----

----

| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|-----------------------------------------------------------------------------------|

| o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
|---|-----------------------------------------------------------------|

| WISCONSIN                                                                |   | 39-1388360                        |
|--------------------------------------------------------------------------|--------|-----------------------------------|
| (State or other jurisdiction of incorporation or organization)           |   | (IRS Employer Identification No.) |
|                                                                     |   |                              |
| 10850 West Park Place, Suite 1200, Milwaukee, Wisconsin  53224 |   |                              |
| (Address of principal executive offices)                                 |   |                              |
|                                                                     |   |                              |
| (414) 973-4300                                                           |   |                              |
| (Registrant's telephone number, including area code)                     |   |                              |

| Large accelerated filer o                               | Accelerated filer                        o |
|---------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Non-accelerated filer      o   | Smaller reporting company     þ                                                                                                 |
| (Do not check if a smaller reporting reporting company) |                                                                                                                                                          |

----

----

----

ARI 

| PART I     |   |                                                                                                   | Page   |
|------------|--------|--------------------------------------------------------------------------------------------------------|--------|
|       |   |                                                                                                   |   |
| Item 1     |   | Financial Statements                                                                                   |   |
|       |   |                                                                                                   |   |
|       |   | Consolidated Balance Sheets as of October 31, 2010 (unaudited) and July 31, 2010                       | 3      |
|       |   |                                                                                                   |   |
|       |   | Consolidated Statements of Income (unaudited) for the three months ended October 31, 2010 and 2009     | 5      |
|       |   |                                                                                                   |   |
|       |   | Consolidated Statements of Cash Flows (unaudited) for the three months ended October 31, 2010 and 2009 | 6      |
|       |   |                                                                                                   |   |
|       |   | Notes to the Unaudited Consolidated Financial Statements                                               | 7      |
|       |   |                                                                                                   |   |
| Item 2     |   | Management's Discussion and Analysis of Financial Condition and Results of Operations                  | 18     |
|       |   |                                                                                                   |   |
| Item 3     |   | Quantitative and Qualitative Disclosures about Market Risk                                             | 24     |
|       |   |                                                                                                   |   |
| Item 4     |   | Controls and Procedures                                                                                | 24     |
|       |   |                                                                                                   |   |
| PART II    |   |                                                                                                   |   |
|       |   |                                                                                                   |   |
| Item 1     |   | Legal Proceedings                                                                                      | 25     |
|       |   |                                                                                                   |   |
| Item 1A    |   | Risk Factors                                                                                           | 25     |
|       |   |                                                                                                   |   |
| Item 2     |   | Unregistered Sales of Equity Securities and Use of Proceeds                                            | 25     |
|       |   |                                                                                                   |   |
| Item 3     |   | Defaults upon Senior Securities                                                                        | 25     |
|       |   |                                                                                                   |   |
| Item 4     |   | Removed and Reserved                                                                                   | 25     |
|       |   |                                                                                                   |   |
| Item 5     |   | Other Information                                                                                      | 25     |
|       |   |                                                                                                   |   |
| Item 6     |   | Exhibits                                                                                               | 25     |
|       |   |                                                                                                   |   |
| Signatures | 26     |

----

Index

Item 

|                                                                                                          |   | (Unaudited)     |   |   | (Audited)    |   |
|---------------------------------------------------------------------------------------------------------------|--------|-----------------|--------|--------|--------------|--------|
|                                                                                                          |   | October 31 |   |   | July 31 |   |
|                                                                                                          |   | 2010            |   |   | 2010         |   |
| Current assets:                                                                                               |   |            |   |   |         |   |
| Cash and cash equivalents                                                                                     |   | $               | 861    |   |         | $      | 938 |   |
| Trade receivables, less allowance for doubtful accounts of $332 at October 31, 2010 and $565 at July 31, 2010 |   |            | 1,160  |   |         |   | 1,359 |   |
| Work in process                                                                                               |   |            | 212    |   |         |   | 133 |   |
| Prepaid expenses and other                                                                                    |   |            | 372    |   |         |   | 481 |   |
| Deferred income taxes                                                                                         |   |            | 2,377  |   |         |   | 2,600 |   |
| Total current assets                                                                                          |   |            | 4,982  |   |         |   | 5,511 |   |
| Equipment and leasehold improvements:                                                                         |   |            |   |   |         |   |   |   |
| Computer equipment                                                                                            |   |            | 1,924  |   |         |   | 1,883 |   |
| Leasehold improvements                                                                                        |   |            | 506    |   |         |   | 506 |   |
| Software and equipment                                                                                        |   |            | 2,073  |   |         |   | 1,970 |   |
|                                                                                                          |   |            | 4,503  |   |         |   | 4,359 |   |
| Less accumulated depreciation and amortization                                                                |   |            | 2,650  |   |         |   | 2,433 |   |
| Net equipment and leasehold improvements                                                                      |   |            | 1,853  |   |         |   | 1,926 |   |
| Capitalized software product costs:                                                                           |   |            |   |   |         |   |   |   |
| Amounts capitalized for software product costs                                                                |   |            | 16,324 |   |         |   | 15,919 |   |
| Less accumulated amortization                                                                                 |   |            | 13,775 |   |         |   | 13,524 |   |
| Net capitalized software product costs                                                                        |   |            | 2,549  |   |         |   | 2,395 |   |
| Deferred income taxes                                                                                         |   |            | 1,696  |   |         |   | 1,616 |   |
| Other long term assets                                                                                        |   |            | 65     |   |         |   | 63 |   |
| Other intangible assets                                                                                       |   |            | 2,625  |   |         |   | 2,827 |   |
| Goodwill                                                                                                      |   |            | 5,439  |   |         |   | 5,439 |   |
| Total assets                                                                                                  |   | $               | 19,209 |   |         | $      | 19,777 |   |

