<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, 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 
 incorporation or organization)                  No.)
                                 


              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 March 10, 1997.

Common Stock, Par Value $.001 Per Shares 14,763,906 Shares Outstanding



                                      1

<PAGE>   2


                           ARI NETWORK SERVICES, INC.

                                   FORM 10-Q

                  FOR THE THREE MONTHS ENDED January 31, 1997

                                     INDEX





PART I - FINANCIAL INFORMATION
                                                                           Page

Item 1       Financial statements                                          3-6

             Condensed consolidated balance sheets - January 31, 1997 and    3
             July 31, 1996.
             
             Condensed consolidated statements of operations for the three   4
             and six months ended January 31, 1997 and 1996.
             
             Condensed consolidated statements of cash flows for the six     5
             months ended January 31, 1997 and 1996.
             
             Notes to unaudited condensed consolidated financial             6
             statements.

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


PART II - OTHER INFORMATION           None





Signatures                                                                    13
                                      


                                      2


<PAGE>   3

                           ARI NETWORK SERVICES, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                                 January 31          July 31 
                                                                                    1997               1996 
                                                                                 (Unaudited)        (Audited)
                                                                                 -----------        ---------

 ASSETS
 ------
 <S>                                                                                 <C>              <C>
 Current assets:
   Cash and cash equivalents                                                     $     84           $     372  
   Accounts receivable                                                              1,239               1,306  
   Prepaid expenses                                                                   148                 186  
                                                                                 --------           ---------
                                                                                            
      Total current assets                                                          1,471               1,864
                                                                                            
Equipment & leasehold improvements, net of                                                  
   accumulated depreciation and amortization                                          289                 352
Network systems-net                                                                 8,817               9,263
Other Assets                                                                          413                   0
                                                                                 --------           ---------
      Total Assets                                                               $ 10,990           $  11,479
                                                                                 ========           =========
 LIABILITIES AND SHAREHOLDERS' EQUITY                                                       
 -------------------------------------

 Current liabilities:
   Accounts payable                                                              $    487           $     818
   Line of credit with shareholders                                                   870               3,500
   Other current liabilities                                                        1,379                 894
   Current portion of capital lease obligations                                        95                  64
                                                                                 --------           ---------

      Total current liabilities                                                     2,831               5,276
 
Capital lease obligations                                                              19                  22
 
Shareholders' equity:
   Common stock                                                                        15                  13
   Additional paid-in capital                                                      80,860              76,823
   Accumulated deficit                                                            (72,735)            (70,655)
                                                                                 --------           ---------

     Total shareholders' equity                                                     8,140               6,181
                                                                                 --------           ---------

 Total Liabilities & Shareholders' Equity                                        $ 10,990           $  11,479
                                                                                 ========           =========

</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                      3



<PAGE>   4

                           ARI NETWORK SERVICES, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands except for share data)
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                            Three Months              Six Months
                                                                               Ended                    Ended
                                                                             January 31               January 31
                                                                          1997        1996          1997        1996
 <S>                                                                    <C>          <C>          <C>          <C>
 Net revenues:

     Network and other services                                         $1,126        $921        $2,454      $1,977
     Software and development                                              539         155           894         236
                                                                        ------      ------       -------     -------
        Total net revenues                                               1,665       1,076         3,348       2,213
                                                                        
 Operating Expenses:                                                    
                                                                        
     Variable cost of products and services sold (exclusive of          
     depreciation and amortization shown below):                    
                                                                        
         Network and other services                                        306         211           574         418
         Software and development                                          158          34           371          50
                                                                        ------      ------       -------     -------
                                                                        
            Total variable costs of products and services sold             464         245           945         468
                                                                        
      Depreciation and amortization                                        465         387           993         772
                                                                        
      Network operations                                                   258         215           487         438
                                                                        
      Selling, General & Administrative                                  1,203       1,193         2,519       2,282
                                                                        
      Network and product development                                      365         500           705         941
                                                                        ------      ------       -------     -------
 Operating expenses before amounts capitalized                           2,755       2,540         5,649       4,901
                                                                        
      Less capitalized expenses*                                          (184)       (345)         (336)       (665)
                                                                        ------      ------       -------     -------
 Total net operating expenses                                            2,571       2,195         5,313       4,236
                                                                        ------      ------       -------     -------
 Operating Loss                                                           (906)     (1,119)       (1,965)     (2,023)
                                                                        
 Other expense                                                             (25)        (74)         (115)       (127)
                                                                        ------      ------       -------     -------
 Net loss                                                               ($ 931)    ($1,193)      ($2,080)    ($2,150)
                                                                        ======     =======       =======     =======
 Average common shares outstanding                                      14,555      12,188        14,172      12,187
                                                                        
 Net loss per common share                                              ($0.06)     ($0.10)       ($0.15)     ($0.18)
</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 consolidated financial statements.



