##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-QSB
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended April 30, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from  to
 Commission file number 000-19608
 ARI Network Services, Inc.
  WISCONSIN
    
    39-1388360(State or other jurisdiction of
incorporation or organization)
    
    (IRS Employer Identification No.)
 11425 W. Lake Park Drive, Milwaukee, Wisconsin 53224
    þ o
  o þ
   o þ




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##### 



ARI Network Services, Inc.
    PagePART I  FINANCIAL INFORMATIONItem 1 Financial statementsCondensed consolidated balance sheets  April 30, 2006 and July 31, 2005
    
    3-4Condensed consolidated statements of operations for the three and nine months
ended April 30, 2006 and 2005
    
    5Condensed consolidated statements of cash flows for the nine months ended
April 30, 2006 and 2005
    
    6Notes to unaudited condensed consolidated financial statements
    
    7-9Item 2 Managements discussion and analysis or plan of operation
    
    9-17Item 3 Controls and procedures
    
    19PART II  OTHER INFORMATIONItem 2 Unregistered sales of equity securities and use of proceeds
    
    19Item 6 Exhibits
    
    19Signatures
    
    20CertificationCertificationCertificationCertification
  2




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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS
 ARI Network Services, Inc.
 
 Consolidated Balance Sheets
 (In thousands, except share and per share data)
 (Unaudited)
 April 30
    
    
    July 312006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,652
    
    
    $
    3,651Trade receivables, less allowance for doubtful accounts of $133 and
$71 at April 30, 2006 and July 31, 2005, respectively
    
    
    1,308
    
    
    
    1,023Prepaid expenses and other
    
    
    253
    
    
    
    203Deferred income taxes
    
    
    747
    
    
    
    160Total current assets
    
    
    5,960
    
    
    
    5,037Equipment and leasehold improvements:Computer equipment
    
    
    4,961
    
    
    
    4,813Leasehold improvements
    
    
    111
    
    
    
    73Furniture and equipment
    
    
    2,010
    
    
    
    1,7027,082
    
    
    
    6,588Less accumulated depreciation and amortization
    
    
    6,171
    
    
    
    5,893Net equipment and leasehold improvements
    
    
    911
    
    
    
    695Deferred income taxes
    
    
    1,156
    
    
    
    705Other assets
    
    
    7
    
    
    
    10Capitalized software product costs
    
    
    11,395
    
    
    
    10,927Less accumulated amortization
    
    
    9,899
    
    
    
    9,441Net capitalized software product costs
    
    
    1,496
    
    
    
    1,486Total Assets
    
    $
    9,530
    
    
    $
    7,933
 3




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##### Table of Contents



ARI Network Services, Inc.
Consolidated Balance Sheets  (In thousands, except share and per share data)  (Unaudited)
 April 30
    
    
    July 312006
    
    
    2005LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Current portion of notes payable
    
    $
    1,400
    
    
    $
    1,200Accounts payable
    
    
    322
    
    
    
    323Deferred revenue
    
    
    5,585
    
    
    
    5,441Accrued payroll and related liabilities
    
    
    793
    
    
    
    1,134Accrued sales, use and income taxes
    
    
    52
    
    
    
    74Accrued vendor specific liabilities
    
    
    607
    
    
    
    530Other accrued liabilities
    
    
    351
    
    
    
    242Current portion of capital lease obligations
    
    
    
    
    
    
    4Total current liabilities
    
    
    9,110
    
    
    
    8,948Long term liabilities:Notes payable (net of discount)
    
    
    940
    
    
    
    2,037Long term payroll related
    
    
    480
    
    
    
    461Other long term liabilities
    
    
    41
    
    
    
    96Total long term liabilities
    
    
    1,461
    
    
    
    2,594Shareholders equity (deficit):Cumulative preferred stock, par value $.001 per share,
1,000,000 shares authorized; 0 shares issued and
outstanding at April 30, 2006 and July 31, 2005, respectively
    
    
    
    
    
    
    Common stock, par value $.001 per share, 25,000,000 shares
authorized; 6,197,529 and 6,064,534 shares issued and outstanding
at April 30, 2006 and July 31, 2005, respectively
    
    
    6
    
    
    
    6Common stock warrants and options
    
    
    36
    
    
    
    36Additional paid-in-capital
    
    
    93,832
    
    
    
    93,751Accumulated deficit
    
    
    (94,915
    )
    
    
    (97,402
    )Total shareholders equity (deficit)
    
    
    (1,041
    )
    
    
    (3,609
    )Total Liabilities and Shareholders Equity (Deficit)
    
    $
    9,530
    
    
    $
    7,933
 See notes to unaudited condensed consolidated financial statements.
  4




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ARI Network Services, Inc.
 
