<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 January 31, 1999

                                       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       
         -----                                           -----

As of March 10, 1999, there were 5,097,430 shares of the registrant's shares
outstanding.




                                       1
<PAGE>   2

                           ARI NETWORK SERVICES, INC.

                                    FORM 10-Q

                   FOR THE THREE MONTHS ENDED January 31, 1999

                                      INDEX




<TABLE>
<CAPTION>

PART I - FINANCIAL INFORMATION                                                                Page
                                                                                              ----
<S>                                                                                           <C>
  Item 1          Financial statements                                                        3-7

                            Condensed balance sheets - January 31, 1999 and July 31, 1998     3

                            Condensed statements of operations for the three and              4
                            six months ended January 31, 1999 and 1998.

                            Condensed statements of cash flows for the six                    5
                            months ended January 31, 1999 and 1998.

                            Notes to unaudited condensed financial statements.                6-7

  Item 2          Management's discussion and analysis of financial condition and results     7-13
                  of operations.

  Item 3          Quantitative and qualitative disclosure about market risk                   14



PART II - OTHER INFORMATION

  Item 2          Changes in securities and use of proceeds                                   14

  Item 4          Submission of matters to a vote of security holders                         14-15

  Item 6          Exhibits and reports on Form 8 K                                            15


Signatures                                                                                    16
</TABLE>



                                       2




<PAGE>   3

                           ARI NETWORK SERVICES, INC.
                            CONDENSED BALANCE SHEETS
             (Amounts in thousands, except per share and share data)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                              JANUARY 31, 1999     JULY 31, 1998
                                                                                (UNAUDITED)          (AUDITED)
Assets                                                                        ---------------      -------------
<S>                                                                                  <C>            <C>     
Current assets:
   Cash                                                                              $    271       $    194
   Trade receivables, less allowances for doubtful accounts of $255 at
         January 31, 1999 and $185 at July 31, 1998                                     3,300          2,643
   Prepaid expenses and other                                                             275            118
                                                                                     --------       --------
Total current assets                                                                    3,846          2,955

Equipment and leasehold improvements:
  Network system hardware                                                               3,822          3,778
  Leasehold improvements                                                                  239            239
  Furniture and equipment                                                                 845            485
                                                                                     --------       --------
                                                                                        4,906          4,502
  Less accumulated depreciation and amoritzation                                        4,333          4,107
                                                                                     --------       --------
Net equipment and leasehold improvements                                                  573            395

Goodwill, net of accumulated amortization                                               3,118            336

Network system:
  Network platform                                                                     11,467         11,467
  Industry-specific applications                                                       21,361         19,906
                                                                                     --------       --------
                                                                                       32,828         31,373
  Less accumulated amortization                                                        23,479         22,251
                                                                                     --------       --------
                                                                                        9,349          9,122
                                                                                     --------       --------

Total Assets                                                                         $ 16,886       $ 12,808
                                                                                     ========       ========

Liabilities and shareholders' equity

Current liabiliities:
  Notes payable                                                                      $     19       $     28
  Accounts payable                                                                      1,243            581
  Unearned revenue                                                                      3,008            776
  Accrued payroll and related expenses                                                    859            620
  Other accrued expenses                                                                  184            158
  Current portion of capital lease obligations                                             21             30
                                                                                     --------       --------
Total current liabilities                                                               5,334          2,193

Line of credit payable to shareholder                                                   2,760          1,620
Capital lease obligations                                                                  26             33

Shareholders' equity:
   Preferred stock, par value $.001 per share, 1,000,000 shares authorized;
      20,250 and 20,000 shares issued and outstanding at January 31, 1999 and
      July 31, 1998, respectively                                                           0              0
   Common stock, par value $.001 per share, 25,000,000 shares authorized;
      5,097,180 and 4,247,460 shares issued and outstanding at January 31, 1998
      and July 31, 1998, respectively                                                       5              4
   Additional paid-in capital                                                          86,829         85,028
   Accumulated deficit                                                                (78,068)       (76,070)
Total shareholders' equity                                                           --------       --------
                                                                                        8,766          8,962
                                                                                     --------       --------
Total liabilities and shareholders' equity                                           $ 16,886       $ 12,808
                                                                                     ========       ========
</TABLE>