                                      4

<PAGE>   5


                           ARI NETWORK SERVICES, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                           SIX MONTHS ENDED
                                                                                              JANUARY 31
                                                                                              ----------
                                                                                         1997           1996
                                                                                         ----           ----
 <S>                                                                                  <C>           <C>
 Cash flow from operating activities:
     Net loss                                                                         ($2,080)      $ (2,150)
     Amortization of network system                                                       782            491
     Depreciation and other amortization                                                  211            281
     Net change in operating assets                                                       139            518
     Net change in operating liabilities                                                  (86)           220
                                                                                     --------       --------

 Net cash used in operating activities                                                 (1,034)          (640)

 Cash flows from investing activities:
    Purchase of equipment and leasehold improvements                                      (82)            (7)
    Network system costs capitalized                                                     (336)          (665)
    Other                                                                                  10              5                   
                                                                                    ---------       --------
 Net cash used in investing activities                                                   (408)          (667)

 Cash flows from financing activities:
    Payment of capital lease obligations                                                   (3)           (35)
    Proceeds from issuance of common stock                                              2,787            127
    Borrowings (repayments) under line of credit                                       (1,630)         1,600
                                                                                    ---------       --------    

 Net cash provided by financing activities                                              1,154          1,692
                                                                                    ---------       --------  

 Net change in cash and cash equivalents                                                 (288)           385
    Beginning cash and cash equivalents balance                                           372            236
                                                                                   ----------       --------

 Ending cash and cash equivalents balance                                                $ 84           $621
                                                                                   ==========       ========
 Cash paid for interest                                                                  $115           $132
                                                                                   ==========       ========

 Noncash investing and financing activities
 Capital lease obligations incurred for:
    Network system equipment                                                               71              0
 Common stock issued for acquisition                                                      252              0
 Common stock issued to repay line of credit                                            1,000              0

</TABLE>


See notes to unaudited condensed consolidated financial statements.


                                      5


<PAGE>   6


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)
                                January 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 and six
months ended January 31, 1997 are not necessarily indicative of the results
that may be expected for the fiscal year ending July 31, 1997.  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, 1996.

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.


                                      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 January 31, 1997 increased $589,000 or 55%
compared to the same period last year, representing the fourth consecutive
quarter of year-over-year revenue improvement.  Two thirds of the increase was
due to improvements in non-recurring revenues which increased 188% compared to
the same period last year as the Company increased sales of both software
licenses and customization services.

The Company has projected that, based on current trends, revenue for the year
ending July 31, 1997 will be between $7.0 and $8.0 million.  See "Forward
Looking Statements."

The Company has a strategy of building a sustainable recurring revenue stream
in selected vertical markets for each of its primary services.  Accordingly,
the Company reviews its revenue by two distinct classifications: recurring
versus nonrecurring revenue and revenue by vertical market.

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


                      RECURRING VS. NON-RECURRING REVENUE


<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED       SIX MONTHS ENDED                               
                                                            JANUARY 31               JANUARY 31                                  
                                                            ----------               ----------                                  
                                                          (IN THOUSANDS)           (IN THOUSANDS)                                
                                                                                                                                   
                                                                                                                                   
             
                                                          1997         1996         1997         1996                               
                                                          ----         ----         ----         ----                               
            <S>                                        <C>          <C>          <C>          <C>            
            Recurring Revenue                          $ 1,063      $   867      $ 2,181      $ 1,817                              
            Non-recurring Revenue                          602          209        1,167          396                              
               Total revenue                           -------      -------      -------      -------                              
                                                       $ 1,665      $ 1,076      $ 3,348      $ 2,213                              
                                                       =======      =======      =======      =======                              
                                                                                                       

