INFORMATION ADVANTAGE SOFTWARE INC, 10-K, 1998-04-22

INFORMATION ADVANTAGE SOFTWARE INC
10-K, 1998-04-22
PREPACKAGED SOFTWARE

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1998

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

COMMISSION FILE NUMBER 0-23475

INFORMATION ADVANTAGE, INC.
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE 41-1718445
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)

7905 GOLDEN TRIANGLE DRIVE, SUITE 190
EDEN PRAIRIE, MINNESOTA 55344-7227
(Address of Principal Executive Offices, including Zip Code)

(612) 833-3700
(Registrant's Telephone Number, including Area Code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK ($0.01 PAR VALUE)

Check 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 / /

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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. / /

The aggregate market value of the voting common equity held by
non-affiliates of the registrant as of March 31, 1998 was approximately
$57,311,544.

The number of shares of the common stock of the registrant outstanding as
of March 31, 1998 was 15,515,810.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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TABLE OF CONTENTS
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PAGE
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CAUTIONARY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

ITEM 1 BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 2 PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . 23
ITEM 3 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . 24
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . 24

PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ITEM 5 MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . . 25
ITEM 6 SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . 27
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . 28
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . 36
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . . 37
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . . 51

PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . 52
ITEM 11 EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 55
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . 63

PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

INDEX TO EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
</TABLE>

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CAUTIONARY STATEMENT

INFORMATION ADVANTAGE, INC. (THE "COMPANY"), OR PERSONS ACTING ON BEHALF OF
THE COMPANY, OR OUTSIDE REVIEWERS RETAINED BY THE COMPANY MAKING STATEMENTS ON
BEHALF OF THE COMPANY, OR UNDERWRITERS OF THE COMPANY'S SECURITIES, FROM TIME TO
TIME, MAY MAKE, IN WRITING OR ORALLY, "FORWARD-LOOKING STATEMENTS" AS DEFINED
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "LITIGATION
REFORM ACT"). THIS CAUTIONARY STATEMENT, WHEN USED IN CONJUNCTION WITH AN
IDENTIFIED FORWARD-LOOKING STATEMENT, IS FOR THE PURPOSE OF QUALIFYING FOR THE
"SAFE HARBOR" PROVISIONS OF THE LITIGATION REFORM ACT AND IS INTENDED TO BE A
READILY AVAILABLE WRITTEN DOCUMENT THAT CONTAINS FACTORS WHICH COULD CAUSE
RESULTS TO DIFFER MATERIALLY FROM SUCH FORWARD-LOOKING STATEMENTS. THESE
FACTORS ARE IN ADDITION TO ANY OTHER CAUTIONARY STATEMENTS, WRITTEN OR ORAL,
WHICH MAY BE MADE, OR REFERRED TO, IN CONNECTION WITH ANY SUCH FORWARD-LOOKING
STATEMENT.

THE FOLLOWING MATTERS, AMONG OTHERS, MAY HAVE A MATERIAL ADVERSE EFFECT ON
THE BUSINESS, FINANCIAL CONDITION, LIQUIDITY, RESULTS OF OPERATIONS OR
PROSPECTS, FINANCIAL OR OTHERWISE, OF THE COMPANY. REFERENCE TO THIS CAUTIONARY
STATEMENT IN THE CONTEXT OF A FORWARD-LOOKING STATEMENT OR STATEMENTS SHALL BE
DEEMED TO BE A STATEMENT THAT ANY ONE OR MORE OF THE FOLLOWING FACTORS MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENT
OR STATEMENTS.

LIMITED OPERATING HISTORY; LACK OF PROFITABILITY

The Company was formed in 1992. Accordingly, the Company's prospects must
be considered in light of the risks and difficulties frequently encountered by
companies in the early stage of development, particularly companies in new and
rapidly evolving markets. To address these risks, the Company must, among other
things, respond to competitive developments, continue to attract, retain and
motivate qualified personnel, and continue to enhance and improve its products.
The Company has incurred net operating losses in each quarter since inception
and it is possible that the Company will not generate sufficient net income to
fully utilize its net operating loss carryforwards before they begin to expire
in 2007. As of January 31, 1998, the Company had an accumulated deficit of
$26.9 million. The Company expects to incur additional net losses. The
Company's operating losses have been due in part to the commitment of
significant resources to the Company's technical support, research and
development and sales and marketing organizations. The Company expects to
continue to devote substantial resources in these areas and, as a result, will
need to recognize significant quarterly revenues to achieve profitability. In
particular, the Company intends to continue hiring a significant number of sales
and research and development personnel over the balance of fiscal 1999. Future
operating results will depend on many factors, including, among others, demand
for and acceptance of the Company's products and services, including ongoing
acceptance of maintenance and other services purchased by existing customers,
the level of product and price competition, the ability of the Company to
control costs and to develop, market and deploy new products, the ability of the
Company to expand its direct sales force and indirect distribution channels both
domestically and internationally, the Company's success in attracting and
retaining key personnel, market acceptance of on-line analytical processing
("OLAP") products and the ability of the Company to successfully integrate
technologies and businesses it may acquire in the future. Although the
Company's revenues have increased in recent periods, there can be no assurance
that the Company's revenues will grow in future periods or, if they do grow,
that they will grow at past rates, or that the Company will ever become
profitable.

FLUCTUATIONS IN OPERATING RESULTS

The Company's limited operating history and the susceptibility of the
Company's operating results to significant fluctuations make the prediction of
future operating results unreliable and the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
The Company's operating results have in the past, and will in the future, vary
significantly due to factors such as demand for the Company's products, the size
and timing of significant orders and their fulfillment, the number, timing and
significance of product enhancements and new product announcements by the
Company and its competitors, changes in pricing policies by the Company or its
competitors, customer order deferrals in anticipation of enhancements or new
products offered by the Company

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or its competitors, the ability of the Company to develop, introduce and market
new and enhanced versions of its products on a timely basis, changes in the
Company's level of operating expenses and its ability to control costs,
budgeting cycles of its customers, product life cycles, software defects and
other product quality problems, hiring needs and personnel changes, changes in
the Company's sales incentive plans, changes in the mix of domestic and
international revenues, the level of international expansion, foreign currency
exchange rate fluctuations, performance of indirect channel partners, changes in
the mix of indirect channels through which the Company's products are offered,
the impact of consolidation by competitors and indirect channel partners and
general domestic and international economic and political conditions. A
significant portion of the Company's revenues have been, and the Company
believes will continue to be, derived from a limited number of orders placed by
large organizations. The timing of such orders and their fulfillment have
caused, and are expected to continue to cause, material fluctuations in the
Company's operating results, particularly on a quarterly basis. A significant
portion of the Company's revenues are derived from existing customers. To the
extent that such customers no longer require new licenses or ongoing support,
the Company's business, financial condition and operating results could be
materially adversely affected. The Company has, from time to time, often
recognized a substantial portion of its revenues in the last month of a quarter,
with these revenues frequently concentrated in the last two weeks of a quarter.
In addition, the Company does not operate with a large order backlog because its
software products are typically shipped shortly after orders are received, which
makes product revenues in any quarter substantially dependent on orders booked
and shipped throughout that quarter. Accordingly, revenues for any future
quarter are difficult to predict. The Company expects that as international
sales increase as a percentage of total sales it will experience weaker demand
for its server-based line of software products, DecisionSuite, during the summer
months. Product revenues are also difficult to forecast because the market for
OLAP applications is rapidly evolving, and the Company's sales cycle, which may
last from six to twelve months or more, varies substantially from customer to
customer. The Company's expense level and plans for expansion, including its
plan to significantly increase its sales and marketing and research and
development efforts, are based in significant part on the Company's expectations
of future revenues and are relatively fixed in the short-term. Consequently, if
revenue levels are below expectations, operating results are likely to be
adversely and disproportionately affected. In addition, the Company expects
that sales derived through indirect channels, which are more difficult to
forecast and generally have lower gross margins than direct sales, will increase
as a percentage of total revenues.

