<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

             For the fiscal year ended       Commission File Number
                   June 30, 1997                     0-21131


                        INTERNATIONAL NETWORK SERVICES
            (Exact name of registrant as specified in its charter)
                    California                        77-0289509
          (State or other jurisdiction of          (I.R.S. Employer
          incorporation or organization)          Identification No.)

                1213 Innsbruck Drive, Sunnyvale, CA      94089
              (Address of principal executive offices) (Zip Code)

      Registrant's telephone number, including area code: (408) 542-0100

       Securities registered pursuant to Section 12(b) of the Act: None
       Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, no par value per share
                               (Title of Class)

     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 12 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 90 days. Yes [X] No [_]


     Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

     As of September 8, 1997, there were 32,216,544 shares of the Registrant's
Common Stock outstanding and the aggregate market value of such shares held by
non-affiliates of the Registrant (based upon the closing sale price of such
shares on the Nasdaq National Market on September 8, 1997) was approximately
$365,939,595.00. Shares of Common Stock held by each executive officer and
director and by each entity that owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Certain sections of the Registrant's Annual Report to Shareholders for the
year ended June 30, 1997 (the "1997 Annual Report") are incorporated by
reference in Parts II and IV of this Form 10-K to the extent stated herein.
Also, certain sections of the Registrant's definitive Proxy Statement for the
1997 Annual Meeting of Shareholders to be held on October 30, 1997 are
incorporated by reference in Part III of this Form 10-K to the extent stated
herein.

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                    International Network Services Form 10-K
                     For the Fiscal Year Ended June 30, 1997

                                Table of Contents

Part I   

         Item    1. Business
         Item    2. Properties
         Item    3. Legal Proceedings
         Item    4. Submission of Matters to a Vote of Security Holders
                 
                 
Part II          
                 
         Item    5. Market for the Company's Common Stock and Related Share-
                    holder Matters
         Item    6. Selected Financial Data
         Item    7. Management's Discussion and Analysis of Financial Condition
                    and Results of Operations
         Item    8. Financial Statements and Supplementary Data
         Item    9. Changes in and Disagreements with Accountants on Accounting
                    and Financial Disclosure
         
Part III 
         
         Item    10. Directors and Executive Officers of INS
         Item    11. Executive Compensation
         Item    12. Security Ownership of Certain Beneficial Owners and 
                     Management
         Item    13. Certain Relationships and Related Transactions
         
Part IV  
         
         Item    14. Exhibits, Financial Statements Schedule, and Reports on 
                     Form 8-K
         
                     Exhibit Index
                     Signatures
                     Financial Statement Schedule

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PART I

ITEM 1. BUSINESS

       The following discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Predictions of future
events are inherently uncertain. Actual events could differ materially from
those predicted in the forward-looking statements as a result of the risks set
forth in the following discussion and, in particular, the risks discussed below
under the caption "Risk Factors that May Affect Operating Results."

     International Network Services ("INS" or the "Company") is a worldwide
provider of services for complex enterprise networks. The Company provides
services for the full life cycle of a network, including planning, design,
implementation, operations and optimization, and maintains expertise in the most
complex network technologies and multivendor environments. Areas of expertise
include wide area networks ("WANs"), network management, network and host
security and high performance local area networks ("LANs"), and virtual LANSs
("VLANs"). As a services only provider, the Company believes that it is able to
provide unbiased assessments and optimal solutions for its clients. The Company
offers its services on a long or short term basis in any or all phases of the
network life cycle. The Company's services are particularly well suited to
clients who out-task a portion of their information technology infrastructure.
The Company has developed an on-line solutions resource, Knowledge Network,
through which the Company's network systems engineers communicate and
collaborate to provide solutions to clients' complex enterprise network needs.
The Company is leveraging its expertise in complex networks to develop
electronic services for certain repetitive network management tasks, such as
network monitoring and network performance reporting. The Company's current
electronic service, EnterprisePROSM, is designed to collect data, generate
reports and compile network information for use in the optimization of networks.
The Company serves its clients, many of which have multi-location enterprise
networks, through its network of 27 offices. As of June 30, 1997, the Company
employed 813 persons, including 651 network systems engineers and managers.


Background

     The ability of businesses to exchange information both internally and
externally is a competitive advantage in many industries. To exchange
information, many businesses are increasingly using client/server based
applications, e-mail, remote access by mobile workers, the Internet, corporate
Intranets, video, graphics and audio. The amount of data generated by these
applications combined with the larger number of users connected to networks, has
increased traffic and placed higher demand on networks. In this environment,
companies that have the most responsive and reliable information systems
networks will have a competitive advantage.

     As network traffic has grown, the technology underlying networks has become
increasingly complex. Network hardware and software companies are rapidly
developing sophisticated new technologies such as routers, inverse multiplexers,
switches, asynchronous transfer mode ("ATM") and VLANs to accommodate the
increase in data traffic. The implementation of these technologies requires
significant expertise. In addition, the complexity of networks is magnified by
the need to integrate these new technologies with legacy network systems. As a
result, it is increasingly difficult for network managers to ensure the
reliability, performance and security of these large, heterogeneous networks.
Furthermore, the tools available to manage today's networks are themselves very
complex and require investments in hardware, software, personnel and training.

      Although companies have attempted to develop the necessary expertise, this
rapid technological change and increasing complexity have made it difficult for
companies to implement and manage their large multivendor network environments.
In addition, to remain competitive, companies are increasingly focused 

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on their core business competencies and often turn to third-party service
providers for non-core functions, such as those related to their computing
environments. While some companies "out-source" their entire computing
environment, an increasing number of companies are pursuing an approach to more
actively manage their computing environments by "selectively out-sourcing" or
"out-tasking" only a limited set of services. The rapid technological changes in
networking and the move to out-tasking have created increased demand for
third-party network services.

     To date, it has been difficult for businesses to find adequate third-party
solutions for their complex network services needs. Although there are many
suppliers of network services, few focus on services for complex multivendor
networks. For example, some computer systems and network equipment vendors
provide services; however, they focus on distributing their own products and
often lack the skills to implement solutions in multivendor environments.
Systems integrators and value added resellers ("VARs") have historically focused
on legacy computing environments and often do not have sufficient expertise in
distributed client/server network environments. Telecommunications providers are
often called upon to provide complex multivendor data network services as part
of total communication solutions; however, they often do not have adequate or
available expertise and therefore often look to other third-party service
providers for complex network services.


