ARI NETWORK SERVICES INC /WI, 10-K, 1996-10-29

ARI NETWORK SERVICES INC /WI
10-K, 1996-10-29
COMPUTER PROGRAMMING, DATA PROCESSING, ETC.

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<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

--------------------------
FORM 10-K
--------------------------

(XX) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]

for the fiscal year ended July 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]

From the transition period from ............... to ...............

Commission File No. 0-19608

ARI NETWORK SERVICES, INC.
(Exact name of registrant as specified in its charter)

Wisconsin 39-1388360
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

330 East Kilbourn Ave. 53202-3166
Milwaukee, Wisconsin (zip code)
(Address of principal executive offices)

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

Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(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. [ ]
---

As of October 24, 1996, the aggregate market value of the Common Stock
held by non-affiliates (based on the closing price on the NASDAQ National
Market System) was approximately $23 million.

As of October 24, 1996, there were 14,201,815 shares of Common Stock
of the registrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement, to be filed with the
Securities and Exchange Commission no later than 120 days after July 31, 1996,
for the 1996 Annual Meeting of Shareholders are incorporated by reference in
Part III hereof.
================================================================================

<PAGE> 2

PART 1

ITEM 1. BUSINESS

OVERVIEW

ARI Network Services, Inc. (the "Company" or "ARI") provides
customer-side Internet-enabled electronic commerce ("EC") services to companies
in selected industry sectors and distribution channels. Currently, the Company
provides two types of EC Services that enable its customers in turn to do
business electronically with their customers: (i) transaction management
services and (ii) data management services. These two types of services are
sold into three vertical markets: (i) Agribusiness, which includes
Agricultural and Specialty Chemicals ("Chemical"), Farm and Outdoor Power
Equipment ("Equipment") and Livestock Pharmaceuticals, Feed and Seed ("Animal
Health"); (ii) Freight Transportation ("Transportation"); and (iii) Newspaper
Publishing ("Publishing"). At present, the Company focuses its marketing
efforts on companies operating in the United States and Canada.

The Company uses telecommunications and computer technology to help
customers conduct business electronically, computer to computer, with minimal
changes to their internal business systems. The Company's services include:
telecommunication networking; incompatible computer systems connectivity;
electronic mail messaging; electronic data interchange (EDI) translation;
product and participant directories and databases; information exchange and
retrieval; sales automation and a wide range of customer specified electronic
commerce and transaction processing applications. The Company also provides
end user application software related to its EC services and a range of
professional services, including consulting, custom application development,
installation, education and support. The Company focuses its marketing efforts
on major manufacturers and distributors that have the financial resources and
business motivation to convert their distribution systems from paper-based to
electronic commerce, thereby reducing processing expenses and time to market.

Customers use the Company's transaction management services for
electronic commerce applications such as product availability inquiries, batch
and immediate response ordering, sales reporting and sales force automation.
On the data management side, the Company also creates and manages electronic
databases, including electronic commerce directories of industry participants
and products and a directory of ship-to and bill-to locations used by the
Transportation industry. Through its "Newsfinder(R)" service, the Company
edits and manages a database of over 20,000 Associated Press ("AP") news
stories that are accessed by non-daily newspapers. Other online databases
managed by the Company include "Custom Comply(TM)", a database of Material
Safety Data Sheets used by the chemical industry, and "DocuLink", a database of
UCC lien filings used by commercial lenders. Data management services are sold
to industry participants, in the case of the electronic commerce directories,
and to non-daily newspapers, in the case of Newsfinder(R). The Company has two
customers which exceed 10% of the total revenue. See Note 8 of Notes to
Consolidated Financial Statements. One is the Association of American
Railroads (AAR) in which the Company signed a five year agreement, July 1994,
to be the file maintainer of a database of ship-to and bill-to locations. The
AAR will continue to be a significant customer of the Company. The second is
Hoffmann La Roche (HLR) from the Agribusiness and other related industries
sector. In fiscal 1996, HLR converted from the Company's DOS sales force
automation application to the Windows(R) version. Revenue was generated from
software license fees, customized development, professional services and
network traffic and support fees. Although HLR will continue to be a key
customer of the Company, they are not expected to represent 10% of the
Company's revenue in fiscal 1997.

The Company's executive offices are located at 330 East Kilbourn
Avenue, Milwaukee, Wisconsin 53202 and its telephone number at that location is
(414) 278-7676. The Company is a Wisconsin corporation, incorporated in 1981.

2
<PAGE> 3

STRATEGY

The Company's mission is to be the preeminent provider of customer-side
Internet-enabled business-to-business EC services in selected industry sectors.
The Company's vision is that whenever a company in one of the Company's
target markets does business electronically with its customers, it will use
at least some of the Company's services to do so. To achieve this vision, the
Company's strategy is to concentrate on a few vertical markets and to lead with
two product thrusts: (i) dealer systems (transaction management) and (ii)
EC-ID(TM) (data management) services.

The Company's dealer systems connect manufacturers to their dealers
and distributors and enable parts ordering, product registration, and warranty
registration; EC-ID(TM) services are marketed jointly by the Company and Dun &
Bradstreet Information Services. ("D&B") to provide a unique location ID for
use in electronic commerce transactions. After having obtained a position in a
given market, the Company will then bring other products and services to bear
to expand its presence and solidify its stance vs. the competition. The
Company's goal is to provide a complete array of high-quality services that
industry participants will adopt and use effectively.

The Company has built business processes and technical competency in
each of its targeted business sectors: Agribusiness, Transportation and
Publishing. Major customers in each sector participate in defining product
requirements. This ensures that completed products are technically sound and
will address the business problems participants are trying to solve through
electronic commerce. The Company expects to expand its business by (i) growing
market share in these sectors; (ii) entering new subsectors of these target
markets; and (iii) entering selected new vertical markets over time. As this
is a forward looking statement, future actual results may differ. See
"Competition" and "Forward Looking Statements."

SERVICES

The Company's services include transaction management services and
data management services, as well as professional services related to each.
Transaction management services take the form of customer specified EC
applications tailored to the needs of the industry sector served. These
applications currently include: (i) batch and immediate response electronic
product ordering; (ii) warranty claims processing; (iii) inventory and sales
reporting and (iv) sales force automation. Additional applications are planned
for future release.

Data management services include: (i) building and maintaining
electronic directories of participants (i.e., ship-to and bill-to locations)
and products; (ii) assisting individual companies with managing their customer
and/or product lists; and (iii) managing an online database of news stories
from the Associated Press which the Company organizes by key words and sells to
non-daily and specialty newspapers. The Company also manages an online
database of UCC lien filings for access by commercial lenders and a database of
Material Safety Data Sheets for the Chemical industry.

The Company's professional services are designed to assist customers
with the implementation of electronic commerce applications. Services include:
(i) custom software development for proprietary network services applications;
(ii) electronic commerce strategy and implementation consultation; (iii)
application configuration and installation; and (iv) user education, training
and ongoing support.

COMPETITION

The Company's competitors vary by product line and vertical market.
Many of these competing companies have substantially greater resources than
ARI. Sterling Commerce is established in the human pharmaceutical sector, in
which manufacturers overlap with Animal Health product manufacturers. The
network services industry is highly competitive. Several companies, including
GE Information Services, AT&T, MCI, EDS, BT Tymnet, Inc., Sterling Commerce,
Advantis Inc., Harbinger, Inc., and others offer electronic commerce services
that are similar to those offered by the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Agribusiness
and Related Industry Revenues". Sterling Commerce provides certain sales
reporting services to these companies, including services that report sales
activity on some Animal Health drugs. Certain manufacturers of agricultural
equipment operate their own private computer networks for transacting business
with their dealers. Briggs

<PAGE> 4

and Stratton, through its wholly owned subsidiary, Powercomm 2000, offers a
competing network to dealers and equipment manufacturers in the outdoor power
equipment industry. There are also many companies, including Sales Kit
Software Corporation, Inc., Saratoga Systems, Inc. and Aurum Software, Inc.
that market sales force automation software that competes with the Company's
sales force automation products. Sales Technologies, Inc. sells its sales
force automation software to the pharmaceutical industry, which overlaps with
Animal Health. Although the Company has an exclusive relationship with the
Associated Press for the delivery of AP copy to non-daily newspapers for
re-publication, these papers can obtain alternative copy from other news
services, such as Reuters. Customers could also obtain some of the Company's
data management services from D&B or American Business Information, Inc.,
although though the Company's relationship with D&B is primarily cooperative
rather than competitive.

The Company's primary competitive advantage is in the industry
knowledge and customer relationships it has developed. When combined with
services that meet the needs of the Company's customers, management believes
that its industry knowledge and customer relationships will enable it to
compete effectively in its chosen markets.

TECHNOLOGY

At the hub of the Company's network is an IBM Model 9121-311 mainframe
and a series of Sun Sparc servers. The Sun Sparc servers are used as a
communications front-end to the IBM mainframe, as well as, to provide a
platform for applications in their own right. An Oracle database and message
switching software provide the communications infrastructures. This network
architecture is designed to allow cost effective integration of new products
and services. The IBM MVS/XA operating system provides the software operating
environment for the IBM mainframe. Mainframe databases are created and managed
using IBM's DB2 relational database system. The Sun Sparc servers operate
under UNIX with Oracle as the relational database engine. Physical storage is
provided through a direct access storage device and tape cartridge for archive
and routine backup.

Synchronous host connections are employed to link mainframe computer
users. Dial up asynchronous links through AT&T's X.25 network or direct 1-800
calls are used for most other existing connections. Dial up TCP/IP (PPP) is
being provided with the Company's new Windows(R) based applications.
Communication is provided by AT&T T1 circuits augmented by a fault-tolerant
local fiber-optic loop. A fault tolerant "front-end" computer is also employed
in the capture of time-sensitive news wire information from the Associated
Press.

During 1996, the Company invested considerable resources in developing
its Internet knowledge and capabilities. As of October 15, 1996, the Company's
transaction and data management services are accessible via the Internet, and
its new Windows(R) applications are Internet-enabled. Management expects that
Internet products and services will generate an increasing proportion of the
Company's revenue during the next several years. As this is a forward looking
statement, future actual results may differ. See "Forward Looking Statements".
The Company's products are developed in-house, as well as through licensing
technologies from third parties. These licensing agreements tend to be
perpetual or renewable in nature and are subject to royalty and/or maintenance
fees.

The electronic commerce industry in general is characterized by
evolving standards and technology. The Company's ability to anticipate or
guide these standards in its targeted sectors and to fund advances in computer
and telecommunications technology and software will be a significant factor in
the Company's ability to grow and remain competitive.

EMPLOYEES

As of October 15 , 1996, the Company had 70 full-time equivalent
employees. Of these, 16.5 are technical and engaged in maintaining or
developing products and services, 43.5 are sales and marketing, database
management and customer support and 10 are involved in administration and
finance. None of these employees is represented by a union.

<PAGE> 5

ITEM 2. PROPERTIES

The Company occupies approximately 45,000 square feet in an office
building in Milwaukee, Wisconsin, under a lease expiring July 31, 1997. This
facility serves as the Company's headquarters and data center. At present, the
Company is renegotiating its lease to obtain a more favorable rate and fewer
square feet. Should this effort prove unsuccessful, the Company is prepared to
relocate to less expensive facilities elsewhere in the Milwaukee area.

ITEM 3. LEGAL PROCEEDINGS

The Company is not currently involved in any material legal
proceedings.

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

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

The table below sets forth the names of the Company's executive
officers as of October 15, 1996. The officers serve at the discretion of the
Board. The Company named a new president and chief executive officer during
the second quarter of fiscal 1996. The Company named a new Vice President of
Sales in the first quarter of fiscal 1997.

<TABLE>
<CAPTION>
NAME AGE CAPACITIES IN WHICH SERVING
---- --- ---------------------------
<S> <C> <C>
Brian E. Dearing 41 President and CEO and a Director
Lynn M. Hafemeister 39 Vice President Finance and Administration and CFO and
Treasurer
Mark L. Koczela 42 Executive Vice President of Business Development and
Secretary
John C. Bray 39 Vice President Sales
- -----------
</TABLE>

BRIAN E. DEARING, 41; Mr. Dearing, first elected to the Board by the
Board of Directors in November, 1995, is President and Chief Executive Officer
of the Company. Prior to joining the company, Mr. Dearing held the position of
Vice President - EDI Business Development in London, England, with Sterling
Software, Inc. Since 1990, Mr. Dearing held a series of electronic commerce
executive positions at Sterling including Vice President of Marketing and Vice
President of Customer Service for Sterling's North American EDI business, as
well as Vice President of European Network Services. Prior to joining
Sterling, Mr. Dearing was Manager of EDI Market Development and Manager of EDI
Product Management with General Electric Information Services. Mr. Dearing
holds a Masters Degree in Industrial Administration from Krannert School of
Management at Purdue University and a BA in Political Science from Union
College. He also spent a year of undergraduate studies at the London School of
Economics.

LYNN M. HAFEMEISTER. Ms. Hafemeister is Vice President of Finance and
Administration and Chief Financial Officer and Treasurer of the Company. Ms.
Hafemeister was promoted to her current position in November, 1994. She has
executive management responsibility for the Company's finance, administration
and operations departments. Prior to joining the Company in May 1994, Ms.
Hafemeister was Controller of Brady Coated Products Co., a division of W.H.
Brady, a Milwaukee, Wisconsin manufacturer where she worked since 1993. Before
joining W.H. Brady, Ms. Hafemeister was employed as Controller of Stokely USA
and Financial Analysis Manager of Appleton Papers. She holds a BBA and an MS -
Accounting from the University of Wisconsin, Whitewater.

