
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 Companys 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.
6
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.
7
Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On July 13, 2015, ARI Network Services, Inc. (ARI or the Company), completed its acquisition of substantially all of the assets of Direct Communications, Incorporated (DCi), pursuant to the terms of the Asset Purchase Agreement dated as of July 13, 2015 (the "Asset Purchase Agreement"). Consideration for the acquisition included, (1) a cash payment equal to $3,750,000; (2) 159,795 shares of the Company's common stock, $0.001 par value (the "Common Stock"); and (3) the issuance of a promissory note (the DCi Note) with a principal amount of $2,000,000, subject to adjustment upon the final working capital settlement in accordance with the Asset Purchase Agreement.
The (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 Companys unaudited statement of operations for the nine-month period ended April 30, 2015 and fiscal year ended July 31, 2014 and DCis 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 Companys unaudited balance sheet as of April 30, 2015 and DCis unaudited balance sheet as of March 31, 2015, illustrate the estimated effect of the acquisition of DCi on the Companys financial statements. The unaudited pro forma condensed combined financial statements are based on certain estimates and assumptions made with respect to the combined operations of ARI and DCi, which the Company believes are reasonable. The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and do not purport to be indicative of the results of operations or financial position of ARI or DCi that actually would have been achieved had the acquisition of DCi been completed on the assumed dates, or to project the Company's results of operations or financial position for any future date or period. The unaudited pro forma condensed combined statement of operations gives pro forma effect to the acquisition as if it had occurred at the beginning of the year ended periods presented for each Company. The unaudited pro forma condensed combined balance sheet gives pro forma effect to the acquisition as if it had occurred on the balance sheet dates presented for each Company.
The unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial statements. In addition, the unaudited pro forma condensed combined financial information was based on and should be read in conjunction with the following:
| |
(1)
| the ARI audited consolidated financial statements as of and for the year ended July 31, 2014, and the notes thereto included in the Company's Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on October 29, 2014;
|
| |
(2)
| The ARI unaudited condensed consolidated financial statements as of and for the nine months ended April 30, 2015, and the notes thereto included in the Companys Quarterly Report on Form 10-Q filed with the SEC on June 15, 2015.
|
| |
(3)
| the DCi audited financial statements as of and for the year ended September 30, 2014, and the notes thereto, attached as Exhibit 99.3 to ARIs amended Current Report on Form 8-K/A filed with the SEC on September 25, 2015.
|
| |
(4)
| The DCi unaudited condensed financial statements as of and for the six months ended March 31, 2015, and the notes thereto, attached as Exhibit 99.3 to ARIs amended Current Report on Form 8-K/A filed with the SEC on September 25, 2015.
|
The acquisition is being accounted for using the acquisition method of accounting for business combinations in accordance with accounting principles generally accepted in the United States of America (GAAP). Under this method, the total consideration transferred to consummate the acquisition is being allocated to the tangible and intangible assets acquired and liabilities assumed based on extensive judgments and estimates of their respective fair values as of the closing date of the acquisition. Accordingly, the allocation of the consideration transferred in the unaudited pro forma condensed combined financial statements is preliminary and will be adjusted upon completion of the final valuation of the assets acquired and liabilities assumed. Such adjustments could be significant. The final valuation is expected no later than twelve months after the acquisition date.
For income tax purposes, the acquisition is a taxable business combination. The ARI tax basis in the assets acquired and liabilities assumed will be equal to fair market value as of the acquisition date, and thus the basis for financial reporting and tax purposes will generally be the same.
The historical consolidated financial statements of the Company have been adjusted in the unaudited pro forma
condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the unaudited condensed combined statement of operations, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information does not reflect any operating cost synergy savings that the combined company may achieve as a result of the acquisition, or the costs necessary to achieve these operating synergies.