INS Solution

     INS is a provider of services for complex enterprise networks. The Company
provides services for the full life cycle of a network, including planning,
design, implementation, operations and optimization, and maintains expertise in
the most complex network technologies and multivendor environments. As a
services-only provider, the Company believes that it is able to provide unbiased
assessments and optimal solutions for its clients. In addition, the Company
provides a focused, flexible approach to assisting clients in any or all phases
of the network life cycle. The Company's services are particularly well suited
to out-tasking. The Company has developed an on-line solutions resource,
Knowledge Network, through which the Company's network systems engineers
communicate and collaborate to provide solutions to clients' complex enterprise
network needs. In addition to professional services, the Company is developing
electronic services that provide clients with cost-effective solutions for
repetitive network management tasks. The Company's current electronic service,
EnterprisePRO, is designed to collect data, generate reports and compile network
information for use in the optimization of networks. The Company serves its
clients, many of which have multi-location enterprise networks, through its
network of 27 offices.


Strategy

     The Company's objective is to become the premier provider of services for
complex enterprise networks. To achieve its objective, the Company is pursuing
the following strategies:

     Build and Strengthen Client Relationships. The Company believes that
delivering dependable, high-quality network services is critical to
strengthening its relationships with existing clients, gaining repeat business
and generating new business from referrals. The Company seeks to establish
long-term relationships with its clients by becoming an integral part of their
network operations. The Company also plans to continue to build and strengthen
relationships with hardware and software vendors, system integrators and
telecommunications providers to assist them in providing total networking
solutions to their customers.

     Expand Client Base in Existing and New Markets. The Company's strategy is
to expand its presence in the geographic markets it currently serves and to
enter new markets where it views the opportunity as attractive. The Company
currently offers its services through a network of offices throughout the United
States. The Company believes that a broad presence will strengthen its
competitive position within the network services market and enable it to better
service its clients and enter new markets in the United States and
internationally.

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     Attract and Retain High Quality Network Systems Engineers. The Company
believes that its network systems engineers are critical to its success. The
Company's strategy is to continue to attract and retain the most qualified
network systems engineers by providing a rich environment and culture and by
offering professional development and financial opportunities. The Company
generally recruits network systems engineers that have significant technical
expertise and offers them professional training as well as the opportunity to
accelerate their career development by working on difficult problems and
collaborating with other network systems engineers to implement sophisticated
technology in complex enterprise networks. The Company promotes its corporate
culture with stated values that encourage employees to be their best, work as a
team and continually learn. The Company intends to continue to build its
worldwide recruiting organization and to invest heavily in training and
development.

     Develop and Expand Corporate Infrastructure. The Company believes that its
corporate infrastructure provides it with a competitive advantage in delivering
services while enabling it to expand its operations. This infrastructure
includes functions, such as recruiting, training and professional development,
collaboration tools, such as Knowledge Network, and management information
systems to give management the information necessary to make timely and accurate
decisions. The Company believes that by continuing to develop and refine its
employee recruiting and training infrastructure, strengthening its operational
management reporting systems and controls, and expanding its information
resources, it will be well-positioned to deliver high quality network services
and support any growth in its operations.

     Expand Electronic Services. The Company intends to leverage its expertise
in complex networks by developing electronic services for certain repetitive
network management tasks, such as network monitoring and network performance
reporting. In addition to the potential of revenue from service and license
fees, electronic services are designed to build and maintain client
relationships and provide opportunities for additional professional services.
The Company introduced EnterprisePRO, its current electronic service, in July
1996.

     Pursue Strategic Acquisitions. The Company intends to research, and if
appropriate, pursue acquisitions some of which may include expanding within
existing markets, entering new markets, increasing the range of services, adding
industry and technical expertise, and/or acquiring technology that can be used
in electronic services.

     No assurance can be given that the Company will be able to implement its
strategy or achieve its objectives. See "Risk Factors That May Affect Operating
Results."


Services

     The Company provides professional services and technology expertise for
all phases of the network life cycle and provides an electronic service for
routine network management tasks.


   Professional Services

     The Company had 651 network systems engineers engaged in providing
services for complex enterprise networks as of June 30, 1997. The Company has
both the breadth of expertise required to support the full life cycle of a
network, which includes planning, design, implementation, operations and
optimization, and the depth of expertise required to address complex and rapidly
changing technology. The Company offers its services on a long- or short-term
basis in any or all phases of the network life cycle. The Company's services
maximize flexibility in meeting customer requirements, offer added value, and
can be clearly described and presented.

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     In order to meet the challenge of providing consistent, quality service,
the Company staffs each project with a complement of network systems engineers
with requisite technical and management experience. The Company works with the
client to create a plan that defines what will be delivered as well as how
success or completion will be measured. To encourage quality assurance the
Company involves the service management team in all aspects of delivery and also
coordinates content reviews and progress reviews. Further, the Company uses
Knowledge Network to bring the expertise and experience of many talented network
systems engineers to bear on an assignment.

     The Company's services are provided either as discrete projects or as part
of ongoing relationships. Project content and scope range from simple
task-oriented engineering and value-added implementation efforts to large-scale
programs involving multiple resources across several client locations. The
Company generates revenue from its professional services on a time and expenses
basis; however, some projects with well-defined content may be delivered on a
fixed-price basis. The success of the Company's business will depend on the
Company's ability to fulfill the increasingly sophisticated needs of its
clients. The Company's clients are generally able to reduce or cancel their use
of the Company's services without penalty and with little or no notice. See
"Risk Factors That May Affect Operating Results, --Absence of Long-Term
Agreements" and "--Risks Associated With Electronic Services."

   Network Life Cycle Services

     The Company provides services for any or all phases of the network life
cycle, which includes planning, design, implementation, operations and
optimization.

     Network Planning. The network planning phase of the network life cycle
focuses on providing clients with strategic and tactical reviews of their
current network operations and future network requirements. Network planning
services encompass a number of critical planning elements:

     . Defining client business requirements
       
     . Developing strategic information architectures
       
     . Performing network baseline audits
       
     . Preparing capacity plans for the physical network, logical transport and
       services
       
     . Selecting preferred technology
       
     . Conducting network security audits and planning

     Network Design. The network design phase includes services that assist in
the design of physical, logical and operational information infrastructures.
These services involve detailing the network specifications and implementation
tactics necessary to achieve clients' business objectives. The Company generates
a set of working papers that identify the specific technologies to be used and
how these technologies will be configured and implemented. These services also
take into consideration how the new technology will integrate into the client's
existing hardware and software and how it will be managed on an ongoing basis.
Examples of services provided by the Company in the network design phase
include:

     . Defining functional requirements
       
     . Developing multivendor integration plans
       
     . Preparing technical design documentation
       
     . Developing engineering specifications and documents

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     . Preparing Request for Proposal specifications or other make/buy criteria

     . Providing detailed component purchasing lists

     Network Implementation. The network implementation phase includes high
value-added network services, such as internet protocal addressing and router
configuration, and, to a much lesser extent, traditional system integrator
functions, such as hardware installation. The Company believes it has expertise
in integrating new systems without disrupting ongoing business operations,
thereby adding value and reducing risk to clients. The Company customizes an
implementation plan for each client, which may include the following activities:

     . Project management

     . Integrating new hardware and software products and systems
       
     . Building network operations and management centers
       
     . Re-configuring and upgrading network elements, systems and facilities
       
     . Implementing installation documentation, conformance testing and 
       compliance certification

