T
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
£
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
WISCONSIN
|
39-1388360
|
|||
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
Large
accelerated filer £
|
Accelerated
filer £
|
Non-accelerated
filer £
|
Smaller
reporting company R
|
PART
I - FINANCIAL INFORMATION
|
||||
Page
|
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Item
1
|
|
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|
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3-4
|
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|
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5
|
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|
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6
|
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|
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7-15
|
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Item
2
|
16-24
|
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|
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Item
3
|
24
|
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Item
4T
|
24
|
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|
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PART
II - OTHER INFORMATION
|
|
|||
|
||||
|
||||
Item
1
|
25
|
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|
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Item
2
|
25
|
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|
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Item
3
|
25
|
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|
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Item
4
|
25
|
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|
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Item
5
|
25
|
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|
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Item
6
|
25
|
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|
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26
|
(Unaudited)
|
||||||||
ASSETS
|
April
30
|
July
31
|
||||||
2008
|
2007
|
|||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 1,244 | $ | 1,050 | ||||
Trade
receivables, less allowance for doubtful accounts of $154 and $148 at
April 30, 2008 and July 31, 2007, respectively
|
1,258 | 1,302 | ||||||
Work
in Process
|
236 | 223 | ||||||
Prepaid
expenses and other
|
334 | 291 | ||||||
Current
portion of deferred income taxes
|
555 | 555 | ||||||
Total
Current Assets
|
3,627 | 3,421 | ||||||
Equipment
and leasehold improvements:
|
||||||||
Computer
equipment
|
5,370 | 5,324 | ||||||
Leasehold
improvements
|
128 | 128 | ||||||
Furniture
and equipment
|
2,810 | 2,749 | ||||||
8,308 | 8,201 | |||||||
Less
accumulated depreciation and amortization
|
7,394 | 6,991 | ||||||
Net
equipment and leasehold improvements
|
914 | 1,210 | ||||||
Long
term portion of deferred income taxes
|
1,539 | 1,539 | ||||||
Goodwill
|
1,079 | 1,079 | ||||||
Other
assets
|
893 | 1,072 | ||||||
Capitalized
software product costs
|
12,820 | 12,455 | ||||||
Less
accumulated amortization
|
11,417 | 10,849 | ||||||
Net
capitalized software product costs
|
1,403 | 1,606 | ||||||
Total
Assets
|
$ | 9,455 | $ | 9,927 |
(Unaudited)
|
||||||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
April
30
|
July
31
|
||||||
2008
|
2007
|
|||||||
Current
liabilities:
|
||||||||
Current
portion of notes payable
|
$ | 233 | $ | 1,023 | ||||
Accounts
payable
|
393 | 703 | ||||||
Deferred
revenue
|
4,967 | 5,619 | ||||||
Accrued
payroll and related liabilities
|
1,087 | 962 | ||||||
Accrued
sales, use and income taxes
|
66 | 28 | ||||||
Accrued
vendor specific liabilities
|
219 | 175 | ||||||
Other
accrued liabilities
|
262 | 124 | ||||||
Current
portion of capital lease obligations
|
11 | 8 | ||||||
Total
Current Liabilities
|
7,238 | 8,642 | ||||||
Long
term liabilities:
|
||||||||
Notes
payable (net of discount)
|
314 | 479 | ||||||
Long
term payroll related
|
77 | 55 | ||||||
Other
long term liabilities
|
10 | 28 | ||||||
Capital
lease obligations
|
8 | 5 | ||||||
Total
Long Term Liabilities
|
409 | 567 | ||||||
Shareholders'
equity:
|
||||||||
Cumulative
preferred stock, par value $.001 per share, 1,000,000 shares authorized; 0
shares issued and outstanding at April 30, 2008 and July 31,
2007
|
- | - | ||||||
Common
stock, par value $.001 per share, 25,000,000 shares authorized; 6,659,427
and 6,623,605 shares issued and outstanding at April 30, 2008 and July 31,
2007, respectively
|
7 | 7 | ||||||
Common
stock warrants and options
|
260 | 195 | ||||||
Additional
paid-in-capital
|
94,679 | 94,627 | ||||||
Accumulated
deficit
|
(93,086 | ) | (94,091 | ) | ||||
Other
accumulated comprehensive income (loss)
|
(52 | ) | (20 | ) | ||||