----

Index

|                                                                                                                                                               |   | (Unaudited)     |    |   | (Audited)    |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|---------|--------|--------------|--------|
|                                                                                                                                                               |   | October 31 |    |   | July 31 |   |
|                                                                                                                                                               |   | 2010            |    |   | 2010         |   |
| Current liabilities:                                                                                                                                               |   |            |    |   |         |   |
| Current borrowings on line of credit                                                                                                                               |   | $               | 1,025   |   |         | $      | 1,025 |   |
| Current portion of notes payable                                                                                                                                   |   |            | 360     |   |         |   | - |   |
| Accounts payable                                                                                                                                                   |   |            | 318     |   |         |   | 490 |   |
| Deferred revenue                                                                                                                                                   |   |            | 5,073   |   |         |   | 5,270 |   |
| Accrued payroll and related liabilities                                                                                                                            |   |            | 1,045   |   |         |   | 1,322 |   |
| Accrued taxes                                                                                                                                                      |   |            | 62      |   |         |   | 60 |   |
| Other accrued liabilities                                                                                                                                          |   |            | 869     |   |         |   | 844 |   |
| Current portion of capital lease obligations                                                                                                                       |   |            | 169     |   |         |   | 192 |   |
| Total current liabilities                                                                                                                                          |   |            | 8,921   |   |         |   | 9,203 |   |
| Non-current liabilities:                                                                                                                                           |   |            |    |   |         |   |   |   |
| Notes payable                                                                                                                                                      |   |            | 4,640   |   |         |   | 5,000 |   |
| Long-term portion of accrued compensation                                                                                                                          |   |            | -       |   |         |   | 17 |   |
| Capital lease obligations                                                                                                                                          |   |            | 307     |   |         |   | 338 |   |
| Total non-current liabilities                                                                                                                                      |   |            | 4,947   |   |         |   | 5,355 |   |
| Total liabilities                                                                                                                                                  |   |            | 13,868  |   |         |   | 14,558 |   |
|                                                                                                                                                               |   |            |    |   |         |   |   |   |
| Shareholders' equity:                                                                                                                                              |   |            |    |   |         |   |   |   |
| Cumulative preferred stock, par value $.001 per share, 1,000,000 shares authorized; 0 shares issued and outstanding at October 31, 2010 and July 31, 2010          |   |            | -       |   |         |   | - |   |
| Junior preferred stock, par value $.001 per share, 100,000 shares authorized; 0 shares issued and outstanding at October 31, 2010 and July 31, 2010                |   |            | -       |   |         |   | - |   |
| Common stock, par value $.001 per share, 25,000,000 shares authorized; 7,785,585 and 7,768,921 shares issued and outstanding at October 31, 2010 and July 31, 2010 |   |            | 8       |   |         |   | 8 |   |
| Common stock warrants and options                                                                                                                                  |   |            | 1,008   |   |         |   | 983 |   |
| Additional paid-in-capital                                                                                                                                         |   |            | 95,757  |   |         |   | 95,748 |   |
| Accumulated deficit                                                                                                                                                |   |            | (91,408 | )      |         |   | (91,507 | ) |
| Other accumulated comprehensive loss                                                                                                                               |   |            | (24     | )      |         |   | (13 | ) |
| Total shareholders' equity                                                                                                                                         |   |            | 5,341   |   |         |   | 5,219 |   |
| Total liabilities and shareholders' equity                                                                                                                         |   | $               | 19,209  |   |         | $      | 19,777 |   |

