Arkona Posts First Quarter Fiscal 2007 Results; Market Share Continues to Increase While Balance Sheet Strengthens; Conference Call Scheduled for Today, 4:30 Eastern Time
SALT LAKE CITY--Aug. 16, 2006--Arkona, Inc. (OTCBB:ARKN), a leader in supplying fully integrated on-demand business management solutions to automotive and powersports dealerships, today announced financial results for its fiscal first quarter ending June 30, 2006. Financial information for the first quarter of fiscal year ending June 30, 2005 contained in this press release has been restated as described on Form 8-K, filed August 11, 2006.Highlights for the quarter included:
-- Sales increased 18% over the quarter ended June 30, 2005, as the Company's dealer management software suite continued to gain market acceptance and capture market share from other providers;
-- Gross margins expanded from 46% in the quarter ending June 30, 2005 to 49% in the quarter ending June 30, 2006;
-- Operating cash flows increased to $0.68 million in the quarter ending June 30, 2006 from $0.07 million in the quarter ending June 30, 2005. Cash and cash equivalents totaled $0.99 million at June 30, 2006 compared to $0.09 million at June 30, 2005.
-- The Arkona ASP solution was installed at more than 590 U.S. automobile dealers at the end of June 2006, up from 437 at the end of June last year.
-- High-margin, reoccurring support revenues rose 43% when compared to the year earlier period, reflecting significant growth in the installed based in both new and independent dealers of all sizes.
For the quarter ending June 30, 2006, total revenues increased to $2.97 million compared to $2.52 million in the quarter ending June 30, 2005. The increase reflects Arkona's continuing penetration of the dealer management system market. Gross profit increased 26%, from $1.15 million in the quarter ended June 30, 2005 to $1.46 million in the first quarter ended June 30, 2006.
Total operating expenses increased 43% in the first quarter ending June 30, 2006, to $1.39 million compared to $0.97 million in the corresponding 2005 period. The increases in costs are attributed to the opening of sales offices in New York and Florida; increases in the number of engineering development staff for the further development of new products and existing product enhancements; administrative costs associated with becoming a publicly-held company; and the costs of stock option compensation in compliance with SFAS 123R.
After accounting for income tax benefits of $0.04 million and $0.25 million in the quarters ended June 30, 2006 and 2005, respectively, net income was $0.11 million in the quarter ending June 30, 2006, a decrease from $0.44 million posted in the same quarter in the prior year. Fully diluted earnings per share were $0.003 for the quarter ended June 30, 2006.
Arkona's Chief Executive Officer, Alan Rudd, pointed to the strong sales pipeline and the expanding gross margins as evidence that the Company's business model continues to gain momentum. "We continue to capture market share from the larger providers," he observed. "We have noticed that several of our competitors, including the larger ones, have responded to our market penetration by cutting their prices and changing the way they respond to requests for proposals. As a result, and possibly because of general economic uncertainty, we have seen the time to closure of deals in our pipeline of proposals lengthen. However, the current situation has not caused us to adjust our views of Arkona's business volumes for the full year. We continue to believe the competitiveness of our pricing and the value of our product offerings represents a compelling choice for automotive dealerships across the country."
In response to discussions with and guidance from the Securities and Exchange Commission, Arkona restated revenues for earlier periods related to the accounting of VPN connection fees. They had been recognized over the installation and training period for each new customer, but have been restated to be recorded and amortized over the expected life of the customer service agreement. For details and comparisons with reported financials prior to restatement see the Company's Form 8-K, filed on August 11, 2006 with the Securities and Exchange Commission.
Conference call and webcast scheduled for today, 4:30 Eastern Time
Alan Rudd, Chairman and Chief Executive Officer, and Lee Boardman, Chief Financial Officer, are scheduled to discuss results for the 2007 first quarter, ended June 30, in a conference call and webcast on Wednesday, August 16, at 2:30 p.m. Mountain Time (1:30 p.m. Pacific; 4:30 p.m. Eastern).
To participate in Arkona's conference call live by telephone, please dial (888) 208-1812 (toll-free/domestic) or (719) 457-2654 (toll/international) approximately ten to fifteen minutes prior to the start time for registration, and reference the conference code 5471463. A webcast of the event can also be monitored by clicking on the webcast link on the Company's Web site, on the Investors Information page, at: http://www.ARKONA.com/company/investors.php.
About Arkona, Inc. Founded in 1996, Arkona is a leading supplier of fully integrated business management solutions for automotive and powersports dealerships. The Company's industry-leading application service provider or ASP model provides state-of-the-art technology and high-level technical support and training at low cost. The Company serves dealerships representing every major car manufacturer throughout all regions of the United States. Arkona's Dealer Management System (DMS) also leads the market in technologically superior e-business solutions for automotive dealers that fully integrate back-office systems with a retail Web presence. Arkona's DMS supports all major back-office functions including accounting, payroll and sales management. The Arkona DMS is based on flexible, industry standard technology. For more information visit the company's Web site at www.ARKONA.com.