</TABLE>

Recurring revenues for the three and six month periods ended January 31, 1997
were $1,063,000 and $2,181,000, respectively, which represented increases of
23% and 20% from the comparable periods last year.   Recurring revenues consist
of network traffic fees, maintenance and support fees, transaction fees and
subscription and license renewal fees.  The year-to-year increase in recurring
revenue was primarily due to maintenance and support fees in the Agribusiness
and Related Industries and the Transportation Industry.  Recurring revenues
represented 64% and 65%, respectively, of total revenue for the three and six
month periods ended January 31, 1997 compared to 81% and 82% for the same
periods last year.  The lower percentage of recurring revenues was due to an
increase in non-recurring revenue from sales of the Company's new
Internet-enabled electronic commerce software applications and customization
services.  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 for the three and six month periods ended January 31,
1997 were $602,000 and $1,167,000, respectively, which represented increases of
188% and 195% from the comparable periods last year.  Non-recurring revenue is
derived from the sale of software and professional services both of which
increased during the period ended January 31, 1997.  The increase was primarily
in the Agribusiness and Related Industries.



                                      7

<PAGE>   8


                            VERTICAL MARKET REVENUE

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                       JANUARY 31                JANUARY 31
                                       REVENUE BY                  ------------------         ----------------
                                    VERTICAL MARKETS               (IN THOUSANDS)              (IN THOUSANDS)
                                                                    1997           1996         1997        1996
                               <S>                               <C>           <C>           <C>         <C>
                               Agribusiness & Related
                               Industries                        $ 1,103       $    553      $ 2,179     $ 1,207
                               Publishing Industry                   300            307          614         618
                               Transportation Industry               220            153          433         251
                               Other                                  42             63          122         137
                                                                 -------      ---------      -------    --------
                               Total Revenue                     $ 1,665        $ 1,076      $ 3,348     $ 2,213
                                                                 =======        =======      =======     =======
</TABLE>


Agribusiness and Related Industries

The Agribusiness and Related Industries include several vertical markets some
of which are made up of one or more  sub markets.  The principal verticals
included in Agribusiness and Related Industries are agricultural and specialty
chemicals, feed, seed, outdoor power equipment, outboard marine and
recreational vehicles.  Revenues from the Agribusiness and Related Industries
are derived from network traffic fees, maintenance and support fees,
subscription fees, software sales and professional services fees.  Revenues
derived from the sale of PLUS1(R), the Company's newly acquired electronic
parts cataloging software, are included in the Agribusiness and Related
Industries revenues.  See "Other Items."  Revenues from Agribusiness and
Related Industries represented 66% and 65% of total revenue for the three and
six month periods ended January 31, 1997, compared to 51% and 55% for the same
periods last year.  Management believes that revenues from Agribusiness and
Related Industries will continue to be a significant portion of the Company's
total revenue.

Revenues in the Agribusiness and Related Industries for the three and six month
periods ended January 31, 1997 were $1,103,000 and $2,179,000, respectively,
which represented increases of 99% and 81% from the comparable periods last
year.  The increases in revenue were primarily due to the sale and
customization of the Company's software products.  Revenue from ARISE(TM) , the
Company's Internet-enabled salesforce automation application, for the six
months ended January 31, 1997 included customization fees for the conversion of
Roche Vitamins, Inc. from the Company's DOS product, and software license fees
and customization fees from the animal health pharmaceuticals division of
Pharmacia & Upjohn.  The Company expects to realize significant customization
revenues from these contracts during the remainder of the year.  See "Forward
Looking Statements."  Revenue from Meppel(TM), the Company's Internet-enabled
EDI application, for the three months ended January 31,1997 included software
licenses and customization fees from Wilfarm, a major distributor of crop
protection chemicals.

Recurring revenues in the Agribusiness and Related Industries for the three and
six month periods ended January 31,1997 were $559,000 and $1,156,000,
respectively, which represented increases of 39% and 18% from the comparable
periods last year.  The increases in recurring revenues resulted from more
transactions being transmitted over the Company's network and an increase in
the Company's base of manufacturers, distributors and dealers leading to more
recurring maintenance and subscription fees.

Some of the manufacturers in the AgriChemical/Crop Protection sector of
Agribusiness industry have formed a jointly owned company known as "RAPID" to
promote Electronic Commerce within the industry.  Among RAPID's projects is the
development of a directory of physical locations and electronic commerce
trading partners in the "allied industries," which include crop protection and
specialty chemicals, seed, feed and fertilizer.  The Company and RAPID have
reached an understanding pursuant to which, with RAPID's endorsement, the
Company has created and will maintain this new directory ("allied directory")
for three years.  The Company's creation and maintenance of the allied
directory will result in non-recurring revenues from file conversion and
recurring revenues from file maintenance.  See "Forward Looking Statements."