1
ARI Network Services, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of April 30, 2015
(in thousands)
| | | | | |
| ARI
| Dci
| | | |
| (Unaudited)
| (Unaudited)
| | | |
| As of April 30,
| As of March 31,
| Pro Forma
Adjustments
(1)
| Note
| Pro Forma
Combined
|
| 2015
| 2015
|
ASSETS
| | | | | |
Cash and cash equivalents
| $ 2,161
| 330
| $ (742)
| (a), (b)
| $ 1,749
|
Receivables, Net
| 2,271
| 490
|
| | 2,761
|
Prepaid expenses and other current assets
| 1,283
| 28
|
| | 1,311
|
Deferred income taxes
| 3,235
|
|
|
| 3,235
|
Total current assets
| 8,950
| 848
| (742)
|
| 9,056
|
Net equipment and leasehold improvements
| 1,868
| 491
| 21
| (c)
| 2,380
|
Net capitalized software product costs
| 4,513
| | 610
| (d)
| 5,123
|
Deferred income taxes
| 2,451
| |
| | 2,451
|
Other long-term assets
| 82
| 33
|
| | 115
|
Other intangible assets
| 8,092
| | 2,125
| (d)
| 10,217
|
Goodwill
| 18,517
| | 2,510
| (e)
| 21,027
|
Total non-current assets
| 35,523
| 524
| 5,266
|
| 41,313
|
Total assets
| $ 44,473
| 1,372
| $ 4,524
|
| $ 50,369
|
LIABILITIES
| | | -
| | -
|
Current portion of long-term debt
| $ 1,094
| | $ -
| | $ 1,094
|
Current portion of contingent liabilities
| 627
| |
| | 627
|
Accounts payable
| 766
| 49
| 165
| (g)
| 980
|
Deferred revenue
| 7,796
| 127
|
| | 7,923
|
Accrued payroll and related liabilities
| 1,690
| 212
|
| | 1,902
|
Accrued sales, use and income taxes
| 137
| |
| | 137
|
Other accrued liabilities
| 773
| |
| | 773
|
Current portion of capital lease obligations
| 216
| |
| | 216
|
Total current liabilities
| 13,099
| 388
| 165
|
| 13,652
|
Long-term borrowings on line of credit
| 1,750
| | (1,750)
| (a)
|
|
Long-term debt
| 7,587
| | 2,000
| (b)
| 9,587
|
Long-term portion of contingent liabilities
| 477
| |
| | 477
|
Capital lease obligations
| 133
| |
| | 133
|
Other long-term liabilities
| 194
| |
| | 194
|
Total non-current liabilities
| 10,141
| -
| 250
|
| 10,391
|
Total liabilities
| 23,240
| 388
| 415
|
| 24,043
|
SHAREHOLDERS' EQUITY
| | |
| |
|
Cumulative preferred stock, par value $.001 per share, 1,000,000 shares authorized; 0 shares issued and outstanding at April 30, 2015 and July 31, 2014, respectively
|
| |
| |
|
Junior preferred stock, par value $.001 per share, 100,000 shares authorized; 0 shares issued and outstanding at April 30, 2015 and July 31, 2014, respectively
|
| |
| |
|
Common stock, par value $.001 per share, 25,000,000 shares authorized; 15,149,055 and 13,506,316 shares issued and outstanding at April 30, 2015 and July 31, 2014, respectively
| 15
| | 2
| (a)
| 17
|
Additional paid-in capital
| 109,356
| | 5,256
| (a), (b)
| 114,612
|
DCI Stockholders' Equity
|
| 984
| (984)
| (f)
|
|
Accumulated deficit
| (88,161)
| | (165)
| (g)
| (88,326)
|
Other accumulated comprehensive income (loss)
| 23
| |
| | 23
|
Total shareholders' equity
| 21,233
| 984
| 4,109
|
| 26,326
|
Total liabilities and shareholders' equity
| $ 44,473
| 1,372
| $ 4,524
|
| $ 50,369
|
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements, which are an integral part of
these statements.
______________________________
| |
|
|
(1)
| See Note 4 for detailed explanations regarding the
Pro Forma Adjustments.
|
2
ARI Network Services, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the nine month periods ended April 30, 2015
(in thousands, except for per share data)
| | | | | |
| ARI
| DCI
| Pro Forma Adjustments (1)
| | Pro Forma Combined
|
| Nine months ended April 30
| Nine months ended March 31
| Note
|
| 2015
| 2015
|
|
|
|
Net revenue
| $ 29,531
| $ 2,921
| $ -
| | $ 32,452
|
Cost of revenue
| 5,391
| 120
| 56
| (i)
| 5,567
|
Gross profit
| 24,140
| 2,801
| (56)
| | 26,885
|
Net operating expenses
| 22,512
| 2,617
| 121
| (h), (i)
| 25,250
|
Operating income (loss)
| 1,628
| 184
| (177)
| | 1,635
|
Other income (expense):
| | |
| |
|
Interest expense
| (352)
| | (60)
| (j)
| (412)
|
Loss on change in fair value of stock warrants
|
| |
| |
|
Gain on change in fair value of estimated contingent liabilities
|
| |
| |
|
Gain on change in fair value of contingent assets
| 28
| |
| | 28
|
Other, net
| 5
| |
| | 5
|
Total other income (expense)
| (319)
|
| (60)
| | (379)
|
Income (loss) before provision for income tax
| 1,309
| 184
| (237)
| | 1,256
|
Income tax benefit (expense)
| (606)
| | 21
| (k)
| (585)
|
Net income (loss)
| $ 703
| $ 184
| $ (216)
| | $ 671
|
| | |
| |
|
Weighted average common shares outstanding:
| | |
| |
|
Basic
| 14,100
|
| 1,920
| (l)
| 16,020
|
Diluted
| 14,536
|
| 1,920
| (l)
| 16,456
|
| | |
| |
|
Net income (loss) per common share:
| | |
| |
|
Basic
| $ 0.05
|
|
| | $ 0.04
|
Diluted
| $ 0.05
|
|
| | $ 0.04
|
| | | | | |
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements, which are an integral part of these statements.