                                       3

<PAGE>   4


                           ARI NETWORK SERVICES, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
             (Amounts in thousands, except per share and share data)
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                                                 THREE MONTHS                       SIX MONTHS
                                                                                    ENDED                             ENDED
                                                                                  JANUARY 31                        JANUARY 31
                                                                                 ------------                      -----------
                                                                              1999            1998             1999            1998
                                                                            -------         -------         -------         -------
<S>                                                                         <C>             <C>             <C>             <C>    
Net revenues:
   Network and other services                                               $ 2,472         $ 1,293         $ 4,548         $ 2,650
   Software and development                                                     584             486           1,058           1,152
                                                                            -------         -------         -------         -------
Total net revenues                                                            3,056           1,779           5,606           3,802

Operating expenses:
   Variable cost of products and services sold (exclusive of depreciation and
   amortization shown below):
      Network and other services                                                346             308             728             649
      Software and development                                                  513             178             736             312
                                                                            -------         -------         -------         -------
  Total variable cost of products and services sold                             859             486           1,464             961

   Depreciation and amortization                                                950             604           1,713           1,018
   Network operations                                                           189             195             373             383
   Selling, general and administrative                                        1,787           1,058           3,413           2,404
   Network construction and expansion                                           708             610           1,509           1,173
                                                                            -------         -------         -------         -------
Operating expenses before amounts capitalized                                 4,493           2,953           8,472           5,939
   Less capitalized expenses*                                                  (426)           (328)         (1,008)           (732)
                                                                            -------         -------         -------         -------

Total operating expenses                                                      4,067           2,625           7,464           5,207
                                                                            -------         -------         -------         -------

Operating loss                                                               (1,011)           (846)         (1,858)         (1,405)
Interest and other expense                                                      (78)            (22)           (140)            (56)
                                                                            -------         -------         -------         -------
Net loss                                                                    $(1,089)        $  (868)        $(1,998)        $(1,461)
                                                                            =======         =======         =======         =======

Average common shares outstanding                                             5,090           4,237           4,879           3,992

Basic and diluted net loss per share                                        $ (0.21)        $ (0.20)        $ (0.41)        $ (0.37)
</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
                             (Amounts in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                    SIX MONTHS
                                                                                      ENDED
                                                                                    JANUARY 31
                                                                            1999                     1998
                                                                          -------                  -------
<S>                                                                       <C>                      <C>     
Operating activities
   Net loss                                                               $(1,998)                 $(1,461)
   Amortization of network platform                                           348                      348
   Amortization of industry specific applications                             880                      476
   Amortization of goodwill                                                   259                       49
   Depreciation and other amortization                                        226                      145
   Net change in operating assets                                             (80)                     160
   Net change in operating liabilities                                        495                     (582)
                                                                          -------                  -------
   Net cash provided (used) by operating activities                           130                     (865)

INVESTING ACTIVITIES
   Purchase of equipment and leasehold improvements                           (44)                     (73)
   Industry specific application costs capitalized                         (1,008)                    (732)
   Other                                                                     (142)                      --
                                                                          -------                  -------
   Net cash used by investing activities                                   (1,194)                    (805)

FINANCING ACTIVITIES
   Borrowings under line of credit                                          1,140                      189
   Payment of capital lease obligations                                       (16)                       5
   Proceeds from issuance of common stock                                      17                     1507
                                                                          -------                  -------
   Net cash provided by financing activities                                1,141                    1,701
                                                                          -------                  -------
   Net increase in cash                                                        77                       31
   Cash at beginning of period                                                194                       64
                                                                          -------                  -------
   Cash at end of period                                                  $   271                  $    95
                                                                          =======                  =======

   Cash paid for interest                                                 $   140                  $    56
                                                                          =======                  =======

NONCASH INVESTING AND FINANCING ACTIVITIES Capital lease obligations 
  incurred for:
   Furniture and equipment                                                $    --                  $    30
   Issuance of common stock for acquisition                                 1,785                      654
</TABLE>


See notes to unaudited condensed financial statements.





                                       5
<PAGE>   6


                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                JANUARY 31, 1999

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 six months ended January 31, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending July 31, 1999. 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, 1998.

2.       BASIC AND DILUTED NET LOSS PER SHARE

Dilutive earnings per share is not shown as the impact is antidilutive.