Total
Shareholders' Equity
|
1,808 | 718 | ||||||
Total
Liabilities and Shareholders' Equity
|
$ | 9,455 | $ | 9,927 |
Three
months ended
|
Nine
months ended
|
|||||||||||||||
April
30
|
April
30
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Net
revenues:
|
||||||||||||||||
Subscriptions,
support and other services fees
|
$ | 2,906 | $ | 2,916 | $ | 8,863 | $ | 8,333 | ||||||||
Software
licenses and renewals
|
549 | 547 | 1,598 | 1,665 | ||||||||||||
Professional
services
|
703 | 638 | 2,143 | 1,297 | ||||||||||||
|
4,158 | 4,101 | 12,604 | 11,295 | ||||||||||||
Cost
of products and services sold:
|
||||||||||||||||
Subscriptions,
support and other services fees
|
222 | 282 | 816 | 888 | ||||||||||||
Software
licenses and renewals *
|
197 | 253 | 595 | 655 | ||||||||||||
Professional
services
|
255 | 296 | 790 | 418 | ||||||||||||
674 | 831 | 2,201 | 1,961 | |||||||||||||
Gross
Margin
|
3,484 | 3,270 | 10,403 | 9,334 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Depreciation
and amortization (exclusive of amortization of software products
included in costof products and services sold)
|
180 | 203 | 561 | 419 | ||||||||||||
Customer
operations and support
|
252 | 298 | 788 | 842 | ||||||||||||
Selling,
general and administrative
|
2,292 | 2,491 | 6,976 | 6,577 | ||||||||||||
Software
development and technical support
|
333 | 450 | 1,021 | 1,178 | ||||||||||||
Net
operating expenses
|
3,057 | 3,442 | 9,346 | 9,016 | ||||||||||||
Operating
income
|
427 | (172 | ) | 1,057 | 318 | |||||||||||
Other
income (expense):
|
||||||||||||||||
Interest
expense
|
(14 | ) | (40 | ) | (75 | ) | (110 | ) | ||||||||
Other,
net
|
5 | 16 | 15 | 77 | ||||||||||||
Total
other expense
|
(9 | ) | (24 | ) | (60 | ) | (33 | ) | ||||||||
Income
before provision for income taxes
|
418 | (196 | ) | 997 | 285 | |||||||||||
Income
tax benefit (provision)
|
9 | (9 | ) | 8 | (17 | ) | ||||||||||
Net
income
|
$ | 427 | $ | (205 | ) | $ | 1,005 | $ | 268 | |||||||
Average
common shares outstanding:
|
||||||||||||||||
Basic
|
6,659 | 6,444 | 6,650 | 6,320 | ||||||||||||
Diluted
|
7,069 | 6,844 | 7,060 | 6,720 | ||||||||||||
Basic
and diluted net income per share:
|
||||||||||||||||
Basic
|
$ | 0.06 | $ | (0.03 | ) | $ | 0.15 | $ | 0.04 | |||||||
Diluted
|
$ | 0.06 | $ | (0.03 | ) | $ | 0.14 | $ | 0.04 |
*
|
Includes amortization of software
products of $187, $213, $568 and $598, respectively and excludes other
depreciation and amortization, which is shown
separately
|
Nine
months ended
|
||||||||
April
30
|
||||||||
2008
|
2007
|
|||||||
Operating
activities
|
||||||||
Net
income
|
$ | 1,005 | $ | 268 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Amortization
of software products
|
568 | 598 | ||||||
Amortization
of deferred financing costs, debt discount and excess carrying
value over face amount of notes payable
|
22 | (22 | ) | |||||
Depreciation
and other amortization
|
561 | 419 | ||||||
Stock
based compensation related to stock options
|
65 | 109 | ||||||
Stock
issued as contribution to 401(k) plan
|
37 | 42 | ||||||
Net
change in receivables, prepaid expenses and other current
assets
|
- | (428 | ) | |||||
Net
change in accounts payable, deferred revenue, Accrued liabilities
and long term liabilities
|
(683 | ) | 61 | |||||
Net
cash provided by operating activities
|
1,575 | 1,047 | ||||||
Investing
activities
|
||||||||
Purchase
of equipment and leasehold improvements
|
(63 | ) | (629 | ) | ||||
Purchase
of assets related to acquisition
|
- | (1,179 | ) | |||||
Software
product costs capitalized
|
(365 | ) | (247 | ) | ||||
Net
cash used in investing activities
|
(428 | ) | (2,055 | ) | ||||
Financing
activities
|
||||||||
Payments
under notes payable
|
(977 | ) | (1,145 | ) | ||||
Payments
of capital lease obligations
|
(4 | ) | - | |||||
Proceeds
from issuance of common stock
|
15 | 37 | ||||||
Net
cash used in financing activities
|
(966 | ) | (1,108 | ) | ||||
Effect
of foreign currency exchange rate changes
|
13 | - | ||||||
Net
increase (decrease) in cash and cash equivalents
|
194 | (2,116 | ) | |||||
Balance
at beginning of period
|
1,050 | 3,584 | ||||||
Balance
at end of period
|
$ | 1,244 | $ | 1,468 | ||||
Cash
paid for interest
|
$ | 88 | $ | 137 | ||||
Cash
paid for income taxes
|
$ | 3 | $ | 20 | ||||
Noncash
investing and financing activities
|
||||||||
Issuance
of common stock in connection with acquisition
|
$ | - | $ | 707 | ||||
Capital
lease obligations incurred for computer equipment
|
10 | - | ||||||
Debt
issued in connection with acquisitions
|
- | 700 | ||||||
Debt
assumed in connection with acquisition
|
- | 37 | ||||||
Accrued
liabilities related to acquisition
|
- | 175 | ||||||
Stock
based compensation related to stock options
|
65 | 109 |
1.