----

Index

ARI 

|                                                                                                                 |   | (Unaudited)                        |   |
|----------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                                                 |   | Three months ended October 31 |   |
|                                                                                                                 |   | 2010                               |   |   | 2009 |   |
| Net revenue                                                                                                          |   | $                                  | 5,324  |   |   | $ | 5,437 |   |
| Cost of revenue                                                                                                      |   |                               | 1,167  |   |   |   | 951 |   |
| Gross profit                                                                                                         |   |                               | 4,157  |   |   |   | 4,486 |   |
| Operating expenses:                                                                                                  |   |                               |   |   |   |   |   |   |
| Sales and marketing                                                                                                  |   |                               | 1,142  |   |   |   | 1,138 |   |
| Customer operations and support                                                                                      |   |                               | 789    |   |   |   | 809 |   |
| Software development and technical support (net of                                                                   |   |                               |   |   |   |   |   |   |
| capitalized software product costs)                                                                                  |   |                               | 322    |   |   |   | 547 |   |
| General and administrative                                                                                           |   |                               | 1,052  |   |   |   | 1,043 |   |
| Restructuring                                                                                                        |   |                               | -      |   |   |   | 76 |   |
| Depreciation and amortization (exclusive of amortization of software product costs included in cost of revenue) |   |                               | 407    |   |   |   | 404 |   |
| Net operating expenses                                                                                               |   |                               | 3,712  |   |   |   | 4,017 |   |
| Operating income                                                                                                     |   |                               | 445    |   |   |   | 469 |   |
| Other income (expense):                                                                                              |   |                               |   |   |   |   |   |   |
| Interest expense                                                                                                     |   |                               | (201   | ) |   |   | (139 | ) |
| Other, net                                                                                                           |   |                               | -      |   |   |   | - |   |
| Total other income (expense)                                                                                         |   |                               | (201   | ) |   |   | (139 | ) |
| Income (loss) from continuing operations before                                                                      |   |                               |   |   |   |   |   |   |
| provision for income tax                                                                                             |   |                               | 244    |   |   |   | 330 |   |
| Income tax benefit (expense)                                                                                         |   |                               | (145   | ) |   |   | (5 | ) |
| Income from continuing operations                                                                                    |   |                               | 99     |   |   |   | 325 |   |
| Discontinued operations, net of tax                                                                                  |   |                               | -      |   |   |   | (163 | ) |
| Net income                                                                                                           |   | $                                  | 99     |   |   | $ | 162 |   |
|                                                                                                                 |   |                               |   |   |   |   |   |   |
| Income from continuing operations per common share:                                                                  |   |                               |   |   |   |   |   |   |
| Basic                                                                                                                |   | $                                  | 0.01   |   |   | $ | 0.02 |   |
| Diluted                                                                                                              |   | $                                  | 0.01   |   |   | $ | 0.02 |   |
|                                                                                                                 |   |                               |   |   |   |   |   |   |
| Net income per common share:                                                                                         |   |                               |   |   |   |   |   |   |
| Basic                                                                                                                |   | $                                  | 0.01   |   |   | $ | 0.02 |   |
| Diluted                                                                                                              |   | $                                  | 0.01   |   |   | $ | 0.02 |   |

----

Index

ARI 

|                                                                              |   | (Unaudited)                        |   |
|-----------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                              |   | Three months ended October 31 |   |
|                                                                              |   | 2010                               |   |   | 2009 |   |
| Operating activities                                                              |   |                               |   |   |   |   |
| Net income                                                                        |   | $                                  | 99     |   |   | $ | 162 |   |
| Adjustments to reconcile net income to net cash provided by operating activities: |   |                               |   |   |   |   |   |   |
| Amortization of software products                                                 |   |                               | 251    |   |   |   | 253 |   |
| Depreciation and other amortization                                               |   |                               | 407    |   |   |   | 404 |   |
| Provision for bad debt allowance                                                  |   |                               | 21     |   |   |   | 10 |   |
| Deferred income taxes                                                             |   |                               | 143    |   |   |   | - |   |
| Stock based compensation related to stock options                                 |   |                               | 25     |   |   |   | 40 |   |
| Stock issued as contribution to 401(k) plan                                       |   |                               | -      |   |   |   | 52 |   |
| Net change in assets and liabilities:                                             |   |                               |   |   |   |   |   |   |
| Trade receivables                                                                 |   |                               | 180    |   |   |   | 56 |   |
| Work in process                                                                   |   |                               | (79    | ) |   |   | (37 | ) |
| Prepaid expenses and other                                                        |   |                               | 109    |   |   |   | 92 |   |
| Other long term assets                                                            |   |                               | (2     | ) |   |   | - |   |
| Accounts payable                                                                  |   |                               | (173   | ) |   |   | (380 | ) |
| Deferred revenue                                                                  |   |                               | (197   | ) |   |   | (532 | ) |
| Accrued payroll and related liabilities                                           |   |                               | (285   | ) |   |   | (315 | ) |
| Accrued taxes                                                                     |   |                               | 2      |   |   |   | (51 | ) |
| Other accrued liabilities                                                         |   |                               | 25     |   |   |   | (68 | ) |
| Net cash provided by (used in) operating activities                               |   |                               | 526    |   |   |   | (314 | ) |
| Investing activities                                                              |   |                               |   |   |   |   |   |   |
| Purchase of equipment, software and leasehold improvements                        |   |                               | (81    | ) |   |   | (88 | ) |
| Software developed for internal use                                               |   |                               | (63    | ) |   |   | (32 | ) |
| Software development costs capitalized                                            |   |                               | (405   | ) |   |   | (260 | ) |
| Net cash used in investing activities                                             |   |                               | (549   | ) |   |   | (380 | ) |
| Financing activities                                                              |   |                               |   |   |   |   |   |   |
| Borrowings (repayments) under line of credit                                      |   |                               | -      |   |   |   | 200 |   |
| Payments under notes payable                                                      |   |                               | -      |   |   |   | (59 | ) |
| Proceeds from capital lease obligations incurred                                  |   |                               | -      |   |   |   | 219 |   |
| Payments of capital lease obligations                                             |   |                               | (54    | ) |   |   | (17 | ) |
| Net cash provided by (used in) financing activities                               |   |                               | (54    | ) |   |   | 343 |   |
| Effect of foreign currency exchange rate changes on cash                          |   |                               | -      |   |   |   | (8 | ) |
| Net change in cash and cash equivalents                                           |   |                               | (77    | ) |   |   | (359 | ) |
| Cash and cash equivalents at beginning of period                                  |   |                               | 938    |   |   |   | 650 |   |
| Cash and cash equivalents at end of period                                        |   | $                                  | 861    |   |   | $ | 291 |   |
| Cash paid for interest                                                            |   | $                                  | 201    |   |   | $ | 138 |   |
| Cash paid for income taxes                                                        |   | $                                  | -      |   |   | $ | 54 |   |
|                                                                              |   |                               |   |   |   |   |   |   |
| Noncash investing and financing activities                                        |   |                               |   |   |   |   |   |   |
| Capital lease obligations incurred for computer equipment                         |   | $                                  | -      |   |   | $ | 81 |   |
| Issuance of common stock related to payment of executive compensation             |   |                               | 9      |   |   |   | - |   |

