<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934


For the quarterly period ended October 31, 1997

                                                        OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934


For the transition period from                  to                   
                               ----------------    ----------------     
Commission file number 000-19608

                           ARI Network Services, Inc.

             (Exact name of registrant as specified in its charter.)

           WISCONSIN                                  39-1388360
-------------------------------              ---------------------------------
(State or other jurisdiction of              (IRS Employer Identification No.)
 incorporation or organization)


               330 E. Kilbourn Avenue, Milwaukee, Wisconsin 53202
               --------------------------------------------------
                     (Address of principal executive office)

Registrant's telephone number, including area code (414) 278-7676

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of The Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.

                  YES   X                      NO
                       ---                        ---

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of December 10, 1997.

Common Stock, Par Value $.001 Per Shares 4,162,744 Shares Outstanding

                                      1
                                      

<PAGE>   2




                                            ARI NETWORK SERVICES, INC.

                                                     FORM 10-Q

                                    FOR THE THREE MONTHS ENDED October 31, 1997

                                                       INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATI0N


                                                                                                       Page
<S>                                                                                                   <C>

   Item 1         Financial statements                                                                  3-6
                           Condensed balance sheets - October 31, 1997 and July 31, 1997.                3

                           Condensed statements of operations for the three months ended                 4
                           October 31, 1997 and 1996.

                           Condensed statements of cash flows for the three months ended                 5
                           October 31, 1997 and 1996.

                           Notes to unaudited condensed financial statements.                            6

    Item 2        Management's discussion and analysis of financial condition and results              7-12
                  of operations.

PART II - OTHER INFORMATION

     Item 2       Changes in securities                                                                 12
     Item 4       Submission of matters to a vote of security holders                                  12-13
     Item 6       Exhibits                                                                              13
</TABLE>

Signatures

                                        2


<PAGE>   3



                           ARI NETWORK SERVICES, INC.
                            CONDENSED BALANCE SHEETS

                    (Dollars in thousands, except share data)

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                 OCTOBER 31    JULY 31
                                                                                   1997         1997

                                                                                 (UNAUDITED)   (AUDITED)

ASSETS

Current assets:
<S>                                                                               <C>         <C> 
    Cash                                                                           $  1,422    $     64
    Receivables                                                                       1,881       1,568
    Prepaid expenses and other                                                          151         140
                                                                                   --------    --------
        Total current assets                                                          3,454       1,772
Equipment & leasehold improvements, net of
    accumulated depreciation and amortization                                           529         315
Goodwill                                                                                413         372
Network platform net of accumulated depreciation                                      6,585       6,759
Industry specific applications, net of accumulated amortization                       2,917       2,198
                                                                                   --------    --------

    Total Assets                                                                   $ 13,898    $ 11,416
                                                                                   ========    ========
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

    Line of credit with shareholders                                               $  1,619    $    500
    Accounts payable                                                                   732         650
    Unearned revenue                                                                    545         543
    Other accrued expenses                                                             782         704
    Current portion of capital lease obligations                                         65          64
                                                                                   --------    --------
        Total current liabilities                                                     3,743       2,461

Capital lease obligations                                                                28           8
Shareholders' equity:
    Preferred stock, par value $.001 per share, 1,000,000 shares authorized;
      20,000 shares issued and outstanding at October 31, 1997 and July 31, 1997        -           -
    Common stock, par value $.001 per share, 25,000,000 shares authorized;
       4,142,744 and 3,691,754 shares issued and outstanding at October 31,
      1997 and July 31, 1997, respectively                                                4           4
    Additional paid-in capital                                                       84,646      82,873
    Accumulated deficit                                                             (74,523)    (73,930)
                                                                                   --------    --------

        Total shareholders' equity                                                   10,127       8,947
                                                                                   --------    --------

Total Liabilities & Shareholders' Equity                                           $ 13,898    $ 11,416
                                                                                   ========    ========
</TABLE>


See notes to unaudited condensed financial statements.

                                      3


<PAGE>   4



                           ARI NETWORK SERVICES, INC.