 Consolidated Statements of Operations
 (In thousands, except per share data)
 (Unaudited)
 Three months ended
    
    
    Nine months endedApril 30
    
    
    April 302006
    
    
    2005
    
    
    2006
    
    
    2005Net revenues:Subscriptions, support and other services fees
    
    $
    2,621
    
    
    $
    2,534
    
    
    $
    7,733
    
    
    $
    7,358Software licenses and renewals
    
    
    498
    
    
    
    552
    
    
    
    1,531
    
    
    
    1,686Professional services
    
    
    434
    
    
    
    373
    
    
    
    1,302
    
    
    
    9943,553
    
    
    
    3,459
    
    
    
    10,566
    
    
    
    10,038Cost of products and services sold:Subscriptions, support and other services fees
    
    
    265
    
    
    
    186
    
    
    
    653
    
    
    
    612Software licenses and renewals *
    
    
    168
    
    
    
    153
    
    
    
    490
    
    
    
    452Professional services
    
    
    81
    
    
    
    134
    
    
    
    276
    
    
    
    264514
    
    
    
    473
    
    
    
    1,419
    
    
    
    1,328Gross margin
    
    
    3,039
    
    
    
    2,986
    
    
    
    9,147
    
    
    
    8,710Operating expenses:Depreciation and amortization (exclusive of
amortization of software
products included in cost
of products and services sold)
    
    
    104
    
    
    
    67
    
    
    
    278
    
    
    
    190Customer operations and support
    
    
    273
    
    
    
    265
    
    
    
    855
    
    
    
    784Selling, general and administrative
    
    
    1,862
    
    
    
    1,805
    
    
    
    5,561
    
    
    
    5,259Software development and technical support
    
    
    344
    
    
    
    295
    
    
    
    924
    
    
    
    855Net operating expenses
    
    
    2,583
    
    
    
    2,432
    
    
    
    7,618
    
    
    
    7,088Operating income
    
    
    456
    
    
    
    554
    
    
    
    1,529
    
    
    
    1,622Other income (expense):Interest expense
    
    
    (45
    )
    
    
    (49
    )
    
    
    (144
    )
    
    
    (140
    )Other, net
    
    
    46
    
    
    
    3
    
    
    
    94
    
    
    
    25Total other income (expense)
    
    
    1
    
    
    
    (46
    )
    
    
    (50
    )
    
    
    (115
    )Income before provision for income taxes
    
    
    457
    
    
    
    508
    
    
    
    1,479
    
    
    
    1,507Income tax benefit (provision)
    
    
    1,008
    
    
    
    (13
    )
    
    
    1,008
    
    
    
    (63
    )Net income
    
    $
    1,465
    
    
    $
    495
    
    
    $
    2,487
    
    
    $
    1,444Average common shares outstanding:Basic
    
    
    6,175
    
    
    
    6,008
    
    
    
    6,152
    
    
    
    5,974Diluted
    
    
    6,621
    
    
    
    6,598
    
    
    
    6,598
    
    
    
    6,564Basic and diluted net income per share:Basic
    
    $
    0.24
    
    
    $
    0.08
    
    
    $
    0.40
    
    
    $
    0.24Diluted
    
    $
    0.22
    
    
    $
    0.08
    
    
    $
    0.38
    
    
    $
    0.22
 See notes to unaudited condensed consolidated financial statements.
 
 *
    
    Includes amortization of software products of $161, $143, $458 and $417 respectively and
excluding other depreciation and amortization shown separately 5




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ARI Network Services, Inc.
 