     Network Operations. The network operations phase includes ongoing tasks
necessary to keep the client's network fully operational. The Company has
experience in delivering operations services to a range of clients, including
those with newer client/server networks running both Internet (TCP/IP) and
workgroup (Novell and Microsoft) protocols intermingled with legacy (SNA)
networks. Specific operations activities are delivered according to individual
client requirements drawing from a well-understood set of operating practices.
Examples of these practices include:

     . Network administration, including management of user accounts, service
       levels, and client administrative or accounting practices
       
     . Network utilization analysis, involving ongoing measurement of network
       activity against established network baselines
       
     . Ongoing management of documentation, including physical assets, logical 
       topologies, policies and procedures
       
     . Network troubleshooting, involving fault detection, isolation, repair and
       restoration
       
     . Alarm management including setting of alarm levels, cross-correlation,
       problem diagnosis and dispatch of service resources
       
     . Network backup, including design and supervision of backup processes and
       policies, and exercise of disaster recovery procedures
       
     . Routine moves, additions, and changes to network elements, infrastructure
       and services

     Network Optimization. The network optimization phase involves maximizing
the rate of return of enterprise network investments on behalf of the client by
such methods as reducing operating costs and increasing network utilization.
Although optimization may be viewed as a separate stage of the network life
cycle, optimization is closely linked with the other phases of the network life
cycle. Optimization services can be long-term in nature, address issues such as
cost containment and utilization, and are often aimed at optimizing LAN
infrastructure. These services can also be packaged as discrete projects,
designed to present alternatives for optimization of workgroup, departmental,
building, or campus network investments. 

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Finally, the Company can assist in optimizing "logical" networks, wherein the
Company addresses a protocol, service or application operating in the larger
context of the client's enterprise network. Examples of the Company's network
optimization services include:

     . Recommendations for efficient allocation of bandwidth

     . Network traffic analysis, identification of bottlenecks and 
       recommendations for change

     . Network process re-engineering

     . Knowledge transfer to client operations personnel on topics, such as
       basic practices, or operation of network management tools and stations


   Technology Expertise

     The Company has developed expertise in a number of areas, including WANs,
network management, network and host security, high performance LANs and VLANs.

     Wide Area Networks. Wide area network design and optimization has special
value in multi-protocol, multi-vendor enterprise network environments. The
Company has substantial expertise in the design and optimization of shared
transport TCP/IP and SNA networks, including emerging and legacy networking
disciplines that span more than 20 years of network technology. Subject matter
expertise includes commercial transport technologies (frame relay, ATM, T1/T3
leased lines with HDLC, SONET, SMDS, ISDN, and X.25), interior and exterior
routing protocols (IGRP, EIGRP, CIDR, BGP-4, OSPF, RIP, and RIPv2), and commonly
used network protocols (TCP/IP, SNA, IPX, Apple, DECnet, VINES).

     Network Management. Network management practices include design and
implementation of network operations/management centers, design of distributed
network management systems, selection, installation, and integration of network
management platforms and integration with alarm managers, trouble ticket systems
and "manager of managers" tools. Subject matter expertise includes SNMP, SNMPv2,
RMON, RMON-II, HPOV, Optivity, Netview 6000, SunNet Manager, Spectrum, Seagate
NerveCenter, Remedy ARS and broad-based skills in network management concepts
and functions (fault, performance, configuration, accounting, security).

     Network and Host Security. Network and host security practices include
research and documentation of security policies, selection and installation of
Internet and Intranet firewalls, secure remote access solutions, identification
and installation of various security tools, audits of server and workstation
security, and training of clients on security topics. Subject matter expertise
includes firewall design, remote access design, authentication, server, host,
and workstation industry best practices, new security protocols (S/WAN, SHTTP,
SSL), cryptography and encryption, and high performance secure platforms.

     High Performance Local Area Networks and Virtual Local Area Networks.
Consulting on design and implementation of high-performance LANs and VLANs
requires maintaining state of the art expertise on a broad array of topics. The
Company has expertise in switching technology and products, performance tuning,
ATM technology and applications, ATM migration, full-duplex LANs, and other high
speed LAN components.


   Electronic Services

     The Company is leveraging its expertise in complex networks to develop
electronic services for certain repetitive network management tasks, such as
network monitoring and network performance reporting. The Company's current
electronic service, EnterprisePRO, is designed to collect data, generate reports
and compile network information for use in the optimization of networks.
EnterprisePRO enables clients to 

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obtain important network trending data without investing in costly network
performance hardware and software or devoting valuable staff time. The Company
believes that EnterprisePRO can reduce network administration costs, improve
operating efficiencies and provide a better perspective on network performance.

     EnterprisePRO is designed to be a "turn-key" service for network
performance reporting and analysis. The service includes continuous monitoring
of device availability and network capacity, daily performance data back up, and
11 daily quality checks customized to clients' networks. The Company installs
the EnterprisePRO server at the client site and connects it to the INS
operations center at the Company's headquarters. The EnterprisePRO server
software provides a proprietary network data collection system and an intuitive
Web-based user interface. A single server polls each device every five minutes
and can monitor up to 10,000 network interfaces. The Web-based interface
provides customizable network views that allow clients to do network diagnosis,
interactive decision support, and management information for fact-based network
architecture and upgrade planning. EnterprisePRO reports include utilization
statistics for frame relay, WAN, LAN and router CPU, ethernet Hubs device
uptime, and RMON and ROMON 2 statistics, including top transmitters and protocol
distribution. The INS operations center includes additional proprietary
software. The EnterprisePRO server automatically connects to the operations
center by modem and downloads the data. Operations center personnel back up the
data and view generated exception reports to do daily quality checks and provide
client support. The operations center also prints summary reports that are sent
to clients on a weekly basis and performs updates to client configurations,
troubleshooting of EnterprisePRO servers and updates EnterprisePRO service via a
software push delivery model.

     EnterprisePRO was introduced in July 1996. The Company generally receives
a one-time installation fee and a service and/or license fee that varies with
the size of the network being monitored.

     The Company has in the past offered on a limited basis an electronic
service that has not achieved significant market acceptance or generated
significant revenue. EnterprisePRO is an enhanced version of the prior service.
No assurance can be given that EnterprisePRO, or any other electronic service
that the Company may develop in the future, will achieve market acceptance on a
timely basis, or at all. Sales of EnterprisePRO were not significant in fiscal
1997.

     The Company believes that its professional services and electronic services
complement one another. The cumulative expertise of the Company's professional
services staff provides valuable information upon which electronic services may
be based. Electronic services are designed to build and maintain client
relationships and provide opportunities for additional professional services.