                                      8



<PAGE>   9


In July 1996, the Company formed an alliance with Dun & Bradstreet Information
Services ("D&B") to market a standard electronic commerce identification number
("EC-ID(TM)") that will allow companies to precisely identify each business
location involved in an electronic commerce transaction.  The allied industry
database referred to above will be the first commercial use of the EC-ID(TM) .
Management expects that the Company will work with D&B to develop the market
for this service in other industries based on its initial success in the allied
industry.  See "Forward Looking Statements."

Publishing Industry

Revenues in the Publishing Industry are derived from recurring connect time
fees and non-recurring subscription 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 ("AP"), providing access to some 800
publishers with approximately 1,300 weekly and monthly newspapers.  Revenues in
the Publishing Industry for the three and six month periods ended January 31,
1997 were $300,000 and $614,000 respectively, compared to $307,000 and $618,000
for the same period last year.   Publishing revenue represented 18% of total
revenue for the six month period ended January 31, 1997, compared to 28% for
the comparable period last year.  Management believes that revenues in this
industry, more than 85% of which are recurring, will continue at approximately
the same level as last year for the remainder of fiscal 1997.  See "Forward
Looking Statements."

Transportation Industry

Revenues in the Transportation Industry are derived from maintenance and
support fees, transaction fees and professional service fees charged to the
Association of American Railroads for the creation and maintenance of the
Customer Identification File. Revenues in the Transportation Industry for the
three and six month periods ended January 31, 1997 were $220,000, and $433,000,
respectively, which represented increases of 44% and 73% from the comparable
periods last year.  The improvement in revenue for the six months ended January
31, 1997 were primarily due to increases in recurring maintenance and support
fees.  Management expects revenue in this industry to continue at approximately
the level it was during the quarter ended January 31, 1997 for the last two
quarters of fiscal 1997.  See "Forward Looking Statements."  Transportation
Industry revenue represents 13% of total revenue for the three and six month
periods ended January 31, 1997 compared to 14% and 11% for the comparable
periods last year.



                                      9

<PAGE>   10

                               OPERATING EXPENSES

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

<TABLE>
<CAPTION>
                                                                                THREE MONTHS             SIX MONTHS                
                                                                                   ENDED                    ENDED                  
                                                                                JANUARY 31               JANUARY 31                
                                                                                -----------              ----------                
                                                                               (IN THOUSANDS)          (IN THOUSANDS)              
                                                                                                                                   
                                                                              1997        1996         1997         1996      
                                                                              ----        ----         ----         ----      
                                                                                                                                   
          <S>                                                               <C>                     <C>          <C>               
          Operating expenses:                                                                                                      
            Variable cost of products and services sold (exclusive of                                                              
              depreciation and amortization shown below)                   $   464     $   245      $   945      $   468           
            Network operations                                                 258         215          487          438           
            Selling, General & Administrative                                1,203       1,193        2,519        2,282           
            Network and product development                                    365         500          705          941           
                                                                           -------     -------      -------      -------          
                                                                                                                                   
            Gross cash expenses                                              2,290       2,153        4,656        4,129           
                                                                                                                                   
                                                                                                                                   
                                                                                                                                   
            Depreciation and amortization                                      465         387          993          772           
            Less capitalized expenses                                         (184)       (345)        (336)        (665)          
                                                                           -------     -------      -------      -------          
                                                                                                                                   
                                                                                                                                   
              NET OPERATING EXPENSES                                       $ 2,571    $  2,195      $ 5,313      $ 4,236            
                                                                           =======    ========      =======      =======           
                                                                                               
                                                                             
</TABLE>                                                                     


Net operating expenses for the three and six month periods ended January 31,
1997 increased 17% and 25%, respectively, over the comparable periods last year
mainly due to increased amortization expense and variable cost of products and
services sold.  Gross cash expenses for the three and six month periods ended
January 31, 1997 increased 6% and 13%, respectively, over the comparable
periods last year.