<PAGE> 6

MARK L. KOCZELA. Mr. Koczela is Executive Vice President of Business
Development and Secretary. Prior to joining the Company in January, 1992, Mr.
Koczela was a shareholder at Godfrey & Kahn, S.C., a Milwaukee, Wisconsin law
firm where he had worked since 1983 representing a variety of businesses
including the Company. He holds a BA in History from the University of
Massachusetts and a JD from Duke University Law School.

JOHN C. BRAY. Mr. Bray was appointed Vice President of Sales in
October, 1996. Prior to joining the Company, Mr. Bray was Manager of Global
Internet Sales and Consulting at GE Information Services (GEIS) in Rockville,
Maryland. Before joining GEIS in 1996, Mr. Bray was a Regional Vice President
of Sales for AT&T's EasyLink Services marketing electronic commerce services.
Mr. Bray was employed by AT&T from 1991 through 1996. He holds a BA in
marketing from the University of Iowa.

<PAGE> 7

PART II

ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock is traded on the National Association of
Securities Dealers, Inc. Automated Quotation - National Market System
("NASDAQ-NMS") under the symbol ARIS. The following table sets forth the high
and low sales prices on the composite tape for the NASDAQ-NMS for the periods
indicated.

FISCAL QUARTER ENDED HIGH LOW

October 31, 1994 . . . . . . . $4.50 $2.750

January 31, 1995 . . . . . . . $3.375 $2.375

April 30, 1995 . . . . . . . . $2.875 $2.00

July 31, 1995 . . . . . . . . $2.50 $1.75

October 31, 1995 . . . . . . . $2.875 $1.50

January 31, 1996 . . . . . . . $3.50 $1.625

April 30, 1996 . . . . . . . . $3.50 $2.125

July 31, 1996 . . . . . . . . $2.875 $1.375

As of October 15, 1996, there were approximately 162 holders of record
and approximately 1308 beneficial owners of the Company's common stock. The
Company has not paid cash dividends to date and has no present intention to pay
cash dividends.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain financial information with
respect to the Company as of and for each of the five years in the period ended
July 31, 1996, which was derived from audited Consolidated Financial Statements
and Notes thereto of the Company. Audited Consolidated Financial Statements
and Notes as of July 31, 1996 and 1995 and for each of the three years in the
period ended July 31, 1996, and the report of Ernst & Young LLP thereon are
included elsewhere in this Report. The selected financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto included elsewhere herein.

<PAGE> 8

<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Software & development revenue............... $ 768 $ 1,455 $ 1,752 $ 1,979 $ 1,046
Network & other services revenues............ 4,484 3,880 3,498 3,032 2,710
--------- -------- -------- -------- --------
Total revenues..................... 5,252 5,335 5,250 5,011 3,756

OPERATING EXPENSES:
Variable cost of software &
development sold......................... 288 149 214 236 197
Variable cost of network & other
services sold............................ 925 1,087 1,208 1,036 785
Depreciation and amortization............ 1,800 2,388 11,514(1) 2,986 2,375
Network operations....................... 919 1,171 1,281 1,329 928
Selling, general & administrative........ 4,585 4,756 6,411 6,362 5,766
Restructuring costs...................... 0 0 500(2) 0 0
Network construction and expansion....... 1,897 1,788 2,745 2,833 2,236
--------- -------- -------- -------- --------
Gross operating expenses................. 10,414 11,339 23,873 14,782 12,287
Less capitalized portion................. (1,230) (1,616) (2,602) (3,645) (2,829)
--------- -------- -------- -------- --------
Net operating expenses................... 9,184 9,723 21,271 11,137 9,458
--------- -------- -------- -------- --------
Operating loss............................... (3,932) (4,388) (16,021) (6,126) (5,702)
Other income................................. 12 115 51 473 334
Interest expense............................. (286) (66) (97) (225) (987)
--------- -------- -------- -------- --------
Loss before extraordinary credit &
minority interest...................... (4,206) (4,339) (16,067) (5,878) (6,355)
Minority interest in (earnings) loss of
subsidiary................................... -- -- 41 (41) --
Extraordinary credit......................... -- -- 937(2) -- --
--------- -------- -------- -------- --------
Net loss..................................... $ (4,206) $ (4,339) $(15,089) $(5,919) $(6,355)
========== ========= ======== ======== ========
Income (loss) per common share:
Loss before Extraordinary credit......... $(0.34) $(0.36) $(1.47) $ (0.57) $(0.72)
Extraordinary credit..................... -- -- 0.09 -- --
--------- -------- -------- -------- --------
Net loss................................ $(0.34) $(0.36) $(1.38) $(0.57) $(0.72)
Weighted average number of common and common
equivalent shares........................... 12,455 12,071 10,904 10,328 8,841

BALANCE SHEET DATA:
------------------
Working capital (deficit)................... $(3,412) $(1,564) $485 $2,389 $9,920
Capitalized network system (net)............ 9,264 9,277 9,253 17,273 15,750
Total assets................................ 11,479 11,683 13,258 23,479 29,656
Current portion of long-term debt and capital
lease obligations........................... 63 68 76 539 550
Total long-term debt and capital lease 22 73 101 742 1,216
obligations.................................
Total shareholders' equity.................. 6,182 8,524 11,215 20,966 26,837

</TABLE>
- -------------------------
(1) Includes a non-recurring amortization charge of $7.7
million as a result of management's decision to move from DOS to
Windows (R) as the principal operating system for the Company's end
users applications.

(2) Company commenced a restructuring in second quarter fiscal
1994. Restructuring charge was comprised of severance, recruiting,
relocation and related expenses.

(3) Company was released from capital lease obligations with
IBM in the fourth quarter of fiscal 1994.

<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

REVENUES

Total revenue for the year ended July 31, 1996 decreased $83,000 or
1.6% as compared to last year. This was due to a decrease in non-recurring
revenues generated from the sale of DOS software applications and related
professional services revenue in the Chemical sector of the Agribusiness
industry for fiscal 1996. The Company shipped a new Internet enabled
Windows(R) based version of its software for this market in October, 1996.
Recurring revenues for the Company did increase by 14% compared to last year.
Total revenue increased by 9% in each of the quarters ending April 30, 1996 and
July 31, 1996 compared to last year after decreasing by 10% and 17% for the
quarters ending October 31, 1995 and January 31, 1996. Management expects the
year-over-year quarterly increases to continue into the new year, though there
can be no assurances that this will happen. As this is a forward-looking
statement, future actual results may differ. See "Forward Looking Statements".

The Company has a strategy of building a sustainable recurring revenue
stream in selected vertical markets for each of its primary services.
Accordingly, the Company reviews its revenue by two distinct classifications:
(i) recurring vs. non-recurring revenue and (ii) revenue by vertical market.

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

RECURRING VS. NON-RECURRING REVENUE

<TABLE>
<CAPTION>
Year Ended July 31,
(Dollars in Thousands)
--------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Recurring Revenue . . . . . . . . . . . . . . . . . . . . . . . . . $4,084 $3,591 $3,221
Non-recurring Revenue . . . . . . . . . . . . . . . . . . . . . . . 1,168 1,744 2,029
----- ----- -----
$5,252 $5,335 $5,250
===== ===== =====
</TABLE>

The Company's revenues are both recurring and non-recurring.
Recurring revenues are derived from network traffic fees, maintenance and
support fees, transaction fees and subscription fees. Recurring revenue has
increased each of the last two years. Fiscal 1996 recurring revenue increased
by 14% over fiscal 1995, which in itself was an increase of 12% over fiscal
1994. The increase in recurring revenues is due to increases in the number of
transactions being transmitted over the network by the Company's base of
agrichemical manufacturers and distributors from the Agribusiness industry,
increased usage by the Newsfinder(R) customers and the initiation of
maintenance and support services in the Transportation industry. In fiscal
1996, recurring revenues constituted 78% of total revenues compared to 67% in
fiscal 1995 and 61% in fiscal 1994. Management expects the percentage of
recurring revenues to decrease in fiscal 1997 as more software sales are made,
though there can be no assurance that such sales will occur. As this is a
forward-looking statement, future actual results may differ. See "Forward
Looking Statements".

Non-recurring revenues are derived from the sale of software and
professional services. Non-recurring revenue has decreased in each of the last
two years. Fiscal 1996 non-recurring revenue decreased by 33% compared to
fiscal 1995. The decrease is a result of a decrease in sales of DOS software
applications and related professional services revenue in the Agribusiness
industry. The decrease is also due to the completion of file creation and
set-up in the Transportation industry, resulting in lower non-recurring
revenues but an increase in recurring revenues from maintenance and support
fees. The decrease of 14% in fiscal 1995 compared to fiscal 1994 was a result
of decreased sales of DOS software applications and related professional
services revenue in the Animal Health sector of the Agribusiness industry and
decreased revenue from discontinued product lines. Anticipating the customers'
desire for Windows(R) applications over

<PAGE> 10

DOS products, management decided to develop an Internet enabled Windows(R)
sales force automation application, known as ARISE(TM) and an Internet enabled
Windows(R) EDI transaction management product, known as Meppel(TM), which
includes a sales reporting module. Both products are currently available for
sale. The Company is also in the process of developing an Internet enabled
Windows(R) parts ordering application to be known as Tradewind(TM). In fiscal
1996, non-recurring revenue constituted 22% of total revenue compared to 33% in
fiscal 1995 and 39% in fiscal 1994. Management expects the percentage of
non-recurring revenue to increase in fiscal 1997, as more software and
professional services sales are made, though there can be no assurances that
such sales will occur. As this is a forward-looking statement, future actual
results may differ. See "Forward Looking Statements".

REVENUE BY VERTICAL MARKET
<TABLE>
<CAPTION>
Year Ended July 31,
(Dollars in Thousands)
----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Agribusiness and related industry revenues.............. $3,026 $3,164 $2,862
Transportation revenue.................................. 618 584 432
Publishing revenue...................................... 1,243 1,228 1,169
Other revenues.......................................... 365 359 787
--- --- ---
Total revenues $5,252 $5,335 $5,250
====== ====== =======
</TABLE>

As part of the Restructuring described below, the Company discontinued
certain of its product lines. Revenue from continuing product lines was
$5,249,000, in fiscal 1996, $5,308,000 in fiscal 1995 and $4,767,000 in fiscal
1994.

Agribusiness and Related Industry Revenue

Revenues in this area are derived from network traffic fees,
maintenance and support fees, subscription fees, software sales and
professional services fees charged to the Company's customers marketing outdoor
power and agricultural equipment, seed, agricultural chemical, animal health,
and other related products. Agribusiness and related industry revenues
represent 58% of the total revenue in fiscal 1996, compared to 59% in fiscal
1995 and 55% in fiscal 1994.

Recurring revenue in the Agribusiness Industry increased 10% from
$2,044,000 in fiscal 1995 to $2,241,000 in fiscal 1996 and 32% from $1,552,000
in fiscal 1994 to $2,044,000 in fiscal 1995 as the number of transactions being
transmitted over the network increased. Non-recurring revenue decreased 30%
from $1,120,000 in fiscal 1995 to $785,000 in fiscal 1996 and 15% from
$1,310,000 in fiscal 1994 to $1,120,000 in fiscal 1995. The decrease in fiscal
1996 was due mainly to the decrease in the number of new DOS software
applications in the Agribusiness Industry. Revenue in the Agribusiness
sector is expected to increase in fiscal 1997 with the release of the Internet
enabled Windows(R) portfolio of products for equipment parts ordering, sales
reporting and sales force automation, however, there can be no assurance that
these sales will occur. As this is a forward-looking statement, future actual
results may differ. See "Forward Looking Statements". The sales force
automation application, known as ARISE(TM) was released in March, 1996.
ARISE(TM) revenue this year included the conversion of Hoffmann La Roche, a
leading manufacturer in the Animal Health industry, from the DOS product.
Meppel(TM), an EDI transaction management product which includes a sales
reporting module, was released in the first quarter of fiscal 1997, and
development of an Internet enabled Windows(R) application for equipment parts
ordering to be known as Tradewind(TM) will begin in fiscal 1997.

The manufacturers in the Agribusiness Industry have formed a jointly
owned company known as "RAPID" to develop an "allied industry" network which
includes a directory of physical locations and electronic commerce trading
partners in the "allied industry". The plans for the RAPID network contemplate
a PC subscriber interface, communications connectivity, electronic mail, file
transfer, bulletin board services, Internet access, EDI/EFT and connectivity to
third party value added services providers, such as the Company. EDS has been
retained by RAPID to develop the end user software and network. The Company
and RAPID have reached an agreement for a 3-year

<PAGE> 11

commitment by the Company to create and maintain this "allied directory" for
the "allied industry" network. This will result in non-recurring revenues from
file conversion and recurring revenues from file maintenance. Management
believes that the Company has developed a positive relationship with RAPID and
that the Company will be able to grow its revenue in the Agribusiness industry.
However, there can be no assurances that the Company's relationship with RAPID
will be entirely or primarily cooperative rather than competitive. As these
are forward looking statements, future actual results may differ. See "Forward
Looking Statements."

In July 1996, the Company formed an alliance with Dun & Bradstreet
Information Services to market a standard electronic commerce identification
number ("EC-ID(TM)") that will allow companies to precisely identify each
business location involved in an electronic commerce transaction and will be
used by the Company in its data management services in the Agribusiness and
Transportation industries.