Knowledge Network

     Knowledge Network is the Company's on-line solutions resource. Knowledge
Network combines the Company's proprietary information stored in a document
management system, a library of industry and manufacturer product information
and specifications, periodicals, databases and CDs from vendors providing
additional technical support, and a means by which the Company's network systems
engineers can communicate and collaborate in resolving clients' complex
enterprise network issues. Network problems encountered by INS network systems
engineers and the ultimate solutions are catalogued and stored on a confidential
central database for use by INS network systems engineers and management only.
INS network systems engineers are able to query the Knowledge Network for
precedents, conversation threads and other possible solutions for difficult
network issues and can send e-mail through the Knowledge Network to other INS
network systems engineers for assistance in resolving these issues. Knowledge
Network enables the Company to leverage the collective talents and experience of
network experts in the organization to provide clients with proven and
cost-effective solutions to their network services needs. The Company believes
that the Knowledge Network provides it with a competitive advantage over other
network services providers.

Clients

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The Company performs professional services for a variety of clients across a
broad range of industries. The Company has derived a significant portion of its
revenue from a limited number of large clients and expects this concentration to
continue. No one client accounted for more than 10% of revenue in fiscal 1997.
MCI Communications Corporation, ("MCI") accounted for approximately $7.5
million, or 17.0%, of the Company's revenue in fiscal 1996. No other client
accounted for more than 10% of the Company's revenue in fiscal 1996.. See "Risk
Factors That May Affect Operating Results--Risks Associated with Client
Concentration" and "--Absence of Long-Term Agreements."


Sales and Marketing

     The Company employs account managers who identify and sell to clients and
manage client relationships. Many members of the Company's account management
team have significant experience selling complex network and computer products
and services. The Company also has a marketing group which provides sales
support materials and marketing communications. Account managers generally
identify clients through direct marketing and referrals. The Company employs a
team selling approach, whereby account managers collaborate with field and
technical managers and network systems engineers to assess potential projects
and communicate the specific expertise of the Company's consultants to potential
clients. In addition to other marketing strategies, the Company believes that
delivering dependable, high-quality services is critical to strengthening its
relationships with existing clients, gaining repeat business and generating new
business from referrals. The Company seeks to establish long-term relationships
with its clients by becoming an integral part of their network operations.

     The Company markets its professional services directly to large end-user
clients who have chosen to out-task network services, and indirectly through
third parties, including large telecommunications carriers, systems integrators,
hardware and software vendors, and VARs. In addition, the Company has developed
a significant relationship with Cisco Systems, Inc., ("Cisco") pursuant to which
the Company has entered into direct relationships with clients as a result of
referrals from Cisco and has from time to time performed pre-sales and
post-sales support services for Cisco, including as a subcontractor. The Company
believes that maintaining and enhancing its relationship with Cisco is important
to the Company's business due to Cisco's leading position in the large scale,
enterprise internetworking market. Cisco develops, manufactures, markets and
supports high-performance, multiprotocol internetworking systems that link
geographically dispersed LANs and WANs. Although the Company believes that its
relationship with Cisco is good, there can be no assurance that the Company will
be able to maintain or enhance its relationship with Cisco. Any deterioration in
the Company's relationship with Cisco could have a material adverse effect on
the Company's business, operating results and financial condition. Furthermore,
although the Company has a relationship with Cisco, the Company is an
independent provider of network services and seeks to provide the best solution
for its clients regardless of network platform or vendor. Therefore, should the
Company's relationship with Cisco be perceived as compromising the Company's
ability to provide unbiased solutions, the Company's relationship with existing
or potential clients could be materially adversely affected.

     The Company's current electronic service, EnterprisePRO, is marketed
through the Company's account managers and through resellers and OEMs.
EnterprisePRO resellers will identify potential clients and negotiate the
services contracts and are responsible for installation and first level support
of the client installation. The Company provides the back office automation and
service to the client. The success of these contracts will depend in part on the
level of commitment and effort of these resellers. Electronic services may be
sold under the Company's name or under a private label of the reseller. Sales of
EnterprisePRO were not significant in fiscal 1997.

     The Company's clients are generally able to reduce or cancel their use of
the Company's services without penalty and with little or no notice. As a
result, the Company believes that the number and size of its existing projects
are not reliable indicators or measures of future revenue. The Company has in
the past provided, and is likely in the future to provide, services to clients
without a written commitment or contract. When a client defers, modifies or
cancels a project, the Company must be able to rapidly redeploy network systems
engineers to other projects in order to minimize the underutilization of
employees and the resulting 

                                       10
<PAGE>
 
adverse impact on operating results. In addition, the Company's operating
expenses are relatively fixed and cannot be reduced on short notice to
compensate for unanticipated variations in the number or size of projects in
progress. As a result, any termination, significant reduction or modification of
its business relationships with any of its significant clients or with a number
of smaller clients could have a material adverse effect on the Company's
business, operating results and financial condition.


Human Resources

     The Company believes that its success in recruiting and retaining
experienced, highly-qualified and highly-motivated personnel will depend in part
on its ability to provide a rich environment and culture and to offer
professional development and financial opportunities. As of June 30, 1997, the
Company employed 813 persons, including 651 network systems engineers and
managers.

     Recruiting. The success of the Company is dependent in part on attracting
and retaining talented, creative and motivated personnel at all levels. The
Company dedicates significant resources to its recruiting efforts. The Company
generally seeks to meet its hiring needs through referrals from existing INS
employees, through a nationwide network of recruiters and through the new
college graduate program. The Company's network systems engineers together have
expertise in a wide array of computer and network systems of the Company's
clients and a broad understanding of the industries in which the Company's
clients are involved.

     Corporate Culture. The Company believes that developing a rich environment
and culture is critical to its success in achieving its mission of becoming the
premier provider of services for complex enterprise networks. The Company
actively fosters a set of basic values which were developed by its employees.
These values include a dedication to being the best, respecting others and
working as a team, continuous learning and development, trustworthiness and
empowerment. The Company encourages employees to use these values in daily
decision making and balance the interests of clients, shareholders and employees
to maximize long-term Company value. The Company believes that its growth and
success are attributable in large part to its high-caliber employees and the
Company's adherence to these values.

     Professional Development. Professional development includes career
opportunities and on-the-job challenges, as well as training programs. The
Company has two career tracks for consultants, a technical track and a
management track. The Company has established a training program, called INS
University, which includes national and local consultative approach workshops,
collaboration workshops, new management training and technical training. In
support of its INS University curriculum, the Company offers advanced training
through on-site simulation labs and numerous computer-based training modules. In
addition, Knowledge Network serves as an additional training and information
resource. The Company's personnel keep apprised of technological advances and
developments through a combination of on-the-job exposure to relevant
technology, special training programs, peer review and discussions, and
supervision by seasoned technical personnel.

     Compensation. The Company believes that by linking employee compensation to
the success of the Company through its incentive compensation programs, the
Company encourages an owner attitude which the Company believes results in
decisions that maximize Company value and employee retention. The Company's
compensation package consists of a combination of salary, performance-based
incentive compensation, stock options and benefit plans.

