Ari Network Services 8-K Ari Reports Second Quarter Results

Exhibit 99.1

FOR IMMEDIATE RELEASE

ARI REPORTS SECOND QUARTER RESULTS

Company expects to see financial benefits of OC-Net acquisition beginning in the third quarter

Milwaukee, Wis., March 8, 2007 – ARI (OTCBB:ARIS), a leading provider of technology-enabled business solutions that help equipment dealers, distributors and manufacturers build sales and profits, today reported financial results for the second quarter ended January 31, 2007.

Second Quarter Fiscal 2007 Highlights

·

Revenues increased 5% to $3.7 million in the second quarter of fiscal 2007 from $3.5 million for the second quarter of fiscal 2006.

·

Operating income was $261,000 for the second quarter of fiscal 2007, compared to operating income of $549,000 for the same period in the prior year.  

·

Net income was $248,000 or $0.04 per diluted share for the second quarter of fiscal 2007, compared to net income of $524,000 or $0.08 per diluted share for the same period in the prior year.  

First Half Fiscal 2007 Highlights

·

Revenues increased 3% to $7.2 million for the first half of fiscal 2007, from $7.0 million for the first half of fiscal 2006.

·

Operating income was $490,000 for the first half of fiscal 2007, compared to $1.1 million for the same period in the prior year.

·

Net income was $473,000 or $0.07 per diluted share for the first half of fiscal 2007, compared to net income of $1.0 million or $0.15 per diluted share for the same period in fiscal 2006.  

Operations Review

“Second quarter revenues increased in our two primary areas of focus.  Revenues in our core catalog business were up 5% for the quarter.  Our Dealer Marketing Services (DMS) business continues to grow rapidly and once again more than doubled in the quarter over last year’s second quarter,” said Brian E. Dearing, chairman and chief executive officer of ARI.   

Dearing said the company’s European operations benefited from revenues generated by a major contract with Harley-Davidson Europe signed in the fourth quarter of FY2006 and a large sale to a major OEM customer in Korea in the Agricultural Equipment Industry.  “The unusually large increase in European revenues in the second quarter should not be interpreted as an indicator that our challenges in this market are behind us.  The European operation is still not performing up to expectations and we continue to work hard on improving the performance of this unit.”

Dearing said the lower operating income in the second quarter of fiscal 2007 reflected accelerated hiring of sales and marketing personnel to drive future growth and a change in product mix for the quarter.  “We are adding new sales staff to further leverage the potential of our DMS products and the new OC-Net products we recently acquired.”

Dearing concluded that the company paid down its debt by another $350,000 and cash flow from operations remained positive in the second quarter.

“One of the most significant events of the second quarter was our acquisition of OC-Net, Inc. of Cypress, California.  This acquisition is an important next step in expanding our website development and hosting business in the Power Sports market.  OC-Net has a strong market position and offers what we believe is one of the best products in the industry.  The OC-Net acquisition was reflected in our balance sheet and cash flow in the second quarter, but we do not expect to see any significant impact on revenue until the third quarter,” said Dearing.

“The integration of OC-Net is proceeding very well.  ARI and OC-Net have similar businesses and similar business models.  The synergy between the companies is very positive – OC-Net’s excellent products are now in the hands of our skilled sales team, making it a win-win situation for everyone,” said Dearing.  

Outlook

“We expect overall revenues to grow at a somewhat faster pace during the second half of the fiscal year.  We continue to achieve organic growth in our core catalog business.  In addition, our DMS business more than doubled in the first half of the year over the first half of last year and with the addition of OC-Net, we expect to continue – and even accelerate – that pace in the balance of this fiscal year,” said Dearing.   

About ARI

ARI is a leading provider of electronic parts catalogs and other technology enabled services to increase sales and profits for dealers, distributors and manufacturers in the manufactured equipment markets. ARI currently provides approximately 100 parts catalogs (many of which contain multiple lines of equipment) for approximately 75 equipment manufacturers in the U.S. and Europe. Approximately 77,000 catalog subscriptions are provided through ARI to more than 26,000 dealers and distributors in approximately 89 countries in about a dozen segments of the worldwide equipment market including outdoor power, power sports, ag equipment, recreation vehicle, floor maintenance, auto and truck parts aftermarket, marine and construction. The Company builds and supports a full suite of multi-media electronic catalog publishing and viewing software for the Web or CD and provides expert catalog publishing and consulting services. ARI also provides dealer marketing services, including technology-enabled direct mail, email and a award-winning dealer website service that makes it quick and easy for an equipment dealer to have a professional and attractive website. In addition, ARI e-Catalog systems support a variety of electronic pathways for parts orders, warranty claims and other transactions between manufacturers and their networks of sales and service points. ARI currently operates four offices in the United States and one in Europe and has sales and service agents in England and France providing marketing and support of its products and services.