In April, 1996, the Toro Company, whose product is carried by more
than 8,000 dealers in the U.S. and Canada, joined the Company's outdoor power
equipment dealer network, called "OPEN" (Original Parts and Equipment Network).
As of July 31, 1996, 139 TORO dealers were connected to the network. Using the
OPEN services, dealers can electronically order parts, register sales, make
warranty claims, and otherwise communicate with manufacturers. With the
growing trend towards electronic business-to-business commerce worldwide, the
Company views this as a potential opportunity in fiscal 1997, though there can
be no assurances that such revenues will materialize.

Publishing Revenue

Revenues in the publishing sector are derived from connect time fees
and subscription fees charged to the Company's Newsfinder(R) and AP Alert
customers. These products serve the non-daily publication marketplace.
Newsfinder(R) manages the approximately 20,000 news stories per week output of
the AP, providing access to some 800 publishers with nearly 1,300 weekly and
monthly newspapers. In February, 1996 the Company renewed its contract with
the AP to provide Newsfinder(R), to these non-daily publications for an
additional five year term. Publishing revenues remained relatively flat at
$1,243,000 in fiscal 1996 compared to $1,228,000 in fiscal 1995 and increased
5% from $1,169,000 in fiscal 1994 to $1,228,000 in fiscal 1995. The increase
in fiscal 1995 was the result of a price increase instituted in January 1995
and a slight increase in the number of subscribers. Publishing revenues
represent 24% of the Company's total revenue in fiscal 1996 compared to 23% in
fiscal 1995 and 22% in fiscal 1994. Close to 90% of the revenue in this
industry is recurring.

During fiscal 1996, the Company developed and is pilot testing an
Internet-accessible version of its Newsfinder(R) data management service.
Management expects the Internet to make access and use of the service faster
and easier for Newsfinder(R) customers.

Transportation Industry Revenue

In July, 1994, the Company was selected by the Association of American
Railroads ("AAR") to be the file maintainer of a database of ship-to and
bill-to locations for the Transportation industry known as the Customer
Identification File ("CIF"). Revenues in this area are derived from
maintenance and support fees, transaction fees and professional service fees.
Revenues during fiscal 1995 came primarily from business and systems analysis
and file creation services. Fiscal 1996 revenues from the CIF came primarily
from monthly management fees and other recurring fees from usage and
maintenance of the database. Transportation industry revenue represents 12% of
the Company's total revenue in fiscal 1996, compared to 11% in fiscal 1995 and
8% in fiscal 1994. Revenue in this industry has converted from 90%
non-recurring to 74% recurring revenue over this three year comparative period.

Other Revenues

Other revenues increased 2% from $359,000 in fiscal 1995 to $365,000
in fiscal 1996 and decreased 54% from $787,000 in fiscal 1994 to $359,000 in
fiscal 1995. The decrease in other revenue from 1994 to 1995 is due to the
discontinuation of certain non-strategic product lines as a result of the
fiscal 1994 restructuring and a slowing of new product sales on the continuing
product line of DocuLink, while the year to year increase from 1995 to 1996 is
within the normal fluctuations of a basically flat business.

11
<PAGE> 12

OPERATING EXPENSES

The following table sets forth, for the periods indicated, certain
operating expenses derived from the Company's consolidated financial
statements:

<TABLE>
<CAPTION>
Year Ended July 31,
(Dollars in Thousands)
-------------------------

1996 1995 1994
<S> <C> <C> <C>
Variable cost of products and services sold (exclusive of depreciation
and amortization shown below)........................................... $1,213 $1,236 $1,422
Network operations...................................................... 919 1,171 1,281
Selling, general and administrative..................................... 4,585 4,756 6,411
Restructuring costs..................................................... 0 0 500
Network and product development......................................... 1,897 1,788 2,745
------ ------ ------
Gross cash expenses.................................................. 8,614 8,951 12,359
Depreciation and amortization........................................... 1,800 2,388 11,514
Less capitalized expenses............................................... (1,230) (1,616) (2,602)
------ ------ ------
Net operating expenses $9,184 $9,723 $21,271
====== ====== =======
</TABLE>

Gross cash expenses decreased $337,000 in fiscal 1996 compared to fiscal 1995,
due to decreased payroll related expenses resulting from increased operating
efficiencies. Fiscal 1995 gross cash expenses decreased $2,908,000, excluding
the $500,000 restructuring charge, compared to fiscal 1994. Expense reductions
in fiscal 1995 were a result of the restructuring begun in fiscal 1994, which
included a 50% staff reduction, renegotiated maintenance contracts,
renegotiated insurance agreements and various cost cutting measures to reduce
overhead expenses.

Variable cost of products and services sold consist primarily of royalties,
telecommunications and data processing and temporary help fees paid to third
parties in connection with providing database services and customized
development labor for ARISE(TM) customers. Variable costs of products and
services sold, as a percent of sales, were 23%, 23% and 27% in fiscal 1996,
1995, and 1994, respectively. The variation is due to changes in the mix of
applications and services sold. Higher margin network traffic revenues as a
percentage of total revenues were greater in fiscal 1996 and fiscal 1995 than
in fiscal 1994, due to a decreased number of DOS software sales and related
professional services.

Network operations cost has decreased 22% in fiscal 1996 and 9% in fiscal 1995
due to increased efficiency and cost reductions in the areas of payroll and
hardware and software maintenance agreements. During the first quarter of
fiscal 1997, the Company invested approximately $100,000 in a new IBM Model
9121-311 mainframe which has approximately 20% more horsepower, is
environmentally safer and costs approximately 30% less in ongoing maintenance
and utilities than the old mainframe.

<PAGE> 13

Selling, general and administrative expenses decreased by $171,000 in fiscal
1996 compared to fiscal 1995. The decrease in expense was due to delays in
filling open positions and additional expense cutting as a result of slow
software sales. Management does expect these expenses to increase in fiscal
1997 as sales and staff positions are filled, due to the release of the
Windows(R) applications and the increased focus on sales and marketing.
Selling, general and administrative expenses decreased significantly in fiscal
1995 due to the restructuring and staff reductions begun in fiscal 1994.

Depreciation and amortization decreased significantly in fiscal 1996 and fiscal
1995 due to the non-recurring amortization charge of $7.7 million incurred in
fiscal 1994 as a result of management's decision to move from DOS to Windows(R)
as the principal operating system for the Company's end user applications. The
fiscal 1994 non-recurring amortization charge and accelerated useful life
estimate on remaining DOS products have resulted in lower amortization expense
in fiscal 1996.

Capitalized expenses represented 65%, 90% and 95% of network and product
development cost in fiscal 1996, 1995 and 1994, respectively. Capitalized
expenses decreased as a percentage of network and product development costs in
fiscal 1996 and fiscal 1995 as a result of management's decision to refocus
various staff members from capitalized development to selling and
administrative expenses. Capitalized expenses decreased additionally in fiscal
1996 due to the increased usage of the development staff to handle
customization of ARISE(R) software for Hoffmann La Roche and FIserv.
Customization work for a particular customer is expensed and not capitalized.

RESTRUCTURING

In the second quarter of fiscal 1994, the Company commenced a restructuring
(the "Restructuring") designed to focus resources on the core electronic
commerce opportunity, strengthen the Company's management team, increase
internal productivity, reduce overhead and increase sales and marketing
activities. During the quarters ended January 31, 1994, April 30, 1994 and
July 31, 1994, the Company incurred charges in the amount of $400,000, $75,000
and $25,000, respectively, for a total of $500,000 comprising severance,
recruiting, relocation and related expenses of the Restructuring.

As of July 31, 1996, the Company had reduced the number of its full time
equivalent employees to 70, from 152 in July 1993. The Company believes that
the staff reductions were necessary and that the business can be sustained at a
level of approximately 80 people until the Company's revenue base increases
significantly. The Company does not believe that the reductions will have a
material adverse effect on it's future competitiveness or operations.

Another element of the Restructuring involved eliminating or consolidating
unprofitable products. The Company closed down the facility of its subsidiary,
Dynatec, located in Buffalo Grove, Illinois, as of May 13, 1994. The Company
continues to operate Dynatec's sales force automation product for existing
customers who participate in the Company's electronic commerce network. Future
sales of the Company's sales force automation service will be of ARISE(TM), the
Company's new Internet enabled Windows(R) based application. In addition, the
Company discontinued certain of its online information products because they
were unprofitable and non-strategic.

The primary effect to date of the Restructuring is that the Company has been
able to reduce ongoing expenses. Primarily through reductions in staff levels,
the Company has reduced annual cash operating expenses by approximately $3.0
million, the full impact of which was realized between fiscal 1995 and fiscal
1996. Having led the Company through the Restructuring, Don Knudsen resigned
his position as President and Chief Executive Officer in July, 1995. The Board
of Directors appointed Brian E. Dearing, President and Chief Executive Officer
in November, 1995.

EXTRAORDINARY CREDIT

The Company recognized an extraordinary gain during the fourth quarter of
fiscal 1994 as a result of the release by IBM of the Company's obligations
under certain capital leases. See Note 3 of Notes to Consolidated Financial
Statements.

<PAGE> 14

OTHER ITEMS

Interest expense increased $220,000 in fiscal 1996 due to the Company's cash
fundings under the lines of credit rather than through the sale of securities.
Company common stock was sold in the second and fourth quarters of fiscal 1996,
as well as in the first quarter of fiscal 1997. See" Liquidity and Capital
Resource" section. In fiscal 1995, interest expense decreased $31,000 from
fiscal 1994 as a result of the Company's release from capital leases with IBM.
See Note 3 of Notes to Consolidated Financial Statement.

Net loss of $4,206,000 in fiscal 1996 is favorable to fiscal 1995 by $133,000
due to expense reductions explained previously. The expense savings were
partially offset by an increase in interest expense of $220,000.

LIQUIDITY AND CAPITAL RESOURCES

The Company has experienced significant negative cash flows from its operating
activities. The Company will require significant increases in revenues to
cover fixed operating costs and to achieve a profitable level of operations.
The Company expects to continue to incur operating losses for the fiscal year
ending July 31, 1997 and there can be no assurance that profitability will be
achieved thereafter. The Company also expects to continue to incur significant
expenditures for network construction and expansion. The Company's network
construction and expansion costs and negative cash flow from operations
historically have been funded primarily from the sale of securities and from
the lines of credit with shareholders.

At July 31, 1996, the Company had cash and cash equivalents of approximately
$372,000 compared to approximately $236,000 at July 31, 1995 and $1,030,000 at
July 31, 1994. On November 13, 1995 the Company filed a registration statement
with the Securities and Exchange Commission for the sale of up to two million
shares of the Company's common stock. Between January 31, 1996 and September
13, 1996 all two million shares were sold with net proceeds to the Company of
$4,625,000. The proceeds were used to fund operations and repay portions of
outstanding revolving credit lines.

On December 2, 1994 the Company executed a Loan Agreement with WITECH
Corporation ("WITECH") and QUAESTUS Limited Partnership ("QLP") providing the
Company with a $1,500,000 senior secured revolving line of credit facility (the
"Senior Line"), which expires on December 31, 1996 (extended from December 31,
1995 by amendment dated October 18, 1995). Interest on the Senior Line accrues
at the rate of 2% over the prime rate.

The Company also has a line of credit with WITECH, (the "WITECH Line") that has
been in place since October 4, 1993. The WITECH Line is in the amount of $1.5
million. On April 20, 1996 the WITECH Line was amended to provide a Bridge
Loan of $500,000 accruing at the same rate as the other lines through June 30,
1996. In the event the Bridge Loan was not repaid by June 30, 1996 the unpaid
balance was to bear an annual interest rate of prime plus 6%. The WITECH Line
will expire on December 31, 1996 (extended from December 31, 1995 by amendment
dated October 18, 1995). Under the WITECH Line, the Company has issued a
warrant to WITECH for the purchase of up to 500,000 shares of its Common Stock
at a price of $2.00 per share. As of July 31, 1996, the entire $3,500,000 had
been drawn against the lines of credit. Proceeds from the sale of securities
in the first quarter of fiscal 1997 were used to repay the WITECH Lines of
Credit. As of October 25, 1996, there were no borrowings under the WITECH line
or the WITECH Bridge Loan and $1.5 million of borrowings under the Senior line.

The only financial covenant in the Senior line and the WITECH line is that the
Company must maintain a net worth (calculated in accordance with general
accepted accounting principles) of at least $5.3 million (reduced from $6.5
million effective May 3, 1996). The Company has been, and is currently, in
compliance with the finanacial convenant in the Agreements and currently
expects that it will be able to continue to comply with such covenant or obtain
any required waivers or raise additonal equity, if necessary.

The Company will require additional financing during fiscal 1997 in order to
meet its requirements for operations and development investments and to
refinance the Senior line and WITECH line of credit. Management is currently
negotiating with WITECH to amend the expiration dates on the WITECH line and
the WITECH portion of the Senior line to July 31, 1997 from December 31, 1996.
Management believes that sufficient financing for fiscal 1997 will be available
from the sale of additional securities and from additional borrowings from

<PAGE> 15

existing shareholders. See Note 9 of Notes to Consolidated Financial
Statements. On a long term basis, management believes that financing for the
Company's operations, including capital expenditures, will come principally
from cash generated from operations, the sale of additional equity or other
third party financing, capital leases, additional borrowings from shareholders
and other sources of capital if available. There can be no assurances that
these financing arrangements will occur.

