EXHIBIT 99.2

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On September 30, 2014, ARI Network Services, Inc. (“ARI” or the “Company”), completed its acquisition of substantially all of the assets of Tire Company Solutions, LLC (“TCS”), pursuant to the terms of the Asset Purchase Agreement dated as of September 30, 2014 (the "Asset Purchase Agreement"). Consideration for the acquisition included, (1) a cash payment equal to $4,200,000; (2) 618,744 shares of the Company's common stock, $0.001 par value (the "Common Stock"); (3) the issuance of two promissory notes (the “TCS Notes”) in aggregate principal amount of $3,000,000 to the former owners of TCS; and (4) a contingent earn-out purchase price payable in three potential payments and contingent upon the attainment of specific revenue goals.

The unaudited pro forma condensed combined statements of operations for the year ended July 31, 2014 and the unaudited pro forma condensed combined balance sheet as of July 31, 2014 illustrate the estimated effect of the acquisition of TCS on the Company's 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 TCS, 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 TCS that actually would have been achieved had the acquisition of TCS 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 on August 1, 2013. The unaudited pro forma condensed combined balance sheet gives pro forma effect to the acquisition as if it had occurred on July 31, 2014.

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:

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 during 2015.

 

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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 and no temporary differences are expected.

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.

 

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ARI Network Services, Inc.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of July 31, 2014

(in thousands)

 

 

 

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See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements, which are an integral part of these statements.

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ARI Network Services, Inc.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

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For the year ended July, 2014

(in thousands, except for per share data)

 

 

 

See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements, which are an integral part of these statements.

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ARI NETWORK SERVICES, INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

 

Note 1.    Basis of Presentation

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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 TCS as of July 31, 2014 and for the year ended July 31, 2014. The unaudited pro forma condensed combined statements of operations and balance sheet give effect to the acquisition of certain TCS assets and liabilities as if it occurred on August 1, 2013 for statement of operations purposes, and on July 31, 2014 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 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.

Note 2.     Preliminary Estimated Purchase Price

The total preliminary estimated purchase price, based on the July 31, 2014 unaudited pro forma condensed combined balance sheet, was $9,941,000 which included, (1) a cash payment equal to $4,200,000; (2) 618,744 shares of Common Stock, $0.001 par value (the "Common Stock"); (3) the issuance of TCS Notes; and (4) a contingent earn-out purchase price payable in three potential payments and contingent upon the attainment of specific revenue goals.  The preliminary estimated purchase price to be allocated is as follows (in thousands):

 

 

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 and contingent earn-out. 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.

 

 

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ARI NETWORK SERVICES, INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

 

Note 3. Estimate of Assets to be Acquired

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Under the acquisition method of accounting, the total preliminary estimated purchase price as shown in Note 2 is allocated to the acquired TCS tangible and intangible assets (both definite and indefinite-lived) and assumed TCS liabilities based on their estimated fair values as of the September 30, 2014 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 and contingent earn-out. 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 July 31, 2014 unaudited pro forma condensed combined balance sheet is as follows (in thousands, includes impact of pro forma balance sheet adjustments from Note 4):

 

 

 

 

 

 

 

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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:

 

  

(b)To record a $31,000 reduction in hardware and equipment to a value of 120,000 based on the preliminary assessment of fair value.

(c)To record a $937,000 reduction in capitalized software to a value of 780,000, based on the preliminary results of an appraisal of the TCS software acquired.

(d)To record intangible assets of $3,660,000 based on the preliminary results of an appraisal.  The intangible assets consist of $610,000 of trade names, $2,270,000 of customer relationships and $780,000 of non-competition agreements.

(e)To record preliminary goodwill balance of $4,368,000.

(f)To eliminate the following liabilities not assumed as part of the asset purchase agreement (in thousands):

 

  

  

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(g)To record an $815,000 reduction in deferred revenue to a value of $346,000, based on the preliminary fair value analysis of its fair value.

(h)To eliminate TCS’s historical members’ equity.

(i)To eliminate the transaction costs recorded in the ARI and TCS financial statements of $159,000 and $100,000 respectively.

(j)To eliminate TCS software amortization recorded of $577,000 and record $200,000 and $700,000 of amortization expense in cost of revenue and net operating expenses, respectively.  The amortization expense recorded is based on the preliminary results of an appraisal and relates to acquired software product costs and the customer relationship, trade name and non-compete intangible assets.

(k)To eliminate TCS interest expense recorded of $17,000 related to debt ARI is not assuming, and to record interest expense related to the new debt incurred to fund the acquisition, as follows (in thousands):

 

(l)  Prior to the acquisition by ARI, TCS was treated as a partnership for tax purposes.  This adjustment is to record income tax expense on the historical TCS net income and pro forma adjustments at an estimated rate of 40%.

(m) To adjust average shares of Common Stock outstanding for the shares issued to fund the acquisition of TCS.

 

 

 

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