3.       PREFERRED STOCK

The Series A preferred stock accrues dividends on a quarterly basis,
cumulatively, at a rate per annum equal to the product of the par value thereof
and 2% above the prime rate (minimum dividend rate of 10% and maximum of 14%).
All Series A preferred stock must be redeemed at par plus accrued and unpaid
dividends prior to any payment of dividends on, or repurchases by the Company
of, the Company's common stock. Prior to August 1, 2002, dividends, if declared
by the Board of Directors, can be paid in either cash or additional shares of
Series A preferred stock. The total amount of dividends in arrears on the Series
A preferred stock is $331,000 at January 31, 1999.

4.       ACQUISITION

On September 15, 1998, the Company acquired certain assets used in the operation
of Briggs & Stratton Corporation's Powercom business through the issuance of
840,000 shares of its common stock at $2.125 per share and the assumption of
certain liabilities of the Powercom business. The acquisition has been accounted
for under the purchase method; accordingly, its results are included in the
financial statements of the Company from the date of acquisition. As a result of
the purchase price allocation, based on a final determination of the fair value
of assets acquired and liabilities assumed, the Company recognized goodwill of
$2,918,000, which is being amortized over five years.

The following unaudited pro forma results of operations for the three and six
months ended January 31, 1999 and 1998 assume the acquisition of the Powercom
business occurred at the beginning of each period presented:

<TABLE>
<CAPTION>
                                THREE MONTHS ENDED            SIX MONTHS ENDED
                                    JANUARY 31                   JANUARY 31
                                  (IN THOUSANDS)               (IN THOUSANDS)
                                1999          1998          1999          1998
                                ----          ----          ----          ----
<S>                           <C>           <C>           <C>           <C>    
Net revenues                  $ 3,056       $ 2,415       $ 6,032       $ 5,162
Net loss                       (1,089)       (1,375)       (1,998)       (2,387)
Net loss per share              (0.21)        (0.27)        (0.41)        (0.47)
</TABLE>

This pro forma information does not purport to be indicative of the results that
actually would have been obtained if the combined operations had been conducted
during the periods presented and is not intended to be a projection of future
results.



                                       6
<PAGE>   7

5.  REVENUE RECOGNITION

As of August 1, 1998, the Company adopted AICPA Statement of Position 97-2 (SOP
97-2), Software Revenue Recognition, which is effective for transactions that
the Company enters into in fiscal 1999. Prior years are not restated. The
adoption of SOP 97-2 did not have a material impact on the Company's financial
statements.

6.  UNEARNED REVENUE

The increase in unearned revenue for the six months ended January 31, 1999
compared to the same period last year was primarily due to unearned annual
maintenance contracts assumed as part of the Powercom acquisition.  The unearned
revenue will be recognized ratably over three years.



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



RESULTS OF OPERATIONS

Total revenue for the quarter ended January 31, 1999 increased $1,277,000 or 72%
compared to the same period last year, representing the Company's twelfth
consecutive quarter of year-over-year revenue improvement. Management expects
the year-over-year quarterly increases in revenue to continue through fiscal
1999 and that the percentage increase will fluctuate from quarter to quarter.
Management expects revenue for the full year to increase by approximately 50%
over fiscal 1998. Earnings before interest, taxes, depreciation and amortization
("EBITDA") also showed year over year improvement for the ninth consecutive
quarter. Net loss increased for the quarter ended January 31, 1999 compared to
the same period last year primarily due to non-cash amortization expenses
relating to the introduction of new products and the Company's September 15,
1998 acquisition of the Powercom division of Briggs & Stratton Corporation
("Powercom"). See "Other Items." Management believes that the Company will
continue to achieve improvements in EBITDA for the remainder of fiscal 1999 and
that full profitability will be achieved starting in the fourth quarter. See
"Forward Looking Statements."


                                    REVENUES

The Company provides Internet-enabled electronic commerce for shared
distribution and service networks. The Company's strategy is to build
sustainable recurring revenues in selected vertical markets from each of its
primary services and software products. Accordingly, management reviews the
Company's recurring vs. non-recurring revenue in the aggregate and within each
industry sector.