|
BASIS OF
PRESENTATION
|
2.
|
BASIC AND DILUTED NET INCOME
PER SHARE
|
Three
months ended
|
Nine
months ended
|
|||||||||||||||
April
30
|
April
30
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Net
income (loss)
|
$ | 427 | $ | (205 | ) | $ | 1,005 | $ | 268 | |||||||
Weighted
average common shares outstanding
|
6,659 | 6,444 | 6,650 | 6,320 | ||||||||||||
Dilutive
effect of stock options and warrants
|
410 | 400 | 410 | 400 | ||||||||||||
Diluted
weighted average common shares outstanding
|
7,069 | 6,844 | 7,060 | 6,720 | ||||||||||||
Net
income (loss) per share:
|
||||||||||||||||
Basic
|
$ | 0.06 | $ | (0.03 | ) | $ | 0.15 | $ | 0.04 | |||||||
Diluted
|
$ | 0.06 | $ | (0.03 | ) | $ | 0.14 | $ | 0.04 |
3.
|
STOCK-BASED
COMPENSATION
|
Three
months ended
April
30,
|
Nine
months ended
April
30,
|
|||
2008
|
2007
|
2008
|
2007
|
|
Expected
life (years)
|
10
years
|
10
years
|
10
years
|
10
years
|
Risk-free
interest rate
|
4.88%
|
4.88%
|
4.88%
|
4.88%
|
Expected
volatility
|
102%
|
124%
|
102%
|
124%
|
Expected
dividend yield
|
0%
|
0%
|
0%
|
0%
|
Three
months ended
April
30, 2008
|
Three
months ended
April
30, 2007
|
|||||||||||||||||||||||||||||||
Options
|
Wt-Avg
Exercise
Price
|
Wt-Avg
Remaining
Contractual
Period
|
Aggregate
Intrinsic Value
|
Options
|
Wt-Avg
Exercise
Price
|
Wt-Avg
Remaining
Contractual
Period
|
Aggregate
Intrinsic
Value
|
|||||||||||||||||||||||||
Outstanding
at beginning of period
|
125,186 | $ | 2.30 | 1.39 | - | 145,686 | $ | 2.27 | 2.34 | $ | 13,125 | |||||||||||||||||||||
Granted
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Exercised
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Forfeited
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Outstanding
at end of period
|
125,186 | $ | 2.30 | 1.14 | - | 145,686 | $ | 2.27 | 2.09 | $ | 13,125 | |||||||||||||||||||||
Exercisable
at end of period
|
125,186 | $ | 2.30 | 1.14 | - | 145,686 | $ | 2.27 | 2.09 | $ | 13,125 |
Nine
months ended
April
30, 2008
|
Nine
months ended
April
30, 2007
|
|||||||||||||||||||||||||||||||
Options
|
Wt-Avg
Exercise
Price
|
Wt-Avg
Remaining
Contractual
Period
|
Aggregate
Intrinsic Value
|
Options
|
Wt-Avg
Exercise
Price
|
Wt-Avg
Remaining
Contractual
Period
|
Aggregate
Intrinsic
Value
|
|||||||||||||||||||||||||
Outstanding
at beginning of period
|
125,686 | $ | 2.30 | 1.89 | - | 146,686 | $ | 2.28 | 2.85 | $ | 13,125 | |||||||||||||||||||||
Granted
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Exercised
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Forfeited
|
(500 | ) | $ | 4.06 | - | - | (1,000 | ) | $ | 3.25 | - | - | ||||||||||||||||||||
Outstanding
at end of period
|
125,186 | $ | 2.30 | 1.14 | - | 145,686 | $ | 2.27 | 2.09 | $ | 13,125 | |||||||||||||||||||||
Exercisable
at end of period
|
125,186 | $ | 2.30 | 1.14 | - | 145,686 | $ | 2.27 | 2.09 | $ | 13,125 |
Three
months ended
April
30, 2008
|
Three
months ended
April
30, 2007
|
|||||||||||||||||||||||||||||||
Options
|
Wt-Avg
Exercise
Price
|
Wt-Avg
Remaining
Contractual
Period
|
Aggregate
Intrinsic Value
|
Options
|
Wt-Avg
Exercise
Price
|
Wt-Avg
Remaining
Contractual
Period
|
Aggregate
Intrinsic
Value
|
|||||||||||||||||||||||||
Outstanding
at beginning of period
|
1,313 | $ | 2.65 | 2.47 | - | 1,313 | $ | 2.65 | 3.72 | $ | 152 | |||||||||||||||||||||
Granted
|
- | - | - | - | ||||||||||||||||||||||||||||