----

Index

Notes 

| 1. | Description of the Business and Significant Accounting Policies |
|----|-----------------------------------------------------------------|

----

Index

----

Index

| 2. | Basic and Diluted Net Income per Share |
|----|----------------------------------------|

|                                                                                                                                                                                             |   | Three months ended October 31 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                                                                                                                             |   | 2010                               |   |   | 2009 |   |
|                                                                                                                                                                                             |   |                               |   |   |   |   |
| Income from continuing operations                                                                                                                                                                |   | $                                  | 99     |   |   | $ | 325 |   |
| Loss from discontinued operations                                                                                                                                                                |   |                               | -      |   |   |   | (163 | ) |
| Net income                                                                                                                                                                                       |   | $                                  | 99     |   |   | $ | 162 |   |
| Weighted-average common shares outstanding                                                                                                                                                       |   |                               | 7,776  |   |   |   | 7,711 |   |
| Effect of dilutive stock options and warrants                                                                                                                                                    |   |                               | 7      |   |   |   | 22 |   |
| Diluted weighted-average common shares outstanding                                                                                                                                               |   |                               | 7,783  |   |   |   | 7,733 |   |
|                                                                                                                                                                                             |   |                               |   |   |   |   |   |   |
| Earnings per share - basic:                                                                                                                                                                      |   |                               |   |   |   |   |   |   |
| Income from continuing operations                                                                                                                                                                |   | $                                  | 0.01   |   |   | $ | 0.04 |   |
| Loss from discontinued operations                                                                                                                                                                |   |                               | -      |   |   |   | (0.02 | ) |
| Net income                                                                                                                                                                                       |   | $                                  | 0.01   |   |   | $ | 0.02 |   |
|                                                                                                                                                                                             |   |                               |   |   |   |   |   |   |
| Earnings per share - diluted:                                                                                                                                                                    |   |                               |   |   |   |   |   |   |
| Income from continuing operations                                                                                                                                                                |   | $                                  | 0.01   |   |   | $ | 0.04 |   |
| Loss from discontinued operations                                                                                                                                                                |   |                               | -      |   |   |   | (0.02 | ) |
| Net income                                                                                                                                                                                       |   | $                                  | 0.01   |   |   | $ | 0.02 |   |
|                                                                                                                                                                                             |   |                               |   |   |   |   |   |   |
| Options and warrants that could potentially dilute net income per share in the future that are not included in the computation of diluted net income per share, as their impact is anti-dilutive |   |                               | 1,518  |   |   |   | 1,402 |   |

----

Index

| 3. | Stock-based Compensation Plans |
|----|--------------------------------|

|                     |   | Three months ended October 31 |   |
|--------------------------|--------|------------------------------------|--------|
|                     |   | 2010                               |   |   | 2009 |   |
| Expected life (years)    |   | 10 years                           |   |   | 10 years |   |
| Risk-free interest rate  |   |                               | 2.7    | % |   |   | 3.6 | % |
| Expected volatility      |   |                               | 100.7  | % |   |   | 85.1 | % |
| Expected forfeiture rate |   |                               | 16.6   | % |   |   | 3.7 | % |
| Expected dividend yield  |   |                               | 0.0    | % |   |   | 0.0 | % |

|   | · | increasing the number of shares of Common Stock authorized for sale under the ESPP from 175,000 to 225,000; |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | · | amending the term of the ESPP to continue in effect until all of the shares of Common Stock reserved for issuance under the ESPP, as increased or adjusted from time to time, have been issued, unless sooner terminated in accordance with its terms; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | removing the prohibition on executive officer participation in the ESPP and providing that no executive officer will be eligible to participate in the ESPP unless otherwise determined by the Compensation Committee prior to an offering period; and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | updating the definition of “Fair Market Value” for offerings commencing on or after January 1, 2011 to relate to the bid and asked prices of the Company’s Common Stock on the NASDAQ Over-The-Counter Bulletin Board. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