                                       7

<PAGE>   8



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

<TABLE>
<CAPTION>

                                        THREE MONTHS ENDED                       SIX MONTHS ENDED
                                            JANUARY 31                              JANUARY 31
                                         (IN THOUSANDS)           PERCENT         (IN THOUSANDS)           PERCENT
 INDUSTRY SECTOR                           1999         1998      CHANGE          1999        1998         CHANGE
-----------------                          ----         ----      -------         ----        ----         -------
<S>                                       <C>          <C>           <C>        <C>           <C>           <C> 
 Equipment Industry
    Recurring                             $ 825        $ 155         432%       $ 1,289       $ 288         348%
    Non-recurring                         1,007          363         177%         1,572         749         110%
                                       ---------    ---------                  ---------   ---------
    Subtotal                              1,832          518         254%         2,861       1,037         176%

 Agribusiness Industry
    Recurring                               591          441          34%         1,271       1,074          18%
    Non-recurring                            79          251         -69%           344         508         -32%
                                       ---------    ---------                  ---------   ---------
    Subtotal                                670          692          -3%         1,615       1,582           2%

 Transportation Industry
    Recurring                               195          188           4%           392         377           4%
    Non-recurring                            12           17         -29%            22          81         -73%
                                       ---------    ---------                  ---------   ---------
    Subtotal                                207          205           1%           414         458         -10%

 Publishing Industry
    Recurring                               329          328           0%           677         650           4%
    Non-recurring                             -            4        -100%             1          15         -93%
                                       ---------    ---------                  ---------   ---------
    Subtotal                                329          332          -1%           678         665           2%

 Other Revenue
    Recurring                                16           32         -50%            33          60         -45%
    Non-recurring                             2            -         100%             5           -         100%
                                       ---------    ---------                  ---------   ---------
    Subtotal                                 18           32         -44%            38          60         -37%

 Total Revenue
    Recurring                             1,956        1,144          71%         3,662       2,449          50%
    Non-recurring                         1,100          635          73%         1,944       1,353          44%
                                       ---------    ---------                  ---------   ---------
    Grand Total                         $ 3,056      $ 1,779          72%       $ 5,606     $ 3,802          47%
                                       =========    =========                  =========   =========
</TABLE>


The Company derives its recurring revenues from maintenance and support fees,
transaction fees, software license renewals, subscription fees, and network
traffic fees. Recurring revenue as a percentage of total revenue increased from
64% to 65% for the three and six months period ended January 31, 1999 compared
to the same periods 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 may fluctuate from quarter to quarter. Recurring revenues increased
for the three and six month periods ended January 31, 1999 compared to the same
periods last year and the increases were primarily due to growth in the
manufactured equipment industry (the "Equipment Industry") driven in part by the
Powercom acquisition and by the Company's continuing penetration of the
recreational vehicle market segment.

Non-recurring revenues are derived from initial software license fees and
professional services fees. Non-recurring revenues increased for the three and
six month periods ended January 31, 1999 compared to the same periods last year
due primarily to increased software license and customization fees in the
Equipment Industry.




                                       8
<PAGE>   9

Equipment Industry

The Company has targeted approximately 36 vertical markets within the Equipment
Industry that management believes have shared distribution and service networks
that would derive substantial benefit from the Company's electronic commerce
products and services. To date, the Company has customers in twelve of these
markets including recreational vehicle, outdoor power equipment, construction,
outboard marine, manufactured housing, power tools, diesel truck, motorcycle,
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 the Company's
September 15, 1998 acquisition of Powercom are included in the Equipment
Industry revenues. See "Other Items." Recurring revenues in the Equipment
Industry increased substantially for the three and six month periods ended
January 31, 1999 compared to the same periods last year primarily due to
increased maintenance and support and to revenues from Powercom. Non-recurring
revenues in the Equipment Industry also increased for the three and six month
periods ended January 31, 1999 compared to the same periods last year due to
revenues from Powercom and increased software license fees, professional
services and development fees as the Company continued its drive to penetrate
the recreational vehicle (RV) market. As of January 31, 1999, the Company had
signed contracts with six of the leading RV manufacturers and had expressions of
interest from several others. Management expects total revenues in the Equipment
Industry will continue to increase for the remainder of fiscal 1999.

Agribusiness Industry

The Agribusiness Industry comprises several vertical markets comprising
businesses which supply inputs to the agricultural industry including
agricultural and specialty chemicals, livestock pharmaceuticals, fertilizer,
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 increased, while non-recurring
revenues decreased in the Agribusiness Industry for the three and six month
periods ended January 31, 1999 compared to the same periods last year. This was
primarily due to the recurring traffic fees generated from a major sales force
automation customer when non-recurring customization of their software was
completed in the fourth quarter of fiscal 1998. Management expects total
revenues in the Agribusiness Industry will remain relatively flat throughout
this fiscal year.