Exercised
|
- | - | - | - | ||||||||||||||||||||||||||||
Forfeited
|
- | - | - | - | ||||||||||||||||||||||||||||
Outstanding
at end of period
|
1,313 | $ | 2.65 | 2.22 | - | 1,313 | $ | 2.65 | 3.22 | - | ||||||||||||||||||||||
Exercisable
at end of period
|
1,313 | $ | 2.65 | 2.22 | - | 1,313 | $ | 2.65 | 3.22 | $ | 152 |
Nine
months ended
April
30, 2008
|
Nine
months ended
April
30, 2007
|
|||||||||||||||||||||||||||||||
Options
|
Wt-Avg
Exercise
Price
|
Wt-Avg
Remaining
Contractual
Period
|
Aggregate
Intrinsic Value
|
Options
|
Wt-Avg
Exercise
Price
|
Wt-Avg
Remaining
Contractual
Period
|
Aggregate
Intrinsic
Value
|
|||||||||||||||||||||||||
Outstanding
at beginning of period
|
1,313 | $ | 2.65 | 2.97 | - | 1,313 | $ | 2.65 | 3.97 | $ | 152 | |||||||||||||||||||||
Granted
|
- | - | - | - | ||||||||||||||||||||||||||||
Exercised
|
- | - | - | - | ||||||||||||||||||||||||||||
Forfeited
|
- | - | - | - | ||||||||||||||||||||||||||||
Outstanding
at end of period
|
1,313 | $ | 2.65 | 2.22 | - | 1,313 | $ | 2.65 | 3.22 | |||||||||||||||||||||||
Exercisable
at end of period
|
1,313 | $ | 2.65 | 2.22 | - | 1,313 | $ | 2.65 | 3.22 | $ | 152 |
Three
months ended
April
30, 2008
|
Three
months ended
April
30, 2007
|
|||||||||||||||||||||||||||||||
Options
|
Wt-Avg
Exercise
Price
|
Wt-Avg
Remaining
Contractual
Period
|
Aggregate
Intrinsic Value
|
Options
|
Wt-Avg
Exercise
Price
|
Wt-Avg
Remaining
Contractual
Period
|
Aggregate
Intrinsic
Value
|
|||||||||||||||||||||||||
Outstanding
at beginning of period
|
890,975 | $ | 1.52 | 6.43 | $ | 289,823 | 1,082,850 | $ | 1.43 | 7.10 | $ | 688,028 | ||||||||||||||||||||
Granted
|
- | - | - | - | 750 | $ | 1.53 | - | - | |||||||||||||||||||||||
Exercised
|
- | - | - | - | (13,750 | ) | $ | .75 | - | - | ||||||||||||||||||||||
Forfeited
|
(8,500 | ) | $ | 2.00 | - | - | (25,374 | ) | $ | 1.38 | - | - | ||||||||||||||||||||
Outstanding
at end of period
|
882,475 | $ | 1.51 | 6.16 | $ | 167,802 | 1,044,476 | $ | 1.44 | 6.85 | $ | 654,011 | ||||||||||||||||||||
Exercisable
at end of period
|
730,329 | $ | 1.45 | 5.71 | $ | 166,124 | 802,080 | $ | 1.34 | 6.32 | $ | 588,159 |
Nine
months ended
April
30, 2008
|
Nine
months ended
April
30, 2007
|
|||||||||||||||||||||||||||||||
Options
|
Wt-Avg
Exercise
Price
|
Wt-Avg
Remaining
Contractual
Period
|
Aggregate
Intrinsic Value
|
Options
|
Wt-Avg
Exercise
Price
|
Wt-Avg
Remaining
Contractual
Period
|
Aggregate
Intrinsic
Value
|
|||||||||||||||||||||||||
Outstanding
at beginning of period
|
1,013,100 | $ | 1.45 | 6.61 | $ | 320,062 | 1,054,350 | $ | 1.35 | 7.27 | $ | 814,975 | ||||||||||||||||||||
Granted
|
35,500 | $ | 1.63 | - | - | 111,000 | $ | 2.02 | - | - | ||||||||||||||||||||||
Exercised
|
- | - | - | - | (34,126 | ) | $ | .48 | - | - | ||||||||||||||||||||||
Forfeited
|
(166,125 | ) | $ | 1.15 | - | - | (86,748 | ) | $ | 1.43 | - | - | ||||||||||||||||||||
Outstanding
at end of period
|
882,475 | $ | 1.51 | 6.16 | $ | 167,802 | 1,044,476 | $ | 1.44 | 6.85 | $ | 654,011 | ||||||||||||||||||||
Exercisable
at end of period
|
730,329 | $ | 1.45 | 5.71 | $ | 166,124 | 802,080 | $ | 1.34 | 6.32 | $ | 588,159 |
Three
months ended
April
30, 2008
|
Three
months ended
April
30, 2007
|
|||||||||||||||
Options
|
Wt-Avg
Grant Date Fair Value
|
Options
|
Wt-Avg
Grant Date Fair Value
|
|||||||||||||
Non-vested
at beginning of period
|