                       CONDENSED STATEMENTS OF OPERATIONS

                    (Dollars in thousands, except share data)

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                   THREE MONTHS ENDED
                                                                                      OCTOBER 31

                                                                                    1997        1996
                                                                                    ----        ----
Net revenues:
<S>                                                                              <C>       <C>   
    Network and other services                                                    $ 1,357    $ 1,328
    Software and development                                                          666        355
                                                                                  -------    -------
       Total net revenues                                                           2,023      1,683

Operating Expenses:

     Variable cost of products and services sold (exclusive of depreciation and
     amortization shown below):

        Network and other services                                                    341        268
        Software and development                                                      134        213
                                                                                  -------    -------
           Total variable costs of products and services sold                         475        481

     Depreciation and amortization                                                    414        528
     Network operations                                                               188        229
     Selling, general and administrative                                            1,346      1,316
     Research and development                                                         563        340
                                                                                  -------    -------
Operating expenses before amounts capitalized                                       2,986      2,894
     Less capitalized expenses*                                                      (404)      (152)
                                                                                  -------    -------
Total operating expenses                                                            2,582      2,742
                                                                                  -------    -------
Operating loss                                                                       (559)    (1,059)
Interest expense                                                                      (34)       (90)
                                                                                  -------    -------
Net loss                                                                          ($  593)   ($1,149)
                                                                                  =======    =======
Average common shares outstanding                                                   3,747      3,432
Net loss per common share                                                         ($ 0.16)   ($ 0.33)
</TABLE>

*    In accordance with FASB 86, includes a portion of network and product
     development expense and other operating expenses directly related to the
     development process.

See notes to unaudited condensed financial statements.

                                        4


<PAGE>   5




                           ARI NETWORK SERVICES, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                    (Dollars in thousands, except share data)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                        THREE MONTHS ENDED
                                                             OCTOBER 31

                                                           1997      1996
                                                           ----      ----
<S>                                                     <C>        <C>   
 OPERATING ACTIVITIES
     Net loss                                           ($  593)   ($1,149)
     Amortization of network platform                       203        172
     Amortization of industry specific applications         151        219
     Depreciation and other amortization                     60        137
     Net change in operating assets                         (11)       207
     Net change in operating liabilities                   (200)         4
                                                        -------    -------
     Net cash used in operating activities                 (390)      (410)

INVESTING ACTIVITIES

     Purchase of equipment and leasehold improvements       (76)       (21)
     Network platform costs capitalized                     -          -
     Industry specific application costs capitalized       (404)       (93)
                                                        -------    -------
     Net cash used in investing activities                 (480)      (114)

FINANCING ACTIVITIES

     Borrowings (repayments) under line of credit         1,119     (2,035)
     Payment of capital lease obligations                   (10)       (16)
     Proceeds from issuance of common stock               1,119      2,797
                                                        -------    -------
     Net cash provided by financing activities            2,228        746
                                                        -------    -------

     Net increase in cash and cash equivalents            1,358        222
     Cash at beginning of period                             64        372
                                                        -------    -------
     Cash at end of period                              $ 1,422    $   594
                                                        =======    =======
     Cash paid for interest                             $    34    $    90
                                                        =======    =======
NONCASH INVESTING AND FINANCING ACTIVITIES
     Capital lease obligations incurred for -
       network system equipment                              30         59
     Issuance of common stock for acquisition               654          -
</TABLE>


See notes to unaudited condensed financial statements.

                                        5


<PAGE>   6




                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)
                                October 31, 1997

1.       BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for fiscal year end financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended October 31, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending July 31, 1998. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended July 31, 1997.

2.       NET LOSS PER COMMON SHARE

Net loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during each period.

3.       SUBSEQUENT EVENT

On November 19, 1997, the Company's shareholders voted to amend the Company's
Articles of Incorporation to effect a one-for-four reverse stock split of the
Company's Common Stock while keeping 25,000,000 authorized shares of $.001 par
value Common Stock. This amendment was effective as of November 19, 1997 and has
been reflected in the financial statements. The number of shares and net loss
per common share in the accompanying financial statements have been adjusted for
the reverse stock split.