 Consolidated Statements of Cash Flows
 (In thousands)
 (Unaudited)
 Nine months endedApril 302006
    
    
    2005Operating activitiesNet income
    
    $
    2,487
    
    
    $
    1,444Adjustments to reconcile net income to net cash provided
by operating activities:Amortization of software products
    
    
    458
    
    
    
    417Amortization of deferred financing costs, debt discount and
excess carrying value over face amount of notes payable
    
    
    (44
    )
    
    
    (58
    )Depreciation and other amortization
    
    
    278
    
    
    
    190Deferred income taxes
    
    
    (1,038
    )
    
    
    Stock issued as contribution to 401(k) plan
    
    
    21
    
    
    
    37Net change in receivables, prepaid expenses and other
current assets
    
    
    (335
    )
    
    
    376Net change in accounts payable, deferred revenue,
accrued liabilities and other long term liabilities
    
    
    (70
    )
    
    
    (272
    )Net cash provided by operating activities
    
    
    1,757
    
    
    
    2,134Investing activitiesPurchase of equipment and leasehold improvements
    
    
    (494
    )
    
    
    (232
    )Software product costs capitalized
    
    
    (468
    )
    
    
    (939
    )Net cash used in investing activities
    
    
    (962
    )
    
    
    (1,171
    )Financing activitiesPayments under notes payable
    
    
    (850
    )
    
    
    (750
    )Payments of capital lease obligations
    
    
    (4
    )
    
    
    (7
    )Proceeds from issuance of common stock
    
    
    60
    
    
    
    69Net cash used in financing activities
    
    
    (794
    )
    
    
    (688
    )Net increase in cash
    
    
    1
    
    
    
    275Cash at beginning of period
    
    
    3,651
    
    
    
    3,357Cash at end of period
    
    $
    3,652
    
    
    $
    3,632Cash paid for interest
    
    $
    190
    
    
    $
    197Cash paid for income taxes
    
    $
    
    
    
    $
    55Noncash investing and financing activitiesRedemption of common stock in connection with exercise of stock options
    
    $
    54
    
    
    $
    
 See notes to unaudited condensed consolidated financial statements.
 6




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Notes to Condensed Consolidated Financial Statements
(Unaudited)
April 30, 2006
 1. BASIS OF PRESENTATION
    2. BASIC AND DILUTED NET INCOME PER SHARE
  Three months ended
    
    Nine months endedApril 30
    
    April 302006
    
    2005
    
    2006
    
    2005Weighted average common shares outstanding
    
    
    6,175
    
    
    
    6,008
    
    
    
    6,152
    
    
    
    5,974Dilutive effect of stock options and warrants
    
    
    446
    
    
    
    590
    
    
    
    446
    
    
    
    590Diluted weighted average common shares outstanding
    
    
    6,621
    
    
    
    6,598
    
    
    
    6,598
    
    
    
    6,564
 3. STOCK-BASED COMPENSATION
  Three months ended
    
    
    Nine months endedApril 30
    
    
    April 302006
    
    
    2005
    
    
    2006
    
    
    2005Net income, as reported
    
    $
    1,465
    
    
    $
    495
    
    
    $
    2,487
    
    
    $
    1,444Stock-based compensation using the
fair value method
    
    
    (85
    )
    
    
    (93
    )
    
    
    (247
    )
    
    
    (229
    )Pro forma net income
    
    $
    1,380
    
    
    $
    402
    
    
    $
    2,240
    
    
    $
    1,215Net income per shareBasic  as reported
    
    $
    0.24
    
    
    $
    0.08
    
    
    $
    0.40
    
    
    $
    0.24Basic  pro forma
    
    $
    0.22
    
    
    $
    0.07
    
    
    $
    0.36
    
    
    $
    0.20Diluted  as reported
    
    $
    0.22
    
    
    $
    0.08
    
    
    $
    0.38
    
    
    $
    0.22Diluted  pro forma
    
    $
    0.21
    
    
    $
    0.06
    
    
    $
    0.34
    
    
    $
    0.19
 7




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4. NOTES PAYABLE
    5. SHAREHOLDER RIGHTS PLAN
  6. INCOME TAXES
  Three months ended
    
    
    Nine months endedApril 30
    
    
    April 302006
    
    
    2005
    
    
    2006
    
    
    2005Current:Federal
    
    $
    145
    
    
    $
    11
    
    
    $
    493
    
    
    $
    54State
    
    
    46
    
    
    
    2
    
    
    
    108
    
    
    
    9Deferred
    
    
    (1,000
    )
    
    
    
    
    
    
    (1,000
    )
    
    
    Utilization of net operating loss carryforwards
    
    
    (199
    )
    
    
    
    
    
    
    (609
    )
    
    
    Income tax (benefit) provision
    
    $
    (1,008
    )
    
    $
    13
    
    
    $
    (1,008
    )
    
    $
    63
  8




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##### Table of Contents



CLAIM FOR INDEMNIFICATION
  
 MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 Results of Operations
   Critical Accounting Policies and Estimates
 General
   Revenue Recognition
  9