Based upon all of the factors described above, the Company believes that
its quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its operating
results are not necessarily meaningful and that, in any event, such comparisons
should not be relied upon as indications of future performance. Accordingly,
the Company has limited ability to forecast future revenues, and it is likely
that in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In the event that
operating results are below expectations, or in the event that adverse
conditions prevail or are perceived to prevail generally or with respect to the
Company's business, the price of the Company's Common Stock would be materially
adversely affected.

LENGTHY SALES AND IMPLEMENTATION CYCLES

The licensing of the Company's products by its customers typically involves
a significant commitment of capital and other resources, and is therefore
subject to delays frequently associated with customers' internal procedures to
approve large capital expenditures and to test and accept new technologies that
affect key operations. For these and other reasons, the sales cycle associated
with the licensing of the Company's products is typically six to twelve months
and subject to a number of significant risks that are beyond the Company's
control, including customers' budgetary constraints and internal acceptance
reviews. Because of the lengthy sales cycle and the large size of customers'
orders, if revenues forecasted from a specific customer for a particular quarter
are not realized in that quarter, the Company's operating results for that
quarter could be materially adversely affected. In addition, the time required
to deploy the Company's products can vary significantly with the needs of each
customer and the complexity of a customer's data processing needs. Accordingly,
deployment of the Company's products is generally a process that extends for
several months and may involve a pilot implementation, successful completion of
which is typically a prerequisite for full-scale deployment. In situations
involving a pilot implementation,

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revenue recognition is deferred until execution of a final license and the other
prerequisites for revenue recognition have been fulfilled. The Company has
experienced difficulty implementing DecisionSuite in the past due to the
complexity of customer requirements. The Company generally relies upon internal
resources to implement its products. There can be no assurance that the Company
will not experience delays in the implementation of orders in the future or that
third parties will be able to successfully install the Company's products. Any
delays in the implementation of DecisionSuite could have a material adverse
effect on the Company's business, operating results and financial condition. In
addition, any significant delay in the implementation of DecisionSuite could
cause a customer to reject the Company's software, which could impair the
Company's reputation and have a material adverse effect on the Company's
business, operating results and financial condition.

REVENUE RECOGNITION

License agreements executed during any quarter may not meet the Company's
revenue recognition criteria; as a result, the Company may meet or exceed its
forecast of aggregate contracting activity, but not meet its forecast for
license revenues. In addition, Statement of Position ("SOP") 97-2, "Software
Revenue Recognition" was issued in October 1997 and addresses software revenue
recognition matters primarily from a conceptual level and does not include
specific implementation guidance. The SOP supersedes SOP 91-1 and is effective
for transactions entered into for fiscal years beginning after December 15,
1997. Based on its interpretation of SOP 97-2, the Company believes it is
currently in compliance with the final standard. However, further
implementation guidelines are currently being formulated. Once issued, such
implementation guidance could lead to unanticipated changes in the Company's
current revenue accounting practices.

COMPETITION

The market in which the Company competes is intensely competitive, highly
fragmented and characterized by rapidly changing technology and evolving
standards. The Company's current and prospective competitors offer a variety of
planning and analysis software solutions and generally fall within three
categories: (i) vendors of desktop OLAP software such as Cognos and Business
Objects; (ii) vendors of multidimensional OLAP software such as Oracle
(Express), Arbor Software, Seagate (Holos) and SAS; and (iii) vendors of
OLAP/relational database software such as MicroStrategy and Platinum Technology
(Prodea). The Company has experienced and expects to continue to experience
increased competition from current and potential competitors, many of whom have
significantly greater financial, technical, marketing and other resources than
the Company. Such competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sales of their products than the
Company. Also, certain current and potential competitors, including companies
such as Microsoft, IBM, Sybase and Informix, may have greater name recognition
or more extensive customer bases that could be leveraged. These companies could
integrate competing OLAP/relational database software with other widely accepted
products resulting in a loss of market share for the Company. The Company
expects additional competition as other established and emerging companies enter
into the OLAP software market and new products and technologies are introduced.
Increased competition could result in price reductions, fewer customer orders,
reduced gross margins, longer sales cycles and loss of market share, any of
which would materially adversely affect the Company's business, operating
results and financial condition.

Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to address the needs of the Company's
prospective customers. The Company's current or future indirect channel
partners may establish cooperative relationships with current or potential
competitors of the Company, thereby limiting the Company's ability to sell its
products through particular distribution channels. Accordingly, it is possible
that new competitors or alliances among current and new competitors may emerge
and rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to obtain new licenses, and maintenance
and support renewals for existing licenses, on terms favorable to the Company.
Further, competitive pressures may require the Company to reduce the price of
DecisionSuite, which would materially adversely affect the Company's business,

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operating results and financial condition. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors, and the failure to do so would have a material adverse effect upon
the Company's business, operating results and financial condition.

DEPENDENCE ON GROWTH OF MARKET FOR OLAP APPLICATIONS AND ACCEPTANCE OF THE WEB

Although demand for DecisionSuite has grown in recent years, the market for
OLAP software applications is still emerging and there can be no assurance that
it will continue to grow or that, even if the market does grow, businesses will
adopt the Company's products. Because a significant portion of the Company's
revenues are derived from existing customer upgrades, the failure of such
upgrades to occur due to the lack of continued adoption of OLAP applications by
its installed customer base, would have a material adverse effect on the
Company's business, operating results and financial condition. The Company has
spent, and intends to continue spending, considerable resources educating
potential customers about DecisionSuite and its functions and on-line analytical
processing generally. However, there can be no assurance that such expenditures
will enable DecisionSuite to achieve any additional degree of market acceptance,
and if the market for DecisionSuite fails to grow or grows more slowly than the
Company currently anticipates, the Company's business, operating results and
financial condition would be materially adversely affected. Historically, the
software industry has experienced significant periodic downturns, often in
connection with, or in anticipation of, declines in general economic conditions
during which management information systems budgets often decrease. As a
result, the Company's business, operating results and financial condition may in
the future reflect substantial fluctuations from period to period as a
consequence of patterns and general economic conditions in the software
industry.

In addition, the success of the Company may be dependent on the acceptance
of the use of the World Wide Web as a means to disseminate information. The
Company has had limited large-scale deployment of its products for use on the
Web. If customers determine that the Company's products are not scalable or are
otherwise inadequate for Web-based use, or do not provide adequate security for
the dissemination of information over the Web, or if for any other reason
customers fail to accept the Company's products for use on the Web, the
Company's business, operating results and financial condition could be
materially adversely affected.

LIMITED LARGE-SCALE DEPLOYMENT

The Company believes that DecisionSuite can accommodate terabytes of data
and thousands of active users; however, the Company has had only a limited
number of customers who have deployed DecisionSuite in such environments. If
the Company's customers cannot successfully implement large-scale deployments or
determine for any other reason that the Company's products cannot accommodate
large-scale enterprise applications, or that such products are not required or
appropriate for such widespread use, the Company's reputation and competitive
advantage will be materially adversely affected, which would, in turn, have a
material adverse affect on the Company's business, operating results and
financial condition.

RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS

The market for the Company's products is characterized by rapid
technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changing customer demands and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable. The Company has focused its efforts on products that run on UNIX
operating systems and has not developed a product that runs on Windows NT or any
other operating system. As more of the Company's customers adopt Windows NT for
their businesses, the Company will need to develop a Windows NT version of
DecisionSuite. The development of a Windows NT product would require a
substantial investment of resources by the Company, and there is no assurance
that such a product could be introduced on a timely or cost effective basis or
at all. The Company believes that its future success will depend in large part
on its ability to support popular operating systems and databases, and on its
ability to maintain and improve its current product line and to develop new
products on a timely basis that achieve market

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acceptance, maintain technological competitiveness and meet an expanding range
of customer requirements. As a result of the complexities inherent in OLAP,
major new products and product enhancements can require long development and
testing periods. In addition, customers may delay their purchasing decisions in
anticipation of the general availability of new or enhanced versions of the
Company's products. As a result, significant delays in the general availability
of such new releases or significant problems in the installation or
implementation of such new releases could have a material adverse effect on the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be successful in developing and marketing, on a
timely and cost effective basis, product enhancements or new products that
respond to technological change, evolving industry standards or customer
requirements, that the Company will not experience difficulties that could delay
or prevent the successful development, introduction or marketing of these
enhancements or that the Company's new products and product enhancements will
achieve market acceptance.

PRODUCT AND CUSTOMER CONCENTRATION

Substantially all of the Company's revenues have been attributable to the
DecisionSuite line of products and related services. Such products and services
are currently expected to account for substantially all of the Company's
revenues for the foreseeable future. The Company's future operating results are
dependent upon continued market acceptance of DecisionSuite and enhancements to
these products. Consequently, a decline in the demand for, or market acceptance
of, DecisionSuite as a result of competition, technological change or other
factors, would have a material adverse effect on the Company's business,
operating results and financial condition.

A relatively small number of customers have accounted for a significant
percentage of the Company's revenues. In fiscal 1996, MasterCard International
Incorporated accounted for 13.6% of total revenues. In fiscal 1997, Tandy
Corporation accounted for 10.3% of total revenues. While no single customer
accounted for more than 10% of total revenues in fiscal 1998, the Company
expects that it will continue to be dependent upon a limited number of new and
existing customers for a significant portion of its revenues in future periods.
Such customers are expected to vary from period to period. As a result, the
failure by the Company to successfully sell its products or services to one or
more targeted new or existing customers in any particular period, or the
deferral or cancellation of orders by one or more of these customers, could have
a material adverse effect on the Company's business, operating results and
financial condition. The loss of a major customer, or any reduction in orders
by such customer, including reductions due to market or competitive conditions,
would have a material adverse effect on the Company's business, operating
results and financial condition.

DEPENDENCE ON SERVICE REVENUES

The Company licenses software and provides related services, which consist
of maintenance, support, training, consulting and implementation. Total license
revenues and service revenues have increased from year to year. Service
revenues represented 46.6%, 44.7% and 52.4% of total revenues for fiscal 1998,
1997 and 1996, respectively. The Company anticipates that service revenues will
continue to represent a significant percentage of total revenues. To a large
degree, the level of service revenues is dependent upon the ongoing acceptance
of maintenance contracts by the Company's growing installed customer base. If
service revenues are less than anticipated, the Company's operating results
could be materially adversely affected. The Company's ability to increase its
service revenues will depend in large part on its ability to increase the scale
of its services organization, including its ability to successfully recruit and
train a sufficient number of qualified service representatives. There can be no
assurance that the Company will be able to successfully expand its service
organization. In addition, there can be no assurance that the Company will be
successful in implementing its strategy or that such products will achieve
market acceptance, the failure of which could have a material adverse effect on
its business, operating results and financial condition.

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EXPANSION OF INDIRECT CHANNELS

The Company intends to expand its relationships with strategic partners and
to increase the proportion of the Company's customers licensed through these
indirect channels. The Company's indirect channels have accounted for less than
10% of total revenues to date. There can be no assurance that the Company will
continue to be represented by any of its indirect channels. The Company is
currently investing, and intends to increasingly invest in the future,
significant resources to develop this channel, which could adversely affect the
Company's operating results if the Company's efforts do not generate significant
license revenues. There can be no assurance that the Company will be able to
attract strategic partners that will be able to market the Company's products
effectively and will be qualified to provide timely and cost-effective customer
support and service. The failure to recruit strategic partners could adversely
affect the Company's results of operations. The Company's ability to achieve
revenue growth in the future will depend in large part on its success in
maintaining and establishing additional relationships with strategic partners.
In addition, if it is successful in selling products through this channel, the
Company's gross margins will be negatively affected due to the lower unit prices
that the Company expects to receive when selling through indirect channels.

RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS

During fiscal 1998, 1997 and 1996, the Company derived 9.7%, 9.5% and 10.7%
of its total revenues, respectively, from sales outside the United States. The
Company anticipates that for the foreseeable future a significant portion of its
revenues will be derived from sources outside the United States. The Company
intends to continue to expand its sales and support operations outside the
United States and to enter additional international markets. In order to
successfully expand international sales, the Company must establish additional
foreign operations, expand its international channel management and support
organizations, hire additional personnel, recruit additional international
resellers and increase the productivity of existing international resellers. To
the extent that the Company is unable to do so in a timely and cost-effective
manner, the Company's growth, if any, in international sales will be limited,
and the Company's business, operating results and financial condition could be
materially adversely affected. The Company also expects to commit additional
resources to customizing its products for selected international markets and
developing international channel sales and support organizations. In addition,
even if international operations are successfully expanded and the Company's
products are successfully customized, there can be no assurance that the Company
will be able to maintain or increase international market demand for its
products.

The Company's international operations are generally subject to a number of
risks, including costs of customizing products for foreign countries,
protectionist laws and business practices favoring local competition, dependence
on local vendors, compliance with multiple, conflicting and changing government
laws and regulations, longer sales and payment cycles, import and export
restrictions and tariffs, difficulties in staffing and managing foreign
operations, greater difficulty or delay in accounts receivable collection,
foreign currency exchange rate fluctuations, multiple and conflicting tax laws
and regulations and political and economic instability. To date, a majority of
the Company's revenues and costs have been denominated in U.S. dollars.
However, the Company believes that an increasing portion of the Company's
revenues and costs will be denominated in foreign currencies. Although the
Company may from time to time undertake foreign exchange hedging transactions to
cover a portion of its foreign currency transaction exposure, the Company does
not currently attempt to cover any foreign currency exposure.

MANAGEMENT OF GROWTH; NEED FOR ADDITIONAL QUALIFIED PERSONNEL

The Company has recently experienced a period of significant revenue growth
and an expansion in the number of its employees, the scope of its operating and
financial systems and geographic area of its operations. From January 31, 1995
to January 31, 1998, the Company increased its headcount from 75 to 228.
Further significant increases in the number of employees are anticipated in
fiscal 1999. For example, the Company currently plans to expand its sales and
marketing services and research and development efforts by, among other

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things, significantly increasing the number of employees dedicated to those
areas. This growth has resulted, and will continue to result, in new and
increased responsibilities for management personnel and may place a strain upon
the Company's management, operating financial systems and resources. The
Company expects that planned expansion of international operations will lead to
increased financial and administrative demands, such as increased operational
complexity associated with expanded facilities, administrative burdens
associated with managing an increasing number of relationships with foreign
partners and expanded treasury functions to manage foreign currency risks. The
Company's future operating results will also depend on its ability to further
develop indirect channels to penetrate different and broader markets and expand
its support organization to accommodate growth in the Company's installed base.
The failure of the Company to manage its expansion effectively could have a
material adverse effect on the Company's business, operating results and
financial condition.