                                        6


<PAGE>   7



ITEM 2:          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

                                    REVENUES

Total revenue for the quarter ended October 31, 1997 increased $340,000 or 20%
compared to the same period last year, representing the Company's seventh
consecutive quarter of year-over-year revenue improvement. Management expects
the year-over-year quarterly increases in revenue to continue through fiscal
1998 and that the percentage increase will fluctuate from quarter to quarter.
See "Forward Looking Statements."

The Company provides business-to-business electronic commerce network services
and end user software to customers in selected vertical markets with shared
distribution channels. The Company's strategy is to build sustainable recurring
revenues in these selected vertical markets from each of its primary services
and software products. Accordingly, management reviews the Company's recurring
vs. non-recurring revenue in aggregate and within each vertical market.

The following table sets forth, for the periods indicated, certain revenue
information derived from the Company's unaudited financial statements.

                               THREE MONTHS ENDED
                                   OCTOBER 31
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                            PERCENTAGE
VERTICAL MARKET             1997     1996    CHANGE
                            ----     ----    ------
<S>                      <C>       <C>      <C> 
 Agribusiness Industry
      Recurring           $  633   $  529     20%
      Non-recurring          257      463    (44%)
                          ------   ------
      Subtotal               890      992    (10%)
Equipment Industry
     Recurring               133       72     85%
     Non-recurring           386       48    704%
                          ------   ------
     Subtotal                519      120    333%
Transportation Industry
    Recurring                189      174      9%
    Non-recurring             64       39     64%
                          ------   ------
    Subtotal                 253      213     19%
Publishing Industry
    Recurring                322      303      6%
    Non-recurring             11       11      -
                          ------   ------
    Subtotal                 333      314      6%
Other Revenue
    Recurring                 28       44    (36%)
    Non-recurring            -        -        -
                          ------   ------
    Subtotal                  28       44    (36%)
Total Revenue
    Recurring              1,305    1,122     16%
    Non-recurring            718      561     28%
                          ------   ------
    Grand Total           $2,023   $1,683     20%
                          ======   ======
</TABLE>


                                        7


<PAGE>   8



Recurring revenues are derived from network traffic fees, maintenance and
support fees, transaction fees, license renewals and subscription fees. The
year-over-year increase in recurring revenues for the quarter ended October 31,
1997 was primarily due to increased network traffic fees in the Agribusiness
Industry and maintenance and support fees in the Equipment Industry. Recurring
revenues represented 65% of total revenue for the three month period ended
October 31, 1997 compared to 67% for the same period last year. Management
believes a relationship of approximately two thirds recurring revenue to one
third non-recurring revenue is desirable in order to establish an appropriate
level of base revenue while continuing to add new sales to drive future
increases in recurring revenue. This revenue mix is likely to fluctuate from
quarter to quarter. See "Forward Looking Statements."

Non-recurring revenues are derived from software license fees and professional
services fees. The year-over-year increase in non-recurring revenues for the
quarter ended October 31, 1997 was primarily due to increases in software
license fees and professional services fees in the Equipment Industry.

Agribusiness Industry

The Agribusiness Industry comprises several vertical markets including
agricultural and specialty chemicals, livestock pharmaceuticals, feed and seed.
Revenues from the Agribusiness Industry are derived from software license fees,
maintenance and support fees, network traffic fees and professional services
fees. Recurring revenues in the Agribusiness Industry increased due to increases
in network traffic fees. The decrease in non-recurring revenues was due to the
completion of substantial sales force automation software customization projects
for two major customers during the fourth quarter of fiscal 1997. Management
expects total revenues in the Agribusiness Industry will increase for the
balance of fiscal 1998. See "Forward Looking Statements."

Equipment Industry

The Equipment Industry comprises several vertical markets including outdoor
power equipment, outboard marine, automotive, motorcycle, recreational vehicles
and power generation. Revenues from the Equipment Industry are derived from
software license fees, maintenance and support fees, subscription fees, network
traffic fees and professional services fees. Revenues from Empart(TM), the
Company's recently acquired electronic publishing software, are included in the
Equipment Industry revenues. See "Other Items." Recurring revenues in the
Equipment Industry increased due to maintenance and support fees from the
Company's PLUS(1)(R) software acquired in November 1996. Non-recurring revenues
in the Equipment Industry increased primarily due to software license fees from
PLUS(1)(R) and Empart(TM). See "Other Items." Management expects total revenues
in the Equipment Industry will continue to increase for the balance of fiscal
1998. See "Forward Looking Statements."
        