|                                    |   | Number of Options |    |   | Wtd. Avg. Exercise Price |   |   | Wtd. Avg. Remaining Contractual Period (Years) |   |   | Aggregate Instrinsic Value |   |
|-----------------------------------------|--------|-------------------|---------|--------|--------------------------|--------|--------|------------------------------------------------|--------|--------|----------------------------|--------|
| Outstanding and exercisable at 7/31/09  |   |              | 35,500  |   |                     | $      | 2.43   |                                           |   |   | 1.09                       |   |   | $ | - |   |
| Granted                                 |   |              | -       |   |                     |   | n/a    |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Exercised                               |   |              | -       |   |                     |   | n/a    |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Forfeited                               |   |              | -       |   |                     |   | n/a    |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Outstanding and exercisable at 10/31/09 |   |              | 35,500  |   |                     | $      | 2.43   |                                           |   |   | 0.84                       |   |   | $ | - |   |
|                                    |   |              |    |   |                     |   |   |                                           |   |   |                       |   |   |   |   |   |
| Outstanding and exercisable at 7/31/10  |   |              | 35,000  |   |                     | $      | 2.33   |                                           |   |   | 0.10                       |   |   | $ | - |   |
| Granted                                 |   |              | -       |   |                     |   | n/a    |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Exercised                               |   |              | -       |   |                     |   | n/a    |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Forfeited                               |   |              | (35,000 | )      |                     |   | 2.33   |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Outstanding and exercisable at 10/31/10 |   |              | -       |   |                     | $      | -      |                                           |   |   | -                          |   |   | $ | - |   |

----

Index

|                                    |   | Number of Options |   |   | Wtd. Avg. Exercise Price |   |   | Wtd. Avg. Remaining Contractual Period (Years) |   |   | Aggregate Instrinsic Value |   |
|-----------------------------------------|--------|-------------------|--------|--------|--------------------------|--------|--------|------------------------------------------------|--------|--------|----------------------------|--------|
| Outstanding and exercisable at 7/31/09  |   |              | 1,313  |   |                     | $      | 2.65   |                                           |   |   | 0.97                       |   |   | $ | - |   |
| Granted                                 |   |              | -      |   |                     |   | n/a    |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Exercised                               |   |              | -      |   |                     |   | n/a    |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Forfeited                               |   |              | -      |   |                     |   | n/a    |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Outstanding and exercisable at 10/31/09 |   |              | 1,313  |   |                     | $      | 2.65   |                                           |   |   | 0.72                       |   |   | $ | - |   |
|                                    |   |              |   |   |                     |   |   |                                           |   |   |                       |   |   |   |   |   |
| Outstanding and exercisable at 7/31/10  |   |              | 750    |   |                     | $      | 2.05   |                                           |   |   | 0.08                       |   |   | $ | - |   |
| Granted                                 |   |              | -      |   |                     |   | n/a    |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Exercised                               |   |              | -      |   |                     |   | n/a    |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Forfeited                               |   |              | (750   | )      |                     |   | 2.05   |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Outstanding and exercisable at 10/31/10 |   |              | -      |   |                     | $      | -      |                                           |   |   | -                          |   |   | $ | - |   |

|                    |   | Number of Options |      |   | Wtd. Avg. Exercise Price |   |   | Wtd. Avg. Remaining Contractual Period (Years) |   |   | Aggregate Instrinsic Value |   |
|-------------------------|--------|-------------------|-----------|--------|--------------------------|--------|--------|------------------------------------------------|--------|--------|----------------------------|--------|
| Outstanding at 7/31/09  |   |              | 1,213,402 |   |                     | $      | 1.51   |                                           |   |   | 7.08                       |   |   | $ | 21,337 |   |
| Granted                 |   |              | 22,000    |   |                     |   | 0.85   |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Exercised               |   |              | -         |   |                     |   | n/a    |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Forfeited               |   |              | (13,875   | )      |                     |   | 1.46   |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Outstanding at 10/31/09 |   |              | 1,221,527 |   |                     | $      | 1.50   |                                           |   |   | 6.86                       |   |   | $ | 37,456 |   |
| Exercisable at 10/31/09 |   |              | 857,751   |   |                     | $      | 1.56   |                                           |   |   | 6.06                       |   |   | $ | 30,902 |   |
|                    |   |              |      |   |                     |   |   |                                           |   |   |                       |   |   |   |   |   |
| Outstanding at 7/31/10  |   |              | 1,269,981 |   |                     | $      | 1.41   |                                           |   |   | 6.48                       |   |   | $ | 13,319 |   |
| Granted                 |   |              | 67,100    |   |                     |   | 0.66   |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Exercised               |   |              | -         |   |                     |   | n/a    |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Forfeited               |   |              | (7,813    | )      |                     |   | 1.33   |                                           |   |   | n/a                        |   |   |   | n/a |   |
| Outstanding at 10/31/10 |   |              | 1,329,268 |   |                     | $      | 1.38   |                                           |   |   | 6.40                       |   |   | $ | 11,363 |   |
| Exercisable at 10/31/10 |   |              | 982,327   |   |                     | $      | 1.51   |                                           |   |   | 5.56                       |   |   | $ | 11,053 |   |