DEPENDENCE ON KEY PERSONNEL

The Company's success depends to a significant degree upon the efforts of
certain key management, technical support, sales, marketing, customer support
and research and development personnel. The loss of key personnel could
adversely affect the Company. The Company believes that its future success will
depend in large part upon its continuing ability to attract and retain highly
skilled managerial, sales, marketing, customer support and research and
development personnel. Like other software companies, the Company faces intense
competition for such personnel, and the Company has at times experienced and
continues to experience difficulty in recruiting qualified personnel. There can
be no assurance that the Company will be successful in attracting, assimilating
or retaining qualified personnel in the future. The loss of the services of one
or more of the Company's key individuals, or the failure to attract and retain
additional qualified personnel, could have a material and adverse effect on the
Company's business, operating results and financial condition.

RISK OF SOFTWARE DEFECTS

Software products as complex as those offered by the Company may contain
errors or defects, particularly when first introduced, when new versions or
enhancements are released or when configured to individual customer computing
systems. The Company has in the past encountered system configuration problems
at certain customer sites. Although to date the Company has not experienced
material adverse effects resulting from any such defects or problems, there can
be no assurance that, despite testing by the Company, defects and errors will
not be found in current versions, new versions or enhancements of its products
after commencement of commercial shipments, resulting in loss of revenues or
delay in market acceptance, which could have a material adverse effect on the
Company's business, operating results and financial condition.

LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT; USE OF
LICENSED TECHNOLOGY

Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. In
addition, the laws of many countries do not protect the Company's proprietary
rights to as great an extent as do the laws of the United States. There can be
no assurance that the Company's means of protecting its

7
<PAGE>

proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology.

To date, the Company has not been notified that the Company's products
infringe the proprietary rights of third parties, but there can be no assurance
that third parties will not claim infringement by the Company with respect to
current or future products. The Company expects that data warehouse and data
mart software product developers will increasingly be subject to infringement
claims as the number of products and competitors in the Company's industry
segment grows and the functionality of products in different industry segments
overlaps. Any such claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company or at all, which could have a material adverse effect upon the
Company's business, operating results and financial condition.

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Although the Company's products are Year 2000
compliant, the Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or patch their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase software products such as those offered by the Company, which could
result in a material adverse effect on the Company's business, operating results
and financial condition.

PRODUCT LIABILITY

Although the Company's license agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential product
liability claims, it is possible that such limitation of liability provisions
may not be effective as a result of existing or future laws or unfavorable
judicial decisions. The Company has not experienced any product liability
claims to date. However, the sale and support of the Company's products may
entail the risks of such claims, which are likely to be substantial in light of
the use of the Company's products in business-critical applications. A product
liability claim brought against the Company could have a material adverse effect
on the Company's business, operating results and financial condition.

NO PRIOR TRADING MARKET FOR THE COMMON STOCK; POTENTIAL VOLATILITY OF STOCK
PRICE

Prior to the Company's initial public offering in December 1997, there was
no public market for the Common Stock. There can be no assurance that an active
trading market for the Common Stock will develop or be sustained.

The market price of the Common Stock is likely to be highly volatile and
may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of technological
innovations, new products or new contracts by the Company or its competitors,
developments with respect to copyrights or proprietary rights, conditions and
trends in the software and other technology industries, adoption of new
accounting standards affecting the software industry, changes in financial
estimates by securities analysts, general market conditions and other factors.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected market prices for
common stocks of technology companies. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against such company. There can
be no assurance that such litigation will not occur in the future with respect
to the Company. Such litigation could

8
<PAGE>

result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect upon the Company's
business, operating results and financial condition.

CONTROL OF COMPANY BY EXECUTIVE OFFICERS, DIRECTORS AND FIVE PERCENT
STOCKHOLDERS

The executive officers, directors, five percent stockholders and their
affiliates in the aggregate beneficially own approximately two-thirds of the
outstanding Common Stock. As a result, these stockholders are able to exercise
control over all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions. Such
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company.

EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION, BYLAWS AND DELAWARE LAW

The Company's Certificate of Incorporation, as amended and restated (the
"Certificate of Incorporation"), and Bylaws, as amended ("Bylaws"), contain
certain provisions that may have the effect of discouraging, delaying or
preventing a change in control of the Company or unsolicited acquisition
proposals that a stockholder might consider favorable, including provisions
authorizing the issuance of "blank check" Preferred Stock, requiring the consent
of holders of at least 80% of the Company's capital stock to amend the
Certificate of Incorporation or Bylaws, eliminating the ability of stockholders
to act by written consent or call a special meeting of stockholders and
providing for a Board of Directors with staggered, three-year terms. In
addition, certain provisions of Delaware law and the Company's 1997 Equity
Incentive Plan (the "Plan") may also have the effect of discouraging, delaying
or preventing a change in control of the Company or unsolicited acquisition
proposals. The antitakeover effect of these provisions may also have an adverse
effect on the public trading price of the Company's Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of a substantial number of shares of Common Stock could
adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through the sale of equity securities. As of
March 31,1998, the Company had outstanding 15,515,810 shares of Common Stock.
Of these shares, 3,834,100 shares are freely tradable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act described below. The remaining
11,681,710 outstanding shares of Common Stock are "restricted securities" as
that term is defined in Rule 144.

Restricted shares may be sold in the public market only if registered or if
they qualify for an exemption from the registration under Rule 144, 144(k) or
701 promulgated under the Securities Act. As a result of the contractual
restrictions described below and the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market as follows:
(i) 39,626 shares are eligible for immediate sale, (ii) 11,144,709 shares will
be eligible for sale upon expiration of lock-up agreements between certain
stockholders of the Company and the representatives of the underwriters of the
initial public offering in June 1998, and (iii) 489,662 shares will be eligible
for sale thereafter. In addition to the foregoing, as of March 31, 1998, there
were outstanding under the Plan and the 1992 Stock Option Plan (the "Predecessor
Plan"), options to purchase an aggregate of 2,241,412 shares of Common Stock.
The shares underlying such options will be eligible for sale upon expiration of
the lock-up provisions contained in the Plan and the Predecessor Plan (the "Plan
Stand-Off Agreements") beginning in June 1998, subject in certain cases to such
shares underlying outstanding options becoming eligible for sale as such options
vest. The Company has agreed not to release shares from the lock-up provisions
of the Plan Stand-Off Agreements without the prior written consent of
BancAmerica Robertson Stephens. In addition, the Company has registered
3,487,952 shares of Common Stock subject to outstanding options or reserved for
issuance under the Company's stock and option plans. Further, certain
stockholders holding approximately 10,401,890 shares of Common Stock (assuming
the exercise of warrants to purchase 30,000

9
<PAGE>

shares of Common Stock held by holders of registration rights) are entitled to
demand registration of their shares of Common Stock. By exercising their demand
registration rights, such stockholders could cause a large number of securities
to be registered and sold in the public market, which could have an adverse
effect on the market price of the Common Stock.

SUBSTANTIAL DILUTION

The Company has issued options to acquire Common Stock at prices
significantly below the current market price of its Common Stock. To the extent
such outstanding options are exercised, stockholders will incur substantial
dilution.

DISCRETION IN USE OF INITIAL PUBLIC OFFERING PROCEEDS

The primary purposes of the Company's initial public offering were to
increase the Company's equity capital, to create a public market for the
Company's Common Stock and to facilitate future access to public markets. As of
March 31, 1998, the Company had no specific plans to use the net proceeds from
the initial public offering other than for the repayment of indebtedness,
general corporate purposes, including working capital and expansion of the
Company's sales, marketing and customer support infrastructure, and potential
future acquisitions of businesses, products and technologies that complement the
Company's business. Accordingly, the Company's management retains broad
discretion as to the allocation of a substantial portion of the net proceeds
from the initial public offering. Pending any such uses, the Company plans to
invest the net proceeds in investment-grade, interest-bearing securities.

