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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- ---------------
Commission file number 000-19608
ARI Network Services, Inc.
--------------------------
(Exact name of registrant as specified in its charter.)
WISCONSIN 39- 1388360
- ---------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
330 E. Kilbourn Avenue, Milwaukee, Wisconsin 53202
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(Address of principal executive office)
Registrant's telephone number, including area code (414) 278-7676
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of The Securities Exchange Act of
1934 during the preceding twelve 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 ninety days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 10, 1996.
Common Stock, Par Value $.001 Per Shares 12,701,815 Shares Outstanding
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ARI NETWORK SERVICES, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED APRIL 30, 1996
INDEX
PART I - FINANCIAL INFORMATION
Page
----
Item 1 Financial statements 3-6
Condensed consolidated balance sheets - April 30, 1996 and 3
July 31, 1995.
Condensed consolidated statements of operations for the three 4
and nine months ended April 30, 1996 and 1995.
Condensed consolidated statements of cash flows for the nine 5
months ended April 30, 1996 and 1995.
Notes to unaudited condensed consolidated financial
statements. 6
Item 2 Management's discussion and analysis of financial condition 7-12
and results of operations.
PART II - OTHER INFORMATION
Item 5 Other Information 12
Item 6 Exhibits 12
Signatures
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ARI NETWORK SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
April 30 July 31
1996 1995
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 335 $ 236
Accounts receivable 812 1,105
Prepaid expenses 158 180
-------- --------
Total current assets 1,305 1,521
Equipment & leasehold improvements, net of
accumulated depreciation and amortization 477 879
Other assets 0 5
Network systems-net 9,480 9,277
-------- --------
Total Assets $ 11,262 $ 11,682
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 648 $ 766
Line of credit with shareholders 3,000 1,400
Other current liabilities 813 851
Current portion of capital lease
obligations 68 68
-------- --------
Total current liabilities 4,529 3,085
Capital lease obligations 21 73
Shareholders' equity:
Common stock 13 12
Additional paid-in capital 76,324 74,961
Accumulated deficit (69,625) (66,449)
-------- --------
Total shareholders' equity 6,712 8,524
-------- --------
Total Liabilities & Shareholders' Equity $ 11,262 $ 11,682
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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ARI NETWORK SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except for share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30 April 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net revenues $ 1,407 $ 1,287 $ 3,620 $ 3,841
Operating expenses:
Variable cost of products and
services sold (exclusive of
depreciation and amortization
shown below) 347 376 815 954
Depreciation and amortization 476 404 1,248 1,921
Network operations 218 269 656 929
Selling, General & Administrative 1,239 1,184 3,521 3,704
Network and product development 463 365 1,404 1,192
------- ------ ------- -------
Operating expenses before amounts
capitalized 2,743 2,598 7,644 8,700
Less capitalized expenses* (374) (328) (1,039) (1,058)
------- ------ ------- -------
Total net operating expenses 2,369 2,270 6,605 7,642
------- ------ ------- -------
Operating Loss (962) (983) (2,985) (3,801)
Other income (expense) (64) 74 (191) 80
------- ------ ------- -------
Net loss ($1,026) ($909) ($3,176) ($3,721)
======= ====== ======= =======
Average common shares outstanding 12,699 12,186 12,355 12,031
Net loss per common share ($0.08) ($0.07) ($0.26) ($0.31)
</TABLE>
* In accordance with FASB 86, includes a portion of network and product
development expense and other operating expenses directly related to the
development process.
See notes to unaudited condensed consolidated financial statements.
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ARI NETWORK SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
April 30
--------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net loss ($3,176) $(3,721)
Amortization of network system 836 1,318
Depreciation and other amortization 412 603
Net change in operating assets 315 (115)
Net change in operating liabilities (155) 21
------- -------
Net cash used in operating activities (1,768) (1,894)
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (10) (209)
Network system costs capitalized (1,039) (1,058)
Other 4 0
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Net cash used in investing activities (1,045) (1,267)
Cash flows from financing activities:
Payment of capital lease obligations
and notes payable (52) (38)
Proceeds from issuance of common stock 1,364 1,647
Borrowings under line of credit 1,600 600
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Net cash provided by financing activities 2,912 2,209
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Net change in cash and cash equivalents 99 (952)
Beginning cash and cash equivalents balance 236 1,029
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Ending cash and cash equivalents balance $ 335 $ 77
======= =======
Cash paid for interest $ 190 $ 31
======= =======
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
April 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles 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 and
nine months ended April 30, 1996 are not necessarily indicative of the results
that may be expected for the fiscal year ending July 31, 1996. For further
information, refer to the financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended July 31, 1995.
2. NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during each period.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Total revenue for the quarter ended April 30, 1996 increased $120,000 or 9% as
compared to last year, due to an increase in recurring revenues in the
Transportation Industry. Last year the directory for the Transportation
Industry was being created, generating nonrecurring revenues only. The
directory has moved into production and is generating recurring revenue from
maintenance and support fees. Total revenue for the nine months ended April
30, 1996 decreased by $221,000 or 6%, as compared to last year, due to a
decrease in nonrecurring revenues generated from the sale of DOS software
applications and related professional services revenue in the first and second
quarter, 1996. The decrease was partially offset by an increase in recurring
revenues in the Agribusiness and Transportation industries.
The Company has a strategy of building a sustainable recurring revenue
stream in selected vertical markets for each of its primary services.
Accordingly, the Company reviews its revenue by two distinct classifications:
recurring versus nonrecurring revenue and revenue by vertical market.
The following tables set forth, for the periods indicated, certain revenue
information derived from the Company's unaudited consolidated financial
statements.
RECURRING VS. NON-RECURRING REVENUE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30 April 30
-------- --------
(In thousands) (In thousands)
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Recurring Revenue $1,008 $ 889 $2,812 $2,488
Non-recurring Revenue 399 398 808 1,353
------ ------ ------ ------
Total revenue $1,407 $1,287 $3,620 $3,841
====== ====== ====== ======
</TABLE>
Recurring revenue for the quarter ended April 30, 1996 increased $119,000
or 13% as compared to last year. For the nine months ended April 30, 1996,
recurring revenue increased $324,000 or 13% from last year. Recurring revenues
consist of network traffic fees, maintenance and support fees, transaction fees
and subscription fees. The nine month year-to-year increase in recurring
revenue was due to an increased number of transactions being handled by the
Company's processing center and the initiation of maintenance and support
services in the Transportation industry. Recurring revenue represents 72% of
total revenue for the quarter ended April 30, 1996, as compared to 69% last
year and 80% in the preceding quarter. Recurring revenue represents 78% of
total revenue for the nine month period ended April 30, 1996, as compared to
65% last year. Management expects the percentage of recurring revenues to
decrease in future quarters as more new software applications sales are made,
though there can be no assurance that such sales will occur.
Nonrecurring revenue for the quarter ended April 30, 1996 remained even
with the comparable period last year, while nonrecurring revenue decreased for
the nine months ended April 30, 1996 by $545,000 or 40%. Nonrecurring revenue
is derived from the sale of software and professional services. The decrease
in nonrecurring revenue for the nine months ended April 30, 1996 is due to a
decrease in sales of DOS software applications and related professional
services revenue. Anticipating the customers desire for Windows(R)
applications over DOS products, management decided to develop a Windows(R)
sales force automation application, known as ARISE(TM) and an electronic
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commerce product, known as Meppel(TM), which includes a sales reporting module.
ARISE(TM) was released in March, 1996, and Meppel(TM) is expected to be
released in the first quarter of fiscal 1997.
VERTICAL MARKET REVENUE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
REVENUE BY April 30 April 30
VERTICAL MARKETS (In Thousands) (In Thousands)
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Agribusiness & Related
Industry Revenue $ 776 $ 840 $1,983 $2,233
Publishing Revenue 306 308 924 934
Transportation Revenue 188 43 439 393
Other Revenue 137 96 274 281
------ ------ ------ ------
Total Revenue $1,407 $1,287 $3,620 $3,841
====== ====== ====== ======
</TABLE>
Agribusiness and Related Industries
Revenues in this area are derived from network traffic fees, maintenance
and support fees, subscription fees, software sales and professional services
fees charged to the Company's customers that market outdoor power and
agricultural equipment, seed, agricultural chemical and other related products.