     The Company's success will depend in part on the continued services of its
key employees. The Company does not have employment or non-competition
agreements with any of its key or other employees. The loss of services of one
or more of the Company's key employees could have a material adverse effect on
the Company's business, operating results and financial condition. In addition,
if one or more key employees joins a competitor or forms a competing company,
the loss of such employees and any resulting loss of existing or potential
clients to any such competitor could have a material adverse effect on the

                                       11
<PAGE>
 
Company's business, operating results and financial condition. In the event of
the loss of any such employee, there can be no assurance that the Company would
be able to prevent the unauthorized disclosure or use of the Company's or its
clients' technical knowledge, practice or procedures by such personnel or that
such disclosure or use would not have a material adverse effect on the Company's
business, operating results and financial condition.

      The Company's future success will also depend in large part on its ability
to hire, train and retain network systems engineers who together have expertise
in a wide array of the network and computer systems and a broad understanding of
the industries the Company serves. Competition for network systems engineers is
intense, and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. In particular, competition is intense
for the limited number of qualified managers and senior network systems
engineers. The Company has experienced and may in the future experience high
rates of turnover among its network systems engineers. Any inability of the
Company to hire, train and retain a sufficient number of qualified network
systems engineers could impair the Company's ability to adequately manage and
complete its existing projects or to obtain new projects, which, in turn, could
have a material adverse effect on the Company's business, operating results and
financial condition. In addition, any inability of the Company to attract and
retain a sufficient number of qualified network systems engineers in the future
could impair the Company's planned expansion of its business.

Competition

      The network services industry is comprised of a large number of
participants and is subject to rapid change and intense competition. The Company
faces competition from system integrators, VARs, local and regional network
services firms, telecommunications providers, network equipment vendors,
software vendors and computer systems vendors, many of which have significantly
greater financial, technical and marketing resources and greater name
recognition and generate greater service revenue than does the Company. The
Company has faced, and expects to continue to face, additional competition from
new entrants into its markets. Increased competition could result in price
reductions, fewer client projects, underutilization of employees, reduced
operating margins and loss of market share, any of which could materially
adversely affect the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current or future competitors. The failure of the Company
to compete successfully would have a material adverse effect on the Company's
business, operating results and financial condition.

      In addition, most of the Company's clients have internal network support
services capabilities and could choose to satisfy their needs through internal
resources rather than through outside service providers. As a result, the
decision by the Company's clients or potential clients to perform network
services internally could have a material adverse effect on the Company's
business, operating results and financial condition.

      The Company believes that the principal competitive factors in the market
in which it competes include the nature of the services offered, quality of
service, client responsiveness, marketing, management, corporate culture, client
relationships, knowledge base, infrastructure and price. The Company believes it
competes favorably with respect to these factors. The Company believes that its
focus, depth and breadth of expertise and experience, infrastructure and
management distinguish it from its competitors.

Intellectual Property

      The Company's success is dependent in part on its information technology,
some of which is proprietary to the Company, and other intellectual property
rights. The Company relies on a combination of nondisclosure and other
contractual arrangements, technical measures, and trade secret and trademark
laws to protect its proprietary rights. The Company has one patent application
pending and holds one registered trademark. The Company enters into
confidentiality agreements with its employees and attempts to limit access to
and distribution of proprietary information. There can be no assurance that the
steps taken by the Company in this regard will be adequate to deter
misappropriation of proprietary information or that the 

                                      12
<PAGE>
 
Company will be able to detect unauthorized use or take appropriate steps to
enforce intellectual property rights. The Company has in the past entered into
services contracts with clients that assign rights to certain aspects of the
work performed under such contracts to such clients. The Company does not
believe that such contracts will limit the Company's ability to render its
services to other clients. However, there can be no assurance that the Company
will not receive communications in the future from third parties or clients
asserting that the Company has infringed or misappropriated the proprietary
rights of such parties. Any such claims, with or without merit, could be time
consuming, result in costly litigation and diversion of technical and management
personnel or require the Company to develop non-infringing technology or enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all. In
the event of a successful claim of infringement or misappropriation against the
Company and failure or inability of the Company to develop non-infringing
technology or license the infringed, misappropriated, or similar technology, the
Company's business, operating results and financial condition could be
materially adversely affected.

RISK FACTORS THAT MAY AFFECT OPERATING RESULTS

         The following risk factors could materially and adversely affect the
Company's future operating results and could cause actual events to differ
materially from those predicted in the Company's forward-looking statements
related to its business.

         Variability of Quarterly Operating Results. Substantially all of the
Company's revenue is derived from professional services, which are generally
provided on a "time and expenses" basis. Professional services revenue is
recognized only when network systems engineers are engaged on client projects.
In addition, a substantial majority of the Company's operating expenses,
particularly personnel and related costs, depreciation and rent, are relatively
fixed in advance of any particular quarter. As a result, any underutilization of
network systems engineers may cause significant variations in operating results
in any particular quarter and could result in losses for such quarter. Factors
which could cause such underutilization include: the reduction in size, delay in
commencement, interruption or termination of one or more significant projects;
the completion during a quarter of one or more significant projects; the
overestimation of resources required to complete new or ongoing projects; and
the timing and extent of training, weather related shut-downs, vacation days and
holidays. The Company's revenue and earnings may also fluctuate from quarter to
quarter based on a variety of factors including the loss of key employees,
reductions in billing rates, write-offs of billings, or services performed at no
charge as a result of the Company's failure to meet its clients' expectations,
claims by the Company's clients for the actions of the Company's employees
arising from damages to clients' business or otherwise, competition, timing of
employment taxes, the initial or ongoing market acceptance of EnterprisePRO
including the timing and size of orders (see "Risks Associated with Electronic
Services"), the development and introduction of new services and general
economic conditions. In addition, the Company plans to continue to expand its
operations by hiring additional network systems engineers and other employees,
and adding new offices, systems and other infrastructure. The resulting increase
in operating expenses would have a material adverse effect on the Company's
operating results if revenue were not to increase to support such expenses.
Based upon all of the foregoing, the Company believes that quarterly revenue and
operating results are likely to vary significantly in the future and that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied on as indications of future performance.
Furthermore, it is likely that in some future quarter the Company's revenue or
operating results will be below the expectations of public market analysts or
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected.

         Risks Associated with Client Concentration. The Company has
historically derived a significant portion of its revenue from a limited number
of large clients and expects this concentration to continue. No one client
accounted for more than 10% of the Company's revenue in fiscal 1997. MCI
accounted for approximately $7.5 million, or 17.0%, of the Company's revenue in
fiscal 1996. There can be no assurance that revenue from MCI or other clients
that have accounted for significant revenue in 

                                      13
<PAGE>
 
past periods, individually or as a group, will continue, or if continued will
reach or exceed historical levels in any future period. The Company does not
have a long-term services contract with any of its clients. Any significant
reduction in the scope of the work performed for any significant client or a
number of smaller clients, the failure of anticipated projects to materialize,
or deferrals, modifications or cancellations of ongoing projects by any of these
clients could have a material adverse effect on the Company's business,
operating results and financial condition.