Transportation Industry

Revenues from the Transportation Industry are derived from maintenance and
support fees, transaction fees and professional services fees charged to the
Association of American Railroads for the creation and maintenance of the
Customer Identification File. The increase in Transportation revenues was due to
growth in recurring maintenance and support fees as the Customer Identification
File increased in size and due to non-recurring professional services fees for
the development of a corporate family linkage file for price application.
Management expects that revenues in the Transportation Industry will continue at
approximately the same level for the remainder of fiscal 1998, and over time,
will become a decreasing percentage of the Company's total revenues. While
relatively flat, this revenue is profitable on the margin and helps to fund the
Company's growth in other areas. See "Forward Looking Statements."

Publishing Industry

Revenues from the Publishing Industry are derived from recurring connect time
and subscription fees and non-recurring service initiation fees charged to the
Company's Newsfinder(R) customers. Newsfinder(R) manages the approximately
20,000 news stories per week output of the Associated Press, providing access to
some 800 publishers with more than 1,300 weekly and monthly newspapers.
Management expects that revenues in the Publishing Industry will continue at
approximately the same level for the remainder of fiscal 1998, and over time,
will become a decreasing percentage of the Company's total revenues. While
relatively flat, this revenue is profitable on the margin and helps to fund the
Company's growth in other areas. See "Forward Looking Statements."

                                      8


<PAGE>   9



                               OPERATING EXPENSES

The following table sets forth, for the periods indicated, certain operating
expense information derived from the Company's unaudited financial statements.

<TABLE>
<CAPTION>

                                                                             THREE MONTHS
                                                                                 ENDED
                                                                              OCTOBER 31,
                                                                            (IN THOUSANDS)

                                                                                 PERCENTAGE
                                                               1997      1996      CHANGE
                                                               ----      ----      ------
Operating expenses:
<S>                                                          <C>       <C>         <C> 
Variable cost of products and services sold
    (exclusive of depreciation and amortization shown below) $  475    $   481      (1%)
Network operations                                              188        229     (18%)
Selling, general & administrative                             1,346      1,316       2%
Research and development                                        563        340      66%
                                                             ------    -------

Gross cash expenses                                           2,572      2,366       9%

Depreciation and amortization                                   414        528     (22%)
Less capitalized expenses                                      (404)      (152)    166%
                                                            -------    -------
    NET OPERATING EXPENSES                                  $ 2,582    $ 2,742      (6%)
                                                            =======    =======
</TABLE>

The decrease in operating expenses was the result of slightly higher gross cash
expenses offset by increased capitalized expenses. The Company's technical staff
(in-house and contracted) is allocated between research and development and
software customization services for customer applications. Therefore management
expects fluctuations between development and capitalized expenses quarter to
quarter, as the mix of development and customization activities will change
based on customer requirements. For the period ended October 31, 1997 the
Company's technical resources were focused primarily on the development of the
TradeRoute(TM) and PLUS(1)(R) for Windows(R) products. During the same period 
last year, the technical staff was focused primarily on certain large software
customization projects.

Variable cost of products and services sold consists primarily of royalties,
telecommunications and data processing fees, customization labor and temporary
help fees. Variable cost of products and services sold as a percentage of
revenue was 23% and 29% for the three month periods ended October 31, 1997 and
1996, respectively. Management expects gross margins in future quarters to
fluctuate based on the mix of products and services sold. See "Forward Looking
Statements."

Selling, general and administrative expenses increased only $30,000 or 2% for
the three month period ended October 31, 1997 compared to the same period last
year despite a 20% increase in revenues. The increase was primarily due to
higher commissions and selling expenses as a result of the increase in revenues.

The decrease in depreciation and amortization expense was due to accelerated
amortization of the Company's remaining DOS products in fiscal 1997. Capitalized
expenses represented 72% and 45% of research and development for the three month
periods ended October 31, 1997 and 1996, respectively. The increase was the
result of the shift of technical staff from customization of software, which is
expensed as variable cost of products and services sold, to capitalized
development of TradeRoute(TM) and PLUS(1)(R) for Windows(R).