Second Quarter Earnings Conference Call

ARI’s Second Quarter Conference Call is scheduled for Thursday, March 8, 2007 at 3:30 p.m. Central Time/4:30 p.m. Eastern Time.  If you would like to participate, please pre-register athttps://www.myrcplus.com/rsvp-index.asp?BWebID=&CID=1010124.  At that time you will be provided with the numbers to use to join the conference call.  A replay of ARI’s conference call, as well as notes and financial information presented in the call, will also be available on ARI’s website,www.arinet.com, after 6:00 p.m. Central Time on Friday, March 9, 2007.  Click on the “Investor Relations” tab to access the information.

Statements in this news release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. The forward-looking statements can generally be identified by words such as "believes," "anticipates," "expects" or words of similar meaning. Forward-looking statements also include statements relating to the Company's future performance, such as future prospects, revenues, profits and cash flows. The forward-looking statements are subject to risks and uncertainties, which may cause actual results to be materially different from any future performance suggested in the forward-looking statements. Such risks and uncertainties include those factors described under "Forward Looking Statements Disclosure" in Exhibit 99.1 of the Company’s annual report on Form 10-KSB for fiscal year ended July 31, 2006 filed with the Securities and Exchange Commission . Readers are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements. For more information, please refer to the Company’s filings with the Securities and Exchange Commission.

Contact:

Nancy Krajcir-Bennett

ARI

Tel: (414) 973-4380

Fax: (414) 973-4357

E-mail: krajcir@arinet.com

ARI Network Services, Inc.
Statements of Operations
(In thousands, except per share data)
Preliminary
				Three months ended		Six months ended
				January 31		January 31
				2007	2006	2007	2006
Net revenues:
	Subscriptions, support and other services fees			$            2,754	$           2,548	$           5,417	$           5,112
	Software licenses and renewals			575	$              515	1,118	1,033
	Professional services			362	459	659	868
				3,691	3,522	7,194	7,013
Cost of products and services sold:
	Subscriptions, support and other services fees			334	207	606	388
	Software licenses and renewals *			206	164	402	322
	Professional services			44	84	122	195
				584	455	1,130	905
Gross Margin				3,107	3,067	6,064	6,108
Operating expenses:
	Depreciation and amortization (exclusive of amortization
			of software products included in cost of products
			and services sold)	110	94	216	174
	Customer operations and support			276	279	544	582
	Selling, general and administrative			2,101	1,840	4,086	3,699
	Software development and technical support			359	305	728	580
Net operating expenses				2,846	2,518	5,574	5,035
Operating income				261	549	490	1,073
Other income (expense)
	Interest expense			(32)	(50)	(70)	(99)
	Other, net			27	25	61	48
Total other expense				(5)	(25)	(9)	(51)
Income before provision for income taxes				256	524	481	1,022
	Income tax benefit (provision)			(8)	-	(8)	-
Net income				$               248	$              524	$              473	$           1,022
Average common shares outstanding:
	Basic			6,304	6,154	6,257	6,140
	Diluted			6,707	6,631	6,660	6,617
Basic and diluted net income (loss) per share:
	Basic			$0.04	$0.09	$0.08	$0.17
	Diluted			$0.04	$0.08	$0.07	$0.15
*		includes amortization of software products of $192, $152, $379 and $297  respectively and excluding other depreciation and amortization shown separately