           Need to Attract and Retain Qualified Network Systems Engineers. The
Company's future success will depend in large part on its ability to hire, train
and retain network systems engineers who together have expertise in a wide array
of network and computer systems and a broad understanding of the industries the
Company serves. Competition for network systems engineers is intense, and there
can be no assurance that the Company will be successful in attracting and
retaining such personnel. In particular, competition is intense for the limited
number of qualified managers and senior network systems engineers. The Company
has experienced, and may in the future experience, high rates of turnover among
its network systems engineers. Any inability of the Company to hire, train and
retain a sufficient number of qualified network systems engineers could impair
the Company's ability to adequately manage and complete its existing projects or
to obtain new projects, which, in turn, could have a material adverse effect on
the Company's business, operating results and financial condition. The Company
has experienced, and may in the future experience, increasing compensation costs
for its network systems engineers. Any inability of the Company to recover
increases in compensation of network systems engineers through higher billing
rates or to reduce other expenses to offset such increases, could have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, any inability of the Company to attract and
retain a sufficient number of qualified network systems engineers in the future
could impair the Company's planned expansion of its business.

           Management of Growth. The Company has experienced rapid revenue and
client growth and an increase in the number of its employees and offices and the
scope of its supporting infrastructure. The Company does not believe these rates
of growth are sustainable. This growth has resulted in new and increased
responsibilities for management personnel and has placed and continues to place
a significant strain on the Company's management and operating and financial
systems. The Company will be required to continue to implement and improve its
systems on a timely basis and in such a manner as is necessary to accommodate
the increased number of transactions and clients and the increased size of the
Company's operations. There can be no assurance that the Company's management or
systems will be adequate to support the Company's existing or future operations.
Any failure to implement and improve the Company's systems or to hire and retain
the appropriate personnel to manage its operations would have a material adverse
effect on the Company's business, operating results and financial condition.

           Absence of Long-Term Agreements. The Company's clients are generally
able to reduce or cancel their use of the Company's professional services
without penalty and with little or no notice. As a result, the Company believes
that the number and size of its existing projects are not reliable indicators or
measures of future revenue. The Company has in the past provided, and is likely
in the future to provide, services to clients without a long-term agreement.
When a client defers, modifies or cancels a project, the Company must be able to
rapidly redeploy network systems engineers to other projects in order to
minimize the underutilization of employees and the resulting adverse impact on
operating results. In addition, the Company's operating expenses are relatively
fixed and cannot be reduced on short notice to compensate for unanticipated
variations in the number or size of projects in progress. As a result, any
termination, significant reduction or modification of its business relationships
with any of its significant clients or with a number of smaller clients could
have a material adverse effect on the Company's business, operating results and
financial condition.

           Intense Competition. The network services industry is comprised of a
large number of participants and is subject to rapid change and intense
competition. The Company faces competition from system integrators, VARS, local
and regional network services firms, telecommunications providers, network
equipment vendors, software vendors and computer systems vendors, many of which
have significantly 

                                      14
<PAGE>
 
greater financial, technical and marketing resources and greater name
recognition, and generate greater service revenue than does the Company. The
Company has faced, and expects to continue to face, additional competition from
new entrants into its markets. Increased competition could result in price
reductions, fewer client projects, underutilization of employees, reduced
operating margins and loss of market share, any of which could materially
adversely affect the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current or future competitors. The failure of the Company
to compete successfully would have a material adverse effect on the Company's
business, operating results and financial condition.

           Risks Associated With Potential Acquisitions. As part of its business
strategy, the Company may make acquisitions of, or significant investments in,
complementary companies, products or technologies. Any such future transactions
would be accompanied by the risks commonly encountered in making acquisitions of
companies, products and technologies. Such risks include, among others, the
difficulty associated with assimilating the personnel and operations of acquired
companies, the potential disruption of the Company's ongoing business, the
distraction of management and other resources, the inability of management to
maximize the financial and strategic position of the Company through the
successful integration of acquired personnel, technology and rights, the
maintenance of uniform standards, controls, procedures and policies, and the
impairment of relationships with employees and clients as a result of the
integration of new management personnel. There can be no assurance that the
Company will be successful in overcoming these risks or any other problems
encountered in connection with any such acquisitions.

           Risks Associated With Potential International Expansion. A component
of the Company's long-term strategy is to expand into international markets. If
the Company opens any international offices and the revenue generated by these
offices are not adequate to offset the expense of establishing and maintaining
these foreign operations, the Company's business, operating results and
financial condition could be materially adversely affected. The Company intends
to open its first international office in fiscal 1998, however, there can be no
assurance that the Company will be able to do so on a timely basis, or at all.
To date, the Company has provided limited professional services to certain of
its United States based clients in foreign locations. There can be no assurance
that the Company will be able to successfully market, sell and deliver its
services in these markets. In addition to the uncertainty as to the Company's
ability to expand into international markets, there are certain risks inherent
in conducting business on an international level, such as unexpected changes in
regulatory requirements, export restrictions, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, employment laws and
practices in foreign countries, longer payment cycles, problems in collecting
accounts receivable, political instability, fluctuations in currency exchange
rates, imposition of currency exchange controls, seasonal reductions in business
activity during the summer months in Europe and certain other parts of the
world, and potentially adverse tax consequences, any of which could adversely
impact the success of the Company's international operations. There can be no
assurance that one or more of these factors will not have a material adverse
effect on the Company's future international operations and, consequently, on
the Company's business, operating results and financial condition. There can be
no assurance that the Company will be able to compete effectively in these
markets.

Relationship with Cisco Systems. Although the Company is a vendor-independent
provider of network services, the Company has a significant relationship with
Cisco and believes that maintaining and enhancing this relationship is important
to the Company's business due to Cisco's leading position in the large scale,
enterprise internetworking market. Cisco develops, manufactures, markets and
supports high-performance, multiprotocol internetworking systems that link
geographically dispersed LANs and WANs. The Company has entered into direct
relationships with clients as a result of referrals from Cisco and has from time
to time performed pre-sales and post-sales support services for Cisco. In
addition, Cisco is a shareholder of the Company and an employee of Cisco is a
member of the Company's Board of Directors. Although the Company believes that
its relationship with Cisco is good, there can be no assurance that the Company
will be able to maintain or enhance its relationship with Cisco. Any
deterioration in the Company's relationship with Cisco could have a material
adverse effect on the 

                                      15
<PAGE>
 
Company's business, operating results and financial condition. In addition,
should the Company's relationship with Cisco be perceived as compromising the
Company's ability to provide unbiased solutions, the Company's relationship with
existing or potential clients could be materially adversely affected.