The increases in variable cost of products and services sold and selling
expense are directly attributable to the increase in sales.  Variable cost of
products and services sold consists primarily of royalties, telecommunications
and data processing, customization labor and temporary help fees.  Temporary
help is used by the Company in connection with its database management
services.  Variable cost of products and services sold as a percentage of
revenue for the three and six month periods ended January 31, 1997 were 28%
each, compared to 23% and 21%, respectively, for the same periods last year.
Variable cost of products and services sold as a percentage of revenue will
vary by quarter due to the product sales mix.  Variable cost of products and
services sold as a percentage of revenue was higher compared to last year due
to increased software and customization sales, which have relatively higher
variable costs and to the variable costs associated with the maintenance of the
Transportation Industry database which first went into production in December
of fiscal 1996.  Management expects margins in future quarters to be generally
similar to the current quarter assuming a sales mix of two-thirds recurring
revenue and one-third non-recurring revenue.  See "Forward Looking Statements."

Selling, general and administrative expenses for the three month period ended
January 31, 1997 remained essentially the same as last year despite a 55%
increase in revenue.  Selling, general and administrative expenses for the six
month period ended January 31, 1997 increased 10% over the same period last
year as the Company filled open positions in sales and administration and paid
higher commissions and selling expenses as a result of the increase in
revenues.  During the quarter ended January 31, 1997, the Company negotiated a
five year extension of its lease at a savings of 35% over the rental rate in
its previous lease.

For the three and six month periods ended January 31, 1997, depreciation and
amortization expense increased by 20% and 29%, respectively, over the same
periods last year because the Company began to amortize ARISE(TM), Meppel(TM)
and other related development projects.  The Company continues to invest in
equipment and technology; however the cost of these investments has declined as
a result of the competitive nature of the environment and the reduced cost to
manufacture and maintain the equipment.  During the first quarter of fiscal
1997, the Company invested in a mainframe upgrade, increasing capacity and
significantly reducing anticipated future operating costs.  See "Forward
Looking Statements."


                                      10


<PAGE>   11


For the three months ended January 31, 1997, capitalized expenses decreased by
47% compared to the same period last year due to the completion of the
ARISE(TM)  and Meppel(TM)  core products and the focus of the development staff
shifting to software customization, which is a variable cost of products and
services sold.  Management anticipates that capitalized expenses will increase
as a result of the Company investing in development of Tradewind(TM), the
Company's Internet-enabled electronic commerce parts ordering application and
its Windows based, Internet-enabled version of PLUS1(R).  See "Forward Looking
Statements."

Network and software development expenditures for the six month period ended
January 31, 1997 were primarily attributable to the development of
Tradewind(TM)  and certain enhancements made to ARISE(TM), the Company's
salesforce automation software. Last year's network and software development
included development expenses attributable to ARISE(TM)  and the re-engineering
of the Company's telecommunications management systems to employ TCP/IP
Internet transport protocols and other Internet software standards for
electronic commerce services.  Management anticipates that network and product
development expense and capitalized expenses will increase during the remainder
of fiscal 1997 as a result of the Company's continued investment in
Internet-enabled electronic commerce applications. See "Forward Looking
Statements."

                                  OTHER ITEMS


Interest expense for the three months ended January 31, 1997 was $25,000,
compared to $74,000 last year. The decrease in interest expense reflects the
Company's conversion of the credit lines with shareholders to stock.  See
"Liquidity and Capital Resources."  Interest expense will fluctuate depending
on the use and timing of financing through lines of credit versus additional
equity funding.

Net loss for three month period ended January 31,1997 has decreased by 22% or
$262,000 compared to the same period last year.  Management believes that,
based on current trends, the Company will achieve break-even operating results
in the quarter ending July 31, 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 for stock
transaction. CDI was in the business of publishing electronic catalogs and the
software that an end user needs to read the catalogs. CDI had the parts
catalogs of over 20 manufacturers in the Outdoor Power Equipment, Outboard
Marine and Recreational Vehicle industries.  Its customer base included Toro,
Artco, Kohler, Tecumseh, Mercury Marine, Harley Davidson and Outboard Marine
Corporation.  CDI's operations have been consolidated into the Company's.
Other current liabilities for the period ended January 31, 1997 included
$187,000 of unearned maintenance fees attributable to the acquisition of CDI.
As a result of the acquisition, the Company also 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.