158,364 | $ | 1.80 | 265,238 | $ | 1.74 | ||||||||||
Granted
|
- | - | 750 | $ | 1.96 | |||||||||||
Vested
|
- | - | - | |||||||||||||
Forfeited
|
(6,218 | ) | $ | 2.00 | (23,592 | ) | $ | 1.27 | ||||||||
Non-vested
at end of period
|
152,146 | $ | 1.79 | 242,396 | $ | 1.79 |
Nine
months ended
April
30, 2008
|
Nine
months ended
April
30, 2007
|
|||||||||||||||
Options
|
Wt-Avg
Grant Date Fair Value
|
Options
|
Wt-Avg
Grant Date Fair Value
|
|||||||||||||
Non-vested
at beginning of period
|
137,675 | $ | 1.79 | 188,799 | $ | 1.59 | ||||||||||
Granted
|
35,500 | $ | 1.63 | 111,000 | $ | 2.02 | ||||||||||
Vested
|
- | - | - | - | ||||||||||||
Forfeited
|
(21,029 | ) | $ | 1.50 | (57,403 | ) | $ | 1.60 | ||||||||
Non-vested
at end of period
|
152,146 | $ | 1.79 | 242,396 | $ | 1.79 |
4.
|
ACQUISITIONS
|
Pro
Forma Results
|
||||||||||||||||
(in
thousands, except per share data)
|
||||||||||||||||
Three
months ended
|
Nine
months ended
|
|||||||||||||||
April
30
|
April
30
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Actual
|
Pro
Forma
|
Actual
|
Pro
Forma
|
|||||||||||||
Revenues
|
$ | 4,158 | $ | 4,101 | $ | 12,604 | $ | 11,954 | ||||||||
Net
income
|
$ | 428 | $ | (205 | ) | $ | 1,005 | $ | 20 | |||||||
Earnings
per share
|
$ | 0.06 | $ | (0.03 | ) | $ | 0.15 | $ | 0.00 | |||||||
Earnings
per diluted share
|
$ | 0.06 | $ | (0.03 | ) | $ | 0.14 | $ | 0.00 |
5.
|
NOTES
PAYABLE
|
April
30
|
July
31
|
|||||||||||
2008
|
2007
|
Net
|
||||||||||
(Unaudited)
|
(Audited)
|
Change
|
||||||||||
Note
payable to WITECH:
|
||||||||||||
Current
portion of note payable
|
$ | - | $ | 50 | $ | (50 | ) | |||||
Long
term portion of note payable
|
- | - | - | |||||||||
Total
note payable to WITECH
|
- | 50 | (50 | ) | ||||||||
Notes
payable to New Holders:
|
||||||||||||
Current
portion of notes payable
|
- | 500 | (500 | ) | ||||||||
Long
term portion of notes payable
|
- | - | - | |||||||||
Total
face value of notes payable to New Holders
|
- | 500 | (500 | ) | ||||||||
Carrying
value in excess of face value of notes payable
|
- | 4 | (4 | ) | ||||||||
Debt
discount (common stock warrants and options)
|
- | (3 | ) | 3 | ||||||||
Total
carrying value of notes payable to New Holders
|
- | 501 | (501 | ) | ||||||||
Debt
related to acquisition of OC-Net:
|
||||||||||||
Current
portion of notes payable
|
233 | 233 | - | |||||||||
Long
term portion of notes payable
|
173 | 350 | (177 | ) | ||||||||
Total
notes payable
|
406 | 583 | (177 | ) | ||||||||
Current
cash earn out
|
- | 250 | (250 | ) | ||||||||
Long
term cash holdback
|
150 | 150 | - | |||||||||
Imputed
interest on cash earn out/holdback
|
(9 | ) | (32 | ) | 23 | |||||||
Total
debt related to acquisition of OC-Net
|
547 | 951 | (404 | ) | ||||||||
Total
debt
|
$ | 547 | $ | 1,502 | $ | (955 | ) |
6.
|
LINE OF
CREDIT
|
7.
|
SHAREHOLDER
RIGHTS PLAN
|
8.
|
INCOME
TAXES
|
Three
months ended
|
Nine
months ended
|
|||||||||||||||
April
30
|
April
30
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Current:
|
||||||||||||||||
Federal
|
$ | 164 | $ | 140 | $ | 193 | $ | 323 | ||||||||
State
|
45 | 32 | 53 | 83 | ||||||||||||
Deferred
|
- | - | - | - | ||||||||||||
Generation
/ (utilization) of net operating loss carry-forwards, net of change in
valuation allowance
|
(200 | ) | (163 | ) | (238 | ) | (389 | ) | ||||||||
Income
tax provision
|
$ | 9 | $ | 9 | $ | 8 | $ | 17 |
9.