______________________________
| |
|
|
(1)
| See Note 4 for detailed explanations regarding the
Pro Forma Adjustments.
|
3
ARI Network Services, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended July, 31 2014
(in thousands, except for per share data)
| | | | | |
| ARI
| DCI
| Total Pro
Forma
Adjustments
(1)
| | Pro Forma
Combined
|
| Twelve Months
Ended July 31
| Twelve Months
Ended Sept 30
|
|
| 2014
| 2014
|
|
|
|
Net revenue
| $ 33,019
| $ 3,952
| $ -
| | $ 36,971
|
Cost of revenue
| 6,378
| 171
| 75
| (i)
| 6,624
|
Gross profit
| 26,641
| 3,781
| (75)
| | 30,347
|
Net operating expenses
| 26,285
| 3,329
| 214
| (i)
| 29,828
|
Operating income (loss)
| 356
| 452
| (289)
| | 519
|
Other income (expense):
| | |
| |
|
Interest expense
| (286)
| | (80)
| (j)
| (366)
|
Loss on change in fair value of stock warrants
| (28)
| |
| | (28)
|
Gain on change in fair value of estimated contingent liabilities
| 67
| |
| | 67
|
Gain on change in fair value of contingent assets
| | |
| |
|
Other, net
| 30
| 155
|
| | 185
|
Total other income (expense)
| (217)
| 155
| (80)
| | (142)
|
Income (loss) before provision for income tax
| 139
| 607
| (369)
| | 377
|
Income tax benefit (expense)
| (241)
| | (95)
| (k)
| (336)
|
Net income (loss)
| $ (102)
| $ 607
| $ (464)
| | $ 41
|
| | | | | |
Weighted average common shares outstanding:
| | |
| |
|
Basic
| 13,290
| | 1,920
| (l)
| 15,210
|
Diluted
| 13,290
| | 2,269
| (l)
| 15,559
|
| | | | | |
Net income (loss) per common share:
| | | | | |
Basic
| $ (0.01)
|
|
| | $ 0.00
|
Diluted
| $ (0.01)
|
|
| | $ 0.00
|
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements, which are an integral part of
these statements.
______________________________
| |
|
|
(1)
| See Note 4 for detailed explanations regarding the
Pro Forma Adjustments.
|
4
ARI NETWORK SERVICES, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting and was based on the historical consolidated financial statements of ARI and DCi as of April 30, 2015 and March 31, 2015 respectively, for the nine months ended April 30, 2015 and March 31, 2015 and for the years ended July 31, 2014 and September 30, 2014. The unaudited pro forma condensed combined statements of operations and balance sheet give effect to the acquisition of certain DCi assets and liabilities as if it occurred at the beginning of the earliest period for statement of operations purposes, and on the date of the balance sheet for balance sheet purposes.
The unaudited pro forma condensed combined financial information is not necessarily indicative of the combined results of operations or financial condition had the acquisition been completed as of the dates indicated. The unaudited pro forma condensed combined financial information does not purport to project future results of operations or financial position of the combined company. The unaudited pro forma condensed combined financial statements, and the related pro forma adjustments described in Note 4, do not reflect any operating cost synergy savings that the combined company may achieve as a result of the acquisition, or the costs necessary to achieve these operating synergies.
Certain amounts for DCi have been reclassified to conform to the ARI current presentation.
Note 2. Preliminary Estimated Purchase Price
The total preliminary estimated purchase price for the DCi assets, based on the unaudited pro forma condensed combined balance sheet, was $6,250,000 which included, (1) a cash payment equal to $3,750,000; (2) 159,795 shares of Common Stock, $0.001 par value (the "Common Stock"); and (3) a promissory note made by the Company in favor of DCi in the aggregate principal amount of $2,000,000. The preliminary purchase price to be transferred is as follow (in thousands).
| | | |
|
|
|
|
|
| Preliminary Estimated
Purchase Price
|
Cash
| $
| 3,750
| |
Issuance of Common Stock
| 500
| |
DCi Notes
| 2,000
| |
Preliminary estimated purchase price
| $
| 6,250
| |
The final purchase price is subject to post-closing adjustments pursuant to the terms of the Asset Purchase Agreement and to completion of the final valuation of the net assets acquired. The final valuation is expected to be completed as soon as is practicable but no later than 12 months after the closing date of the acquisition and could have a material impact on the preliminary purchase price noted above.