FORWARD LOOKING STATEMENTS

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

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

Non-recurring revenue is also difficult to estimate. This revenue is generated
from software license fees, customized development and related professional
services. License fee revenue is based on contracts signed and product
delivered within the quarter. Nonrecurring revenue is impacted by the time
required to close large license fee and development agreements, which cannot be
predicted with any certainty due to customer requirements and decision making
processes.

Although the Company has recently introduced and plans to expand its Internet
enabled Windows(R) portfolio of products, this marketplace is highly
competitive and there can be no assurances that a customer will select the
Company's software and services over that of a competitor. The environment in
which the Company competes is characterized by rapid technological changes,
dynamic customer demands, and frequent product enhancements and product
introductions. The Company's current and potential competitors have greater
financial, technical, sales, marketing and advertising resources than the
Company. The widespread acceptance of the Internet may increase the usage of
the Company's product applications but exert pricing pressures on the network
traffic revenue.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's Consolidated Financial Statements and related notes for the
fiscal years ended July 31, 1996, 1995 and 1994 together with the report
thereon of the Company's independent auditors, Ernst & Young LLP, are attached
hereto as Exhibit A-1.

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

None

<PAGE> 16

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

Information regarding the directors of the Company is included in the Company's
definitive 1996 Annual Meeting Proxy Statement, and is incorporated herein by
reference. See "Election of Directors". Information with respect to the
Company's executive officers is shown at the end of Part I of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding Executive Compensation, Employment Agreements,
Compensation of Directors, Employee Stock Options and other compensation plans
is included in the Company's definitive 1996 Annual Meeting Proxy Statement,
and is incorporated herein by reference. See "Executive Compensation".

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding beneficial ownership of the Company's common stock is
included in the Company's definitive 1996 Annual Meeting Proxy Statement and is
incorporated herein by reference. See "Security Ownership of Certain
Beneficial Owners".

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information related to Certain Relationships and Related Transactions is
included in the Company's definitive 1996 Annual Meeting Proxy Statement, and
is incorporated herein by reference. See "Certain Transactions".

PART IV

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

(A)1.
FINANCIAL STATEMENTS

Report of independent auditors on Financial Statements and Financial Statement
Schedules.

Consolidated Balance sheets - July 31, 1996 and 1995.

Consolidated Statements of operations for each of the three years in the period
ended July 31, 1996.

Consolidated Statements of shareholders' equity for each of the three years in
the period ended July 31, 1996.

Consolidated Statements of cash flows for each of the three years in the period
ended July 31, 1996.

Notes to consolidated financial statements - July 31, 1996.

The Consolidated Financial Statement is located immediately following the
signature pages.

<PAGE> 17

(A)2.
FINANCIAL STATEMENT SCHEDULES

Schedule II
Valuation and qualifying accounts for the years ended July 31, 1996,
1995 and 1994.

The Financial Statement Schedule is located immediately following the Financial
Statements.

All other schedules to which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

(A)3.
EXHIBITS:

See (c) below.

(B)
REPORTS ON FORM 8-K:

No reports on Form 8-K have been filed during the last quarter of the period
covered by this Report.

EXHIBIT
NUMBER
DESCRIPTION

3.1
Articles of Incorporation of the Company as Amended incorporated herein by
reference to Exhibit 3.1 of the Company Form 10-Q for the quarter ended October
31, 1994.

3.2
By-laws of the Company incorporated herein by reference to Exhibit 3.1 of
the Company Registration Statement on Form S-1 (Reg. No. 33-43148).

10.1*
1991 Stock Option Plan as amended dated May 11, 1994, incorporated by
reference to Exhibit 10.1 of the Company Form 10-Q for the quarter ended
January 31, 1995.

10.2*
1993 Director Stock Option Plan as amended dated July 15, 1994,
incorporated herein by reference to Exhibit 10.2 of the Company Form 10-Q for
the quarter ended January 31, 1995.

<PAGE> 18

10.3*
Employment Agreement between the Company and Richard Weening dated as of
September 30, 1993, incorporated herein by reference to Exhibit 10.25 of the
Company Registration Statement on Form S-1 (Reg. No. 33-80914).

10.4*
Amendment to Employment Agreement between the Company and Richard Weening
dated as of September 30, 1993, incorporated herein by reference to Exhibit
10.9 of the Company Form 10-K for fiscal year ended July 31, 1993.

10.5*
Amendment to Consulting Agreement dated August 1, 1994 between the Company
and Richard Weening, incorporated herein by reference to Exhibit 10.7 of the
Company Form 10-K for fiscal year ended July 31, 1994.

10.6*
Amendment to Consulting Agreement dated August 1, 1995 between the Company
and Richard Weening, incorporated herein by reference to Exhibit 10.6 of the
Company Form 10-K for fiscal year ended July 31, 1995.

10.7*
Agreement dated May 11, 1994 between the Company and Don Knudsen,
incorporated herein by reference to Exhibit 10.20 of the Company Registration
Statement on Form S-1 (Reg. No. 33-80914).

10.8*
Agreement dated August 2, 1995 between the Company and Don Knudsen,
incorporated herein by reference to Exhibit 10.8 of the Company Form 10-K for
fiscal year ended July 31, 1995.

10.9*
Agreement dated March 14, 1994 between the Company and Mark L. Koczela,
incorporated herein by reference to Exhibit 10.21 of the Company Registration
Statement on Form S-1 (Reg. No. 33-80914).

10.10
Loan Agreement by and between the Company and WITECH Corporation dated
October 4, 1993, incorporated herein by reference to Exhibit 10.10 of the
Company Form 10-K for fiscal year ended July 31, 1993.

10.11
Amendment to Loan Agreement dated May 19, 1994 between the Company and
WITECH Corporation, incorporated herein by reference to Exhibit 10.22 of the
Company Registration Statement on Form S-3 (Reg. No. 33-75760).

10.12
Amendment No. 2 to Loan Agreement dated July 28, 1994 between the Company
and WITECH Corporation, incorporated herein by reference to Exhibit 10.22 of
the Company Registration Statement on Form S-1 (Reg. No. 33-80914).

10.13
Consent and Amendment No. 3 to Loan Agreement dated December 2, 1994
between the Company and WITECH Corporation, incorporated herein by reference to
Exhibit 10.1 of the Company Form 10-Q for quarter ended October 31, 1994.

10.14
Amendment No. 4 to Loan Agreement dated March 6, 1995 between the Company
and WITECH Corporation, incorporated herein by reference to Exhibit 10.14 of
the Company Form 10-K for fiscal year ended July 31, 1995.

10.15
Amended and Restated Commitment Warrant issued by the Company to WITECH
Corporation dated October 18th, 1995, incorporated herein by reference to
Exhibit 10.15 of the Company Form 10-K for fiscal year ended July 31, 1995.

10.16
Loan Agreement dated December 2, 1994, between the Company and WITECH and
QUAESTUS L.P.,incorporated herein by reference to Exhibit 10.2 of the Company
Form 10-Q for the quarter ended October 31, 1994.

<PAGE> 19

10.17
Security Agreement dated December 2, 1994, between the Company and WITECH
and QUAESTUS L.P., incorporated herein by reference to Exhibit 10.3 of the
Company Form 10-Q for the quarter ended October 31, 1994.

10.18
Amendment No. 1 to Loan Agreement between the Company and WITECH and
QUAESTUS, L.P. dated October 18, 1995, incorporated herein by reference to
Exhibit 10.18 of the Company Form 10-K for fiscal year ended July 31, 1995.

10.19
Standard Office Building Lease between the Company and JMB/Plaza East
Associates, Ltd., dated as of August 1, 1984, incorporated herein by reference
to Exhibit 10.23 of the Company Registration Statement of Form S-1 (No.
33-43148).

10.20
Lease Amendment between the Company and JMB/Plaza East Associates, Ltd.,
dated as of December 24, 1993, incorporated herein by reference to Exhibit
10.20 of the Company's Registration Statement on Form S-3 (Reg. 33-75760).

10.21
Lease Amendment between the Company and JMB/Plaza East Associates, Ltd.,
dated as of March 2, 1995, incorporated herein by reference to Exhibit 10.21 of
the Company Form 10-K for fiscal year ended July 31, 1995.

10.22
Engagement Letter with QUAESTUS L.P., dated September 30, 1993,
incorporated herein by reference to Exhibit 10.11 of the Company Form 10-K for
fiscal year ended July 31, 1993.

10.23
Engagement letter with QUAESTUS L.P., dated August 1, 1994, incorporated
herein by reference to Exhibit 10.18 of the Company Form 10-K for fiscal year
ended July 31, 1994.

10.24
Engagement letter with QUAESTUS Management Corporation, dated August 1,
1995, incorporated herein by reference to Exhibit 10.24 of the Company Form
10-K for fiscal year ended July 31, 1995.

10.25
Warrant dated July 15, 1994 issued by the Company to QUAESTUS L.P.,
incorporated herein by reference to Exhibit 10.19 of the Company Form 10-K for
fiscal year ended July 31, 1994.

10.26
Warrant dated July 15, 1994 issued by the Company to Richard W. Weening,
incorporated herein by reference to Exhibit 10.20 of the Company Form 10-K for
fiscal year ended July 31, 1994.

10.27
Purchase Agreement, dated May 19, 1994 between the Company and Vulcan
Ventures Incorporated, incorporated herein by reference to Exhibit 10.21 of the
Company Registration Statement on Form S-3 (Reg. No. 33-75760).

10.28
Purchase Agreement dated December 22, 1994 between the Company and Vulcan
Ventures Incorporated, incorporated herein by reference to Exhibit 10.3 of the
Company Form 10-Q for the quarter ended January 31, 1995.

10.29
Amendment No. 2 to Loan Agreement dated December 20, 1995 between the Company,
WITECH Corporation and QUAESTUS Limited Partnership.

<PAGE> 20

10.30
Amendment No. 3 to Loan Agreement dated May 31, 1996 between the Company,
WITECH Corporation and QUAESTUS Limited Partnership, incorporated herein by
reference to Exhibit 10.3 of the Company 10-Q for the quarter ended April 30,
1996.

10.31
Amendment No. 5 to Loan Agreement dated December 20, 1995 between the Company
and WITECH Corporation.

10.32
Amendment No. 6 to Loan Agreement dated January 23, 1996 between the Company
and WITECH Corporation.

10.33
Amendment No. 7 to Loan Agreement dated April 20, 1996 between the Company and
WITECH Corporation, incorporated herein by reference to Exhibit 10.1 of the
Company 10-Q for the quarter ended April 30, 1996.

10.34
Amendment No. 8 to Loan Agreement dated May 31, 1996 between the Company and
WITECH Corporation, incorporated herein by reference to Exhibit 10.2 of the
Company 10-Q for the quarter ended April 30, 1996.

10.35*
Employment letter dated October 20, 1995 from the Company to Brian Dearing.

10.36*
Agreement dated August 8, 1996 between the Company and Pat Bergamasco.

11.1
Computation of per share loss.

23.1
Consent of Ernst & Young LLP

24.1
Powers of Attorney appear on the signature page hereof.

*
Management Contract or Compensatory Plan.

- ---------------------------------------

<PAGE> 21

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Milwaukee,
State of Wisconsin on this ____day of ________, 1996.

ARI NETWORK SERVICES, INC.

By:
---------------------------
Brian E. Dearing
President & CEO

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Lynn M. Hafemeister and Brian E. Dearing
and each of them, his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him and his name, place and
stead, in any and all capacities, to sign any and all amendments to this report
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>

___________________ President & CEO & Director ___________, 1996
Brian E. Dearing (Principal Executive Officer)

____________________ Vice President Finance & Administration ___________, 1996
Lynn M. Hafemeister (Principal Financial and Accounting Officer)

</TABLE>

<PAGE> 22

________________________ Chairman of the Board and Director ___________, 1996
Richard W. Weening

________________________ Director ___________, 1996
William H. Alverson

_________________________ Director ___________, 1996
Francis Brzezinski

_________________________ Director ___________, 1996
Gordon J. Bridge

_________________________ Director ___________, 1996
Eric P. Robison

_________________________ Director ___________, 1996
George D. Dalton

</TABLE>

<PAGE> 23

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin on this 27 day of October, 1996.

ARI NETWORK SERVICES, INC.

By: /s/ Brian E. Dearing
---------------------------
Brian E. Dearing,
President & CEO

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>

/s/ Brian E. Dearing President, CEO & Director October 27, 1996
- ------------------------------- (Principal Executive Officer)
Brian E. Dearing

/s/ Lynn M. Hafemeister Vice President Finance & Administration October 27, 1996
- ------------------------------ (Principal Financial Officer and Principal
Lynn M. Hafemeister Accounting Officer)

</TABLE>
<PAGE> 24

<TABLE>
<S> <C> <C>
/s/ Richard W. Weening Chairman of the Board and Director October 27, 1996
- ------------------------------
Richard W. Weening

/s/ William H. Alverson Director October 27, 1996
- -------------------------------
William H. Alverson

/s/ Gordon G. Bridge Director October 27, 1996
- -------------------------------
Gordon G. Bridge

/s/ Francis Brzezinski Director October 27, 1996
- ---------------------------------
Francis Brzezinski

/s/ Eric P. Robison Director October 27, 1996
- ----------------------------------
Eric P. Robison

/s/ George D. Dalton Director October 27, 1996
- --------------------------------
George D. Dalton
</TABLE>
<PAGE> 25

CONSOLIDATED FINANCIAL STATEMENTS

ARI NETWORK SERVICES, INC.

Years ended
July 31, 1996, 1995 and 1994

<PAGE> 26

ARI Network Services, Inc.