                                        9


<PAGE>   10



                                   OTHER ITEMS

Interest expense decreased $56,000 or 62% for the three month period ended
October 31, 1997 compared to the same period last year. The decrease in interest
expense reflects the conversion of portions of the Company's lines of credit
with shareholders into shares of the Company's Preferred Stock. See "Liquidity
and Capital Resources." Interest expense will fluctuate depending on the use and
timing of financing through lines of credit and/or additional equity financing.

Net loss decreased $556,000 or 48% for the three month period ended October 31,
1997 compared to the same period last year, representing the Company's fourth
consecutive quarter of year-over-year net loss improvement. Management expects
the year-over-year quarterly improvement in net loss to continue through fiscal
1998. See "Forward Looking Statements."

Management is pursuing a strategy of supplementing its internal growth with
strategic and synergistic acquisitions. On November 4, 1996, the Company
completed the acquisition of cd\*.IMG, Inc. ("CDI") in a stock transaction. CDI
was in the business of publishing electronic parts catalogs and the software
that dealers and repair shops use to read the catalogs. CDI had the parts
catalogs of over 20 manufacturers in the Outdoor Power Equipment., Outboard
Marine and Motorcycles and Power Sports industries. Its customer base included
Toro, Arctic Cat, Kohler, Tecumseh, Mercury Marine, Harley Davidson and Outboard
Marine Corporation. CDI's operations have been consolidated into the Company's.
As a result of the acquisition, the Company recognized goodwill in the amount of
$434,000 which is being amortized over a five year period. The acquisition of
CDI has not otherwise had a material effect on the Company's current financial
position.

On September 30, 1997, the Company completed the acquisition of Empart
Technologies, Inc., in a stock for assets transaction. Empart Technologies, Inc.
was a California-based developer of software for electronic parts catalogs.
Empart's products included EMPART publisher(TM), which converts data from a
variety of forms into an electronic format, and EMPART viewer(TM), a high-end
configurable parts catalog. Empart's customers included ABB Power Generation,
Inc., Yamaha Electronics of America, the auto dealer service group of Automatic
Data Processing, Inc. (ADP) and Coachmen Recreational Vehicle Company. Empart
Technologies is the Company's second acquisition in less than 12 months. The
acquisition is not expected to have a material impact on the Company's financial
position. However, this non cash transaction is reflected in several line items
of the Company's balance sheet, but is not reflected in the statements of cash
flows because the acquisition was a non-cash transaction. See "Forward Looking
Statements."

                         LIQUIDITY AND CAPITAL RESOURCES

The following table sets forth, for the periods indicated, certain cash flow
information derived from the Company's unaudited financial statements.

<TABLE>
<CAPTION>

                                                         THREE MONTHS ENDED
                                                            OCTOBER 31
                                                          (IN THOUSANDS)

                                                                        PERCENTAGE
                                                        1997     1996     CHANGE
                                                        ----     ----     ------
<S>                                                    <C>      <C>       <C> 
Net cash used in operating activities before changes
  in working capital                                     ($179)   ($199)     10%
Net cash used in investing activities                     (480)    (114)    321%
                                                          ----     ----     --- 
   Subtotal                                               (659)    (735)    (10%)
Effect of  net changes in working capital                 (211)     211    (200%)
                                                          ----     ----     ---
   Net cash used in operating and investing activities   ($870)   ($524)     66%
</TABLE>

Net cash used in operating activities before changes in working capital
decreased due to cost controls and increased revenues. Management believes that,
based on current trends, the Company will achieve positive cash flow from
operations before changes in working capital in the quarter ending July 31,
1998. Net cash used in investing activities increased due to the development of
TradeRoute(TM) and PLUS(1)(R) for Windows(R).

                                       10


<PAGE>   11



The Company expects to continue to incur operating losses for the fiscal year
ending July 31, 1998 and there can be no assurance that profitability will be
achieved thereafter. The Company also expects to incur significant expenditures
for research and development. The Company expects to fund research and
development costs and negative cash flow from operations in fiscal 1998 from the
sale of securities and from a line of credit secured with the Company's accounts
receivables. See "Forward Looking Statement."