                        LIQUIDITY AND CAPITAL RESOURCES

Cash used in operating and investing activities has increased by 10% or
$135,000 for the six month period ended January 31, 1997, as compared to the
same period last year primarily due to changes in net operating assets and
liabilities.  Net cash used in operating and investing activities excluding
changes in operating assets and liabilities improved 27% from $2,045,000 for
the six months ended January 31, 1996 to $1,495,000 for the same period during
fiscal 1997.  The difference in changes in operating assets for the period
ended January 31, 1997 compared to January 31, 1996 was attributed primarily to
the timing of cash receipts and disbursements.  The Company expects to continue
to incur operating losses for the current fiscal year ending July 31, 1997 and
there can be no assurance that profitability will be achieved thereafter.
Management believes that, based on current trends, the Company will achieve
break-even operating results in the quarter ended July 31, 1998.  See "Forward
Looking Statements."   The Company also expects to continue to incur
significant expenditures for software development and network construction and
expansion.  The Company's software development and network construction and
expansion costs and negative cash flow from operations historically have been
funded primarily from the sale of securities and currently from the lines of
credit with shareholders.

At January 31, 1997, the Company had cash and cash equivalents of approximately
$84,000 compared to approximately $372,000 at July 31, 1996.  During the six
months ended January 31, 1997, the Company raised $2,787,000 from the sale of
common stock.  The proceeds were used to fund operations and repay portions of
the outstanding revolving credit lines.


                                      11


<PAGE>   12


On December 2,1994, the Company executed a Loan Agreement with WITECH
Corporation ("WITECH") and QUAESTUS Limited Partnership ("QLP") providing the
Company with a $1,500,000 senior secured revolving line of credit facility (the
"Senior Line").  Interest on the Senior Line accrued at the rate of 2% over the
prime rate. On December 13, 1996, the Senior Line was repaid in full and
terminated. Of the $1,465,000 outstanding under the Senior Line at December
13, 1996, $1,000,000 was repaid by conversion of the amount owed into shares of
the Company's common stock at a rate of $2.25 per share.  The remaining
$465,000 was borrowed under the WITECH Line described below and repaid to the
lenders under the Senior Line.

The Company also has a line of credit with WITECH, (the "WITECH" Line) that has
been in place since October 4, 1993.  The WITECH Line is currently in the
amount of $2,000,000.  Interest due on the WITECH Line is at the rate of prime
plus 2%.  The WITECH Line expires on December 31, 1997.  Under the WITECH Line,
the Company has issued a commitment warrant to WITECH for the purchase of up to
500,000 shares of its common stock at a price of $2.00 per share and 100,000
shares of its common stock at a price of $2.25 per share pursuant to an
amendment dated November 5, 1996.  The Company has also issued a usage warrant
to WITECH for a maximum of 100,000 shares of its common stock at a price of
$2.25.  As of March 10, 1997 there was $1,205,000 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.

The Company will require additional financing during fiscal 1997 in order to
meet its requirements for operations and development investments.  Management
believes that sufficient financing for fiscal 1997 will be available from the
sale of additional securities and from additional borrowings from existing
shareholders. On a long term basis, management believes that financing for the
Company's operations, including capital expenditures, will come principally
from cash generated from operations, the sale of additional equity or other
third party financing, capital leases, additional borrowings from shareholders
and other sources of capital if available.  There can be no assurance that
these financing arrangements will occur.

                           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
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
recurring revenues of maintenance and subscription fees may be estimated based
on the number of subscribers to the Company's services but will be greatly
impacted by the renewal ratio which cannot be determined in advance.  Recurring
revenues from network traffic fees and transaction fees are difficult to
estimate prior to the end of the quarter as it is determined by usage.  The
number of transactions processed by the Company is a function of the number of
subscribers and the quantity of reportable events per subscriber.  Reportable
events include product ordering, warranty claim processing, inventory and sales
reporting, parts number updates and price updates.  The Company cannot impact
or predict the volume of transactions per customer.

Non-recurring revenue is also difficult to estimate.  This revenue is generated
from software license fees, customized development and related professional
services.  License fee revenue is based on contracts signed and product
delivered within the quarter.  Non-recurring revenue is impacted 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.

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


                                      12


<PAGE>   13


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.  The
Company's current and potential competitors have greater financial, technical,
sales, marketing and advertising resources than the Company.  The widespread
acceptance of the Internet may increase the usage of the Company's product
applications but exert pressures on the network traffic revenue.

                          PART II.  OTHER INFORMATION



None.




                                   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 13, 1997
                                          /s/ Brian E. Dearing        
                                         ------------------------------- 
                                         Brian E. Dearing,
                                         President & CEO (and acting CFO)