10
<PAGE>

PART I

ITEM 1 BUSINESS

THE FOLLOWING DESCRIPTION OF THE COMPANY'S BUSINESS SHOULD BE READ IN
CONJUNCTION WITH THE INFORMATION INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. THIS
DESCRIPTION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF
THE FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS ANNUAL REPORT.

OVERVIEW

Information Advantage, Inc. develops, markets and supports enterprise
scalable OLAP software that is designed to allow a large number of users to
access and analyze large amounts of data to make quicker and more informed
business decisions. The Company's server-based solution, DecisionSuite,
provides powerful, robust and flexible analysis processing capabilities that
transform raw data into meaningful information from a wide range of desktop and
Internet platforms. Through the use of an advanced architecture, the Company
designed DecisionSuite to accommodate terabytes of data and thousands of active
users. DecisionSuite enables organizations to push effective decision making to
all levels of users thereby creating an "intelligent enterprise," one capable of
quickly identifying and reacting to market opportunities. DecisionSuite
supports many UNIX operating systems and employs relational database technology,
allowing it to access most popular databases, data warehouses and data marts.

INDUSTRY BACKGROUND

In order to compete effectively in today's global environment, businesses
must quickly identify and respond to changing market conditions and are,
therefore, dependent upon their ability to rapidly collect, organize, access and
analyze large amounts of data. Organizations are now collecting not only
internal financial and operational data, but are also collecting large amounts
of historical data on their customers, suppliers and other external sources. At
the same time, to more quickly react to changing business conditions, many
organizations have been flattening their organizational structures and
empowering employees at all levels to make decisions. The desire to distribute
decision making throughout all levels of an organization has created a need by
more people to access the vast amounts of business data collected each day. In
addition to data access, organizations also face the challenges of performing
complex computational analysis on the collected data, and disseminating
information broadly to employees, customers, suppliers and others.

To meet these challenges, organizations have implemented a number of
technology solutions, including data warehouses and data marts, query and
reporting tools and OLAP applications. According to IDC, an independent
industry analyst, the information access segment of the data warehousing market
alone is estimated to be growing from $664 million in 1996 to $1.4 billion in
2000. Data warehouses and data marts are repositories of summarized historical
data often extracted from disparate departmental or enterprise databases. Data
warehouses and data marts store data in a format optimized for analysis and are
frequently implemented in conjunction with query and reporting tools designed to
provide end users with a means to retrieve data and perform certain pre-defined
queries and simple calculations. This level of analysis, however, is limited
(for example, query and reporting tools generally are not designed to perform
time-series analysis such as calculations of the weekly changes in market share
by region) and these tools often require users to understand the technical
aspects of data storage and data structures. As a result, the use of data query
and reporting tools is often limited to highly trained technical users.

In recent years, OLAP solutions have emerged to provide a means to analyze
complex data along a more intuitive set of business rules and dimensions (for
example, profitability analysis by product, channel, geography, customer or
fiscal period). In addition, by insulating the user from the technical aspects
of data storage and data

11
<PAGE>

structures, OLAP solutions enable less technically sophisticated users within an
organization to perform their own analysis. Typically, OLAP solutions also
provide more complex computational capabilities, including sophisticated
time-series analysis, as well as ad hoc, drill-down and interactive analysis
(for example, a marketing manager identifying a market share reduction can drill
down to isolate the problem to a specific product at a specific store).

Today, two primary OLAP architectures exist: desktop OLAP and server-based
OLAP. Desktop OLAP provides a quick, low-cost solution for applications that do
not require complex analytical capabilities and involve small data sets that do
not require frequent updates. Desktop OLAP solutions are designed for a limited
number of active users and are typically used for personal analysis.
Server-based OLAP solutions are better suited for larger data sets and more
complex analysis. Because server-based OLAP does not require the movement of
large amounts of data to the desktop, it provides greater security and reduces
network traffic, thereby accommodating a larger number of active users. One
approach to server-based solutions utilizes proprietary, non-relational,
highly-indexed database technology. This approach is best suited for workgroups
and departments requiring fast access to medium-sized data sets (e.g., tens of
gigabytes of data) but often is not scalable to accommodate a large number of
concurrent users, is not capable of loading, storing or analyzing large amounts
of data (e.g., hundreds of gigabytes to terabytes of data) and cannot
efficiently update data sets on a frequent basis. In addition, these solutions
often require the data to be loaded in a pre-defined structure thereby limiting
the ability to perform ad hoc queries. The second approach to server-based OLAP
employs existing relational database technology. This approach allows access to
larger amounts of data and provides greater flexibility in performing ad hoc
queries than non-relational database technologies.

At the same time OLAP has emerged as a means to collect, organize, access
and analyze large amounts of data, the emergence of client/server and Internet
technologies has enabled organizations to create infrastructures through which
they can disseminate information throughout their enterprise as well as to
external sources. Client/server computing has provided many employees in an
organization with desktop access to critical information resources through
easy-to-use graphical user interfaces. The emergence of Internet technologies
has provided organizations with a less expensive means to reach an even larger
audience in real time and to securely disseminate information not only to
employees, but also to external business affiliates, such as customers,
suppliers and others.

Organizations are seeking ways to extend the benefits of OLAP in order to
empower employees and other users at all levels to make better business
decisions and react faster to market opportunities. To effectively deliver OLAP
capabilities throughout the enterprise, the solution must support large data
sets, thousands of active users, and simple as well as complex analysis.
Moreover, organizations require enterprise OLAP solutions with efficient and
cost effective deployment and maintenance, and compliance with industry
standards, thereby enabling integration with hardware and software from a
variety of vendors.

THE INFORMATION ADVANTAGE SOLUTION

Information Advantage develops, markets and supports enterprise scalable
OLAP software that is designed to allow large numbers of users to access and
analyze large data sets. The Company's relational server-based solution,
DecisionSuite, provides powerful, robust and flexible analysis processing
capabilities that transform raw data into meaningful information from a wide
range of desktop and Internet platforms. Through the use of an advanced
architecture, the Company designed DecisionSuite to accommodate terabytes of
data and thousands of active users. DecisionSuite enables organizations to push
effective decision making to all levels of users thereby creating an
"intelligent enterprise," one capable of quickly identifying and reacting to
market opportunities. Key attributes of the DecisionSuite solution include:

LARGE AMOUNTS OF DATA. DecisionSuite employs relational database
technology which the Company believes is the only available database technology
suitable for supporting large databases (e.g., hundreds of

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<PAGE>

gigabytes to terabytes of data) or databases that require frequent updates and
access to terabytes of centralized or distributed data. DecisionSuite processes
data on the server and disseminates the derived results to the user.

LARGE NUMBER OF USERS. The DecisionSuite architecture uses sophisticated
partitioning technology to balance the data processing between the database and
the application server. Application partitioning is designed to maximize the
performance and analytical capabilities as the database grows and the number of
concurrent users increases. DecisionSuite's calculation processor is designed
to perform sophisticated business calculations on raw data without overburdening
the relational database with the use of inefficient temporary tables, thereby
increasing the number of users who can concurrently access the data.

POWERFUL ANALYTICAL CAPABILITY. DecisionSuite includes a powerful C++ OLAP
calculation processor that provides comprehensive multidimensional, yet
intuitive, analysis capabilities using advanced formula-based business rules.
By avoiding an over-reliance on structured query language ("SQL") for business
calculations, DecisionSuite is designed to provide powerful analytical
capabilities in a scalable architecture. DecisionSuite allows users to join
data from multiple distributed relational databases and create agents that
automatically inform them of changes in market data or from user-defined norms.