----

Index

|                                                                              |   | Number of Options |    |   | Wtd. Avg. Exercise Price |   |
|-----------------------------------------------------------------------------------|--------|-------------------|---------|--------|--------------------------|--------|
| Non-vested at 7/31/09                                                             |   |              | 341,776 |   |                     | $      | 1.40 |   |
| Granted                                                                           |   |              | 22,000  |   |                     |   | 0.85 |   |
| Vested                                                                            |   |              | -       |   |                     |   | n/a |   |
| Forfeited                                                                         |   |              | -       |   |                     |   | n/a |   |
| Non-vested at 10/31/09                                                            |   |              | 363,776 |   |                     | $      | 1.36 |   |
|                                                                              |   |              |    |   |                     |   |   |   |
| Non-vested at 7/31/10                                                             |   |              | 282,528 |   |                     | $      | 1.09 |   |
| Granted                                                                           |   |              | 67,100  |   |                     |   | 0.66 |   |
| Vested                                                                            |   |              | -       |   |                     |   | - |   |
| Forfeited                                                                         |   |              | (2,687  | )      |                     |   | 1.26 |   |
| Non-vested at 10/31/10                                                            |   |              | 346,941 |   |                     | $      | 1.01 |   |
|                                                                              |   |              |    |   |                     |   |   |   |
| The weighted average remaining vesting period was 1.48 years at October 31, 2010. |   |

|   | · | the aggregate number of shares of Common Stock subject to the 2010 Plan is 650,000 shares; |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | the exercise price for options and stock appreciation rights cannot be less than 100% of the fair market value, as defined, of the Company’s Common Stock on the date of grant; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the exercise prices for options or stock appreciation rights cannot be repriced without shareholder approval, except to reflect changes to the capital structure of the Company as described in the 2010 Plan; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a maximum term of ten years for options and stock appreciation rights; |
|--------|--------|------------------------------------------------------------------------|

|   | · | a maximum of 325,000 of the shares available for issuance under the 2010 Plan can be in the form of restricted shares or restricted stock units, and the 2010 Plan does not have liberal share counting provisions (such as provisions that would permit shares withheld for payment of taxes or the exercise price of stock options to be re-granted under the plan); and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | awards cannot be transferred to third parties, with the exception of certain estate planning transfers, which can be made if the committee that administers the 2010 Plan approves such transfers. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

| 4. | Notes Payable |
|----|---------------|

|                      |   | October 31 |   |   | July 31 |   |
|---------------------------|--------|-----------------|--------|--------|--------------|--------|
|                      |   | 2010            |   |   | 2010         |   |
| Notes payable             |   | $               | 5,000  |   |         |   | 5,000 |   |
| Less current maturities   |   |            | 360    |   |         |   | - |   |
| Notes payable non-current |   | $               | 4,640  |   |         | $      | 5,000 |   |

| 5. | Line of Credit |
|----|----------------|

| 6. | Shareholder Rights Plan |
|----|-------------------------|

----

Index

| 7. | Income Taxes |
|----|--------------|

|                                                              |   | 2010   |   |   | 2009   |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Current:                                                          |   |   |   |   |   |   |
| Federal                                                           |   | $      | -      |   |   | $      | - |   |
| State                                                             |   |   | -      |   |   |   | 1 |   |
| Change in the beginning deferred tax asset valuation allowance    |   |   | -      |   |   |   | (134 | ) |
| Deferred, net                                                     |   |   | 145    |   |   |   | 138 |   |
| Income tax (benefit) expense from continuing operations           |   | $      | 145    |   |   | $      | 5 |   |
| Income tax benefit from discontinued operations (1)               |   | $      | -      |   |   | $      | - |   |
|                                                              |   |   |   |   |   |   |   |   |
| (1) Net of recorded deferred income tax asset valuation allowance |   |

| 8. | Business Segments |
|----|-------------------|

----

Index

|                                |   | (Unaudited)                        |   |
|-------------------------------------|--------|------------------------------------|--------|
|                                |   | Three months ended October 31 |   |
|                                |   | 2010                               |   |   | 2009 |   |
| Revenue from continuing operations: |   |                               |   |   |   |   |
| Netherlands                         |   | $                                  | 186    |   |   | $ | 176 |   |
| United States                       |   |                               | 5,138  |   |   |   | 5,261 |   |
| Consolidated                        |   | $                                  | 5,324  |   |   | $ | 5,437 |   |

|                                          |   | (Unaudited)                        |   |
|-----------------------------------------------|--------|------------------------------------|--------|
|                                          |   | Three months ended October 31 |   |
| Net income (loss) from continuing operations: |   | 2010                               |   |   | 2009 |   |
| Netherlands                                   |   | $                                  | (48    | ) |   | $ | (15 | ) |
| United States                                 |   |                               | 147    |   |   |   | 340 |   |
| Consolidated                                  |   | $                                  | 99     |   |   | $ | 325 |   |

|          |   | (Unaudited)     |   |   | (Audited)    |   |
|---------------|--------|-----------------|--------|--------|--------------|--------|
|          |   | October 31 |   |   | July 31 |   |
| Total Assets  |   | 2010            |   |   | 2010         |   |
| Netherlands   |   | $               | 373    |   |         | $      | 328 |   |
| United States |   |            | 18,836 |   |         |   | 19,449 |   |
| Consolidated  |   | $               | 19,209 |   |         | $      | 19,777 |   |

| 9. | Restructuring |
|----|---------------|

|              |   | Net future lease costs |   |
|-------------------|--------|------------------------|--------|
| Beginning Balance |   | $                      | 80     |   |
| Payments          |   |                   | (30    | ) |
| Ending Balance    |   | $                      | 50     |   |

