·

Revenue increased 25.7% to $10.3 million which compares with $8.2 million for the same period last year and $10.1 million in 2Q15.

·

Operating income was $675,000, compared with $365,000 for the same period last year and $670,000 in 2Q15.

·

EBITDA, a non-GAAP measure, adjusted for certain non-cash charges, was $1.6 million or 15.8% of revenue. This compares with EBITDA of $1.3 million or 15.4% of revenue in the same period last year and $1.6 million or 16.1% of revenue in 2Q15.

·

Cash generated from operations was $1.9 million, compared with $1.0 million for the same period last year and $1.1 million in 2Q15.  Cash generated over the last six months has been sufficient to fully pay down the $2.1 million that was initially drawn on the line of credit for the TCS transaction. In 3Q15, the Company drew down $1.75 million on the line associated with its purchase of TASCO.

·

The Company completed its acquisition of TASCO Corporation and its affiliated company Signal Extraprise Corporation (“TASCO”) on April 27, 2015, further cementing its position as the most complete technology provider in the automotive tire and wheel aftermarket.

·

Follow @ARI_Net on Twitter: twitter.com/ARI_Net

·

Become a fan of ARI on Facebook: www.facebook.com/ARInetwork

·

Join us on G+: plus.google.com

·

LinkedIn: www.linkedin.com

·

Read more about ARI: investor.arinet.com/about-us

ARI Network Services, Inc.

Consolidated Statements of Operations

(Dollars in Thousands, Except per Share Data)

(Unaudited)

Three months ended April 30

Nine months ended April 30

2015

2014

2015

2014

Net revenue

$

$

$

$

Cost of revenue

Gross profit

Operating expenses:

Sales and marketing

Customer operations and support

Software development and technical support (net of capitalized software product costs)

General and administrative

Depreciation and amortization (exclusive of amortization of software product costs included in cost of revenue)

Net operating expenses

Operating income (loss)

Other income (expense):

Interest expense

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

 —

 —

Other, net

Total other income (expense)

Income (loss) before provision for income tax

Income tax benefit (expense)

Net income (loss)

$

$

$

$

Weighted average common shares outstanding:

Basic

Diluted

Net income (loss) per common share:

Basic

$

$

$

$

Diluted

$

$

$

$

ARI Network Services, Inc.

Consolidated Balance Sheets

(Dollars in Thousands, Except per Share Data)

(Unaudited)

(Audited)

Apr 30

July 31

2015

2014

ASSETS

Cash and cash equivalents

$

$

Trade receivables, less allowance for doubtful accounts of $386

  and $359 at April 30, 2015 and July 31,2014, respectively

Work in process

Prepaid expenses and other

Deferred income taxes

Total current assets

Equipment and leasehold improvements:

Computer equipment and software for internal use

Leasehold improvements

Furniture and equipment

Less accumulated depreciation and amortization

Net equipment and leasehold improvements

Capitalized software product costs:

Amounts capitalized for software product costs

Less accumulated amortization

Net capitalized software product costs

Deferred income taxes

Other long-term assets

Other intangible assets

Goodwill

Total non-current assets

Total assets

$

$

ARI Network Services, Inc.

Consolidated Balance Sheets

(Dollars in Thousands, Except per Share Data)

(Unaudited)

(Audited)

Apr 30

July 31

2015

2014

LIABILITIES

Current portion of long-term debt

$

$

Current portion of contingent liabilities

Accounts payable

Deferred revenue

Accrued payroll and related liabilities

Accrued sales, use and income taxes

Other accrued liabilities

Current portion of capital lease obligations

Total current liabilities

Long-term borrowings on line of credit

 —

Long-term debt

Long-term portion of contingent liabilities

Capital lease obligations

Other long-term liabilities

Total non-current liabilities

Total liabilities

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

Additional paid-in capital

Accumulated deficit

Other accumulated comprehensive income (loss)

Total shareholders' equity

Total liabilities and shareholders' equity

$

$

ARI Network Services, Inc.

Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)

Nine months ended April 30

2015

2014

Operating activities:

Net income

$

$

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of software products

Amortization of discount related to present value of earn-out

Amortization of bank loan fees

Interest expense related to earn-out payable

Depreciation and other amortization

Gain on change in fair value of earn-out receivable

 -

Loss on change in fair value of stock warrants

 -

Gain on change in fair value of earn-out payable

 -

Provision for bad debt allowance

Deferred income taxes

Stock based compensation

Stock based director fees

Net change in assets and liabilities:

Trade receivables

Work in process

Prepaid expenses and other

Other long-term assets

Accounts payable

Deferred revenue

Accrued payroll and related liabilities

Accrued sales, use and income taxes

Other accrued liabilities

Net cash provided by operating activities

$

$

Investing activities:

Purchase of equipment, software and leasehold improvements

Cash received on earn-out from disposition of a component of the business

Cash paid for contingent liabilities related to acquisitions

Cash paid for net assets related to acquisitions

Software developed for internal use

 -

Software development costs capitalized

Net cash used in investing activities

$

$

Financing activities:

Borrowings under line of credit, net

$

$

 -

Payments on long-term debt

Borrowings under long-term debt

 -

Proceeds from capital lease obligations incurred

 -

Payments of capital lease obligations , net

Proceeds from issuance of common stock

Net cash provided by financing activities

$

$

Effect of foreign currency exchange rate changes on cash

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

$

$

Cash paid for interest

$

$

Cash paid for income taxes

$

$

Non-cash investing and financing activities

Issuance of common stock in connection with acquisitions

$

$

Debt issued in connection with acquisitions

 -

Capital leases acquired in connection with acquisitions

 -

Issuance of common stock related to payment of contingent liabilities

Tax benefit of stock options exercised

 -

Contingent liabilities incurred in connection with acquisition

 -

Reconciliation of Non-Gaap Measures

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the three, nine and twelve months ended

April 30, 2015 and 2014, respectively:

EBITDA:

FY2015

FY2014

FY2015

FY2014

FY2015

FY2014

Q3

Q3

YTD

YTD

TTM

TTM

Net Income (loss)

$             339

$             160

$             703

$           (276)

$             877

$           (575)

Interest

Amortization of software products

Other depreciation and amortization

Loss on debt extinguishment

 -

 -

 -

 -

 -

 -

Loss on FMV of Warrant Derivatives

 -

 -

 -

Loss on impairment of long-lived assets

 -

 -

 -

 -

 -

Income taxes

  EBITDA

$         1,628

$         1,263

$         4,466

$         2,487

$         5,841

$         3,986

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the following fiscal quarters:

4/30/15

1/31/15

10/31/14

7/31/14

04/30/14

01/31/14

10/31/13

07/31/13

Q3

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Quarterly

2015

2015

2015

2014

2014

2014

2014

2013

Net Income (loss)

$             339

$             260

$             104

$             174

$             160

$           (461)

$               25

$           (299)

Interest

Amortization of software products

Other depreciation and amortization

Loss on debt extinguishment

Loss on FMV of Warrant Derivatives

Loss on impairment of long-lived assets

Income taxes

  EBITDA

$         1,628

$         1,635

$         1,203

$         1,375

$         1,263

$             258

$             966

$          1,499

Trailing 12 months (TTM)

Net Income (loss)

$             877

$             698

$             (23)

$           (102)

$           (575)

$        (1,306)

$           (841)

$           (753)

Interest

Amortization of software products

Other depreciation and amortization

Loss on debt extinguishment

Loss on FMV of Warrant Derivatives

Loss on impairment of long-lived assets

Income taxes

  EBITDA

$         5,841

$         5,476

$         4,099

$         3,862

$         3,986

$         3,499

$          3,482

$          3,499

Management believes EBITDA is helpful in understanding period-over-period operating results separate and apart from non-operating expenses and expenses pertaining to prior period investing activities, particularly given the Company’s significant investments in capitalized software and its continuing efforts in completing acquisitions, which typically result in significant depreciation and amortization expense in subsequent periods.  The Company uses EBITDA as a factor in evaluating potential acquisition targets and analyzing the pro forma impact of the acquisition on the Company.  However, EBITDA has significant limitations as an analytical tool and should only be used cautiously in addition to, and never as a substitute for, operating income, cash flows or other measures of financial performance prepared in accordance with generally accepted accounting principles and may not necessarily be comparable to similarly titled measures of other companies.