Consolidated Financial Statements

Years ended July 31, 1996, 1995 and 1994

CONTENTS

<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors ............ 1

Consolidated Financial Statements

Balance Sheets ............................................... 2
Statements of Operations ..................................... 4
Statements of Shareholders' Equity ........................... 5
Statements of Cash Flows ..................................... 6
Notes to Consolidated Financial Statements ................... 7
</TABLE>

<PAGE> 27

Report of Ernst & Young LLP, Independent Auditors

To the Board of Directors and Shareholders
ARI Network Services, Inc.

We have audited the accompanying consolidated balance sheets of ARI Network
Services, Inc. (the Company) as of July 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended July 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at July 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
July 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.

Milwaukee, Wisconsin ERNST & YOUNG LLP
August 30, 1996, except for
Note 10 as to which the
date is September 13, 1996

1
<PAGE> 28

ARI Network Services, Inc.

Consolidated Balance Sheets

<TABLE>
<CAPTION>
JULY 31
1996 1995
------------------------
<S> <C> <C>
ASSETS (NOTE 2)
Current assets:
Cash and cash equivalents $ 371,705 $ 235,928
Receivables:
Trade, less allowance for doubtful accounts of
$83,118 in 1996 and $122,305 in 1995 1,263,029 1,075,043
Other 43,033 30,052
Prepaid expenses and other 185,879 180,441
------------------------
Total current assets 1,863,646 1,521,464

Equipment and leasehold improvements:
Network system hardware 2,801,949 3,341,721
Leasehold improvements 238,526 593,284
Furniture and equipment 1,000,384 1,070,336
------------------------
4,040,859 5,005,341
Less accumulated depreciation and amortization 3,688,847 4,126,374
------------------------
Net equipment and leasehold improvements 352,012 878,967

Other assets - 4,804

Network system:
Network platform 11,466,643 11,466,643
Industry-specific applications 16,769,943 15,744,975
------------------------
28,236,586 27,211,618
Less accumulated amortization 18,972,975 17,934,193
------------------------
9,263,611 9,277,425
------------------------
$11,479,269 $11,682,660
========================
</TABLE>

<PAGE> 29

<TABLE>
<CAPTION>
JULY 31
1996 1995
---------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit payable to shareholder $ 3,500,000 $ 1,400,000
Accounts payable 818,094 765,504
Unearned income 383,813 261,493
Accrued payroll and related expenses 333,207 322,490
Other accrued expenses 177,000 268,160
Current portion of capital lease obligations 63,479 67,817
--------------------------
Total current liabilities 5,275,593 3,085,464

Capital lease obligations 22,145 73,405

Commitments (Note 3)
Shareholders' equity:
Preferred stock, par value $.001 per share,
1,000,000 shares authorized; none issued - -
Common stock, par value $.001 per share,
16,525,200 shares authorized; 12,937,109 and
12,186,559 shares issued and outstanding in 1996
and 1995, respectively 12,937 12,187
Additional paid-in capital 76,823,687 74,961,162
Accumulated deficit (70,655,093) (66,449,558)
---------------------------
Total shareholders' equity 6,181,531 8,523,791
---------------------------
$ 11,479,269 $11,682,660
===========================
</TABLE>

See accompanying notes.
3

<PAGE> 30

ARI Network Services, Inc.

Consolidated Statements of Operations

<TABLE>
<CAPTION>
YEAR ENDED JULY 31
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Net revenues:
Network and other services $ 4,483,978 $ 3,879,626 $ 3,498,478
Software and development 767,633 1,455,416 1,751,853
-----------------------------------------
5,251,611 5,335,042 5,250,331
Operating expenses:
Variable cost of products and services
sold (exclusive of depreciation and
amortization shown separately below):
Network and other services 925,498 1,086,605 1,208,065
Software and development 287,678 149,097 214,031
-----------------------------------------
1,213,176 1,235,702 1,422,096
Depreciation and amortization 1,799,924 2,388,028 11,513,963
Network operations 918,804 1,170,481 1,281,395
Selling, general and administrative 4,584,929 4,756,407 6,411,292
Restructuring costs - - 500,000
Network construction and expansion 1,896,773 1,788,332 2,744,568
-----------------------------------------
10,413,606 11,338,950 23,873,314
Less capitalized portion (1,230,343) (1,616,016) (2,602,024)
-----------------------------------------
Total operating expenses 9,183,263 9,722,934 21,271,290
-----------------------------------------
Operating loss (3,931,652) (4,387,892) (16,020,959)
Other income (expense):
Interest expense (286,187) (65,474) (96,883)
Interest income 6,167 22,349 52,009
Other, net 6,137 92,405 (1,137)
-----------------------------------------
(273,883) 49,280 (46,011)
-----------------------------------------
Loss before minority interest in loss
of subsidiary (4,205,535) (4,338,612) (16,066,970)
Minority interest in loss of subsidiary - - 41,117
-----------------------------------------
Loss before extraordinary credit (4,205,535) (4,338,612) (16,025,853)
Extraordinary credit - - 937,171
-----------------------------------------
Net loss $(4,205,535) $(4,338,612) $(15,088,682)
=========================================
Per share of common stock:
Loss before extraordinary credit $(.34) $(.36) $(1.47)
Extraordinary credit - - .09
-----------------------------------------
Net loss $(.34) $(.36) $(1.38)
=========================================
</TABLE>

See accompanying notes.
4

<PAGE> 31

ARI Network Services, Inc.

Consolidated Statements of Shareholders' Equity

<TABLE>
<CAPTION>
Common Additional Paid-in Accumulated
Stock Capital Deficit
------------------------------------------
<S> <C> <C> <C>
Balance at July 31, 1993 $10,336 $67,977,907 $(47,022,264)
Issuance of warrants to purchase common stock - 62,500 -
Issuance of common stock (net of offering
costs of $338,157) 1,300 4,710,543 -
Exercise of stock options 111 362,146 -
Issuance of common stock under stock
purchase plan 17 44,248 -
Provision for compensation - stock options - 156,844 -
Net loss - - (15,088,682)
-----------------------------------------
Balance July 31, 1994 11,764 73,314,188 (62,110,946)
Issuance of common stock (net of offering
costs of $16,000) 400 1,583,600 -
Exercise of stock options 16 50,098 -
Issuance of common stock under stock
purchase plan 7 13,276 -
Net loss - - (4,338,612)
-----------------------------------------
Balance July 31, 1995 12,187 74,961,162 (66,449,558)
Issuance of common stock (net of offering
costs of $49,148) 735 1,825,117 -
Exercise of stock options 11 26,939 -
Issuance of common stock under stock
purchase plan 4 10,469 -
Net loss - - (4,205,535)
-----------------------------------------
Balance July 31, 1996 $12,937 $76,823,687 $(70,655,093)
=========================================
</TABLE>

See accompanying notes.
5

<PAGE> 32

ARI Network Services, Inc.

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
YEAR ENDED JULY 31
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(4,205,535) $(4,338,612) $(15,088,682)
Adjustments to reconcile net loss to net cash
used in operating activities:
Minority interest in loss of subsidiary - - (41,117)
Amortization of network system 1,244,157 1,591,238 10,622,396
Depreciation and other amortization 555,767 796,804 891,567
Provision for compensation - stock options - - 156,844
Extraordinary credit - - (937,171)
Provision (credit) for losses on note receivable - (94,350) 250,000
Other - (52,853) 19,034
Net change in receivables and prepaid expenses (206,405) 62,245 257,147
Net change in accounts payable, unearned
income and accrued expenses 94,467 (194,968) 665,419
----------------------------------------
Net cash used in operating activities (2,517,549) (2,230,496) (3,204,563)

INVESTING ACTIVITIES
Sale of short-term investments - - 1,011,189
Purchase of equipment and leasehold
improvements (11,069) (58,467) (128,594)
Collection of note receivable - 144,350 -
Network system costs capitalized (1,230,343) (1,616,016) (2,602,024)
Purchase of Dynatec Systems Corporation - - (10,000)
----------------------------------------
Net cash used in investing activities (1,241,412) (1,530,133) (1,729,429)

FINANCING ACTIVITIES
Borrowings under line of credit 2,100,000 1,400,000 -
Payments of capital lease obligations and
notes payable (68,537) (80,363) (286,217)
Proceeds from issuance of common stock 1,863,275 1,647,397 5,118,365
Deferred financing fees - - (70,000)
----------------------------------------
Net cash provided by financing activities 3,894,738 2,967,034 4,762,148
----------------------------------------
Net increase (decrease) in cash and cash
equivalents 135,777 (793,595) (171,844)
Cash and cash equivalents at beginning of year 235,928 1,029,523 1,201,367
----------------------------------------
Cash and cash equivalents at end of year $ 371,705 $ 235,928 $ 1,029,523
========================================
Cash paid for interest $ 286,187 $ 65,474 $ 96,883
========================================

NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations incurred for -
Network system hardware $ 12,939 $ 44,465 $ 119,747
</TABLE>

See accompanying notes.
6

<PAGE> 33

ARI Network Services, Inc.

Notes to Consolidated Financial Statements

July 31, 1996

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

ARI Network Services, Inc. (the Company) operates in one business segment and
provides customer-side Internet-enabled business to business electronic
commerce services to companies in three vertical markets: Agribusiness,
Publishing and Transportation. The Company provides two types of electronic
commerce services, transaction management and data management, that enable its
customers to do business electronically with their customers. The Company's
customers are located primarily in the United States and Canada.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Dynatec Systems Corporation (Dynatec). Accounts
and transactions between the Company and Dynatec have been eliminated in the
accompanying consolidated financial statements.

CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

REVENUE RECOGNITION

The Company recognizes revenue from sales of software packages upon delivery of
the software to the customer. When significant obligations remain after the
software product has been delivered, revenue is not recognized until such
obligations have been completed or are no longer significant. The costs of any
insignificant obligations are accrued when the revenue is recognized.

Revenue for use of the network and for information services is recognized in
the period such services are utilized.

Revenue from startup fees is recognized in the period such fees become due if
the fees are not subject to refund or adjustment and when collection is
probable and the Company has no significant remaining obligation.

Revenue from annual or periodic maintenance fees is recognized over the period
the maintenance is provided.

<PAGE> 34

ARI Network Services, Inc.

Notes to Consolidated Financial Statements (continued)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements are stated at cost. Depreciation and
amortization are computed under the straight-line method for financial
reporting purposes and under accelerated methods for income tax purposes.
Depreciation and amortization have been provided over the estimated useful
lives of the assets as follows:

<TABLE>
<CAPTION>
Years
------
<S> <C>
Network system hardware 2 - 10
Leasehold improvements 1 - 10
Furniture and equipment 2 - 10
</TABLE>

NETWORK CONSTRUCTION AND EXPANSION AND SOFTWARE DEVELOPMENT

The Company has developed a basic network and telecommunications platform which
is the foundation of its network. The platform can be used on different
hardware and is not subject to the frequency of technological changes that
sometimes occur with hardware or industry-specific applications.

The Company also develops and purchases industry-specific software applications
for personal computers and mainframes which, when utilized with the platform,
give rise to the Company's products and services tailored to its targeted
industries.

Certain software development costs and network construction and expansion costs
are capitalized when incurred. Capitalization of these costs begins upon the
establishment of technological feasibility. The establishment of technological
feasibility and the ongoing assessment of recoverability of software and
network system costs requires considerable judgment by management with respect
to certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic life and
changes in software and hardware technologies.

<PAGE> 35

ARI Network Services, Inc.

Notes to Consolidated Financial Statements (continued)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The annual amortization of the platform and the industry-specific software
applications is the greater of the amount computed using (a) the ratio that
current gross revenues for the network or an industry-specific product bear to
the total of current and anticipated future gross revenues for the network or
an industry-specific product or (b) the straight-line method over the estimated
economic life of the product (20 years - platform, 5 years - industry-specific
software applications). Amortization starts when the product is available for
general release to customers.

All other network construction and expansion expenditures are charged to
network construction and expansion expense in the period incurred.

During the fourth quarter of fiscal 1994, the Company incurred an additional
amortization charge of $7,712,732 related to industry-specific applications
used in its network system. This charge resulted from management's decision to
move from DOS to Microsoft Windows(TM) during fiscal 1995 as the principal
operating system for customer use of the industry-specific software
applications. The Company made the decision to move from DOS to the Microsoft
Windows(TM) environment after the hiring of a new chief executive officer on
July 1, 1994. The decision was based on management's belief that Microsoft
Windows(TM) would become the operating system of choice among the users of the
Company's network and that the development tools available in the Microsoft
Windows(TM) environment provide a more efficient means of implementing
user-friendly software applications. The Company accelerated the estimated
economic lives of the DOS applications being replaced by the Microsoft
Windows(TM) versions. The net book value of these applications was adjusted to
reflect the lessor of the remaining economic life of the applications or the
future revenue streams associated with the applications.

CAPITALIZED INTEREST COSTS

In 1996, 1995 and 1994, interest costs of $40,865, $6,385 and $87,477,
respectively, were capitalized and included in the network system.

LOSS PER COMMON SHARE

Loss per common share is computed by dividing the loss by the weighted average
number of shares of common stock outstanding during each year.

<PAGE> 36

ARI Network Services, Inc.

Notes to Consolidated Financial Statements (continued)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RESTRUCTURING COSTS

During fiscal 1994, the Company incurred a $500,000 charge to restructure the
Company's management team, strengthen sales and marketing activities and reduce
expenses. The charge represented severance benefits and related expenses paid
to 40 terminated employees.