Agribusiness and related industry revenues represent 55% of total revenue for
the three and nine month periods ended April 30, 1996, respectively, compared
to 65% and 58% for comparable periods one year ago.
Revenues in this area for the three and nine month periods ended April 30,
1996 were $776,000 and $1,983,000, respectively, which represent decreases of
8% and 11% from the comparable periods last year. The decrease in revenue for
both the three and nine months ended April 30, 1996 is due to a decrease in
sales of DOS software applications and related professional services revenue.
Management, anticipating the customers desire for Windows(R) applications over
DOS products, decided to develop a Windows(R) sales force automation
application, known as ARISE(TM) and an electronic commerce product, known as
Meppel(TM), which includes a sales reporting module. ARISE(TM) was released in
March, 1996. ARISE(TM) sales this year include both customers converting from
the Company's DOS product and new customers. A current customer in the animal
health market has committed to converting from the DOS product to the new
ARISE(TM) product, which includes a large customization project for the
Company. A new ARISE(TM) customer was signed for software and customization in
the three month period ended April 30, 1996. Meppel(TM) is expected to be
released in the first quarter of fiscal 1997.
Recurring revenue from the Agribusiness industry, derived from network
traffic fees and maintenance and support fees, was unchanged for the 3 months
ended April 30, 1996 compared to last year, but increased by 11% over last year
for the nine month period ended April 30. The increase in recurring revenue is
a result of more transactions being transmitted over the network by the
Company's base of agrichemical manufacturers and distributors. The Company
also continued to add to the number of distributors connecting to the network
in the Specialty Chemical industry, which includes golf courses,
municipalities, parks, nurseries and lawn care companies. Network traffic
activity increases as additional distributors are added to the network.
Recurring revenue being flat for the three month period is a result of delays
in the agricultural growing season due to weather conditions.
The manufacturers in the Agrichemical sector of the Agribusiness Industry
have formed a jointly owned company known as "Rapid" to develop an
industry-wide network to be known as the PowerAg Network. The plans for the
PowerAg Network contemplate a PC subscriber interface, communications
connectivity, electronic mail, file transfer, bulletin board services, Internet
access, EDI/EFT and connectivity to third party value added service providers,
such as the Company. EDS has been retained by Rapid to develop the end user
software and network. Management is
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currently discussing with Rapid and EDS the Company's role in the PowerAg
Network. Management is uncertain at this time what impact, if any, the PowerAg
network will have on the Company's operations.
In April 1996, the Company announced the addition of Toro Company to its
list of manufacturers and dealers using the Company's outdoor power equipment
dealer network called OPEN (Original Parts and Equipment Network). Toro will
initially use the system to handle parts orders for any Toro or Lawn-Boy dealer
who has a factory direct parts account. The OPEN service is also capable of
handling communication between the manufacturer and dealer for warranty claims
and sales registration.
Publishing Revenue
Revenues in this area are derived from connect time fees and subscription
fees charged to the Company's Newsfinder(R) customers. Newsfinder(R) manages
the approximately 20,000 news stories per week output of the AP, providing
access to some 800 publishers with more than 1,300 weekly and monthly
newspapers. Revenues for the three and nine month periods ended April 30, 1996
remain relatively flat at $306,000 and $924,000, respectively, compared to last
years' $308,000 and $934,000. Publishing revenue represents 22% and 26% of
total revenue for the three and nine month periods ended April 30, 1996,
respectively, compared to 24% and 24% for the comparable periods one year ago.
During the first quarter, the Company developed and is pilot testing an
Internet-accessible version of its Newsfinder(R) data management services for
newspaper publishers. During the quarter ended April 30, 1996, additional
developments and enhancements were made to the pilot product. Management
expects the Internet to make access and use of the service faster and easier
for Newsfinder(R) customers. The Company has renewed its contract with the
Associated Press (AP) for an additional five-year period. Under the terms of
the contract the Company provides a value-added version of the AP wire service,
including the new Internet-accessible version, to non-daily publications.