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 ("AAR") for the creation and maintenance of
the Customer Identification File, an industry wide shared database of ship to
and bill to locations. Recurring revenues in the Transportation Industry
increased slightly for the three and six month periods ended January 31, 1999
compared to the same periods last year due to growth in recurring maintenance
and support fees as the Customer Identification File increased in size. As
expected, non-recurring revenues in the Transportation Industry decreased for
the three and six month periods ended January 31, 1999 compared to the same
periods last year when the Company undertook some special systems development
and modification projects on behalf of the AAR. Management expects that revenues
in the Transportation Industry will continue at approximately the same level for
the remainder of fiscal 1999 and, over time, will become a smaller percentage of
the Company's total revenues. While the revenues are relatively flat, the gross
margin helps to fund the Company's growth in the Equipment Industry.

Publishing Industry

Revenues from the Publishing Industry are derived from connect time fees, photo
traffic fees, subscription fees and service initiation fees charged to the
Company's Newsfinder(R) customers. Through Newsfinder(R), the Company manages
the approximately 20,000 news stories per week output from the Associated Press,
providing access through the World Wide Web and on a dial-up basis to
approximately 800 publishers with more than 1,300 weekly and monthly newspapers.
Revenues in the Publishing Industry remained consistent with the three and six
month periods ended January 31, 1999 compared to the same periods last year.
Management expects that revenues in the Publishing Industry will continue at
approximately the same level for the remainder of fiscal 1999, and over time,
will become a smaller percentage of the Company's total revenues. While the
revenues are relatively flat, the gross margin helps to fund the Company's
growth in the Equipment Industry.




                                       9

<PAGE>   10



                               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                       Six Months Ended
                                                                 January 31                              January 31
                                                               (in thousands)                          (in thousands)
                                                                                           Percent                           Percent
Operating Expenses:                                                1999          1998      Change      1999         1998     Change
                                                                   ----          ----      -------     ----         ----     -------
<S>                                                             <C>           <C>           <C>      <C>           <C>           <C>
Variable cost of products and services sold (exclusive
of depreciation and amortization shown below)                   $   859       $   486       77%      $ 1,464       $   961       52%
Network operations                                                  189           195       -3%          373           383       -3%
Selling, general & administrative                                 1,787         1,058       69%        3,413         2,404       42%
Network construction and expansion                                  708           610       16%        1,509         1,173       29%
                                                                -------       -------                -------       -------    

Gross cash expenses                                               3,543         2,349       51%        6,759         4,921       37%

Depreciation and amortization                                       950           604       57%        1,713         1,018       68%
Less capitalized expenses                                          (426)         (328)      30%       (1,008)         (732)      38%
                                                                -------       -------                -------       -------       

 Net operating expenses                                         $ 4,067       $ 2,625       55%      $ 7,464       $ 5,207       43%
                                                                =======       =======                =======       =======        
</TABLE>


The increase in operating expenses for the three and six month periods ended
January 31, 1999 compared to the same periods last year was primarily due to
cash expenditures and non-cash amortization of software and goodwill, all of
which increased substantially as a result of the Powercom acquisition completed
on September 15, 1998. The revenue increase from the Powercom acquisition
exceeded the increase in cash expenditures but was not enough to cover the
increase in noncash amortization of goodwill from the acquisition and the
increase in software amortization. See "Other Items."

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 software
customization services and development expenses quarter to quarter, as the mix
of development and customization activities will change based on customer
requirements. For the six months ended January 31, 1999 the Company's technical
resources were focused primarily on the development and customization of the
TradeRoute(TM) software and the development of a World Wide Web version of the
Company's electronic catalog for implementation in the construction and heavy
equipment industry under the Company's contract with the Construction Industry
Manufacturers Association (CIMA) and the Associated Equipment Distributors
(AED). Variable cost of products and services sold consists primarily of
royalties, telecommunications, data processing, customization labor and
temporary help fees. Variable cost of products and services sold as a percentage
of revenue was 26% and 25% for the six months ended January 31, 1999 and 1998,
respectively. Management expects gross margins in future quarters to fluctuate
based on the mix of products and services sold.

Network operations consists primarily of data center operations, software
maintenance agreements for the Company's core network and customer support
costs. Network operations expense remained relatively flat for the first and
second quarters after decreasing significantly during fiscal 1998, despite
increases in revenue. Management expects these costs to remain relatively flat
for the remainder of the fiscal year.