MASS DEPLOYMENT FOR THE INTELLIGENT ENTERPRISE. The Company provides for
efficient and cost-effective deployment and maintenance of DecisionSuite by
using a thin-client architecture where minimal application code is deployed to,
and maintained on, the user's desktop. As a result, organizations can more
effectively deploy and support DecisionSuite over thousands of networked users.

OPEN ARCHITECTURE. DecisionSuite was designed to integrate with most
popular tools, databases and platforms provided by other vendors. DecisionSuite
runs on the following server operating systems: HP-UX, Sun Solaris, IBM AIX, NCR
SVR4, SGI IRIX, Sequent DYNIX/ptx and Unisys SVR4; and accesses the following
relational database platforms: Oracle, Red Brick Warehouse, HP-Intelligent
Warehouse, IBM DB2 6000, IBM DB2 Parallel Edition, Informix, NCR Teradata DBS,
Sybase, Sybase IQ and Tandem Non-Stop SQL. As a result, organizations
implementing DecisionSuite can leverage their often significant investment in
existing operating systems and database technologies.

To complement its advanced product offerings, the Company has developed a
highly trained customer support staff with technical competencies in a variety
of areas, including UNIX operating systems, database management, distributed
computing and multidimensional analysis. The Company believes that to enable
its customers to effectively develop and deploy OLAP applications, it must
provide training and consulting services in these and other areas. Accordingly,
the Company has established an extensive customer services group consisting of
technical support, education, implementation, prototyping workshops and other
advanced services (including customized enhancements, content development and
performance assessment).

STRATEGY

The Company's strategy is to establish Information Advantage as the leading
provider of enterprise scalable OLAP software solutions. Key elements of the
Company's strategy include:

EXTEND TECHNOLOGY LEADERSHIP. Since inception, the Company has focused its
research and development efforts on developing core technologies that address
the requirements of data warehousing applications involving large amounts of
data, large numbers of concurrent users, complex analysis and heterogeneous
environments. The Company's solution integrates a number of technologies,
including sophisticated agent technology, flexible information sharing and
dissemination, multidimensional analysis, multi-level security and an
architecture that permits a large number of concurrent users. The Company has
leveraged these technologies to develop DecisionSuite, a proven enterprise
scalable OLAP software solution for the intelligent enterprise. DecisionSuite
is designed to access and analyze terabytes of data. Of the Company's
customers, three are in production, and five are currently building,
terabyte-sized applications. The Company intends to extend its technology
leadership by

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<PAGE>

continuing to devote significant resources to research and development efforts,
and by forming strategic relationships that will enable the Company to further
enhance DecisionSuite's functionality and performance.

EXPAND VERTICAL MARKET FOCUS. The Company targets industries that
routinely collect, organize, access and analyze large amounts of
business-critical data. These industries include retail, consumer packaged
goods, financial services, insurance, telecommunications and the healthcare
industries. The Company has developed significant vertical market expertise
through the deployment of software applications for its customers in these
industries. The Company believes that by focusing on the needs of these
specific industries and by continuing to recruit solution development partners
in these industries, it can improve the efficiency and effectiveness of its
sales and marketing efforts in these vertical markets. The Company intends to
continue leveraging its experience to address the specific needs of
organizations in these industries and to expand to other targeted industries.

EXPAND GLOBAL DISTRIBUTION. The Company sells its products primarily
through direct sales. The Company also uses strategic partners to sell its
products in targeted markets. The Company has direct sales offices in 12
states, Canada, the United Kingdom and Germany, and has established strategic
relationships in South Africa, Netherlands and Japan. The Company is presently
localizing DecisionSuite for the French and German markets. The Company intends
to expand its direct sales and pre-sales support organizations and to develop
additional strategic relationships both in its existing markets and in other
locations worldwide. To facilitate its international expansion, the Company
anticipates localizing DecisionSuite for additional foreign markets in the
future.

EXPAND STRATEGIC RELATIONSHIPS. The Company's strategy is to supplement
its direct sales organization with strategic relationships, including solution
development partners, sales affiliates and marketing partners. The Company's
solution development partners, such as DynaMark, VIPS and IBM, have developed
industry specific software applications in which DecisionSuite is embedded. The
Company sells its products directly to solution development partners who
integrate and sell solutions to customers. The Company also has relationships
with sales affiliates, such as Cambridge Technology Group, EDS, Ernst & Young
and KPMG, who help identify and qualify sales prospects, work closely with the
Company during the sales and implementation cycles and provide after-market
support. In addition, the Company has strategic relationships with marketing
partners, such as HP, Red Brick, Sun, SPSS and Brio, who provide complementary
marketing programs designed to promote product awareness for DecisionSuite.
These relationships provide additional sales and marketing channels, thereby
enhancing the Company's position as the leading provider of enterprise scalable
OLAP software solutions. The Company's objective is to increase license
revenues from strategic relationships as a percentage of total license revenues,
by enhancing its current strategic relationships and adding additional strategic
partners.

FOCUS ON SUCCESSFUL CUSTOMER IMPLEMENTATION. The Company's strategy is to
deliver technology and services that enable its customers to quickly and cost
effectively implement and maintain applications for the intelligent enterprise.
The Company's success is dependent upon its customers' successful
implementations of its products. The Company believes that its comprehensive
consulting, implementation, support and training services enable customers to
successfully implement DecisionSuite and contribute to customer satisfaction,
strong customer references and long-term relationships. The Company offers
worldwide training, consulting and support services for its customers directly
through its customer services group and indirectly through its solution
development partners and sales affiliates. In addition to its advanced training
and consulting services, the Company provides its customers with an extensive
array of ongoing support services, including software updates, documentation
updates, telephone support and product maintenance. A significant portion of
the Company's revenues each period is derived from upgrades and services
provided to its installed customer base. The Company intends to maintain its
focus on customer success and to continue to invest in support services designed
to ensure such success.

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<PAGE>

CUSTOMERS AND APPLICATIONS

The following is a list of the Company's customers who licensed
DecisionSuite, or entered into or renewed maintenance agreements, during fiscal
1998.