----

Index

|                |   | Severance and related benefits |   |
|---------------------|--------|--------------------------------|--------|
| Balance at 7/31/10  |   | $                              | 147    |   |
| Payments            |   |                           | (76    | ) |
| Balance at 10/31/10 |   | $                              | 71     |   |

|                |   | Severance and related benefits |   |   | Other accrued liabilities |   |   | Total  |   |
|---------------------|--------|--------------------------------|--------|--------|---------------------------|--------|--------|--------|--------|
| Balance at 7/31/10  |   | $                              | 27     |   |                      | $      | 83     |   |   | $ | 110 |   |
| Payments            |   |                           | (8     | )      |                      |   | (34    | )      |   |   | (42 | ) |
| Balance at 10/31/10 |   | $                              | 19     |   |                      | $      | 49     |   |   | $ | 68 |   |

| 10. | Discontinued Operations |
|-----|-------------------------|

|               |   | Three months ended |   |
|--------------------|--------|--------------------|--------|
|               |   | October 31    |   |
|               |   | 2009               |   |
|               |   |               |   |
| Revenues           |   | $                  | 33     |   |
| Cost of sales      |   |               | 3      |   |
| Operating expenses |   |               | 193    |   |
| Operating loss     |   |               | (163   | ) |
| Income tax benefit |   |               | -      |   |
|               |   |               |   |   |
| Net loss           |   | $                  | (163   | ) |

|   | (1) | Net of recorded deferred income tax asset valuation allowance |
|--------|-----|---------------------------------------------------------------|

----

Index

Item 

----

Index

----

Index

|                    |   | (Unaudited)                        |   |   |    |   |
|-------------------------|--------|------------------------------------|--------|--------|---------|--------|
|                    |   | Three months ended October 31 |   |   | Percent |   |
|                    |   | 2010                               |   |   | 2009    |   |   | Change |   |
| Catalog                 |   |                               |   |   |    |   |   |   |   |
| Revenue                 |   | $                                  | 3,130  |   |    | $      | 3,078 |   |   |   | 1.7 | % |
| Cost of revenue         |   |                               | 397    |   |    |   | 387 |   |   |   | 2.6 | % |
| Gross profit            |   |                               | 2,733  |   |    |   | 2,691 |   |   |   | 1.6 | % |
| Gross margin percentage |   |                               | 87.3   | %      |    |   | 87.4 | % |   |   |   |   |
| Website                 |   |                               |   |   |    |   |   |   |   |   |   |   |
| Revenue                 |   |                               | 1,216  |   |    |   | 1,473 |   |   |   | -17.5 | % |
| Cost of revenue         |   |                               | 241    |   |    |   | 234 |   |   |   | 3.0 | % |
| Gross profit            |   |                               | 975    |   |    |   | 1,239 |   |   |   | -21.3 | % |
| Gross margin percentage |   |                               | 80.2   | %      |    |   | 84.1 | % |   |   |   |   |
| Lead management         |   |                               |   |   |    |   |   |   |   |   |   |   |
| Revenue                 |   |                               | 192    |   |    |   | 247 |   |   |   | -22.2 | % |
| Cost of revenue         |   |                               | 52     |   |    |   | 26 |   |   |   | 100.0 | % |
| Gross profit            |   |                               | 140    |   |    |   | 221 |   |   |   | -36.6 | % |
| Gross margin percentage |   |                               | 72.9   | %      |    |   | 89.5 | % |   |   |   |   |
| Other                   |   |                               |   |   |    |   |   |   |   |   |   |   |
| Revenue                 |   |                               | 786    |   |    |   | 639 |   |   |   | 23.0 | % |
| Cost of revenue         |   |                               | 477    |   |    |   | 304 |   |   |   | 56.9 | % |
| Gross profit            |   |                               | 309    |   |    |   | 335 |   |   |   | -7.7 | % |
| Gross margin percentage |   |                               | 39.3   | %      |    |   | 52.4 | % |   |   |   |   |
| Total                   |   |                               |   |   |    |   |   |   |   |   |   |   |
| Revenue                 |   |                               | 5,324  |   |    |   | 5,437 |   |   |   | -2.1 | % |
| Cost of revenue         |   |                               | 1,167  |   |    |   | 951 |   |   |   | 22.7 | % |
| Gross profit            |   | $                                  | 4,157  |   |    | $      | 4,486 |   |   |   | -7.3 | % |
| Gross margin percentage |   |                               | 78.1   | %      |    |   | 82.5 | % |   |   |   |   |

----

Index

|                                       |   | Three months ended October 31 |   |
|--------------------------------------------|--------|------------------------------------|--------|
|                                       |   | 2010                               |   |   | Percent of Revenue |   |   | 2009 |   |   | Percent of Revenue |   |
|                                       |   |                               |   |   |   |   |   |   |   |   |   |   |
| Net revenue                                |   | $                                  | 5,324  |   |   |   |   |   | $ | 5,437 |   |   |   |   |
| Cost of revenues:                          |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization of capitalized software costs |   |                               | 251    |   |   |   | 4.7 | % |   |   | 253 |   |   |   | 4.7 | % |
| Direct labor                               |   |                               | 329    |   |   |   | 6.2 | % |   |   | 337 |   |   |   | 6.2 | % |
| Other direct costs                         |   |                               | 587    |   |   |   | 11.0 | % |   |   | 361 |   |   |   | 6.6 | % |
| Total cost of revenues                     |   |                               | 1,167  |   |   |   | 21.9 | % |   |   | 951 |   |   |   | 17.5 | % |
| Gross profit                               |   | $                                  | 4,157  |   |   |   | 78.1 | % |   | $ | 4,486 |   |   |   | 82.5 | % |