RECENT ACCOUNTING PRONOUNCEMENT

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121
is effective for fiscal years beginning after December 15, 1995. The Company
believes that the future adoption of SFAS No. 121 will have no material effect
on the results of operations or financial position.

2. REVOLVING LINES OF CREDIT

In December 1994, the Company entered into a $1,500,000 revolving line of
credit agreement with two shareholders. On October 18, 1995, the agreement was
extended and expires on December 31, 1996. Borrowings under the agreement are
subject to repayment or conversion upon future equity offerings. The revolving
line of credit will be repaid to the extent of cash proceeds received by the
Company from the sale of common stock, other than upon exercise of options,
warrants or rights. However, in the event either shareholder desires to
purchase common stock from the Company as part of such a sale, the amounts owed
to the shareholder will be reduced in lieu of the cash payment for the purchase
price of the common stock. The conversion price under the revolving line of
credit agreement is not fixed.

In addition, the Company has a $1,500,000 revolving line of credit agreement
with a shareholder that was extended on October 18, 1995 to expire on December
31, 1996. The Company is required to pay a fee of .025% per month on the unused
portion of the line of credit. In connection with this agreement, the Company
issued the shareholder a warrant to purchase 250,000 shares of common stock at
$2 per share. The value of the warrant of $62,500 was recorded as additional
paid-in capital in fiscal 1994. In connection with an extension of the
agreement on October 18, 1995, a warrant for an additional 250,000 shares of
common stock at $2 per share was issued, which approximated fair market value.
The warrants will lapse on September 30, 2000, as to any shares of common stock

<PAGE> 37
ARI Network Services, Inc.

Notes to Consolidated Financial Statements (continued)

2. REVOLVING LINES OF CREDIT (CONTINUED)

not issued. In addition, on October 18, 1995, the shareholder agreed to
cancel the warrant it had been issued that provided the shareholder the right
to purchase one share of common stock for each dollar of the maximum
principal drawn under the line of credit agreement. On April 20, 1996, this
line of credit was amended to provide a bridge loan of $500,000. Borrowings
under the bridge loan bear interest at prime plus 2% through June 30, 1996
and at prime plus 6% thereafter.

Borrowings under the lines of credit bear interest at prime plus 2%. The
line of credit agreements are secured by substantially all assets of the
Company. The agreements contain various restrictive covenants including
maintenance of a minimum level of net worth and restrictions on additional
indebtedness.

3. CAPITAL AND OPERATING LEASES, RELATED-PARTY TRANSACTIONS AND
EXTRAORDINARY CREDIT

At July 31, 1996 and 1995, the following amounts of assets acquired in capital
lease transactions are included in the cost of equipment:

<TABLE>
<CAPTION>
1996 1995
------------------
<S> <C> <C>
Network system hardware $586,086 $573,147
Furniture and equipment 115,398 115,398
------------------
701,484 688,545
Less accumulated amortization 500,453 360,156
------------------
$201,031 $328,389
==================
</TABLE>

The Company leases its office space under an operating lease arrangement
expiring in fiscal 1997. The Company is liable for its share of increases in
the landlord's direct operating expenses and real estate taxes up to 5% of the
previous year's rent. The total rental expense for the operating lease was
$946,000 in 1996, $917,000 in 1995 and $850,000 in 1994.

On May 13, 1994, International Business Machines Corporation (IBM), a former
shareholder, sold all of its shares of the Company's common stock in an open
market transaction. Concurrently, IBM released the Company from capital lease
obligations with IBM with a remaining aggregate balance due of $937,171. The
extinguishment of these capital lease obligations has been classified as an
extraordinary credit in the accompanying statement of operations. Ownership of
the assets covered by these capital lease obligations has been transferred to
the Company.

<PAGE> 38

ARI Network Services, Inc.

Notes to Consolidated Financial Statements (continued)

3. CAPITAL AND OPERATING LEASES, RELATED-PARTY TRANSACTIONS AND
EXTRAORDINARY CREDIT (CONTINUED)

Minimum lease payments under remaining capital and operating leases are as
follows:

<TABLE>
<CAPTION>
Fiscal year ending Capital Leases Operating Lease
- ------------------ -------------- ---------------
<S> <C> <C>
1997 $68,178 $911,000
1998 19,272 -
1999 4,080 -
-----------------------------
Total minimum lease payments 91,530 $911,000
========
Amounts representing interest 5,906
-------
Present value of minimum capital
lease payments 85,624
Less amounts payable in one year 63,479
-------
$22,145
=======
</TABLE>

Equipment lease payments to IBM by the Company were $234,000 in 1994.
Depreciation expense for the assets acquired in capital leases with IBM and
interest expense included in the equipment lease payments to IBM were $299,000
and $59,000, respectively, in 1994.

The Company licenses certain operating system and data base software from IBM
under perpetual licensing agreements. Pursuant to these agreements, the Company
paid IBM license fees and hardware maintenance charges of $387,000 in 1994.

The Company and Quaestus Limited Partnership (Quaestus), a shareholder, entered
into an agreement dated September 30, 1993, whereby Quaestus assisted the
Company in fiscal 1994 with investor relations, executive recruiting, business
and strategic planning and corporate finance matters for $10,975 per month plus
expenses. In addition, during fiscal 1994, the Company incurred approximately
$180,000 and $271,000 of additional hourly charges for consulting services
provided by Quaestus in connection with the restructuring and the common stock
offerings, respectively. During fiscal 1995, the Company expensed $20,000 per
month in the first fiscal quarter, $15,000 per month in the second fiscal
quarter and $11,000 per month in the third and fourth fiscal quarters for the
same services as in fiscal 1994. In September 1994, Quaestus was issued a
warrant to purchase 250,000 shares of common stock at $4.25 per share. During
fiscal 1996, the Company expensed $11,000 in each of August and September 1995
and $20,000 per month for the remainder of fiscal 1996 for services provided by
Quaestus.

<PAGE> 39

ARI Network Services, Inc.

Notes to Consolidated Financial Statements (continued)

4. SHAREHOLDERS' EQUITY

In connection with the issuance of common stock in fiscal 1995, the Company
issued a shareholder a warrant to purchase an additional 125,000 shares of
common stock at $4.00 per share, exercisable through December 1997.

On January 19, 1994, the Company accepted subscriptions for the sale of
1,000,000 shares of common stock at $3.25 per share, and issued such shares in
January 1994 and April 1994. On May 20, 1994, the Company issued 300,000 shares
of common stock at $6.00 per share and the Company issued the shareholder a
warrant to purchase an additional 300,000 shares of common stock at $10.00 per
share. Total proceeds from these issuances of shares of common stock, net of
offering costs, were $4,711,843.

5. STOCK PLANS

The Company's 1991 Stock Option Plan (Stock Option Plan) has 1,500,000 shares
of common stock reserved for issuance.

Options granted under the Stock Option Plan may be either (a) options intended
to qualify as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended, or (b) nonqualified stock options.

Any incentive stock option that is granted under the Stock Option Plan may not
be granted at a price less than the fair market value of the stock on the date
of grant (or less than 110% of the fair market value in the case of holders of
10% or more of the voting stock of the Company). Nonqualified stock options may
be granted at the exercise price established by the Stock Option Committee,
which may be less than, equal to, or greater than the fair market value of the
stock on the date of grant.

Each option granted under the Stock Option Plan is exercisable for a period of
ten years from the date of grant (five years in the case of a holder of more
than 10% of the voting stock of the Company) or such shorter period as
determined by the Stock Option Committee and shall lapse upon the expiration of
said period, or earlier upon termination of the participant's employment with
the Company.

At its discretion, the Stock Option Committee may require a participant to be
employed by the Company for a designated number of years prior to exercising
any options. The Committee may also require a participant to meet certain
performance criteria, or that the Company meet certain targets or goals, prior
to exercising any options.

<PAGE> 40

ARI Network Services, Inc.

Notes to Consolidated Financial Statements (continued)

5. STOCK PLANS (CONTINUED)

Changes in option shares under the Stock Option Plan are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Options outstanding at beginning of year 685,097 994,570 615,872
Granted:
1996--$1.625 to $2.50 per share 485,600 - -
1995--$2.75 per share - 226,000 -
1994--$2.875 to $3.875 per share - - 718,332
Exercised -
1996--$2.50 per share (10,780) - -
1995--$2.00 to $3.50 per share - (16,171) -
1994--$2.50 to $3.75 per share - - (110,401)
Canceled or expired (115,061) (519,302) (229,233)
-------------------------------
Options outstanding at end of year 1,044,856 685,097 994,570
===============================
Options exercisable at July 31 487,322 384,032 407,363
===============================
Options available for grant at July 31 292,544 663,087 369,781
===============================
</TABLE>

The Company's Chairman of the Board has been granted a stock option for 100,000
shares of its common stock at $8 per share.

The Company's 1992 Employee Stock Purchase Plan (Stock Purchase Plan) has
50,000 shares of common stock reserved for issuance. All employees of the
Company, other than executive officers, with six months of service are eligible
to participate. Shares may be purchased at the end of a specified period at the
lower of 85% of the market value at the beginning or end of the specified
period through accumulation of payroll deductions. During fiscal 1996, 1995 and
1994, 4,476, 6,576 and 17,359 shares, respectively, were purchased under the
Stock Purchase Plan for proceeds of $10,473, $13,283 and $44,265, respectively.

In May 1993, the Board of Directors adopted the 1993 Director Stock Option Plan
(Director Plan), which has 120,000 shares of common stock reserved for issuance
to nonemployee directors. Options under the Director Plan are granted at the
fair market value of the stock on the date immediately preceding the date of
grant. Each option

<PAGE> 41

ARI Network Services, Inc.

Notes to Consolidated Financial Statements (continued)

5. STOCK PLANS (CONTINUED)

granted under the Director Plan is exercisable one year after the date of grant
and cannot expire later than ten years from the date of grant. Changes in
option shares under the Director Plan are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------------------------
<S> <C> <C> <C>
Options outstanding at beginning of year 73,000 39,000 18,000
Granted:
1996--$2.00 and $2.875 per share 37,800 - -
1995--$2.56 and $3.75 per share - 34,000 -
1994--$3.875 and $4.25 per share - - 21,000
Expired (20,500) - -
------------------------
Options outstanding at end of year 90,300 73,000 39,000
========================
Options exercisable at July 31 73,000 39,000 18,000
========================
Options available for grant at July 31 29,700 47,000 81,000
========================
</TABLE>

Certain nonemployee directors have been granted stock options aggregating
41,500 shares of common stock at $2 to $4.25 per share.

The Company has applied Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for its stock option plans.
Accordingly, because there was no intrinsic value at the date of grant, no
compensation cost has been recognized. No decision has been reached as to how
the Company will apply, beginning in fiscal 1997, SFAS No. 123, "Accounting for
Stock-Based Compensation," which permits the Company to continue accounting for
stock options in the same manner with fair value disclosures or to measure
compensation cost by the fair value of stock options granted after August 1,
1995.

6. INCOME TAXES

Effective August 1, 1993, the Company adopted the liability method of
accounting for income taxes in accordance with SFAS No. 109. Because of the
cumulative net operating loss carryforwards, there was no cumulative effect of
adopting SFAS No. 109 as of August 1, 1993.

<PAGE> 42

ARI Network Services, Inc.

Notes to Consolidated Financial Statements (continued)

6. INCOME TAXES (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and income tax purposes. Significant components of the Company's
deferred tax liabilities and assets as of July 31, 1996 and 1995 are as
follows:

<TABLE>
<CAPTION>
1996 1995
---------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 30,993,000 $ 29,570,000
Other 386,000 240,000
---------------------------------
Total deferred tax assets 31,379,000 29,810,000
Valuation allowance for deferred tax assets (27,748,000) (26,173,000)
---------------------------------
Net deferred tax asset 3,631,000 3,637,000
Deferred tax liabilities -
Network system 3,631,000 3,637,000
---------------------------------
Net deferred taxes $ - $ -
=================================
</TABLE>

As of July 31, 1996, the Company has unused net operating loss carryforwards
for income tax purposes of $26,808,000 expiring in 2007 through 2011.

In addition, the Company has unused net operating loss carryforwards for income
tax purposes of $18,633,000 expiring between 1997 and 2002, of which not more
than $444,000 annually can be utilized to offset taxable income. Also, the
Company has unused net operating loss carryforwards for income tax purposes of
$33,623,000 expiring between 2003 and 2007, of which not more than $3,655,000
annually can be utilized to offset taxable income. Use of the net operating
loss carryforwards is restricted under Section 382 of the Internal Revenue Code
because of changes in ownership in 1987 and 1992.

A reconciliation between income tax expense and income taxes computed by
applying the statutory federal income tax rate to net loss is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Computed income taxes at 34% $(1,430,000) $(1,475,000) $(5,130,000)
Other 5,000 4,000 2,000
Net operating loss carryforward 1,425,000 1,471,000 5,128,000
----------------------------------------
Income tax expense $ - $ - $ -
========================================
</TABLE>

16
<PAGE> 43

ARI Network Services, Inc.

Notes to Consolidated Financial Statements (continued)

7. INCENTIVE PROGRAMS

The Company has a tax-qualified retirement savings plan (the 401(k) Plan)
covering its employees. Each employee may elect to reduce his or her current
compensation by up to 15%, up to a maximum of $9,500 in calendar 1996 (subject
to adjustment in future years to reflect cost of living increases) and have the
amount of the reduction contributed to the 401(k) Plan. Company contributions
to the 401(k) Plan are at the discretion of the Board of Directors. The Company
has not made any contribution to the 401(k) Plan since its inception.