Forward-Looking Statements
This news release contains forward-looking statements made in reliance upon the safe harbor provision of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results may differ materially from those indicated by these statements. Forward-looking statements may include statements addressing future financial and operational results of the company. The following factors, among others, could cause actual results to differ materially from those described in any forward-looking statements: the risk that revenue will not grow in fiscal 2007, as expected, because of the entry of new competitors into the market or the intensification of competition generally, continued slowing of our sales cycle, factors harming the economy generally or automobile dealers specifically, operational or intellectual property issues and other factors, and the risk that net profits will not expand or that the company will cease to be profitable because of potential decreases in gross margins as competition expands, potential increases in travel, labor and hosting expenses, and unexpected litigation or transactional expenses. In addition, other risks are identified in the company's most recent Annual Report on Form 10-KSB, as filed with the SEC. Such forward-looking statements speak only as of the date of this release. The company expressly disclaims any obligation to update or revise any forward-looking statements found herein to reflect any changes in company expectations or results or any change in events.
Arkona, Inc.
Condensed Statements of Operations
For the three months ended June 30, 2006 and June 30, 2005
Three Months Ended
--------------------------
30-Jun-06 30-Jun-05
(Un-audited) (Un-audited
and
Restated)
------------- ------------
Revenues $2,965,506 $2,520,545
Cost of Sales 1,510,005 1,365,606
------------- ------------
Gross Profit 1,455,501 1,154,939
------------- ------------
Operating Expenses:
Sales, marketing & general
administrative 1,168,773 740,189
Research and development 217,283 229,326
------------- ------------
Total Operating Expenses 1,386,056 969,515
------------- ------------
Operating Income 69,445 185,424
Other Income (Expense) 1,053 (1,701)
------------- ------------
Net Income Before Taxes 70,498 183,723
Income Tax Benefit 36,400 252,980
------------- ------------
Net Income $106,898 $436,703
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Basic Earnings per Common Share:
Operating Income $0.002 $0.006
Net Income $0.003 $0.014
Average Number of Shares Outstanding 32,491,692 32,170,384
Diluted Earnings per Common Share:
Operating Income $0.002 $0.005
Net Income $0.003 $0.011
Average Number of Shares Outstanding 39,480,003 38,974,917
Arkona, Inc.
Condensed Balance Sheets
As of June 30, 2006 and March 31, 2006
30-Jun-06 31-Mar-06
(Un-audited) (Audited
and
Restated)
--------------- --------------
ASSETS
Current Assets:
Cash and cash equivalents $988,327 $570,766
Accounts receivable, net of
allowance 674,207 904,001
Prepaid expenses 93,527 73,693
Notes receivable - current portion 93,076 77,324
Other 3,218 1,899
--------------- --------------
Total Current Assets 1,852,355 1,627,683
--------------- --------------
Property & Equipment, net of
accumulated depreciation 654,671 623,505
--------------- --------------
Other Assets:
Deferred tax assets 1,596,400 1,560,000
Capitalized software costs, net of
accumulated amortization 1,311,159 1,215,041
Other intangible assets, net of
accumulated amortization 233,042 233,042
Security deposits 75,690 75,690
Long-term notes receivable 44,508 40,192
--------------- --------------
Total Other Assets 3,260,799 3,123,965
--------------- --------------
TOTAL ASSETS $5,767,825 $5,375,153
=============== ==============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $203,699 $159,901
Accrued liabilities 377,428 411,230
Deferred revenue - current portion 628,114 434,019
Note payable - related party 50,000 50,000
Notes payable - current portion 76,363 62,563
--------------- --------------
Total Current Liabilities 1,335,604 1,117,713
--------------- --------------
Long-term Notes Payable 161,951 166,123
Long-term Deferred Revenue 290,063 287,743
--------------- --------------
Total Liabilities 1,787,618 1,571,579
--------------- --------------
Stockholders' Equity:
Preferred stock ($.001 par value) 575 575
Common stock ($.001 par value) 32,494 32,490
Additional paid in capital 23,543,650 23,479,767
Unearned compensation (5,848)
Accumulated deficit (19,596,512) (19,703,410)
--------------- --------------
Total Stockholders' Equity 3,980,207 3,803,574
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $5,767,825 $5,375,153
=============== ==============
Arkona, Inc.
Condensed Statements of Cash Flows
For the Three-Month Periods Ended June 30, 2006 and June 30, 2005
Three Months Ended
30-Jun-06 30-Jun-05
(Un-audited) (Un-audited
and
Restated)
------------ -------------
Cash Flows Provided By Operating
Activities:
Net income $106,898 $436,703
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 150,233 113,906
Bad debt expense 29,749
Loss on asset disposition 123
Stock-based compensation 67,335 2,190
Deferred income tax (36,400) (252,980)
Changes in assets & liabilities:
Accounts receivable 200,045 (193,722)
Prepaid expense (19,834) (74,974)
Security deposits (3,287)
Notes receivable (20,068)
Other assets (1,319) 3,499
Accounts payable 43,798 (25,244)
Accrued liabilities (33,802) 8,617
Deferred revenue 196,415 54,006
------------ -------------
Net Cash Provided By Operating Activities 683,173 68,714
------------ -------------
Cash Flows Used In Investing Activities:
Additions to equipment (97,052) (35,504)
Software development costs (180,588) (85,017)
------------ -------------
Net Cash Used In Investing Activities (277,640) (120,521)
------------ -------------
Cash Flows Provided By Financing
Activities:
Proceeds from issuance of common stock 2,400 3,300
Proceeds from notes payable 9,628
------------ -------------
Net Cash Provided By Financing Activities 12,028 3,300
------------ -------------
Net Increase (Decrease) in Cash and Cash
Equivalents 417,561 (48,507)
Beginning Cash Balance 570,766 141,179
------------ -------------
Ending Cash Balance $988,327 $92,672
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