<TABLE>
<CAPTION>
<S> <C>
RETAIL VIPS (a division of First Data Corp.)
Ahold USA, Inc. INSURANCE
Dayton Hudson Corporation Cigna-Intercorp, Inc.
DFS Group, Ltd. CNA Insurance
Dial Corporation Medical Service Bureau of Idaho/Blue Shield of
Fabri-Center of America, Inc. Idaho
Fingerhut Corporation Liberty Health (CANADA)
Gap Inc. Northland Insurance Company
Longs Drug Stores California, Inc The Northwestern Mutual Life Insurance Company
National Grocers Co., Limited (CANADA) The Prudential Insurance Company of America
Neiman-Marcus The St. Paul Fire and Marine Insurance Company
Proffitt's Inc.
Quill Corporation TECHNOLOGY/TELECOMMUNICATIONS
J. Sainsbury PLC (U.K.) 360 DEG. Communications Company
Sears Canada, Inc. (Canada) Aerial Communications, Inc.
Sears Roebuck, & Co. APAC Teleservices, Inc.
Shopper's Drug Mart (CANADA) BCTel (CANADA)
The Southland Corp. CCC Information Services, Inc.
The Stop & Shop Supermarket Company Pacific Bell Communications
Superdrug Stores, PLC (U.K.) Pacific Bell Video Services
SuperValu PrimeStar Partners, LP
Tandy Corporation Silicon Graphics Inc.
Dayton Hudson Corporation, Target
Stores Division GOVERNMENT
Tupperware Corporation Inland Revenue (U.K.)
Tyson Foods, Inc. State of California
The Warehouse Ltd. (New Zealand) State of Washington Department of
Wearguard Corporation Social and Health Services
Utah Courts
PACKAGED GOODS United States Customs Service
Birds Eye Walls, Inc. (U.K.) University of California, Berkeley
Brunswick Corporation
ConAgra Frozen Foods MANUFACTURING
Dominick's Fine Foods Amgen, Inc.
Land O'Lakes, Inc. The Goodyear Tire and Rubber Company
Nabisco, Inc. Mattel, Inc.
The Quaker Oats Company Minnesota Mining and Manufacturing Company
Sara Lee Corporation/Sara Lee Meats Polaroid Corporation
Van Den Bergh Foods (U.K.) Rockwell International Corporation
Snap-On Tools Company
FINANCIAL SERVICES
Banc One Services Corporation OTHER
DynaMark, Inc. Acxiom Corporation
Fidelity Investments The Automobile Association (U.K.)
Green Tree Financial Corporation Cargill, Inc.
Honor Technologies, Inc. Dana Computer Corporation
MasterCard International Incorporated Electronic Data Systems Corporation
NOVUS Services, Inc. Excel Corporation
Strong Capital Management, Inc. Federal Express Corporation
T. Rowe Price Investment IBM Consumer Driven Solutions
Technologies, Inc. KPMG Peat Marwick, LLP
MidAmerican Energy
HEALTH CARE Miller Brewing
Fairview Health Systems Northwest Airlines, Inc.
MCC Behavioral Care NTT Data (Japan)
Owen Healthcare, Inc. Oshawa Holdings Limited (Canada)
TheraTx, Inc. Perseco
United HealthCare Corporation The Reader's Digest Association, Inc.
Regie Media Belge S.A. (Netherlands)
</TABLE>

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<PAGE>

DecisionSuite can be used across a range of industries and is typically
used in three types of applications: (a) customer analysis, including
applications for analyzing customer buying patterns, database marketing and
campaign management; (b) product analysis, including sales analysis, inventory
management and promotion management; and (c) operational analysis, including
financial analysis, activity-based costing, forecasting and budgeting. The
following illustrates the variety of ways customers have deployed DecisionSuite:

FINANCIAL SERVICES: An international credit card company sought to
differentiate itself from its competitors by offering its 22,000 member
financial institutions the ability to access and analyze credit card transaction
activity and trends online. The goal was to provide member financial
institutions with customer usage data to facilitate and evaluate target
marketing campaigns. This customer's Oracle database contains approximately 1.6
terabytes of data and uses NCR servers. Because of the number of potential
users, the size of the data warehouse and the fact that over 11 million
transactions are added to the database daily, scalability was paramount.
DecisionSuite was selected to provide the OLAP engine necessary to build this
application. The Company believes that DecisionSuite was chosen because of the
expertise of its support personnel and the proven scalability, security and ease
of use of the product for the end-user. The first application of DecisionSuite
was available for deployment to members within six months of the date
DecisionSuite was selected and now allows the customer's clients to track usage
patterns and focus their efforts accordingly.

INSURANCE: A provider of auto insurance claim software, data and services
sought to offer over 350 auto insurance companies the ability to access and
analyze insurance claim data via the Web as an extranet. This customer uses a
Red Brick database and a Sun server. The Company believes that DecisionSuite
was selected primarily for its Web and agent capabilities and its ability to
efficiently manage large amounts of data at a granular level. DecisionSuite
allows the customer's sales associates to analyze the claims data for potential
clients via the Web as a tool in the sales process. Upon complete
implementation, this application will also allow auto insurance companies to
access and analyze the customer's nationwide insurance claim data, including
repair cycle times and amounts paid for vehicle parts, and to compare their
claims resolution performance against industry averages and historical trends.

RETAIL: A multi-billion dollar retailer of electronics with over 6,800
retail stores nationwide sought to deliver online analysis of its consumer and
product data throughout the organization. The customer's warehouse includes
consumer and census data, as well as behavioral and point-of-sale information
from its retail stores. The consumer database alone includes profiles of over
150 million consumers, making the customer's database one of the most
comprehensive marketing databases in the world. This customer uses a Red Brick
database and an HP server. The Company believes that DecisionSuite was selected
for its complex analytical capabilities, its Web accessibility and its ability
to handle terabytes of data. DecisionSuite provides online analysis of the
databases and allows the customer's headquarters to analyze the retail stores'
performance, improve inventory controls and target promotional mailings. In
addition, this customer plans to make this application available to its retail
store managers using a standard Web browser, thereby enabling these teams to
participate in the decision making process to improve the store's performance.

PACKAGED GOODS: A leading packaged food company, with more than 200
brands and 1,000 products in 85 countries, sought to provide better and faster
sales and product information to its sales representatives. Its application
required not only the ability to access multiple, disparate databases (Red Brick
and DB2) that used IBM servers, but it required the ability to deliver both
detailed and summarized key account information to thousands of users. The
client selected DecisionSuite and has currently deployed the system to
approximately 2,500 sales representatives throughout the organization. Using
DecisionSuite, the customer's sales representatives are now able to access and
analyze online product sales by, among other things, location and season. This
enables the customer to anticipate inventory fluctuations, thereby improving
inventory controls, and provides the sales representatives with timely decision
making information, such as which products are likely to sell and when, that
often leads to new business opportunities.

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<PAGE>

PRODUCTS AND TECHNOLOGY

The Company's DecisionSuite products are comprised of a server capable of
handling large data sets or large numbers of concurrent users, several desktop
products designed to deliver information to variously skilled end users over
client/server and Internet architectures, and several systems management,
connectivity and database driver modules. The Company also offers an advanced
tool kit for the rapid assembly of custom OLAP applications. The Company's
products are available on most popular UNIX platforms, including HP-UX, Sun
Solaris, IBM AIX, NCR SVR4, SGI IRIX, Sequent DYNIX/ptx and Unisys SVR4, and are
able to access the following databases: Oracle, Red Brick Warehouse,
HP-Intelligent Warehouse, IBM DB2 6000, IBM DB2 Parallel Edition, Informix, NCR
Teradata DBS, Sybase, Sybase IQ and Tandem Non-Stop SQL. The Company designed
DecisionSuite's architecture to be well suited for localization in foreign
markets. The Company licenses its DecisionSuite software for a one-time license
fee determined on a per server, per named user, and database size basis.

[DIAGRAM OF PRODUCT ARCHITECTURE]

DECISIONSUITE SERVER

The DecisionSuite Server is a multi-user product designed to allow large
numbers of users to access and analyze large data sets. The DecisionSuite
Server delivers enhanced OLAP services including: agent and exception reporting
functions to push personalized information directly to users; security based on
individual, workgroup and enterprise level user privileges; and group or
personal query controls to minimize system performance degradation caused by
either individuals or user groups. DecisionSuite Server augments SQL with an
efficient and sophisticated C++ calculation processor that is scalable to
thousands of active users and terabytes of data. The DecisionSuite Server's
CONCURRENT SESSION MANAGER is designed to add, manage and delete concurrent
processes initiated by requests from multiple users or agents, allowing
customers to scale DecisionSuite across the enterprise. The DecisionSuite
Server's METADATA model centralizes maintenance and isolates users from
technical complexities by mapping database structures and business rules with
intuitive business descriptions, thereby simplifying user interactions with the
system.

DECISIONSUITE DB DRIVERS. DecisionSuite DB Drivers are designed to provide
organizations with the option of connecting DecisionSuite to target relational
databases with either native drivers or ODBC drivers. Each DB Driver accounts
for the unique SQL syntax and query optimizer of each target database while
allowing

17
<PAGE>

organizations to easily switch database vendors' products independently of
deployed DecisionSuite applications. DecisionSuite provides DB Drivers for
Oracle, Red Brick Warehouse, HP-Intelligent Warehouse, IBM DB2 6000, IBM DB2
Parallel Edition, Informix, NCR Teradata DBS, Sybase, Sybase IQ, and Tandem
Non-Stop SQL.