|
BUSINESS
SEGMENTS
|
Three
months ended
|
Nine
months ended
|
|||||||||||||||||||||||
April
30
|
Percent
|
April
30
|
Percent
|
|||||||||||||||||||||
2008
|
2007
|
Change
|
2008
|
2007
|
Change
|
|||||||||||||||||||
Revenue
|
||||||||||||||||||||||||
Netherlands
|
$ | 189 | $ | 181 | 4 | % | $ | 527 | $ | 510 | 3 | % | ||||||||||||
United
States
|
3,969 | 3,920 | 1 | % | 12,077 | 10,785 | 12 | % | ||||||||||||||||
Consolidated
|
4,158 | 4,101 | 1 | % | 12,604 | 11,295 | 12 | % | ||||||||||||||||
Earnings
(loss)
|
||||||||||||||||||||||||
Netherlands
|
$ | (107 | ) | $ | (206 | ) | (48 | %) | $ | (283 | ) | $ | (518 | ) | (45 | %) | ||||||||
United
States
|
534 | 1 | 51,463 | % | 1,288 | 786 | 64 | % | ||||||||||||||||
Consolidated
|
427 | (205 | ) | (308 | %) | 1,005 | 268 | 275 | % | |||||||||||||||
April
30
|
July
31
|
Percent
|
||||||||||||||||||||||
2008
|
2007
|
Change
|
||||||||||||||||||||||
Total
Assets
|
||||||||||||||||||||||||
Netherlands
|
$ | 224 | $ | 309 | (28 | %) | ||||||||||||||||||
United
States
|
9,231 | 9,618 | (4 | %) | ||||||||||||||||||||
Consolidated
|
9,455 | 9,927 | (5 | %) |
Electronic
Catalog Products And Related Services
|
||
Product
or Service
|
Description
|
Primary
Industry/Market
|
PartSmart
ClassicÔ
|
Electronic
parts catalog for equipment dealers, formerly PartSmart Version
6
|
Equipment-
all sub-markets except RV
|
PartSmart®
|
Electronic
parts catalog for equipment dealers
|
Equipment-
all sub-markets except RV
|
PartSmart
WebÔ
|
Web
based electronic parts catalog, formerly EMPARTweb
|
Equipment
- all sub-markets
|
Lookupparts.com
|
PartSmart
Web-based lookup service offered to dealers on a subscription
basis
|
Equipment
- all sub-markets except RV
|
PartSmart
WebÔ
ASP
|
Electronic
parts catalog viewing software offered as a hosted service for individual
distributors and manufacturers, formerly EMPARTweb ASP
|
Equipment
- all sub-markets
|
PartSmart
CartÔ
|
Add-on
product to PartSmart Web that facilitates order taking from the
catalog
|
Equipment
- all sub-markets
|
PartSmart
Data Manager™
|
Electronic
parts catalog creation software used to produce catalogs for viewing on
PartSmart Classic, PartSmart 8, and PartSmart Web
|
Equipment
- all sub-markets
|
PartSmart
Data Publisher™
|
Add-on
product to PartSmart Data Manager that facilitates the creation of a file
of parts and related information for use in PartSmart PDF Catalog Composer
Module
|
Equipment
– all sub-markets
|
PartSmart
PDF Catalog Composer™ Module
|
Add-on
product to PartSmart Data Manager that facilitates the creation of a parts
manual, price sheet or other parts-related publications in the Adobe
Acrobat format for printing, electronic distribution or online
display
|
Equipment
– all sub-markets
|
Electronic
publishing services
|
Project
management, data conversion, editing, production, and distribution
services for manufacturers who wish to outsource catalog production
operations
|
Equipment
- all sub-markets
|
EMPARTviewer™
|
Electronic
parts catalog viewing software
|
Equipment
- RV
|
WarrantySmart™
|
Web-based
end-to-end warranty claims processing system that enables dealers,
distributors and manufacturers to streamline product registration and
warranty claim submission and processing, as well as check claim status
online
|
Equipment
– all sub-markets
|
Professional
services
|
Project
management, software customization, data conversion, back-end system
integration, roll-out management, and help desk support
services
|
Equipment
- all sub-markets
|
MARKETING
SERVICES
|
||
Product
or Service
|
Description
|
Primary
Industry/Market
|
WebsiteSmart
Pro™
|
Software
to create customized websites and conduct business electronically,
including optional shopping cart, superseding WebsiteSmart