5
ARI NETWORK SERVICES, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
Note 3. Estimate of Assets to be acquired
Under the acquisition method of accounting, the total preliminary estimated purchase price as shown in Note 2 is allocated to the acquired DCi tangible and intangible assets (both definite and indefinite-lived) and assumed DCi liabilities based on their estimated fair values as of the July 13, 2015 acquisition closing date.
The allocation of the consideration transferred to effect the acquisition is preliminary. The final purchase price is subject to post-closing adjustments pursuant to the terms of the purchase agreement and to completion of the final valuation of the net assets acquired. The final valuation is expected to be completed as soon as is practicable but no later than 12 months after the closing date of the acquisition and could have a material impact on the preliminary estimate of assets to be acquired.
The preliminary estimate of assets to be acquired and liabilities to be assumed by ARI based on the unaudited pro forma condensed combined balance sheet is as follows (in thousands, includes impact of pro forma balance sheet adjustments described in Note 4):
| | | |
|
|
|
|
|
| Preliminary Purchase Price
Allocation
|
Current assets
| $
| 848
| |
Equipment and leasehold improvements and other long term assets
| 545
| |
Identifiable intangible assets
| 2,735
| |
Goodwill
| 2,510
| |
Assumed Liabilities
| (388)
| |
Preliminary estimated purchase price
| $
| 6,250
|
|
Note 4. Pro Forma Adjustments
Adjustments included in the column under the heading "Pro Forma Adjustments" are presented in accordance with GAAP and represent the following:
| |
(a)
| To adjust the balance sheet for the completed equity offering that occurred on May 12, 2015 in which the Company sold 1,760,000 shares of its common stock at a public price of $3.00 per share. The Company received net proceeds of approximately $4,758,000 from the offering. The following is the impact on the unaudited pro forma condensed combined balance sheet (in thousands):
|
| | |
Increase in Cash and cash equivalents
| $
| 3,008
|
Decrease in Borrowings on Line of Credit Long Term
| | 1,750
|
Net Cash Proceeds
| | 4,758
|
| | |
Increase in Common Stock
| | 2
|
Increase in Additional paid-in-capital
| | 4,756
|
Total Increase in Equity
| $
| 4,758
|
| |
(b)
| To adjust the balance sheet for the funding of the preliminary estimated purchase price as follows (in thousands):
|
| | |
Decrease in Cash and cash equivalents
| $
| 3,750
|
Increase in Long-term debt
| | 2,000
|
Increase in Additional paid-in-capital
| | 500
|
Preliminary estimated purchase price
| $
| 6,250
|
6
| |
(c)
| To increase the value of net equipment and leasehold improvements $21,000 based on the preliminary results of their assessment of their fair value.
|
| |
(d)
| To record $610,000 of acquired software and $2,125,000 of intangible assets based on the preliminary assessment of their fair value. The preliminary estimate of intangible assets includetrade names, customer relationships and non-competition agreements.
|
| |
(e)
| To record preliminary goodwill balance of $2,510,000.
|
| |
(f)
| To eliminate DCis historical stockholders equity.
|
| |
(g)
| To increase accounts payable and accumulated deficit by $165,000 for ARI transaction-related costs incurred subsequent to April 30, 2015.
|
| |
(h)
| To eliminate the transaction related costs recorded in the ARI and DCi statements of operations for the nine month periods ended of $20,000 and $20,000 respectively.
|
| |
(i)
| To record amortization expense related to the acquired software and intangible assets as follows.
|
| |
| | |
| Nine-Months
ending April 30,
2015
| Years Ending
July 31, 2014
|
Cost of revenue
| $ 56
| $ 75
|
Operating Expenses
| 161
| 214
|
Total additional amortization expense
| $ 217
| $ 289
|
| |
(j)
| To record interest expense related to the new debt incurred to fund the acquisition of $60,000 and $80,000 for the nine months and year ended, respectively, based on the stated interest rate of 4% of the DCi notes.
|
| |
(k)
| Prior to the acquisition by ARI, DCi was an S-Corp and all income tax was paid by the shareholders. This adjustment is to record income tax expense (benefit) on the historical DCi net income or loss and pro forma adjustments at an estimated rate of 40%.
|
| |
(l)
| To adjust average shares of Common Stock outstanding for the shares issued on May 12, 2015 in connection with ARIs common stock offering and as part of the purchase price for the assets of DCi of 1,760,000 and approximately 160,000, respectively. To adjust diluted shares outstanding by 349,000 shares as they are no longer anti-dilutive.
|
7
ARI Network Services, Inc. (NASDAQ:ARIS)
過去 株価チャート
から 6 2024 まで 7 2024
ARI Network Services, Inc. (NASDAQ:ARIS)
過去 株価チャート
から 7 2023 まで 7 2024