8. MAJOR CUSTOMERS

Sales to one customer were 12% and 11% of net revenues during fiscal 1996 and
1995, respectively. Accounts receivable from this customer were approximately
$116,000 and $267,000 at July 31, 1996 and 1995, respectively. Sales to one
other customer were 12% of net revenues during fiscal 1996. Accounts receivable
from this customer were approximately $149,000 at July 31, 1996.

9. FINANCIAL CONDITION

Since its organization in 1981, the Company has experienced net losses. In
addition, the Company has experienced significant negative cash flows from its
operating activities.

The Company plans additional offerings of its common stock in fiscal 1997 to
improve liquidity and provide capital resources. In addition, the Company
believes it will be able to amend its revolving line of credit agreements to
extend the agreements to July 31, 1997. In the event the equity offerings are
not successful, a shareholder has indicated they will financially support the
Company through fiscal 1997.

10. SUBSEQUENT EVENT

From August 27, 1996 through September 13, 1996, the Company issued 1,250,000
shares of common stock for total proceeds of $2,762,500.

<PAGE> 44
SCHEDULE II

ARI NETWORK SERVICES, INC.

VALUATION AND QUALIFYING ACCOUNTS
Years ended July 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO BALANCE AT
DESCRIPTION OF YEAR EXPENSE DEDUCTIONS END OF YEAR
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts-
accounts receivable:

1996 $ 122,305 $ 65,382 $ 104,569(A) $ 83,118
========= ========== ========= =========
1995 $ 64,974 $ 91,907 $ 34,576(A) $ 122,305
========= ========== ========= =========
1994 $ 59,206 $ 88,395 $ 82,627(A) $ 64,974
========= ========== ========= =========
Allowance for doubtful accounts-
note receivable:

1996 $ - $ - $ - $ -
========= ========== ========= =========
1995 $ 250,000 $ (94,350)(B) $ (55,650(B) $ -
========= ========== ========= =========
1994 $ - $ 250,000 $ - $ 250,000
========= ========== ========= =========
</TABLE>

(A) Uncollectible accounts written off, net of recoveries.

(B) During fiscal 1995, $144,350 was collected on a note receivable of
$300,000, resulting in a credit to the consolidated statement of
operations of $94,350.

<PAGE> 1
EXHIBIT 10.29

AMENDMENT NUMBER TWO TO LOAN AGREEMENT

This is an Amendment to the Loan Agreement dated as of December 2,
1994, between ARI NETWORK SERVICES, INC. ("ARI") WITECH CORPORATION ("WITECH")
AND QUAESTUS LIMITED PARTNERSHIP ("QLP" or together with WITECH, the "LENDERS")
is entered into as of the 20th day of December, 1995.

NOW, THEREFORE, the parties agree as follows:

1. The reference in Paragraph 6.2 to "Seven Million Dollars
($7,000,000)" is deleted and "Six Million Five Hundred Thousand Dollars
($6,500,000)" is substituted therefor.

2. Subject to the amendment described herein, the Loan Agreement and
associated documents and agreements remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers as of the date first
above written.

WITECH CORPORATION ARI NETWORK SERVICES, INC.

By: /s/ Francis Brzezinski By: /s/ Brian E. Dearing
------------------------------ ------------------------------

Title: President Title: President and CEO
-------------------------- --------------------------

QLP LIMITED PARTNERSHIP

By: /s/ Richard W. Weening
------------------------------

Title: Managing Partner
--------------------------

<PAGE> 1
EXHIBIT 10.31

AMENDMENT NUMBER FIVE TO LOAN AGREEMENT

THIS AMENDMENT to the Loan Agreement entered into as of October 4,
1993, between ARI NETWORK SERVICES, INC. ("ARI") and WITECH CORPORATION
("WITECH") as amended (the "Loan Agreement") is dated December 20, 1995.

BACKGROUND

This Amendment to the Loan Agreement reflects the mutual understanding
and agreement of the parties to amend the Loan Agreement regarding the
provision by WITECH of a revolving credit facility to ARI.

NOW THEREFORE, the parties agree as follows:

1. The reference in Paragraph 6.2 to "Seven Million Dollars
($7,000,000)" is deleted and "Six Million Five Hundred Thousand Dollars
($6,500,000)" is substituted therefor.

2. Subject to the amendment described herein, the Loan Agreement and
associated documents and agreements remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers as of the date first
above written.

WITECH CORPORATION ARI NETWORK SERVICES, INC.

By: /s/ Francis Brzezinski By: /s/ Brian E. Dearing
------------------------------ ------------------------------
Francis Brzezinski, President Brian E. Dearing,
President & Chief Executive Officer

<PAGE> 1
EXHIBIT 10.32

AMENDMENT NUMBER SIX TO LOAN AGREEMENT

THIS AMENDMENT to the Loan Agreement entered into as of October 4, 1993,
between ARI NETWORK SERVICES, INC. ("ARI") and WITECH CORPORATION ("WITECH") as
amended (the "Loan Agreement") is dated January 23, 1996.

BACKGROUND

NOW THEREFORE, the parties agree as follows:

1. For a period commencing on the date hereof and ending on June 30,
1996, the amount stated in Paragraph 2.2 shall be increased from One Million
Five Hundred Thousand Dollars ($1,500,000) to Two Million Dollars ($2,000,000).
The difference of Two Hundred Fifty Thousand Dollars ($250,000) plus all
interest accruing thereon at the rates stated in the Loan Agreement shall be
referred to herein as the "Bridge Loan."

2. The Bridge Loan shall be repaid in full by ARI out of the proceeds
of the sale of ARI stock pursuant to the Form S-2 filed by the Company with the
SEC on January 24, 1996, prior to the use of such proceeds for any other
purpose. In any event the Bridge Loan shall be repaid by ARI not later than
February 29, 1996. In the event that any amount of the Bridge Loan remains
outstanding after February 29, 1996, such unpaid amount shall bear interest at
a rate per annum equal to the Prime Rate plus 6.0% from the date of such
nonpayment until the Bridge Loan is paid in full.

3. Subject to the amendment described herein, the Loan Agreement and
associated documents and agreements remain in full force and effect and the
Bridge Loan shall be subject to all of the terms and conditions of such
documents.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers as of the date first
above written.

WITECH CORPORATION ARI NETWORK SERVICES, INC.

By: /s/ Francis Brzezinski By: /s/ Brian E. Dearing
----------------------------- -------------------------------
Francis Brzezinski, President Brian E. Dearing, President

<PAGE> 1
EXHIBIT 10.35
October 20, 1995

Mr. Brian Dearing
No. 2, Hartfield Drive
Beaconsfield, Bucks HP9 1AA
ENGLAND

Dear Brian:

On behalf of the Board of Directors of ARI Network Services, I am pleased to
extend you an offer for the position of President and Chief Executive Officer
of the Company on the following terms and conditions:

Position: As Chief Executive Officer and President, you will report directly to
the Board of Directors. You will be appointed as a member of the Board of
Directors as long as you serve as President and CEO. The commencement date of
your employment will be on or before November 14, 1995.

Base Salary: You will receive a base salary at the rate of $12,500 per month
(an annualized rate of $150,000) at such times as ARI's payroll obligations are
normally paid. The Board will review your salary on an annual basis.

Executive Bonus Plan: The terms of your bonus will be agreed by you and the
Board and will be based upon meeting business plan objectives. The intent of
the Board is to implement the plan within ninety days of your commencement date.
The plan will be defined such that you may earn up to $50,000 in bonus cash
compensation in your first year of employment if you achieve 100% of selected
milestones outlined in the business plan. The bonus plan will include
additional upside cash bonus for achievement beyond the plan targets.

Equity Participation: Upon commencement of your employment, you will be
granted options to purchase three hundred fifty thousand (350,000) shares of
the Company's common stock at a price per share which will be equal to the
midpoint between ask and bid on the date of offer acceptance.

Vesting: Upon commencement of your employment, your options will vest over a
three (3)-year period with thirty-three and one-third (33-1/3) percent vesting
occurring at the end of
<PAGE> 2
Mr. Brian Dearing
October 20, 1995
Page 2

twelve (12) months continuous employment. Following the first twelve (12)
months of continuous employment, vesting of the remaining options will occur at
the rate of one thirty-sixth per month for the following twenty-four months, at
the conclusion of which you will become fully vested.

Severance: For involuntary termination for any reason within twenty-four (24)
months following the commencement of your employment, or following a decision
by the Board to sell, merge or liquidate the Company within eighteen (18)
months of the commencement of your employment, you will receive full salary
continuance and company-paid medical/dental insurance benefits for nine (9)
months.

For voluntary termination for any reason other than the above Board actions
within twenty-four (24) months of the commencement of your employment, you will
receive your salary and medical/dental insurance benefits through the earlier
of the end of the month following your termination, or the date on which you
start new employment.

Relocation Expenses: You will be reimbursed for the following relocation
expenses: (1) Moving costs for all standard household items from the UK and
Columbus, Ohio; (2) all new home closing costs with a maximum of two (2)
points; (3) temporary housing/living expenses for you and your family for a
maximum of ninety (90) days from commencement of employment; (4) two-house
hunting trips for two people, and (5) interim storage of household items moved
from the UK for up to ninety (90) days. We ask that you obtain quotes for
moving from several vendors, and we will mutually agree on the selection of the
ultimate vendor.

Miscellaneous Expenses: You will receive a cash allowance of up to $20,000 to
cover additional specific, pre-approved, out-of-pocket expenses associated with
your move, such as (1) penalty for early withdrawal from private schools; (2)
early termination of home lease in the United Kingdom; and (3) reimbursement
for your expatriate income tax preparation for 1995.

Income Gross-up: Income gross-up, in an amount not to exceed $10,000, to offset
tax liability that may be incurred for reimbursement of relocation and/or
temporary housing/living expenses.

<PAGE> 3
Mr. Brian Dearing
October 20, 1995
Page 3

Insurance: You and your dependents will be eligible to participate in ARI's
benefits plan to be delivered under separate cover.

General: You will be required to sign the Company's confidentiality agreement
and bring documentation for completion of the I-9 (employment verification)
form. Your employment with ARI is "at will," which means that either party can
terminate the relationship at any time for any reason with or without
notice.

Brian, we are pleased to have you join our team, and we look forward to working
with you to build a great company. Please indicate your acceptance to these
terms by signing below and returning one original to the Company.

Very truly yours,

/s/ Richard W. Weening

Richard W. Weening
Chairman

Accepted: /s/ Brian E. Dearing Date: October 24, 1995
------------------------- --------------------

<PAGE> 1

EXHIBIT 10.36

SEPARATION AGREEMENT

This Agreement is made as of the last date set forth opposite any
signature hereto between Patrick T. Bergamasco ("Employee") and ARI Network
Services, Inc. (the "Company").

BACKGROUND OF THIS AGREEMENT

The Employee and the Company have terminated their employment
relationship, effective August 1, 1996. In view of this, they desire to resolve
all aspects of the employment relationship between them, provide for certain
severance arrangements, and reduce their agreement to writing.

NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the sufficiency of which is hereby acknowledged, the parties agree to as
follows:

AGREEMENT

1. Unconditional Benefits to the Employee. Whether or not
Employee chooses to execute this Agreement or exercise his revocation rights
(as explained

-1-

<PAGE> 2

below), the Company will pay Employee all wages due through the last day worked
and for all accrued and unused vacation.

2. Conditional Benefits to the Employee. Subject to and
conditional upon the Employee executing this Agreement within the time frame
specified hereunder and the Employee not exercising his revocation rights
hereunder, the Company agrees to provide the following benefits:

A. The Company will continue to pay Employee's base salary
for the work days within a 120 calendar day period; provided, however,
that if Employee begins employment with another employer, the remaining
payments will be reduced to the amount by which, if any, the Employee's
weekly base salary at the Company exceeds the weekly base salary earned
from the new employer. This benefit shall be in addition to all regular
wages due the employee from the Company and shall be paid beginning on
the first regular pay date following the third business day following
the complete execution of this agreement and continuing for each regular
pay period thereafter until the final payment on regular pay date
following the 120th calendar day after the effective date. It is
understood that this period of salary continuation does not extend to
any benefit provided by the Company and it is expressly understood that
all Company subsidies respecting benefits to which Employee was
entitled

-2-

<PAGE> 3

prior to the termination of his employment with the Company will cease
effective the end of the month following separation. Further Employee's
right, if any, to his and/or his spouse's or his dependents' medical
insurance continuation rights as provided under the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") shall commence as provided
by law on December 1, 1996.

B. The Company agrees that it will not contest Employee's
entitlement to unemployment compensation benefits. Employee acknowledges
that he is not entitled to any of the benefits described in this
paragraph absent his participation in this Agreement.

3. Benefits to the Company. In exchange for the consideration
provided in Paragraph 2, above, Employee agrees as follows:

A. That, by signing this Agreement and accepting its
terms, he will provide the release and covenant not to sue in
Paragraph 5.

B. That, during the severance period, Employee will be
available, upon reasonable notice and without further compensation by
the Company, to answer questions posed by the Company. In furtherance of
this commitment, Employee agrees to keep the Company informed as to his
whereabouts if he leaves town for a period of more

-3-
<PAGE> 4

then three business days, so that the Company may contact him if
necessary.