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##### Table of Contents



Bad Debts
  Use of Estimates
  Legal Provisions
  Impairment of Long-Lived Assets
  Cash and Cash Equivalents
  Debt Instruments
  Deferred Tax Asset
  Stock-Based Compensation
   10




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##### Table of Contents



Revenues
   Catalog, Customer and Subscription Information by Region
(As of April 30, 2006)
 Distinct
    
    
    
    
    
    Distinct
    
    DistinctCatalogs
    
    Manufacturers
    
    Subscriptions
    
    Distributors
    
    Dealers(Estimated)
    
    (Estimated)North America
    
    
    83
    
    
    
    63
    
    
    
    71,818
    
    
    
    107
    
    
    
    22,923Rest of World
    
    
    57
    
    
    
    9
    
    
    
    9,436
    
    
    
    50
    
    
    
    6,034Included in both Regions
    
    
    (49
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    91
    
    
    
    72
    
    
    
    81,254
    
    
    
    157
    
    
    
    28,957
 Catalog
    
    =
    
    A separately sold and/or distributed parts catalog. A manufacturer may have more
than one catalog. More than one brand or distinct product line may be included in a catalog.Distinct Manufacturer
    
    =
    
    A single independent manufacturer, not owned by another
manufacturer, served by ARI. Distinct manufacturers are included in the region they
most serve even if they have catalogs in both regions.Subscription
    
    =
    
    A single catalog subscribed to by a single dealer or distributor. A
dealer or distributor may subscribe to more than one catalog.Distinct Distributor
    
    =
    
    A single independent distributor, not owned by another distributor,
served by ARI. A distributor generally buys from manufacturers and sells to dealers.Distinct Dealer
    
    =
    
    A single independent servicing dealer, not owned by another dealer, served
by ARI.
   11




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##### Table of Contents



Revenue by Region and Product/Service
(In Thousands)
 Three months ended
    
    
    
    
    
    
    Nine months endedApril 30
    
    
    Percent
    
    
    April 30
    
    
    Percent2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeNorth AmericanCatalog subscriptions
    
    $
    2,562
    
    
    $
    2,525
    
    
    
    1
    %
    
    $
    7,721
    
    
    $
    7,415
    
    
    
    4
    %Catalog professional services
    
    
    418
    
    
    
    377
    
    
    
    11
    %
    
    
    1,212
    
    
    
    990
    
    
    
    22
    %Dealer marketing services
    
    
    147
    
    
    
    77
    
    
    
    91
    %
    
    
    322
    
    
    
    214
    
    
    
    50
    %Dealer & distributor communications
    
    
    216
    
    
    
    241
    
    
    
    (10
    %)
    
    
    631
    
    
    
    753
    
    
    
    (16
    %)Subtotal
    
    
    3,343
    
    
    
    3,220
    
    
    
    4
    %
    
    
    9,886
    
    
    
    9,372
    
    
    
    5
    %Rest of the WorldCatalog subscriptions
    
    
    195
    
    
    
    236
    
    
    
    (17
    %)
    
    
    579
    
    
    
    653
    
    
    
    (11
    %)Catalog professional services
    
    
    15
    
    
    
    3
    
    
    
    400
    %
    
    
    101
    
    
    
    13
    
    
    
    677
    %Subtotal
    
    
    210
    
    
    
    239
    
    
    
    (12
    %)
    
    
    680
    
    
    
    666
    
    
    
    2
    %Total RevenueCatalog subscriptions
    
    
    2,757
    
    
    
    2,761
    
    
    
    (0
    %)
    
    
    8,300
    
    
    
    8,068
    
    
    
    3
    %Catalog professional services
    
    
    433
    
    
    
    380
    
    
    
    14
    %
    
    
    1,313
    
    
    
    1,003
    
    
    
    31
    %Dealer marketing services
    
    
    147
    
    
    
    77
    
    
    
    91
    %
    
    
    322
    
    
    
    214
    
    
    
    50
    %Dealer & distributor communications
    
    
    216
    
    
    
    241
    
    
    
    (10
    %)
    
    
    631
    
    
    
    753
    
    
    
    (16
    %)Total
    
    $
    3,553
    
    
    $
    3,459
    
    
    
    3
    %
    
    $
    10,566
    
    
    $
    10,038
    
    
    
    5
    %
 North America
 Catalog Subscriptions
  Catalog Professional Services
  12