Risks Associated with Electronic Services. The Company's long-term strategy is
to derive a portion of its revenue from electronic services, although such
revenue has not been significant to date. The Company has in the past offered,
on a limited basis, an electronic service that has not achieved significant
market acceptance or generated significant revenue. The Company has expended,
and expects to continue to expend, substantial amounts in the development and
marketing of its electronic services. EnterprisePRO and any other electronic
services that the Company may develop in the future will be subject to risks
generally associated with new service introductions, including delays in
development, testing or introduction, or the failure to satisfy clients'
requirements. There can be no assurance that EnterprisePRO will gain market
acceptance on a timely basis or at all. The failure of EnterprisePRO, or any
other new electronic services that the Company may develop, to gain market
acceptance on a timely basis could have a material adverse effect on the
Company's business, operating results and financial condition.

ITEM 2.   PROPERTIES

      The Company's principal administrative, sales, marketing and service
development facilities are located in an approximately 31,000 square foot
building in Sunnyvale, California pursuant to a lease which expires in 2001. In
addition, the Company leases field support offices in 26 cities. The field
offices range from small executive offices to a 5,596 square foot facility.
Lease terms range from month-to-month on certain executive offices to five years
on certain direct leases. Because the Company's professional services are
generally performed at the client site, field facilities are generally small.
Field facilities are generally used for periodic meetings, training and
administration and by account managers. The Company has field facilities in
Atlanta, Georgia; Boston, Massachusetts; Burlington, Massachusetts; Charlotte,
North Carolina; Chicago, Illinois; Columbus, Ohio; Costa Mesa, California;
Dallas, Texas; Detroit, Michigan; El Segundo, California; Hartford, Connecticut
; Houston, Texas; Iselin, New Jersey; Kansas City, Kansas; Los Angeles,
California; Minneapolis, Minnesota; Mountain View, California; New York, New
York; Raleigh, North Carolina; Philadelphia, Pennsylvania; Sacramento,
California; Seattle, Washington; San Francisco, California; San Ramon,
California; Tulsa, Oklahoma; Washington, D.C., , and Woodland Hills, California.
The Company is continually evaluating the adequacy of existing facilities and
facilities in new cities and believes that suitable additional space will be
available in the future on commercially reasonable terms as needed.

ITEM 3.   LEGAL PROCEEDINGS


The Company is not party to any material legal proceedings.


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

Not matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1997.

                                      16
<PAGE>
 
                                     PART II

ITEM 5.   MARKET FOR COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER
          MATTERS

          The Company's Common Stock has been traded on the Nasdaq National
Market under the trading symbol "INSS" since the Company's initial public
offering on September 18, 1996. The following table sets forth the high and low
sale prices per share of the Company's Common Stock for the periods indicated.
<TABLE> 
<CAPTION> 
                                                                             High           Low
                 Fiscal 1997                                                 ----           ---     
                 <S>                                                         <C>            <C> 
                 First Quarter (from September 18, 1996)                     $39.75        $28.00

                 Second Quarter                                              $51.88        $26.13

                 Third Quarter                                               $39.00        $17.94

                 Fourth Quarter                                              $27.75        $15.50

              Fiscal 1998

                 First Quarter  (through September 8, 1997)                  $29.38        $19.63

</TABLE> 
           As of September 8, 1997, the Company had 216 shareholders of record.
The price for the Common Stock on the close of business on September 8, 1997 was
$24.50 per share. The Company has never paid any cash dividends on its Common
Stock. The Company intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future.


           From July 1, 1996 to February 4, 1997, the Company issued and sold
116,110 shares of Common Stock that were not registered under the Securities Act
of 1933, as amended, (the "Securities Act") at prices ranging from $.01 to $5.50
per share upon the exercise of stock options granted pursuant to the Company's
Amended and Restated 1992 Flexible Stock Incentive Plan. Such issuances were
deemed to be exempt from registration under the Securities Act in reliance on
Rule 701 of the Securities Act.

           In September 1996, the Company issued the following shares of Common
Stock that were not registered under the Securities Act upon the exercise of
warrants: (i) 75,949 shares of Common Stock at a price of $0.10 per share; (ii)
160,093 shares of Common Stock at a price of $0.10 per share issued pursuant to
net exercise provisions; and (iii) 62,000 shares of Common Stock at a price of
$0.79 per share, issued pursuant to a net exercise provision. Such issuances
were deemed to be exempt from registration under the Securities Act in reliance
on Section 4(2) of the Securities Act as transactions by an issuer not involving
any public offering. The recipients of the securities represented their
intention to acquire securities for investment only and had adequate access,
through their relationships with the Company, to information about the Company.

ITEM 6.   SELECTED FINANCIAL DATA

           The information required by this item is incorporated by reference to
the section entitled "Selected Financial Data" in the 1997 Annual Report.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                                      17
<PAGE>
 
         RESULTS OF OPERATIONS

         The information required by this item is incorporated by reference to
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the 1997 Annual Report.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The information required by this item is incorporated by reference to
the section entitled, "Financial Statements" in the 1997 Annual Report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE.

         Not applicable

                                      18
<PAGE>
 
                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

           The information required by this item concerning the Company's
directors and executive officers is incorporated by reference to the information
set forth in the sections entitled "Election of Directors" and "Executive
Officer Compensation" in the Company's Proxy Statement for the 1997 Annual
Meeting of Shareholders to be filed with the Commission within 120 days after
the end of the Company's fiscal year ended June 30, 1997.



ITEM 11.   EXECUTIVE COMPENSATION

           The information required by this item regarding executive
compensation is incorporated by reference to the information set forth in the
sections entitled "Election of Directors -- Director Compensation" and
"Executive Officer Compensation" in the Company's Proxy Statement for the 1997
Annual Meeting of Shareholders to be filed with the Commission within 120 days
after the end of the Company's fiscal year ended June 30, 1997.



ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT

           The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement for the 1997
Annual Meeting of Shareholders to be filed with the Commission within 120 days
after the end of the Company's fiscal year ended June 30, 1997.



ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           The information required by this item regarding certain relationships
and related transactions is incorporated by reference to the information set
forth in the section entitled "Certain Transactions" in the Company's Proxy
Statement for the 1997 Annual Meeting of Shareholders to be filed with the
Commission within 120 days after the end of the Company's fiscal year ended June
30, 1997.

                                      19
<PAGE>
 
                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

           (a)       The following documents are filed as part of this Form 
                     10-K:

                     1. Financial Statements. The following financial statements
                     of the Company and the Report of Independent Accountants
                     thereon are incorporated by reference to the portions of
                     the Company's 1997 Annual Report filed as Exhibit 13.1 to
                     this Form 10-K:

                        Report of Independent Accountants
                        
                        Balance Sheets at June 30, 1996 and 1997

                        Statements of Operations for the Years Ended June 30, 
                            1995, 1996 and 1997

                        Statements of Shareholders' Equity (Deficit) for the 
                            Years Ended June 30, 1995, 1996 and 1997

                        C Statements of Cash Flows for the Years Ended June 30,
                            1995, 1996 and 1997

                        Notes to Financial Statements

                     2. Financial Statement Schedule. The following financial
                     statement schedule of the Company for the Years Ended June
                     30, 1995, 1996, and 1997 is filed as part of this Form 10-K
                     and should be read in conjunction with the Financial
                     Statements, and related notes thereto, of the Company.