After a successful pilot, the Company entered into a related party transaction
with Connect, Inc. to develop a production ready Internet accessible
application for the Newsfinder(R) product utilizing the Connect OneServer(TM).
The OneServer(TM) product cost, including software license fee and annual
maintenance and support fees, was usual and customary for projects of this
size. The product was purchased under deferred payment terms. The Chairman of
the Board of Connect, Inc., Gordon Bridge, is a member of the Company's Board
of Directors. Richard Weening, the Chairman of the Company's Board, serves as
a director on the board of Connect, Inc.
Transportation and Logistics Revenue
Revenues in this area are derived from maintenance and support fees,
transaction fees and professional service fees charged to the Association of
American Railroads for the creation and maintenance of the Customer
Identification File. Revenue for the three month period ended April 30, 1996
was $188,000, of which $165,000 was recurring revenue for maintenance and
support services, compared to $43,000 for the same period last year. Last
year's revenue was composed entirely of nonrecurring professional services
revenue. Revenue for the nine month period ended April 30, 1996 was $439,000,
which is a combination of recurring revenue fees for file maintenance and
nonrecurring fees for file creation, compared to $393,000 last year, which was
entirely nonrecurring fees for file creation. Transportation industry revenue
represents 13% and 12% of total revenue for the three and nine month periods
ended April 30, 1996, respectively, compared to 3% and 10% for the comparable
periods one year ago.
Other Revenue
Other revenue is $137,000 for the three month period ended April 30, 1996,
which is an increase of 43% from the comparable period last year. The increase
is due to a sale of the ARISE(TM) product to a customer in the outsourcing
services industry and the receipt of a receivable in the amount of $39,000
previously written off as bad debt expense in a prior year. For the nine month
period ended April 30, 1996, other revenue is $274,000, which represents a 2%
increase from the comparable period last year. The positive increases in the
three month period are offset year to date due to the discontinuation of
certain non-strategic product lines and slowing of new product sales on the
de-emphasized but continuing product line of Doculink.
OPERATING EXPENSES
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The following table sets forth, for the periods indicated, certain
operating expense information derived from the Company's unaudited consolidated
financial statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
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(IN THOUSANDS) (IN THOUSANDS)
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating expenses:
Variable cost of products and services sold
(exclusive of depreciation and amortization
shown below) $ 347 $ 376 $ 815 $ 954
Network operations 218 269 656 929
Selling, General & Administrative 1,239 1,184 3,521 3,704
Network and product development 463 365 1,404 1,192
------ ------ ------- -------
Gross cash expenses 2,267 2,194 6,396 6,779
Depreciation and amortization 476 404 1,248 1,921
Less capitalized expenses (374) (328) (1,039) (1,058)
------ ------ ------- -------
NET OPERATING EXPENSES $2,369 $2,270 $ 6,605 $ 7,642
====== ====== ======= =======
</TABLE>
Net operating expenses for the three months ended April 30, 1996 increased
4% and for the nine months ended April 30, 1996 decreased 14% compared to last
year. The decrease in operating expenses for the nine month period is due to
increased operating efficiencies and reduced amortization expense. Gross cash
expenses for the three months ended April 30, 1996 increased 3% over the
comparable period last year due to increased product development efforts and
recruiting fees. Gross cash expenses for the nine months ended April 30, 1996
decreased by 6% from last year at this time. Of the decrease in cash expenses
for the nine month period, $399,000 was attributable to reductions in
payroll-related expenses. The payroll decrease has impacted the operating
expense categories of network operations, selling, general and administrative
and network and product development. The decrease in cash expenses has been
somewhat offset by purchases of software in the network and product development
category.
Variable cost of products and services sold consists primarily of
royalties, telecommunications and data processing and temporary help fees.
Temporary help is used by the Company in connection with its database
management services. Variable costs of products and services sold as a
percentage of revenues were 25% and 29% in the three months ended April 30,
1996 and 1995, respectively. Year-to-date variable costs of products and
services sold as a percentage of revenue were 23% and 25% for the nine month
period ended April 30, 1996 and 1995, respectively. Variable cost of products
and services sold and margins will vary by quarter due to the product sales
mix.