|                                           |   | Three months ended October 31 |   |
|------------------------------------------------|--------|------------------------------------|--------|
|                                           |   | 2010                               |   |   | Percent of Revenue |   |   | 2009 |   |   | Percent of Revenue |   |   | Percent Change |   |
| Sales and marketing                            |   | $                                  | 1,142  |   |   |   | 21.5 | % |   | $ | 1,138 |   |   |   | 20.9 | % |   |   | 0.4 | % |
| Customer operations and support                |   |                               | 789    |   |   |   | 14.8 | % |   |   | 809 |   |   |   | 14.9 | % |   |   | -2.5 | % |
| Software development and technical support (1) |   |                               | 322    |   |   |   | 6.0 | % |   |   | 547 |   |   |   | 10.1 | % |   |   | -41.1 | % |
| General and administrative                     |   |                               | 1,052  |   |   |   | 19.8 | % |   |   | 1,043 |   |   |   | 19.2 | % |   |   | 0.9 | % |
| Restructuring (2)                              |   |                               | -      |   |   |   | 0.0 | % |   |   | 76 |   |   |   | 1.4 | % |   |   | n/a |   |
| Depreciation and amortization (3)              |   |                               | 407    |   |   |   | 7.6 | % |   |   | 404 |   |   |   | 7.4 | % |   |   | 0.7 | % |
| Net operating expenses                         |   | $                                  | 3,712  |   |   |   | 69.7 | % |   | $ | 4,017 |   |   |   | 73.9 | % |   |   | -7.6 | % |

| (1) | Net of capitalized software development costs of $430 and $260 for the three months ended October 31, 2010 and 2009, respectively. |
|-----|------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Represents an adjustment to accrued rent related to the 2008 restructuring. |
|-----|-----------------------------------------------------------------------------|

| (3) | Exclusive of amortization of software products of $251 and $253 for the three months ended October 31, 2010 and 2009, respectively, which are included in cost of revenue. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

|                                                                                  |   | (Unaudited)                        |   |   |    |   |
|---------------------------------------------------------------------------------------|--------|------------------------------------|--------|--------|---------|--------|
|                                                                                  |   | Three months ended October 31 |   |   | Percent |   |
|                                                                                  |   | 2010                               |   |   | 2009    |   |   | Change |   |
|                                                                                  |   |                               |   |   |    |   |   |   | -100.0 | % |
| Total software development and technical support costs                                |   | $                                  | 1,039  |   |    | $      | 1,132 |   |   |   | -8.2 | % |
|                                                                                  |   |                               |   |   |    |   |   |   |   |   |   |   |
| Less: amount capitalized as software development                                      |   |                               | (430   | )      |    |   | (260 | ) |   |   | 65.4 | % |
| Less: direct labor classified as cost of revenues                                     |   |                               | (287   | )      |    |   | (325 | ) |   |   | -11.7 | % |
|                                                                                  |   |                               |   |   |    |   |   |   |   |   |   |   |
| Net software development and technical support costs classified as operating expenses |   | $                                  | 322    |   |    | $      | 547 |   |   |   | -41.1 | % |

----

Index

|                                                     |   | Three months ended October 31 |   |
|----------------------------------------------------------|--------|------------------------------------|--------|
|                                                     |   | 2010                               |   |   | 2009 |   |
| Net cash provided by operating activities                |   | $                                  | 526    |   |   | $ | (314 | ) |
| Net cash used in investing activities                    |   |                               | (549   | ) |   |   | (380 | ) |
| Net cash provided by (used in) financing activities      |   |                               | (54    | ) |   |   | 343 |   |
| Effect of foreign currency exchange rate changes on cash |   |                               | -      |   |   |   | (8 | ) |
| Net change in cash                                       |   | $                                  | (77    | ) |   | $ | (359 | ) |
|                                                     |   |                               |   |   |   |   |   |   |
| Cash at end of period                                    |   | $                                  | 861    |   |   | $ | 291 |   |

----

Index

Item 

Item 

----

Index

Item 

Item 

Item 

Item 

Item 

Item 

Item 

| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
|------|--------------------------------------------------------------------|

| 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
|------|--------------------------------------------------------------------|

| 32.1 | Section 1350 Certification of Chief Executive Officer. |
|------|--------------------------------------------------------|

| 32.2 | Section 1350 Certification of Chief Financial Officer. |
|------|--------------------------------------------------------|

----

Index

SIGNATURES

| ARI NETWORK SERVICES, INC. |
|----------------------------|
| (Registrant)               |
|                       |   |
| By:              | /s/ Roy W. Olivier |
|                       | Roy W. Olivier |
|                       | President and Chief Executive Officer |
|                       |   |
| By:              | /s/ Darin R. Janecek |
|                       | Darin R. Janecek |
|                       | Vice President of Finance and Chief Financial Officer |

----