                        Report of Independent Accountants' on Financial
                            Statement Schedule

                        Schedule I--Valuation and Qualifying Accounts and
                            Reserves

                        Schedules not listed above have been omitted since they
                            are either not required, not applicable, or the 
                            information is otherwise included.

                     3. Exhibits:  See Item 14(c) below.

           (b) Reports on Form 8-K. No Reports on Form 8-K were filed during the
           fourth quarter ended June 30, 1997.

           (c) Exhibits. The exhibits listed on the accompanying index to
           exhibits immediately following the financial statement schedule are
           filed as part of, or incorporated by reference into, this Form 10-K.

           (d) Financial Statement Schedules.  See Item 14(a) above.

                                      20
<PAGE>
 
SIGNATURES

           Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized, on this 24th day
of September, 1997.

                         International Network Services


                         By:   /s/ Kevin J. Laughlin
                            ------------------------------
                                   Kevin J. Laughlin
                                   Vice President, Finance,
                                   Chief Financial Officer, Secretary


                                POWER OF ATTORNEY

           KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Donald K. McKinney and Kevin J.
Laughlin and each of them, jointly and severally, his attorneys-in-fact, each
with full power of substitution, for him in any and all capacities, to sign any
and all amendments to this Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each said
attorneys-in-fact or his substitute or substitutes, may do or cause to be done
by virtue hereof.

           Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE> 
<CAPTION> 

       Signature                                            Title                                                   Date
  <S>                                <C>                                                                      <C>    
  /s/ Donald K. McKinney 
  ---------------------------------  Chairman of the Board and Chief Executive Officer (Principal             September 24, 1997
  Donald K. McKinney                 Executive Officer)                                                       ------------------ 
  
  /s/ Kevin J. Laughlin
  ---------------------------------  Vice President, Finance, Chief Financial Officer and Secretary           September 24, 1997
  Kevin J. Laughlin                  (Principal Financial and Accounting Officer)                             ------------------

  /s/ John L. Drew 
  ---------------------------------                                                                           September 24, 1997
  John L. Drew                       President, Chief Operating Officer and Director                          ------------------

  /s/ Douglas C. Allred 
  ---------------------------------                                                                           September 24, 1997
  Douglas C. Allred                  Director                                                                 ------------------ 

  /s/ Vernon R. Anderson 
  ---------------------------------                                                                           September 24, 1997
  Vernon R. Anderson                 Director                                                                 ------------------ 

  /s/ David Carlick 
  ---------------------------------                                                                           September 24, 1997
  David Carlick                      Director                                                                 ------------------  

  /s/ Lawrence G. Finch 
  ---------------------------------                                                                           September 24, 1997
  Lawrence G. Finch                  Director                                                                 ------------------ 
</TABLE> 

                                      21
<PAGE>
 
<TABLE> 
  <S>                                <C>                                                                       <C>  
  /s/ Douglas Leone 
  ---------------------------------                                                                            September 24, 1997
  Douglas Leone                      Director                                                                  ------------------

</TABLE> 

                                      22
<PAGE>
 
       Report of Independent Accountants on Financial Statement Schedule

To the Board of Directors and Shareholders of
 International Network Services

Our audits of the financial statements referred to in our report dated July 25, 
1997 appearing on page 30 of the 1997 Annual Report to Shareholders of 
International Network Services (which report and financial statements are 
incorporated by reference in this Annual Report on Form 10-K) also included an 
audit of the Financial Statement Schedule listed in Item 14(a) of this Form 
10-K. In our opinion, this Financial Statement Schedule presents fairly, in 
all material respects, the information set forth therein when read in
conjunction with the related financial statements.

Price Waterhouse LLP

San Jose, California
July 25, 1997

                                      23
<PAGE>
 
                                                                          Sch.II

                        International Network Services
                Valuation and Qualifying Accounts and Reserves
                                (in thousands)

<TABLE> 
<CAPTION> 
                                                                         Additions
                                                          ------------------------------------------
                                            Balance at     Charged to    Charged to                    Balance
                                            Beginning      Costs and       other                         End
                                             of Year       Expenses       Accounts      Deductions     of Year
                                             -------       --------       --------      ----------     -------
<S>                                         <C>            <C>           <C>            <C>            <C> 
Year Ended June 30, 1995
  Allowance for doubtful accounts........     $161           $262            -             (202)         $221
Year Ended June 30, 1996
  Allowance for doubtful accounts........     $221           $610            -             (277)         $554
Year Ended June 30, 1997
  Allowance for doubtful accounts........     $554           $561            -             (527)         $588
</TABLE> 
<PAGE>

EXHIBIT INDEX
<TABLE> 
<CAPTION> 

    Exhibit                                                       Exhibits                                                     Page
            No.
    <S>                                                           <C>                                                          <C> 
             3.1 Amended and Restated Articles of Incorporation. (1)
             3.2 Amended and Restated Bylaws. (1)
             4.1 Reference is made to Exhibits 3.1, and 3.2.
             4.2 Specimen Common Stock Certificate. (1)
             4.3 Investors' Rights Agreement between the Registrant and the parties named therein dated June 11, 1993, as
                 amended. (1)
            10.1*Form of Indemnification Agreement entered into between the Registrant and each of the executive officers and
                 directors and certain key employees. (1)
            10.2*Amended and Restated 1992 Flexible Stock Incentive Plan, as amended, and forms of agreements thereto. (1)
            10.3*1996 Stock Plan and form of agreement thereto. (1)
            10.4*1996 Employee Stock Purchase Plan. (1)
            10.5 Lease Agreement between the Registrant and Aetna Life Insurance Company dated May 8, 1996. (1) 
            10.6 Credit Agreement between the Registrant and Imperial Bank dated June 27, 1996. (1) 
            10.7 Addendum to the Credit Agreement between the Registrant and Imperial Bank dated June 27, 1997.
            11.1 Statement regarding computation of earnings per share. 
            13.1 Portions of the Annual Report to Shareholders for the fiscal year ended June 30, 1997, expressly incorporated by
                 reference herein.
            23.1 Consent of Price Waterhouse LLP, Independent Accountants.
            24.1 Power of Attorney (see page 21).
            27.1 Financial Data Schedule.
</TABLE> 

*      Indicates management compensatory plan, contract or arrangement.
(1)    Incorporated by reference to the Registrant's Registration Statement on
       Form S-1 (File No. 333-9287) declared effective on September 18, 1996.