ARI Network Services, Inc.
Consolidated Balance Sheets
(In thousands, except  share and per share data)
Preliminary
			January 31	July 31
	ASSETS		2007	2006
Current Assets:
	Cash and cash equivalents		$     1,639	$     3,584
	Trade receivables, less allowance for doubtful accounts of $94 and
		$103 at January 31,2007 and July 31, 2006, respectively	1,446	885
	Work in Process		168	163
	Prepaid expenses and other		238	254
	Deferred income taxes		675	675
		Total Current Assets	4,166	5,561
Equipment and leasehold improvements:
	Computer equipment		5,178	5,084
	Leasehold improvements		128	116
	Furniture and equipment		2,328	2,057
			7,634	7,257
	Less accumulated depreciation and amortization		6,491	6,275
		Net equipment and leasehold improvements	1,143	982
Deferred income taxes			1,419	1,419
Other assets			2,629	6
Capitalized software product costs			11,732	11,557
	Less accumulated amortization		10,462	10,089
Net capitalized software product costs			1,270	1,468
Total Assets			$   10,627	$     9,436
	LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
	Current portion of notes payable		$     1,520	$     1,400
	Accounts payable		234	500
	Deferred revenue		5,560	5,616
	Accrued payroll and related liabilities		834	1,006
	Accrued sales, use and income taxes		22	38
	Accrued vendor specific liabilities		-	104
	Other accrued liabilities		579	254
Total Current Liabilities			8,749	8,918
Long term liabilities:
	Notes payable (net of discount)		627	580
	Long term payroll related		202	202
	Other long term liabilities		41	48
	Capital lease obligations		-	-
Total Long Term Liabilities			870	830
Shareholders' equity (deficit):
	Cumulative preferred stock, par value $.001 per share,
		1,000,000 shares authorized; 0 shares issued and outstanding
		at January 31, 2007 and  July 31, 2006, respectively	-	-
	Common stock, par value $.001 per share, 25,000,000 shares
		authorized; 6,604,855 and  6,202,529 shares issued and outstanding
		at January 31, 2007 and  July 31, 2006, respectively	7	6
	Common stock warrants and options		104	36
	Additional paid-in-capital		94,616	93,838
	Accumulated deficit		(93,719)	(94,192)
Total Shareholders' Equity (Deficit)			1,008	(312)
Total Liabilities and Shareholders' Equity (Deficit)			$   10,627	$     9,436

ARI Network Services, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Preliminary
				Three months ended			Six months ended
				January 31			January 31
				2007		2006	2007	2006
Operating activities
Net income				$             248		$            524	$         473	$      1,022
Adjustments to reconcile net income to net cash
	provided by operating activities:
		Amortization of capitalized software products		198		152	385	297
		Amortization of deferred financing costs, debt discount and
			excess carrying value over face amount of notes payable	(22)		(15)	(33)	(31)
		Depreciation and other amortization		110		93	216	174
		Stock based compensation related to stock options		42		-	68	-
		Stock issued as contribution to 401(k) plan		-		-	42	21
		Net change in receivables, prepaid expenses and other short term assets			(792)	(631)	(485)	(512)
		Net change in accounts payable, deferred revenue, accrued
			liabilities and long term liabilities	328		384	(388)	(88)
Net cash provided by operating activities				112		507	278	883
Investing activities
Purchase of equipment and leasehold improvements				(158)		(123)	(292)	(200)
Purchase of assets related to acquisitions				(1,142)		-	(1,142)	-
Cash balances acquired in business acquisition				61		-	61	-
Software product costs capitalized				(103)		(132)	(181)	(310)
Net cash used in investing activities				(1,342)		(255)	(1,554)	(510)
Financing activities
Payments under notes payable				(350)		(250)	(700)	(500)
Proceeds from issuance of common stock				28		27	31	60
Net cash used in financing activities				(322)		(223)	(669)	(440)
Net increase (decrease) in cash				(1,552)		29	(1,945)	(67)
Cash at beginning of period				3,191		3,555	3,584	3,651
Cash at end of period				$          1,639		$         3,584	$      1,639	$      3,584
Cash paid for interest				$               41		$              63	$           92	$         128
Cash paid for income taxes				$               -		$              -	$           14	$            -
Noncash investing and financing activities
Issuance of common stock in connection with acquisitions				$             707		$              -	$         707	$            -
Debt issued in connection with acquisitions				700		-	700	-
Debt acquired in connection with acquisitions				37		-	37	-
Cash holdback related to acquisitions				150		-	150	-
Accrued legal fees related to acquisitions				50		-	50	-
Stock based compensation related to stock options				42		-	68	-

Revenue by Location and Service
(In Thousands)
		Three months ended			Six months ended
		January 31		Percent	January 31		Percent
		2007	2006	Change	2007	2006	Change
North American
	Catalog subscriptions	$             2,625	$            2,582	2%	$           5,208	$         5,159	1%
	Catalog professional services	312	439	-29%	594	794	-25%
	Dealer marketing services	294	107	175%	511	175	192%
	Dealer & distributor communications	149	188	-21%	347	415	-16%
	Subtotal	3,381	3,315	2%	6,660	6,543	2%
Rest of the World
	Catalog subscriptions	267	170	57%	$              470	$            384	22%
	Catalog professional services	44	37	18%	64	86	-26%
	Subtotal	311	207	50%	534	470	14%
Total Revenue
	Catalog subscriptions	2,892	2,751	5%	5,678	5,543	2%
	Catalog professional services	356	476	-25%	658	880	-25%
	Dealer marketing services	294	107	175%	511	175	192%
	Dealer & distributor communications	149	188	-21%	347	415	-16%
	Total	$             3,691	$            3,522	5%	$           7,194	$         7,013	3%