C. That Employee will work with the Company to formulate a
plan for transition of his department to Brian Dearing.

4. Payments Under This Agreement. The Company shall deduct from
payments made under this Agreement any federal, state or local withholding or
other taxes or charges which the Company is from time to time required to
deduct under applicable law and all amounts payable to Employee under this
Agreement are stated herein before any such deduction(s). The Company shall
have the right to rely upon an opinion of its regular accountants or other tax
advisors if any questions should arise as to any such deduction(s). All
payments under this Agreement shall be made in accordance with the Company's
regular payroll practices.

5. Release of Claims.

A. Employee Release. In exchange for the benefits and
payments to him described in this Agreement (which he acknowledges to be
greater, in their totality, than any benefits due him absent this
Agreement), the Employee hereby irrevocably and unconditionally
releases, waives, and fully and forever discharges ARI Network Services,
Inc., its related corporations and other businesses and their past and
current agents, servants, officers, directors, stockholders, attorneys,
and employees and their respective successors and

-4-
<PAGE> 5

assigns (the "Released Parties") from and against any and all claims,
liabilities, obligations, covenants, rights, demands and damages of any
nature whatsoever, whether known or unknown, anticipated or
unanticipated, relating to or arising out of any agreement, act,
omission, occurrence, transaction or matter up to and including the date
of this Agreement, including, without limitation, any and all claims
relating to or arising out of his employment by the Company or the
termination thereof. This Release of Claims includes, but is not limited
to, any claims or remedies arising under or affected by Title VII of the
Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the
Equal Pay Act, as amended, the Employee Retirement Income Security Act,
as amended, the Americans With Disabilities Act, the Fair Labor
Standards Act, as amended, the Family and Medical Leave Act of 1993, the
Wisconsin Fair Employment Act, as amended, the Wisconsin Family and
Medical Leave Act, or any other local, state or federal laws, whether
statutorily codified or not, or any claim arising in contract or in
tort.

B. Agreement Not To Sue. To the fullest extent permitted
by law, the Employee covenants and agrees not to bring any claim,
action, suit or proceeding against any of the Released Parties, directly
or indirectly, regarding or related in any manner to the matters
released hereby and further covenants

-5-

<PAGE> 6

and agrees that this Agreement is a bar to any such claim, action, suit
or proceeding.

C. Scope of Release. Nothing in the waivers or releases
set forth in this Agreement shall be construed to constitute any release
or waiver by the Employee of any rights or claims against the Company
arising under this Agreement or after the date of this Agreement. This
Release will not apply to any accrued, vested benefits that the Employee
may have as of the date of the termination of his employment with the
Company in any benefit plan maintained by the Company or respecting any
claims under the Wisconsin Workers' Compensation Act.

D. Waiver of Reinstatement. The Employee waives any and
all rights to reinstatement to employment, and hereby agrees not to
reapply for employment with the Company, its successors or related
and/or affiliated companies.

6. Stock Options. Employee understands and acknowledges and
agrees that all unexercised stock options in the Company expired at the close
of business on August 5, 1996.

7. Non-Admission. Neither the negotiations concerning this
Agreement, nor the actual provision of consideration set forth in this
document, nor the Company's drafting or execution of this document shall be
construed as an acknowledgement or

-6-
<PAGE> 7

admission by the Company of any liability to the Employee or any other
individual or entity or of any wrongdoing under federal, state or local law.

8. Confidentiality. The Employee agrees that the terms of this
Agreement with the exception of Paragraph 12, and the discussions leading to
its execution are confidential. He will not disclose any information concerning
them or concerning Employee's termination of employment to anyone at any time
unless compelled to do so under subpoena or other judicial process; fact or
terms of this Agreement as required to administer this Agreement and Employee
may make such disclosures to his spouse, if applicable, (who shall be informed
of these requirements and shall be bound by them). Further, the employee may
disclose such information to his attorneys and tax advisors.

9. Non-Disparagement. Following the termination of Employee's
employment on August 1, 1996, including the period of salary continuation, the
Employee will conduct himself in a professional manner and will make no
disparaging or negative comments regarding the Company, its employees, or its
management.

10. No Hiring, Recruiting of Company Employees. During the
eighteen (18) months following his last day of employment with the Company,
Employee agrees not to recruit or hire any individuals employed at the Company
as of the last day of his employment at the Company for any position or
employment other than at the Company. This prohibition is intended to prohibit
Employee from directly participating

-7-
<PAGE> 8

in such activity, or encouraging any such Company employee to accept employment
elsewhere or aiding or assisting another in the recruitment of such Company
employee during such period. Nothing herein shall prevent Employee from
providing personal references on behalf of ARI employees who are seeking
employment outside of ARI.

11. Entire Agreement. This Agreement constitutes the complete
understanding between the parties concerning all matters affecting the
Employee's employment with the Company and the termination thereof and
supersedes all prior agreements, understandings and practices concerning such
matters, including, without limitation, any prior employment agreement the
Employee may have had with the Company, the provisions of any Company personnel
documents, handbooks or policies and any prior customs or practices of the
Company with respect to bonuses, severance pay, fringe benefits or otherwise.

-8-

<PAGE> 9

12. Additional Confidentiality Obligations

A. Definition of Inventions. For purposes of this
Paragraph 12, the term "Inventions" will mean all inventions, discoveries
and/or product designs, improvements or copyrightable works conceived,
authored or developed by Employee, either individually or jointly with others,
at any time during the term of his employment by ARI or during the one year
period thereafter which relate to ARI's business and were developed by Employee
at the request of ARI or are based upon knowledge Employee gained as a result
of his employment with ARI regarding ARI's business, products, services or
marketing strategies.

B. Title to Inventions. All Inventions shall be and
remain the sole and exclusive property of ARI. Employee shall promptly and
freely disclose any Inventions to ARI management personnel and, if requested to
do so, provide ARI a written description thereof. Employee shall make and
maintain adequate current written records of all Inventions in the form of
notebook records, sketches, drawings or reports, which records shall be and
remain the property of and available to ARI at all times.

C. Other Work Product. All other work product produced
within the scope of Employee's employment with ARI including, but not limited
to, trade

-9-

<PAGE> 10

secrets, trade names, trademarks, or any other Proprietary Information
(as defined below), shall belong exclusively to ARI.

D. Proprietary Information. Employee shall carefully
guard the proprietary, confidential, private or non-published
information relating to the business, operation or financial affairs of
ARI or similar information owned by others which ARI is obligated by
contract to keep confidential learned by Employee during his employment
by ARI ("Proprietary Information"). Employee will not, at anytime during
the term of his employment with ARI or thereafter, disclose to anyone,
directly or indirectly, nor use for the benefit of Employee or third
parties, any such Proprietary Information without the prior written
consent of ARI. In the case of Proprietary Information which does not
constitute a "trade secret" (as defined below) the confidentiality
provisions of this paragraph will apply only during the two years after
the date hereof. For purposes hereof, the term "trade secret" shall be
defined as provided by State and Federal law.

E. Return of Materials. Upon leaving the employ of ARI,
Employee will not take with him, without the prior written consent of
ARI, any software source or object code, engineering or manufacturing
drawings, blueprints, letters, ledgers, customer or supplier information
or lists, marketing materials, bills of material, or copies thereof, or
any computer tapes, diskettes,

-10-
<PAGE> 11

papers or records containing Proprietary Information or Inventions and
Employee will return to ARI any of the same previously taken.

F. Patent and Copyright Registrations. Employee will
furnish such information and assistance as may be required by ARI, at
its expense, to obtain, perfect, assign and/or maintain domestic and
foreign patents or copyright registrations for any patentable inventions
or copyrightable works conceived by Employee during the term of his
employment by ARI. Employee also will, during and after his employment
by ARI, without charge, review and execute any application or documents
necessary to obtain such patents or copyright registrations and vest
title thereto in ARI.

G. Injunctions. Employee recognizes that irreparable and
incalculable injury will result to ARI, its business and property, in
the event of a breach by Employee of the restrictions imposed by this
Paragraph 12. Employee therefore agrees that in the event of any such
breach, ARI will be entitled, in addition to any other remedies and
damages, to an injunction restraining further violation of such
restrictions by Employee and by any other person for whom Employee may
be acting or who is acting for, or in concert with, Employee. If ARI is
awarded an injunction or other remedy in connection with the enforcement
of such restrictions, Employee will pay all costs and expenses

-11-

<PAGE> 12

(including attorneys' fees) reasonably incurred by ARI in such
enforcement effort.

H. Restrictions Reasonable. Employee acknowledges that:
(i) Employee is familiar with the nature of ARI's business; (ii)
Employee has read and understands the nature and scope of the
restrictions set forth in this Agreement; and (iii) that ARI has
invested and will continue to invest substantial effort and sums of
money to develop and promote ARI products, services and goodwill
together with Proprietary Information. Employee therefore acknowledges
and represents that such restrictions are appropriate, necessary and
reasonable for the protection of the business, goodwill and property
rights of ARI and will not prevent employee from earning a living after
the termination of his employment with ARI.

I. Future Employers. For the period of two years
immediately following the end of Employee's employment by ARI, Employee
will inform each new employer, prior to accepting employment, of the
existence of this Paragraph 12 and provide that employer with a copy of
this Paragraph 12. ARI may, if it so desires, send a copy of this
Paragraph 12 to, or otherwise make the provisions hereof known to, any
such employer.

13. No Prevailing Party Designation. The parties agree that this
Agreement shall not be construed to render Employee a "prevailing party" within
the

-12-

<PAGE> 13
meaning of any law, statute or ordinance allowing attorneys' fees and/or costs
to a party who "prevails" in any manner or sense, nor shall this Agreement be
deemed to constitute a factor supporting an award of attorneys' fees and/or
costs under any law, statute or ordinance.

14. Interpretation. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Employee and such officer as may be
specifically designated by the Company.

15. Governing Law, Successors and Assigns. This Agreement
shall be governed and construed in accordance with the laws of Wisconsin and
shall be binding upon the parties hereto and their respective successors and
assigns.

IN WITNESS WHEREOF, the parties hereto have executed this
Separation Agreement on the last day, month and year below written.

ARI NETWORK SERVICES, INC.

8/8/96 By: /s/ Brian E. Dearing
- --------------------- ---------------------------------
Date Brian E. Dearing, President & CEO

8/8/96 /s/ Patrick T. Bergamasco
- --------------------- ----------------------------------
Date Patrick T. Bergamasco

-13-
<PAGE> 14
ADDENDUM

Acknowledgement of additional items as part of agreement:

- -- Company will provide, at no expense to employee, the use of an office
and administrative/secretarial support for a period of (4) months from
the effective date of this agreement. Company will also provide
continual use of the Company's telephone credit card for the four month
period or until employee is successful in finding other employment
whichever comes first. Use of the telephone credit card is to be for
job-search purposes only.

- -- Company will reimburse employee for up to $1,500 in expenses incurred
with professional outplacement and or consulting services. Employee
will submit an expense account for reimbursement of such fees.

- -- At the conclusion of this agreement, 120 days from the effective date,
and in the event that the employee has not secured acceptable employment
employee may request an additional (2) months of severance, use of
office and secretarial assistance. The employee understands that
Company is under no obligation to grant such extension in whole or in
part.

ARI NETWORK SERVICES, INC.

8/8/96 By: /s/ Brian E. Dearing
- ------------ ---------------------------------
Date Brian E. Dearing, President & CEO

8/8/96 /s/ Patrick T. Bergamasco
- ------------ ----------------------------------
Date Patrick T. Bergamasco

-14-

<PAGE> 1
EXHIBIT 11

ARI NETWORK SERVICES, INC.

COMPUTATION OF NET LOSS PER SHARE
Years ended July 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Average shares outstanding 12,455,335 12,071,135 10,904,011
=========================================
Loss before extraordinary credit $(4,205,535) $(4,338,612) $(16,025,853)
Extraordinary credit - - 937,171
-----------------------------------------
Net loss $(4,205,535) $(4,338,612) $(15,088,682)
=========================================

Per share amounts:
Loss before extraordinary credit $(.34) $(.36) $(1.47)
Extraordinary credit - - .09
-----------------------------------------
Net loss $(.34) $(.36) $(1.38)
=========================================
</TABLE>

<PAGE> 1
Exhibit 23.1

Consent of Ernst & Young LLP, Independent Auditors

We consent to the reference to our firm under the caption "Selected Financial
Data" and to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-48316) pertaining to the 1991 Stock Option Plan of ARI Network
Services, Inc., and in the Registration Statement (Form S-8 No. 33-54144)
pertaining to the 1992 Employee Stock Purchase Plan of ARI Network Services,
Inc., of our report dated August 30, 1996, except for Note 10 as to which the
date is September 13, 1996, with respect to the consolidated financial
statements and schedule of ARI Network Services, Inc. included in the Annual
Report (Form 10-K) for the year ended July 31, 1996.

Milwaukee, Wisconsin ERNST & YOUNG LLP
October 28, 1996

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 372
<SECURITIES> 0
<RECEIVABLES> 1,346
<ALLOWANCES> 83
<INVENTORY> 0
<CURRENT-ASSETS> 1,864
<PP&E> 4,041
<DEPRECIATION> 3,689
<TOTAL-ASSETS> 11,479
<CURRENT-LIABILITIES> 5,276
<BONDS> 22
0
0
<COMMON> 13
<OTHER-SE> 6,169
<TOTAL-LIABILITY-AND-EQUITY> 11,479
<SALES> 5,252
<TOTAL-REVENUES> 5,252
<CGS> 1,213
<TOTAL-COSTS> 7,970
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274
<INCOME-PRETAX> (4,206)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,206)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,206)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)

</TABLE>