At October 31, 1997, the Company had cash of approximately $1,422,000 compared
to approximately $64,000 at July 31, 1996. During first quarter fiscal 1998, the
Company raised $1,119,000 exclusive of expenses from the sale of common stock.
The proceeds were used to fund operations and retire portions of the outstanding
revolving credit lines.

The Company has a line of credit with WITECH, (the "WITECH" Line) that has been
in place since October 4, 1993. The WITECH Line was amended on May 30, 1997 to
include a bridge loan of $500,000, bringing the line up to $2,500,000. The
bridge loan was repaid September 30, 1997 and the balance of the WITECH Line is
due on December 31, 1997. The Company expects to satisfy the obligation or to
renegotiate an extension of the line of credit, although there can be no
assurance that either of these will occur. See "Forward Looking Statement."
Interest due on the WITECH Line is at the rate of prime plus 2%. On November 17,
1997, the Company repaid $950,000 of the Senior Line from the proceeds of the
common stock. In connection with obtaining the WITECH Line in 1993, the Company
issued a warrant to WITECH for the purchase of up to 125,000 shares of its
common stock at a price of $8.00 per share and 50,000 shares of its common stock
at a price of $9.00 per share pursuant to an amendment dated November 5, 1996.
The Company has also issued a usage warrant to WITECH for a maximum of 25,000
shares of its common stock at a price of $9.00. Pursuant to the terms of the
warrants, the exercise price was reduced to $4.00 when the Company issued common
stock at that price during the quarter ended October 31, 1997. As of November
30, 1997 there were $534,000 of borrowings outstanding under the WITECH Line.

The only financial covenant in the WITECH Line is that the Company must maintain
a net worth (calculated in accordance with generally accepted accounting
principles) of at least $5.3 million. The Company has been, and is currently, in
compliance with the financial covenant in the Agreement and currently expects to
comply with such covenant or obtain any required waivers or raise additional
equity, if necessary. See "Forward Looking Statements."

The Company will require additional financing during fiscal 1998 in order to
meet its requirements for operations and development investments. Management
believes that sufficient financing for fiscal 1998 will be available from the
sale of additional securities and from additional borrowings. The Company has a
registration statement in effect for the sale of up to an additional 500,000
shares of common stock, of which 112,500 shares remain unsold. Management
believes that, based on current trends, the Company will achieve positive cash
flow from operations (excluding changes in working capital items) in the quarter
ended July 31, 1998. On a long term basis, management believes that financing
for the Company's operations, as well as capital expenditures, will come
principally from cash generated from operations. See "Forward Looking
Statements."

                           FORWARD LOOKING STATEMENTS

Certain statements contained in the Management's Discussion and Analysis of
Results of Operations and Financial Condition are forward looking statements.
Several important factors can cause actual results to materially differ from
those stated or implied in the forward looking statements. Such factors include,
but are not limited to the growth rate of the Company's selected market
segments, the positioning of the Company's products in those segments,
variations in demand for and cost of customer services and technical support,
customer adoption of Internet-enabled Windows(R) applications and their
willingness to upgrade from DOS versions of software, the Company's ability to
release new software applications and upgrades on a timely basis, the Company's
ability to establish and maintain strategic alliances, the Company's ability to
manage its costs, the Company's ability to manage its business in a rapidly
changing environment, the Company's ability to finance capital investments, and
the Company's ability to implement its acquisition strategy to increase growth.

Projected revenues are difficult to estimate because the Company's revenues and
operating results may vary substantially from quarter to quarter. The primary
cause of the variation is attributed to non-recurring revenues from software
license and customization fees. License fee revenues are based on contracts
signed and product delivered. Non-recurring revenues are affected by the time
required to close large license fee and development agreements, which cannot be
predicted with any certainty due to customer requirements and decision-making
processes.