The increase in selling, general and administrative expenses for the three and
six month periods ended January 31, 1999 compared to the same periods last year
was due to the addition of the Company's new Colorado Springs office and other
expenses arising out of the Powercom acquisition. See "Other Items."

The increase in depreciation and amortization expense for the three and six
month periods ended January 31, 1999 compared to the same periods last year was
due primarily to increased goodwill amortization resulting from the Powercom
acquisition. The Company recorded $2,918,000 in goodwill as a result of the
acquisition and is amortizing this asset over five years.




                                       10
<PAGE>   11

                                   OTHER ITEMS

Interest expense increased $56,000 and $84,000 for the three and six month
periods ended January 31, 1999 compared to the same periods last year. The
increase reflects additional borrowing by the Company under its line of credit
with WITECH. Interest expense will fluctuate depending on the use and timing of
financing through lines of credit and/or additional equity financing.

Net loss increased $221,000 and $537,000 for the three and six month periods
ended January 31, 1999 compared to the same periods last year. This was due to
non-cash amortization expenses resulting from the Powercom acquisition and from
amortization of completed software products. Earnings before interest, taxes,
depreciation and amortization (EBITDA) improved 75%, from negative $61,000 for
the three months ended January 31, 1999 compared to negative $242,000 for the
same period last year. For the first six months of the current fiscal year,
EBITDA totaled negative $145,000, improved from negative $387,000 over the same
period last year. On a rolling four quarter basis, EBITDA was positive $315,000
for the period ended January 31, 1999, compared to negative $754,000 for the
same period last year. Management continues to expect to achieve its stated goal
of full profitability during the fourth quarter of fiscal 1999 and to maintain
profitable operations thereafter. However, as the Company continues its
acquisition program, non-cash amortization of goodwill from the Company's
acquisitions may cause net losses to continue while earnings before interest,
taxes, depreciation and amortization are positive. See "Business Development"
below. See "Forward Looking Statements."

The Company is using both internal and external resources to reprogram or
replace, test and implement the software and operating equipment for year 2000
modifications. Management estimates that the total cost of the year 2000 program
will be approximately $450,000. Included in this estimate is approximately
$100,000 which management has estimated will be added to its year 2000 program
costs because of its recent acquisition of Powercom. This is a preliminary
estimate based upon a comparison of the systems and software operated and sold
by the Company compared to the systems operated and sold by Powercom. The
Company is in the Assessment phase of its year 2000 program as it relates to the
Powercom business which management expects to complete in the third quarter.
when a more definitive estimate will be produced. These costs are being funded
with cash from operations and with the Company's lines of credit. See "Liquidity
and Capital Resource." As of January 31, 1999, the Company has incurred
approximately $183,000 relating to all phases of the year 2000 program.

BUSINESS DEVELOPMENT:

Since December 1995, the Company has had a formal Business Development program
aimed at identifying, evaluating, and closing acquisitions which would augment
and strengthen the Company's market position, product offerings, and personnel
resources. To date, over 200 potential acquisition targets have been considered,
resulting in three acquisitions. The program is intended to remain active
indefinitely. The Company has engaged Cleary Gull Reiland & McDevitt, Inc., a
prominent Midwest investment banking firm, to help expand and accelerate the
program.

CD\*.IMG, INC. ("CDI")
On November 4, 1996, the Company completed the acquisition of CDI, located in
New Berlin, Wisconsin, in a stock for 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'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.

EMPART TECHNOLOGIES, INC. ("EMPART")
On September 30, 1998, the Company completed the acquisition of Empart, located
in Foster City, California, in a stock for assets transaction. Empart was a
developer of software for electronic parts catalogs. Empart's products included
EMPARTpublisher(TM), which converts data from a variety of forms into an
electronic format, and EMPARTviewer(TM), a high-end configurable parts catalog.
Empart's operations were consolidated into the Company's. As a result of the
acquisition, the Company recognized goodwill in the amount of $69,000 which is
being amortized over a five year period.