|
Equipment
– primarily outdoor power,
power
sports
|
WebsiteSmart™
|
Software
to create customized websites and conduct business electronically,
including optional shopping cart
|
Equipment
– primarily outdoor power,
power
sports
|
Professional
Services
|
Large-scale
website creation, hosting and maintenance
services
|
Equipment
– all sub-markets
|
ARI
MailSmart™
|
Direct
mail solution that enables users to cost-effectively and efficiently reach
customers and prospects with customized messages
|
Equipment
– all sub-markets
|
eMailSmart™
|
Email
solution that enables users to stay in touch with customers through
special offers and a quarterly newsletter
|
Equipment
– all sub-markets
|
Content
Management Services
|
Add-on
solution to WebsiteSmart and Website Smart Pro that automatically updates
a website with Weather Alerts, promotions based on customer seasonality
and supplier promotions
|
Equipment
– all sub-markets
|
eCommERCE
Products and Services
|
||
Product
or Service
|
Description
|
Primary
Industry/Market
|
TradeRoute®
|
Document
handling and communications for product ordering, warranty claims and
other business documents
|
Equipment
- Outdoor power and RV
|
Three
months ended
|
Nine
months ended
|
|||||||||||||||||||||||
April
30
|
Percent
|
April
30
|
Percent
|
|||||||||||||||||||||
2008
|
2007
|
Change
|
2008
|
2007
|
Change
|
|||||||||||||||||||
North
American
|
||||||||||||||||||||||||
Catalog
subscriptions
|
$ | 2,435 | $ | 2,503 | (3 | %) | $ | 7,464 | $ | 7,711 | (3 | %) | ||||||||||||
Catalog
professional services
|
311 | 329 | (5 | %) | 920 | 923 | 0 | % | ||||||||||||||||
Marketing
services
|
588 | 536 | 10 | % | 1,705 | 1,047 | 63 | % | ||||||||||||||||
Marketing
professional services
|
373 | 230 | 62 | % | 1,201 | 230 | 422 | % | ||||||||||||||||
Dealer
& distributor communications
|
181 | 165 | 10 | % | 496 | 512 | (3 | %) | ||||||||||||||||
Subtotal
|
3,888 | 3,763 | 3 | % | 11,786 | 10,423 | 13 | % | ||||||||||||||||
Rest
of the World
|
||||||||||||||||||||||||
Catalog
subscriptions
|
268 | 257 | 4 | % | 813 | 727 | 12 | % | ||||||||||||||||
Catalog
professional services
|
2 | 81 | (98 | %) | 5 | 145 | (97 | %) | ||||||||||||||||
Subtotal
|
270 | 338 | (20 | )% | 818 | 872 | (6 | %) | ||||||||||||||||
Total
Revenue
|
||||||||||||||||||||||||
Catalog
subscriptions
|
2,703 | 2,760 | (2 | %) | 8,277 | 8,438 | (2 | %) | ||||||||||||||||
Catalog
professional services
|
313 | 410 | (24 | %) | 925 | 1,068 | (13 | %) | ||||||||||||||||
Marketing
services
|
588 | 536 | 10 | % | 1,705 | 1,047 | 63 | % | ||||||||||||||||
Marketing
professional services
|
373 | 230 | 62 | % | 1,201 | 230 | 422 | % | ||||||||||||||||
Dealer
& distributor communications
|
181 | 165 | 10 | % | 496 | 512 | (3 | %) | ||||||||||||||||
Total
|
$ | 4,158 | $ | 4,101 | 1 | % | $ | 12,604 | $ | 11,295 | 12 | % |
Three
months ended
|
Nine
months ended
|
|||||||||||||||||||||||
April
30
|
April
30
|
|||||||||||||||||||||||
2008
|
2007
|
%
Chg
|
2008
|
2007
|
%
Chg
|
|||||||||||||||||||
Catalog
subscriptions
|
||||||||||||||||||||||||
Revenue
|
$ | 2,703 | $ | 2,760 | (2 | %) | $ | 8,277 | $ | 8,438 | (2 | %) | ||||||||||||
Cost
of revenue
|
265 | 286 | (7 | %) | 923 | 859 | 7 | % | ||||||||||||||||
Cost
of revenue as a percent of revenue
|
10 | % | 10 | % | 11 | % | 10 | % | ||||||||||||||||
Catalog
professional services
|
||||||||||||||||||||||||
Revenue
|
313 | 410 | (24 | %) | 925 | 1,068 | (13 | %) | ||||||||||||||||
Cost
of revenue
|
138 | 210 | (34 | %) | 389 | 448 | (13 | %) | ||||||||||||||||
Cost
of revenue as a percent of revenue
|
44 | % | 51 | % | 42 | % | 42 | % | ||||||||||||||||
Marketing
services subscriptions
|
||||||||||||||||||||||||
Revenue
|
588 | 536 | 10 | % | 1,705 | 1,047 | 63 | % | ||||||||||||||||