Selling, general and administrative expense for the three month period has
increased by 5% due to recruiting, relocation and payroll expenses related to
the hiring of sales personnel. Expenses in this area for the nine months ended
April 30, 1996 have decreased by 5% due to reductions in payroll and related
expenses in the first and second quarter.
For the three months ended April 30, 1996, depreciation and amortization
expense increased by 18%, which represents the beginning of amortization for
the ARISE(TM) product and other related development projects, but decreased 35%
year-to-date from the comparable period a year ago. The fiscal 1994
nonrecurring amortization charge of $7.7 million and accelerated useful life
estimate on remaining DOS products through first quarter fiscal 1995 have
resulted in lower amortization expense in fiscal 1996.
For the three months ended April 30, 1996, capitalized expenses increased
by 14% due to software purchases related to the Newsfinder Internet project.
For the nine months ended April 30, 1996, capitalized expenses decreased by 2%
compared to last year as a result of reductions in payroll-related development
costs and reductions in administrative costs considered for capitalization.
Network and software development expenditures for the nine month period
ended April 30, 1996 have been focused on developing the Company's WINDOWS(R)
electronic commerce applications for sales force automation, sales reporting
and parts ordering and the Internet solution for Newsfinder(R). The sales
force automation product,
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ARISE(TM), was developed internally with tools acquired from a third party.
ARISE(TM) can be customized to support a range of information management,
information exchange, data base synchronization and other productivity tools
for field sales personnel. The EC platform product, Meppel(TM), is being
developed utilizing the MERCATOR(R) translator from TSI International. A sales
reporting application is the first module being developed to utilize the new EC
platform. Last year's network and software development included expenditures
toward the ARISE(TM) product, as well as reengineering the Company's
telecommunications management systems to employ TCP/IP INTERNET transport
protocols and other INTERNET software standards for electronic commerce
services. The development costs for the three month period ended April 30,
1996 included the purchase of the Connect OneServer(TM) product to be utilized
in the Internet accessible Newsfinder(R) product.
OTHER ITEMS
Interest expense for the nine months ended April 30, 1996, was $191,000,
compared to $31,000 a year ago. The increase in interest expense reflects the
Company's use of the credit lines with shareholders to finance operations and
development. For the three month period ended April 30, 1996, interest expense
was $64,000 representing all of the Other Income (Expense) compared to $37,000
interest expense and income of $111,000 from a lawsuit settlement for the same
period last year.
Net loss for the three month period ended April 30, 1996 was higher than
last year by $117,000 or 13% due to the $138,000 increase in other expense
explained above. The net loss year to date remains favorable to last year by
$545,000 or 15% despite the increase in interest expense.
Cash used in operating and investing activities has decreased by 11% for
the nine month period ended April 30, 1996, as compared to the same period last
year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant negative cash flows from its
operating activities. The Company will require significant increases in
revenues to cover fixed operating costs and to achieve a profitable level of
operations. The Company expects to continue to incur operating losses for the
fiscal year ending July 31, 1996 and there can be no assurance that
profitability will be achieved thereafter. The Company also expects to
continue to incur significant expenditures for software development and network
construction and expansion. The Company's software development and network
construction and expansion costs and negative cash flow from operations
historically have been funded primarily from the sale of securities and
currently from the lines of credit with shareholders.
The Company's accounts receivable have declined from the July 31, 1995
balance, due to lower sales in the three months ended in April 30, 1996, as
compared to the three month period ended July 31, 1995. The July 31, 1995
receivable balance included the annual maintenance renewal fees, which are
invoiced once per year while a pro rata portion of revenue is recognized each
month.
At April 30, 1996, the Company had cash and cash equivalents of
approximately $335,000, compared to approximately $236,000 at July 31, 1995.