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Dealer Marketing Services (DMS)
  Dealer and Distributor Communications
  Rest of the World
 Catalog Subscriptions
  Catalog Professional Services
  13




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##### Table of Contents



Cost of Products and Services Sold
  Cost of Products and Services Sold as a Percent of Revenue by Revenue Type  (In thousands)
 Three months ended
    
    
    
    
    
    Nine months endedApril 30
    
    
    
    
    
    April 302006
    
    2005
    
    % Chg
    
    2006
    
    2005
    
    % ChgCatalog subscriptionsRevenue
    
    $
    2,757
    
    
    $
    2,761
    
    
    
    0
    %
    
    $
    8,300
    
    
    $
    8,068
    
    
    
    3
    %Cost of revenue
    
    
    289
    
    
    
    250
    
    
    
    16
    %
    
    
    827
    
    
    
    771
    
    
    
    7
    %Cost of revenue as a percent of revenue
    
    
    10
    %
    
    
    9
    %
    
    
    
    
    
    
    10
    %
    
    
    10
    %Catalog professional servicesRevenue
    
    
    433
    
    
    
    380
    
    
    
    14
    %
    
    
    1,313
    
    
    
    1,003
    
    
    
    31
    %Cost of revenue
    
    
    119
    
    
    
    146
    
    
    
    (18
    %)
    
    
    338
    
    
    
    291
    
    
    
    16
    %Cost of revenue as a percent of revenue
    
    
    27
    %
    
    
    38
    %
    
    
    
    
    
    
    26
    %
    
    
    29
    %Dealer marketing servicesRevenue
    
    
    147
    
    
    
    77
    
    
    
    91
    %
    
    
    322
    
    
    
    214
    
    
    
    50
    %Cost of revenue
    
    
    75
    
    
    
    27
    
    
    
    178
    %
    
    
    155
    
    
    
    91
    
    
    
    70
    %Cost of revenue as a percent of revenue
    
    
    51
    %
    
    
    35
    %
    
    
    
    
    
    
    48
    %
    
    
    43
    %Dealer and distributor communicationsRevenue
    
    
    216
    
    
    
    241
    
    
    
    (10
    %)
    
    
    631
    
    
    
    753
    
    
    
    (16
    %)Cost of revenue
    
    
    31
    
    
    
    50
    
    
    
    (38
    %)
    
    
    99
    
    
    
    175
    
    
    
    (43
    %)Cost of revenue as a percent of revenue
    
    
    14
    %
    
    
    21
    %
    
    
    
    
    
    
    16
    %
    
    
    23
    %TotalRevenue
    
    $
    3,553
    
    
    $
    3,459
    
    
    
    3
    %
    
    $
    10,566
    
    
    $
    10,038
    
    
    
    5
    %Cost of revenue
    
    
    514
    
    
    
    473
    
    
    
    9
    %
    
    
    1,419
    
    
    
    1,328
    
    
    
    7
    %Cost of revenue as
a percent of
revenue
    
    
    14
    %
    
    
    14
    %
    
    
    
    
    
    
    13
    %
    
    
    13
    %
     14




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##### Table of Contents



Operating Expenses
  Operating Expenses  (In thousands)
 Three months ended
    
    
    
    
    
    
    Nine months endedApril 30
    
    
    
    
    
    
    April 302006
    
    
    2005
    
    
    
    % Chg
    
    2006
    
    
    2005
    
    
    
    % ChgCustomer operations and support
    
    $
    273
    
    
    $
    265
    
    
    
    3
    %
    
    $
    855
    
    
    $
    784
    
    
    
    9
    %Selling, general and administrative
    
    
    1,862
    
    
    
    1,805
    
    
    
    3
    %
    
    
    5,561
    
    
    
    5,259
    
    
    
    6
    %Software development and technical support
    
    
    344
    
    
    
    295
    
    
    
    17
    %
    
    
    924
    
    
    
    855
    
    
    
    8
    %Depreciation and amortization
    
    
    104
    
    
    
    67
    
    
    
    55
    %
    
    
    278
    
    
    
    190
    
    
    
    46
    %Net operating expenses
    
    $
    2,583
    
    
    $
    2,432
    
    
    
    6
    %
    
    $
    7,618
    
    
    $
    7,088
    
    
    
    7
    %
     Other Items
   15




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##### Table of Contents



Acquisitions
   Liquidity and Capital Resources
  Cash Flow Information  (In thousands)
 Three months ended
    