POWERCOM 2000, A DIVISION OF BRIGGS & STRATTON CORPORATION ("POWERCOM") On
September 15, 1998, the Company completed the acquisition of Powercom in a stock
for assets transaction. Powercom was in the business of providing electronic
communications and cataloging software and services to manufacturers and their
distributors and dealers in the outdoor power, power sports and power tools
industries. Its major customers included Briggs & Stratton, MTD, Polaris, Black
& Decker and Thermo King. Powercom also had been exclusively endorsed by the
Construction Industry Manufacturers Association (CIMA)and the Associated
Equipment Distributors (AED), the two leading trade associations in the
construction industry, as the vendor for the development and maintenance of a
Web based electronic catalog and electronic commerce system. As a result of the
Powercom acquisition, the Company has strengthened its position in the outdoor
power and power sports industries and has gained a strong foothold in the
construction industry. The Company also acquired an office with approximately 20
software development professionals located in Colorado Springs, Colorado,
located in one of the nation's leading regions for software development talent.
As a result of the acquisition, the Company recognized goodwill in the amount of
$2,918,000 which is being amortized over a five year period.




                                       11
<PAGE>   12

                         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                 SIX MONTHS ENDED
                                                                JANUARY 31                         JANUARY 31
                                                              (IN THOUSANDS)        PERCENT     (IN THOUSANDS)    PERCENT 
                                                               1999       1998      CHANGE     1999       1998    CHANGE
                                                               ----       ----      -------    ----       ----    -------
<S>                                                        <C>        <C>            <C>    <C>        <C>           <C>
Net cash used in operating activities
   before changes in working capital                       $  (139)   $  (264)        47%   $  (285)   $  (443)       36%
Net cash used in investing activities                         (486)      (325)       -50%    (1,194)      (805)      -48%
                                                           -------    -------               -------    -------
   Subtotal                                                   (625)      (589)        -6%    (1,479)    (1,248)      -19%
Effect of net changes in working capital                       212       (211)       200%       415       (422)      198%
                                                           -------    -------               -------    -------
   Net cash used in operating and investing activities     $  (413)   $  (800)        48%   $(1,064)   $(1,670)       36%
                                                           =======    =======               =======    =======
</TABLE>

Net cash used in operating activities before changes in working capital
decreased due to cost controls and increased revenues. As projected by
management, the Company achieved positive cash flow from operations before
changes in working capital in the quarter ending July 31, 1998. This number will
fluctuate from quarter to quarter due to the seasonality of revenue while
operating expenses remain relatively flat. On a rolling four quarter basis, cash
flow from operations before changes in working capital was positive $159,000 for
the period ended January 31, 1999 compared to negative $1,092,000 for the same
period last year. Management expects that, on an annualized basis, the Company
will achieve positive cash flow from operations before changes in working
capital for the fiscal year ending July 31, 1999. See "Forward Looking
Statements."

The Company expects to continue to incur operating losses for the fiscal year
ending July 31, 1999 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 operations for the remainder of fiscal 1999 from the
Company's lines of credit described below. See "Forward Looking Statements."

At January 31, 1999, the Company had cash and cash equivalents of approximately
$271,000 compared to approximately $194,000 at July 31, 1998.

The Company has a line of credit with WITECH (the "WITECH Line") that has been
in place since October 4, 1993. On January 29, 1999 WITECH and the Company
agreed to amend the WITECH Line, increasing the line from $2,800,000 to the
current $3,000,000 credit limit. Under the loan agreement, $1,000,000 must be
repaid out of the proceeds of any equity securities sold by the Company. The
termination date of the line of credit is December 31, 2001 and the interest
rate is prime plus 2%. In conjunction with obtaining the WITECH Line, since
1993, the Company has agreed to issue WITECH 350 shares of non-voting Preferred
Stock and has issued total warrants for the purchase of up to 250,000 shares of
its common stock, including warrants for the purchase of 200,000 shares at an
exercise price of $4.00 per share and warrants for a maximum of 50,000 shares at
an exercise price of $2.8125. The exercise price is reduced if the Company
issues stock at less than the then current exercise price. As of February 28,
1999 there were $2,800,000 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."

In connection with the acquisition of Powercom, the Company obtained a line of
credit from Briggs & Stratton Corporation in the amount of $250,000 (the "Briggs
Line"). The Company has agreed not to borrow under the Briggs Line until all
available amounts have been borrowed under the WITECH Line and that any
borrowings under the Briggs Line will be secured by certain accounts receivable
associated with the Powercom business. The Briggs Line extends until April 30,
1999 and borrowings thereunder bear interest at prime plus 2%. Borrowings under
the Briggs Line must be repaid with the proceeds of equity offerings (if any) in
excess of $1,000,000 plus accrued interest under the WITECH Line. To date, no
amounts have been borrowed under the Briggs Line.