                                       11


<PAGE>   12



Recurring revenues are also difficult to estimate. Recurring revenues from
maintenance and subscription fees may be estimated based on the number of
subscribers to the Company's services but will be affected by the renewal ratio,
which cannot be determined in advance. Recurring revenues from network traffic
fees and transaction fees are difficult to estimate as they are determined by
usage. Usage is a function of the number of subscribers and the number of
transactions per subscriber. Transactions include product ordering, warranty
claim processing, inventory and sales reporting, parts number updates and price
updates. The Company cannot materially affect or predict the volume of
transactions per customer.

Although the Company has recently introduced and plans to expand its
Internet-enabled Windows(R) portfolio of products, the marketplace is highly
competitive and there can be no assurance that a customer will select the
Company's software and services over that of a competitor. The environment in
which the Company competes is characterized by rapid technological changes,
dynamic customer demands, and frequent product enhancements and product
introductions. Some of the Company's current and potential competitors have
greater financial, technical, sales, marketing and advertising resources than
the Company.

                           PART II. OTHER INFORMATION

ITEM 2.           CHANGES IN SECURITIES

On September 30, 1997, the Company acquired substantially all of the assets of
Empart Technologies, inc. ("Empart"), a Foster City California based developer
of software for electronic parts catalogs, and assumed approximately $400,000 of
specified liabilities of Empart. These liabilities are expected to be paid by
the cash flows generated from the acquired business. The assets consisted
primarily of proprietary software and other intangible assets, receivables,
customer contracts, computers and other office equipment. In connection with the
acquisition the Company issued 163,490 shares of Common Stock, which was
distributed to Empart's shareholders upon the liquidation of Empart. In
addition, the Company retained Mr. Michael Jarrett, Empart's president, who will
serve in a senior sales and marketing capacity with ARI, and several of Empart's
technical staff, who will continue development of the Company's electronic parts
catalog software applications.

The transaction was exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(2) thereof
as a transaction by an issuer not involving any public offering. Empart had
fewer than 20 shareholders, most of whom were "accredited investors" pursuant to
Rule 501 under the Securities Act. All shareholders were financially
sophisticated and capable of evaluating the merits and risks of the transaction.
The shares acquired by Empart's shareholders were acquired for the account of
the shareholders, for investment, and not with a view of the distribution or
resale thereof. The shares issued in the transaction have a restrictive legend
and may not be transferred unless registered under the Securities Act or an
exemption from registration is available.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         (a) The Company held its 1997 Annual Meeting of Shareholders on
             November 19, 1997.

         (b) Votes cast for the election of two directors to serve until
             the 2000 Annual Shareholder's Meeting were as follows:

<TABLE>
<CAPTION>
----------------------------------------  ------------------------------------------
           Gordon J. Bridge                           George D. Dalton
----------------------------------------  ------------------------------------------
<S>                        <C>            <C>                           <C> 
For                           10,867,081  For                             10,865,581
Against                           49,400  Against                             50,900
Abstain                                0  Abstain                                  0
Broker Non-Vote                        0  Broker Non-Vote                          0
----------------------------------------  ------------------------------------------
</TABLE>

                                       12


<PAGE>   13



Votes cast to amend the Company's Articles of Incorporation to effect a
one-for-four reverse stock split of the Company's Common Stock while keeping
25,000,000 authorized shares of $0.001 par value Common Stock were as follows:

                  For                          10,687,893
                  Against                         151,449
                  Abstain                          49,959
                  Broker Non-Vote                  27,180

Votes cast to ratify the appointment of Ernst & Young LLP as the Company's
auditors for the year ending July 31, 1998 were as follows:

                  For                          10,848,580
                  Against                          33,901
                  Abstain                          34,000
                  Broker Non-Vote                       0


ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

         (a)      10.1 Articles of Incorporation of the Company, as amended.

         (b)      Reports on Form 8-K. On October 10, 1997, a Report on Form 8-K
                  with respect to Item 2 of Form 8-K. On December 12, 1997, the
                  Company filed a report on Form 8-K/A with respect to Item 7
                  which excluded audited financial statements of Empart and
                  related pro forma financial information.

                                       13


<PAGE>   14


                                   SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                       ARI Network Services, Inc.
                                       (Registrant)

Date:     December 15, 1997            /s/ Brian E. Dearing
                                       -----------------------------
                                       Brian E. Dearing, Chairman of the Board
                                       (and acting CFO)