On November 13, 1995 the Company filed a registration statement with the
Securities and Exchange Commission for the sale of up to 2 million shares of
the Company's common stock. The expected proceeds of the offering will be used
to meet the Company's capital requirements for fiscal 1996. The registration
statement became effective January 25, 1996. The Company sold 500,000 shares
of stock at $2.75 per share between January 31 and February 1, 1996. Proceeds
from the sale of stock were used to fund operations and pay back portions of
the WITECH Credit Line. Management anticipates sale of all or a portion of the
additional 1,500,000 shares during the remaining three months of this fiscal
year. On December 2, 1994, the Company executed a Loan Agreement with WITECH
Corporation ("WITECH") and QUAESTUS Limited Partnership ("QLP") providing the
Company with a $1,500,000 senior secured revolving line of credit facility (the
"Senior Line"), which expires on December 31, 1996 (extended from December 31,
1995 by amendment dated October 18, 1995). Interest on the Senior Line accrues
at the rate of 2% over the prime rate. The Company also has a line of credit
with WITECH, (the "WITECH Line") that has been in place since October 4, 1993.
The amount of the WITECH Line was reduced from $2.0 million to $1.5 million at
the time the Senior Line became effective. Under the WITECH Line, as amended,
the Company has issued a warrant to WITECH for the purchase of up to 500,000
shares of its Common Stock at a price of $2.00 per share. The WITECH Line
expires on December 31, 1996 (extended from December 31, 1995 by
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amendment dated October 18, 1995). As of April 30, 1996, the Company had drawn
the full amount available under both lines of credit. On April 20, 1996 the
WITECH line of credit was amended to provide a Bridge Loan of $500,000 accruing
at the same rate of interest as the other lines of credit through June 30,
1996. There were no borrowings against the Bridge Loan as of April 30, 1996.
As of June 10, 1996, $250,000 has been drawn against the Bridge Loan. Any
proceeds from the sale of securities must be used to repay the Bridge Loan. In
the event the Bridge Loan is not repaid by June 30, 1996, the unpaid balance
shall bear an annual interest rate of prime rate plus 6%.
The only financial covenant in the Senior Line and the WITECH Line is that
the Company must maintain a net worth (calculated in accordance with general
accepted accounting principles) of at least $5.3 million (reduced from $6.5
million effective May 31, 1996). The Company has been, and is currently, in
compliance with the financial covenant in the Agreements and currently expects
that it will be able to continue to comply with such covenant or obtain any
required waivers or raise additional equity, if necessary.
The Company will require additional financing during fiscal 1996 and 1997
in order to meet its capital requirements for operations and development
investments. Management believes that sufficient financing for fiscal 1996
will be available from the sale of additional securities and from additional
borrowings from existing shareholders. On a long-term basis, management
believes that financing for the Company's operations, including capital
expenditures, will come principally from cash generated from operations, the
sale of additional equity or other third party financing, capital leases, the
Senior Line, the WITECH Line (and extensions thereof if available) and other
sources of capital if available. There can be no assurances that these
financing arrangements will occur.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On November 13, 1995, Mr. Brian E. Dearing joined the Company as President
and CEO. On December 5, 1995, Mr. Dearing was elected to the Board of
Directors of the Company.
On December 5, 1995, Mr. Gordon Bridge was elected to the Board of
Directors of the Company.
On December 5, 1995, the Board of Directors accepted the resignations of
Mr. Graham V. Sherren and Mr. C.R.E. Brooke as directors of the Company,
effective December 6, 1995.
On March 27, 1996, the Board of Directors accepted the resignation of Mr.
Richard A. Abdoo as director of the Company, effective March 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) 10.1 Amendment Number 7 to Loan Agreement for Bridge Loan dated
April 20, 1996
10.2 Amendment Number 8 to Loan Agreement for Net Worth Amendment
dated May 31, 1996
10.3 Amendment Number 3 to Loan Agreement for Net Worth Amendment
dated May 31, 1996
(b) No reports on Form 8K were filed during the quarter for which this
report was filed.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARI Network Services, Inc.
(Registrant)
Date: June 10, 1996 /s/ Brian E. Dearing
--------------------------------------------
Brian E. Dearing, President & CEO
Date: June 10, 1996 /s/ Lynn M. Hafemeister
--------------------------------------------
Lynn M. Hafemeister, Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NUMBER SEVEN TO LOAN AGREEMENT
THIS AMENDMENT to the Loan Agreement entered into as of October 4, 1993,
between ARI NETWORK SERVICES, INC. ("ARI") and WITECH CORPORATION ("WITECH") as
amended (the "Loan Agreement") is dated April 20, 1996.