Management currently believes that the financing from the WITECH Line and the
Briggs Line will be sufficient to fund operations for the remainder of fiscal
1999. However, this expectation is subject to a variety of assumptions
regarding, among other things, the timing of revenues and cash flow from new
sales, the Company's ability to control and/or reduce expenses, the timing of
the completion of software products currently under development, and the impact
of any other acquisitions.





                                       12

<PAGE>   13

Should these assumptions prove incorrect such that additional working capital is
required, the Company believes it can be obtained from additional borrowings
and/or the sale of additional securities. Management believes that, based on
current trends, the Company will achieve positive cash flow from operations
(excluding changes in working capital items) for fiscal 1999. 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." The Company currently intends to
raise additional financing during fiscal 1999 in order to fund the Company's
investment requirements, including its acquisition program, and to repay the
Briggs Line and a portion of the WITECH Line. The Company has not yet determined
the terms of such financing but such financing will likely include the sale of
common stock and/or debt securities.

                           FORWARD LOOKING STATEMENTS

Certain statements contained in the Management's Discussion and Analysis of
Results of Operations and Financial Condition are forward looking statements.
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.
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 applications and their willingness
to upgrade from earlier 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.

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 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.





                                       13
<PAGE>   14



ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The Company's annual report on Form 10-K contains certain disclosures about
market risks affecting the Company. There have been no material changes to the
information provided which would require additional disclosures as of the date
of this filing.

                           PART II. OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

On January 29, 1999, the Company agreed to sell to WITECH Corporation 100
additional shares of non-convertible Series A Preferred Stock in connection with
the execution of Amendment Number 14 to the Loan Agreement between the Company
and WITECH. The sale of Series A Preferred Stock to WITECH is exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2) thereof.


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


           (a)The Company held its 1998 Annual Meeting of Shareholders on
              December 10, 1998.

           (b)Votes cast for the election of two directors to serve until 2001
              Annual Shareholder's Meeting were as follows:

                                 Brian E. Dearing          Richard W. Weening
                          For                3,896,826     For      3,887,922
                          Against              130,757     Against    139,661

              Votes cast to amend the Company's 1991 Incentive Stock Option Plan
              to increase the number of shares thereunder from 500,000 to
              850,000 were as follows:

                          For                2,580,846
                          Against              182,994
                          Abstained              5,090
                          Broker Non-Vote    1,258,653

              Votes cast to amend the Company's 1993 Director Stock Option Plan
              to increase the number of shares reserved thereunder from 75,000
              to 150,000 were as follows:

                          For                2,661,045
                          Against              102,195
                          Abstained              5,690
                          Broker Non-Vote    1,258,653

              Votes cast to amend the Company's 1992 Employee Stock Purchase
              Plan to increase the number of shares reserved from 12,500 to
              62,500 were as follows:

                          For                2,716,382
                          Against               48,333
                          Abstained              4,215
                          Broker Non-Vote    1,258,653







                                       14

<PAGE>   15
              Votes cast to ratify the appointment of Ernst & Young LLP as the
              Company's auditors for the year ending July 31, 1999 were as
              follows:

                          For                   3,996,660
                          Against                  12,908
                          Abstained                18,015
                          Broker Non-Vote               0

              Votes cast to amend the terms of the Company's Series A Preferred
              Stock were as follows:

                          For                   2,667,769
                          Against                  86,697
                          Abstained                14,464
                          Broker Non-Vote       1,258,653


ITEM 6     EXHIBITS AND REPORTS ON FORM 8-K

a)  10.1 Amendment Number 14 to Loan Agreement dated January 29, 1999 between 
    the Company and WITECH Corporation.
b)  10.2 Amended 1991 Incentive Stock Option Plan
c)  10.3 Amended 1993 Director Stock Option Plan
    27   Financial Data Schedule

d)  Reports on Form 8-K. On November 30, 1998 and December 17,
    1998, the Company filed reports on Form 8-K/A with respect to
    Item 7. The Forms 8-K/A included pro forma financial
    information at July 31, 1998 with respect to the Powercom
    acquisition.





                                       15
<PAGE>   16


                                   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:     March 15, 1999                   /s/ Brian E. Dearing                
                                        -----------------------
                                        Brian E. Dearing, Chairman of the Board
                                        (and acting CFO)





                                       16