    
    
    
    
    
    Nine months endedApril 30
    
    
    
    %
    
    April 30
    
    
    
    %2006
    
    
    2005
    
    
    
    Chg
    
    2006
    
    
    2005
    
    
    
    ChgNet income
    
    $
    1,465
    
    
    $
    495
    
    
    
    196
    %
    
    $
    2,487
    
    
    $
    1,444
    
    
    
    72
    %Adjustments to reconcile net income
to cash provided by operating activities:Amortization of software products
    
    
    161
    
    
    
    143
    
    
    
    13
    %
    
    
    458
    
    
    
    417
    
    
    
    10
    %Amortization of debt discount
    
    
    (13
    )
    
    
    (16
    )
    
    
    (19
    %)
    
    
    (44
    )
    
    
    (58
    )
    
    
    (24
    %)Depreciation and other amortization
    
    
    104
    
    
    
    67
    
    
    
    55
    %
    
    
    278
    
    
    
    190
    
    
    
    46
    %Deferred income taxes
    
    
    (1,038
    )
    
    
    
    
    
    
    (100
    %)
    
    
    (1,038
    )
    
    
    
    
    
    
    (100
    %)Stock issued to 401(k) plan
    
    
    
    
    
    
    
    
    
    
    0
    %
    
    
    21
    
    
    
    37
    
    
    
    0
    %Net change in working capital
    
    
    195
    
    
    
    131
    
    
    
    49
    %
    
    
    (405
    )
    
    
    104
    
    
    
    (489
    %)Net cash provided by operating activitie
    
    
    874
    
    
    
    820
    
    
    
    7
    %
    
    
    1,757
    
    
    
    2,134
    
    
    
    (18
    %)Net cash used in investing activities
    
    
    (452
    )
    
    
    (272
    )
    
    
    66
    %
    
    
    (962
    )
    
    
    (1,171
    )
    
    
    (18
    %)Net cash used in financing activities
    
    
    (354
    )
    
    
    (242
    )
    
    
    46
    %
    
    
    (794
    )
    
    
    (688
    )
    
    
    15
    %Net increase in cash
    
    $
    68
    
    
    $
    306
    
    
    
    (78
    %)
    
    $
    1
    
    
    $
    275
    
    
    
    (100
    %)
   16




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##### Table of Contents



Debt Schedule  (In thousands)
 April 30
    
    
    July 312006
    
    
    2005
    
    
    Net(Unaudited)
    
    
    (Audited)
    
    
    ChangeNote payable to WITECH:Current portion of note payable
    
    
    200
    
    
    
    200
    
    
    
    Long term portion of note payable
    
    
    100
    
    
    
    250
    
    
    
    (150
    )Total note payable to WITECH
    
    
    300
    
    
    
    450
    
    
    
    (150
    )Notes payable to New Holders:Current portion of notes payable
    
    
    1,200
    
    
    
    1,000
    
    
    
    200Long term portion of notes payable
    
    
    800
    
    
    
    1,700
    
    
    
    (900
    )Total face value of notes payable to New Holders
    
    
    2,000
    
    
    
    2,700
    
    
    
    (700
    )Carrying value in excess of face amount of notes payable
    
    
    54
    
    
    
    105
    
    
    
    (51
    )Debt discount (common stock warrants and options)
    
    
    (14
    )
    
    
    (18
    )
    
    
    4Total carrying value of notes payable to New Holders
    
    
    2,040
    
    
    
    2,787
    
    
    
    (747
    )Total debt
    
    $
    2,340
    
    
    $
    3,237
    
    
    $
    (897
    )
     Off-Balance Sheet Arrangements
  17




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##### Table of Contents



Forward Looking Statements
  18




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##### Table of Contents



ITEM 3. CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 6. EXHIBITS
 31.1
    
    Section 302 Certification of Chief Executive Officer.31.2
    
    Section 302 Certification of Chief Financial Officer.32.1
    
    Section 906 Certification of Chief Executive Officer.32.2
    
    Section 906 Certification of Chief Financial Officer.
 19




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##### Table of Contents



SIGNATURES
  ARI Network Services, Inc.(Registrant)Date: June 14, 2006
    
    /s/ Brian E. DearingBrian E. Dearing, Chairman of the Board and Chief Executive Officer/s/ Timothy SherlockTimothy Sherlock, Chief Financial Officer
 20