Cost
of revenue
|
139 | 244 | (43 | %) | 487 | 511 | (5 | %) | ||||||||||||||||
Cost
of revenue as a percent of revenue
|
24 | % | 46 | % | 29 | % | 49 | % | ||||||||||||||||
Marketing
professional services
|
||||||||||||||||||||||||
Revenue
|
373 | 230 | 62 | % | 1,201 | 230 | 422 | % | ||||||||||||||||
Cost
of revenue
|
129 | 75 | 72 | % | 391 | 75 | 421 | % | ||||||||||||||||
Cost
of revenue as a percent of revenue
|
35 | % | 33 | % | 33 | % | 33 | % | ||||||||||||||||
Dealer
and distributor communications
|
||||||||||||||||||||||||
Revenue
|
181 | 165 | 10 | % | 496 | 512 | (3 | %) | ||||||||||||||||
Cost
of revenue
|
4 | 16 | (75 | %) | 10 | 68 | (85 | %) | ||||||||||||||||
Cost
of revenue as a percent of revenue
|
2 | % | 10 | % | 2 | % | 13 | % | ||||||||||||||||
Total
|
||||||||||||||||||||||||
Revenue
|
$ | 4,158 | $ | 4,101 | 1 | % | $ | 12,604 | $ | 11,295 | 12 | % | ||||||||||||
Cost
of revenue
|
$ | 674 | 831 | (19 | %) | 2,201 | 1,961 | 12 | % | |||||||||||||||
Cost
of revenue as a percent of revenue
|
16 | % | 20 | % | 17 | % | 17 | % |
Three
months ended
|
Nine
months ended
|
|||||||||||||||||||||||
April
30
|
April
30
|
|||||||||||||||||||||||
2008
|
2007
|
%
Chg
|
2008
|
2007
|
%
Chg
|
|||||||||||||||||||
Customer
operations and support
|
$ | 252 | $ | 298 | (15 | %) | $ | 788 | $ | 842 | (6 | %) | ||||||||||||
Selling,
general and administrative
|
2,292 | 2,491 | (8 | %) | 6,976 | 6,577 | 6 | % | ||||||||||||||||
Software
development and technical support
|
333 | 450 | (26 | %) | 1,021 | 1,178 | (13 | %) | ||||||||||||||||
Depreciation
and amortization
|
180 | 203 | (11 | %) | 561 | 419 | 34 | % | ||||||||||||||||
Net
operating expenses
|
$ | 3,057 | $ | 3,442 | (11 | %) | $ | 9,346 | $ | 9,016 | 4 | % |
Three
months ended
|
Nine
months ended
|
|||||||||||||||||||||||
April
30
|
April
30
|
|||||||||||||||||||||||
2008
|
2007
|
%
Chg
|
2008
|
2007
|
%
Chg
|
|||||||||||||||||||
Net
income
|
$ | 427 | $ | (205 | ) | 308 | % | $ | 1,005 | $ | 268 | 275 | % | |||||||||||
Amortization
of software products
|
187 | 213 | (12 | %) | 568 | 598 | (5 | %) | ||||||||||||||||
Amortization
of deferred finance costs and debt discount
|
4 | 11 | (64 | %) | 22 | (22 | ) | 200 | % | |||||||||||||||
Depreciation
and other amortization
|
159 | 203 | (22 | %) | 561 | 419 | 34 | % | ||||||||||||||||
Stock
based compensation related to stock options
|
19 | 41 | (54 | %) | 65 | 109 | (40 | %) | ||||||||||||||||
Stock
issued as contribution to 401(k) plan
|
- | - | - | 37 | 42 | (12 | %) | |||||||||||||||||
Net
change in working capital
|
165 | 506 | (67 | %) | (683 | ) | (367 | ) | (86 | %) | ||||||||||||||
Net
cash provided by operating activities
|
961 | 769 | 25 | % | 1,575 | 1,047 | 50 | % | ||||||||||||||||
Net
cash used in investing activities
|
(173 | ) | (501 | ) | 65 | % | (428 | ) | (2,055 | ) | 79 | % | ||||||||||||
Net
cash used in financing activities
|
(311 | ) | (439 | ) | 29 | % | (966 | ) | (1,108 | ) | 13 | % | ||||||||||||
Effect
of foreign currency exchange rate change on cash
|
6 | - | 100 | % | 13 | - | 100 | % | ||||||||||||||||
Net
change in cash
|
$ | 483 | $ | ( 171 | ) | 382 | % | $ | 194 | $ | ( 2,116 | ) | 109 | % |
|
2000
Stock Option Plan, as amended.
|
|
Section
302 Certification of Chief Executive
Officer.
|
|
Section
302 Certification of Acting Chief Financial
Officer.
|
|
Section
906 Certification of Chief Executive
Officer.
|
|
Section
906 Certification of Acting Chief Financial
Officer.
|
ARI
Network Services, Inc.
|
||||
(Registrant)
|
||||
Date:
|
June
16, 2008
|
/s/ Roy W. Olivier
|
||
Roy
W. Olivier, Chief Executive Officer
|
||||
/s/ Brian E. Dearing
|
||||
Brian
E. Dearing, Chairman of the Board and Acting Chief Financial
Officer
|