BACKGROUND
This Amendment to the Loan Agreement reflects the mutual understanding and
agreement of the parties to amend the Loan Agreement regarding the provision by
WITECH of a revolving credit facility to ARI.
NOW THEREFORE, the parties agree as follows:
1. For a period commencing on the date hereof and ending on June 30, 1996,
the amount stated in Paragraph 2.2 shall be increased from One Million Five
Hundred Thousand Dollars ($1,500,000) to Two Million Dollars ($2,000,000). The
difference of Five Hundred Thousand Dollars ($500,000) plus all interest
accruing thereon at the rates stated in the Loan Agreement shall be referred to
herein as the "Bridge Loan."
2. The Bridge Loan shall be repaid in full by ARI out of the proceeds of
the sale of ARI stock pursuant to the Form S-2 filed by the Company with the
SEC on January 24, 1996, prior to the use of such proceeds for any other
purpose. In any event the Bridge Loan shall be repaid by ARI not later than
June 30, 1996. In the event that any amount of the Bridge Loan remains
outstanding after June 30, 1996, such unpaid amount shall bear interest at a
rate per annum equal to the Prime Rate plus 6.0% from the date of such
nonpayment until the Bridge Loan is paid in full.
3. Subject to the amendment described herein, the Loan Agreement and
associated documents and agreements remain in full force and effect and the
Bridge Loan shall be subject to all of the terms and conditions of such
documents.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers as of the date first
above written.
WITECH CORPORATION ARI NETWORK SERVICES, INC.
By: /s/ Francis Brzezinski By: /s/ Brian E. Dearing
---------------------------------- -------------------------------
Francis Brzezinski, President Brian E. Dearing, President
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NUMBER EIGHT TO LOAN AGREEMENT
THIS AMENDMENT to the Loan Agreement entered into as of October 4, 1993,
between ARI NETWORK SERVICES, INC. ("ARI") and WITECH CORPORATION ("WITECH") as
amended (the "Loan Agreement") is entered into as of the 31 day of May, 1996
between ARI and WITECH.
BACKGROUND
This Amendment to the Loan Agreement reflects the mutual understanding and
agreement of the parties to amend the Loan Agreement regarding the provision by
WITECH of a revolving credit facility to ARI.
NOW THEREFORE, the parties agree as follows:
1. The reference in Paragraph 6.2 to "Six Million Five Hundred Thousand
Dollars ($6,500,000)" is deleted and "Five Million Three Hundred Thousand
Dollars ($5,300,000)" is substituted therefor.
2. Subject to the amendment described herein, the Loan Agreement and
associated documents and agreements remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers as of the date first
above written.
WITECH CORPORATION ARI NETWORK SERVICES, INC.
By: /s/ Francis Brzezinski By: /s/ Brian E. Dearing
-------------------------------- ------------------------------------
Francis Brzezinski, President Brian Dearing,
President & Chief Executive Officer
<PAGE> 1
EXHIBIT 10.3
AMENDMENT NUMBER THREE TO LOAN AGREEMENT
This is an Amendment to the Loan Agreement dated as of December 2, 1994,
between ARI NETWORK SERVICES, INC. ("ARI") WITECH CORPORATION ("WITECH") and
QUAESTUS LIMITED PARTNERSHIP ("QLP" or together with WITECH, the "LENDERS") is
entered into as of the 31 day of May, 1996.
NOW, THEREFORE, the parties agree as follows:
1. The reference in Paragraph 6.2 to "Six Million Five Hundred Thousand
Dollars ($6,500,000)" is deleted and "Five Million Three Hundred Thousand
Dollars ($5,300,000)" is substituted therefor.
2. Subject to the amendment described herein, the Loan Agreement and
associated documents and agreements remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers as of the date first
above written.
WITECH CORPORATION ARI NETWORK SERVICES, INC.
INC.
By: /s/ Francis Brzezinski By: /s/ Brian E. Dearing
------------------------------ ---------------------------------
Title: President Title: President and CEO
-------------------------- -----------------------------
QLP LIMITED PARTNERSHIP
By: /s/ Richard Weening
------------------------------
Title: President of Managing General Partner
--------------------------------------
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