DISTRIBUTED OLAP ENGINE. DecisionSuite's OLAP Engine uses distributed
processing technology to maximize user concurrency and analytical functionality.
In particular, the Company's calculation processor performs sophisticated
business analysis on raw data without overburdening the database with use of
inefficient temporary tables. This capability enables intensive application
processing to be off-loaded from the database so that organizations can
effectively scale to large numbers of users. This capability also allows
support of hundreds of business calculations and functions that are not
currently supported in SQL.

ENTERPRISE OLAP SERVICES. DecisionSuite provides essential services
required for enterprise-scale deployments including:

WORKGROUP SECURITY. The partitioned, server software design of
DecisionSuite allows additional levels of security provided by an
application server account. In this manner, users with similar
requirements are easily added to the system without risk of improper
information access. Reports, report components and database views are
secured at personal, workgroup and enterprise levels.

COLLABORATION. The Company's use of object technology enables report
data and logic to be shared among users. Each report contains the
data, assumptions and processing logic so that users can interactively
exchange and build on each other's analysis. This technology
facilitates live information sharing among users of the Company's
product.

REPORT CASTING. The Company's use of report template technology
allows power users or information technology personnel to efficiently
create a few report models for thousands of different reports. Each
report template contains the instructions and parameters required to
generate a single request. Upon access, the user profile is used to
map the appropriate parameters into the instruction set at run-time so
that each user receives a personalized report. This capability
enables the administrator to build and maintain a relatively small
number of automatically adapting report templates, rather than tens of
thousands of user specific reports.

AGENTS. The Company's server-centric architecture and multi-user,
multi-tasking server technology allows DecisionSuite users to design
autonomous intelligent agents, the results of which can be shared by
multiple users. These agents are created by users and reside on the
server. The agents also can be triggered by areas of opportunity or
trouble, without affecting desktop performance. The results of the
agents may be delivered in real time to one or more users via e-mail,
pager telephone and the Internet so their assumptions and results can
be explored and challenged, as well as shared to reduce the use of
system resources for repetitive batch processing.

DECISIONSUITE DESKTOPS

DecisionSuite Desktops include an array of products positioned to meet the
varying needs and skill levels of employees in an organization.

WEBOLAP. WebOLAP is intended for all users seeking OLAP capability over
the Internet. This product provides ad hoc reporting and OLAP capability using
only a browser, a DecisionSuite user name and a password. WebOLAP's Universal
Access functionality allows users direct access to the DecisionSuite Server from
search engines for seamless integration into corporate Web sites. WebOLAP's
codeless desktop architecture enables it to be used from any desktop with a Web
browser, without requiring a plug-in or extension, eliminating installation and
reducing administration costs in large user environments. Complete integration
with the DecisionSuite Server

18
<PAGE>

also allows WebOLAP users to seamlessly share secure, interactive reports, and
collaborate with co-workers using any DecisionSuite Desktop.

NEWSLINE. NewsLine is intended for active users to deliver and receive
live information, reports, alerts and intelligent agents. Users of this product
can be alerted to the latest opportunities and problems affecting their business
by software agents that monitor, analyze and filter information 24 hours a day,
seven days a week. For example, users have the ability to drill up, down or
across business dimensions anywhere in the data warehouse then pivot and export
results with a spreadsheet hot-link. NewsLine allows experienced users the
ability to securely view and modify all assumptions underlying the analysis,
including calculations and filters. Users may drag and drop calculations and
filters to review the entire data warehouse. NewsLine has robust business
charting capabilities and can be integrated with external applications,
including operational systems, catalogs and powerful GIS mapping systems.

ANALYSIS. Analysis is intended for power users and provides authoring and
publishing capabilities in addition to all the functionality of NewsLine. This
product allows users to start with a "blank sheet of paper," then point and
click to author and publish filters, calculations, calculation templates,
reports, report templates, distributed intelligent agents, triggers and alerts
as well as navigate throughout the entire data warehouse. Alerts can be
directed and broadcast as "live" interactive reports and as messages via e-mail,
pager, telephone and the Internet. Users are presented information in business
terms so that they can explore gigabytes of information without the technical
knowledge of database structures or SQL.

DECISIONSUITE WORKBENCH

The DecisionSuite Workbench allows database and system administrators to
define, manage and support user profiles, security, and group or personal query
controls, as well as to customize and distribute desktop profiles across the
network. Developers can also use DecisionSuite Workbench to create more
sophisticated intelligent agents, custom applications and add-in functionality,
and to integrate DecisionSuite with operational systems. With DecisionSuite's
thin-client architecture, all applications are centrally managed from the
server, thereby reducing cost of ownership and allowing database and systems
administrators to improve DecisionSuite's efficiency.

DECISIONSUITE CONNECTIONS

DecisionSuite Connections provide connectivity with complementary OLAP and
productivity tools. To date, the Company had developed DecisionSuite
Connections for Microsoft Excel, Lotus 123 and Brio. These connections provide
users of DecisionSuite Desktops with the ability to automatically download data
into desktop tools. For example, Brio Connection provides users with the
ability to generate a small data cube that is automatically downloaded into
Brio's OLAP desktop, enabling the user to perform interactive analysis,
formatting and charting while disconnected from the network.

SALES AND MARKETING

SALES

The Company sells its products in North America and the United Kingdom
primarily through its direct sales and services organizations. The Company
employs highly skilled engineers and technically proficient sales persons
capable of serving the sophisticated needs of its customers' information and
business management staffs. The Company has domestic sales or support staff
located in California, Colorado, Georgia, Illinois, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio, Texas, Virginia, and international
offices in Toronto, Canada; London, England; and Koln, Germany.

19
<PAGE>

To date, a majority of the Company's sales have been generated from its
direct sales force. The Company intends to supplement its sales efforts by
implementing and supporting its products through a network of solution
development partners, sales affiliates and marketing partners. The Company's
strategic partners are independent organizations that perform some or all of the
following functions: sales and marketing; systems implementation and
integration; software development and customization; and ongoing consulting,
training, service and technical support.

The Company has an ongoing program to recruit major systems integrators and
to train and support them in identifying sales opportunities and implementing
the Company's products. The Company is working with several of these affiliates
to develop additional applications for targeted markets, such as finance and
banking, insurance, telecommunications and retail. The Company offers such
sales affiliates discounts on products and training, a cooperative marketing
program, and field level assistance from the Company's direct sales force. The
Company currently has such a relationship with Cambridge Technology Group, EDS,
Ernst & Young, and KPMG.

The Company believes that its strategic partners have significant influence
over product choices by customers and that its relationships with these partners
are an essential element in its marketing, sales and implementation efforts.
Through its partner network, the Company is able to obtain leads and provide
customers with trained and knowledgeable software professionals who are
available locally to implement its systems as well as provide ongoing service
and support. Some of the Company's strategic partners customize the Company's
solutions to fit individual business needs and develop industry-specific
software applications that integrate with and extend the functionality of the
Company's products. The Company currently has solution development partnerships
with DynaMark, VIPS and IBM.

MARKETING

The Company is focused on building market awareness and acceptance of the
Company and its products as well as on developing strategic partnerships. The
Company has a comprehensive marketing strategy with several key components:
image and awareness building, direct marketing to both prospective and existing
customers, a strong Web presence, broad-scale events with strategic partners and
local marketing with partners. The Company's corporate image strategy includes
trade shows, as well as analyst and press tours. The Company's direct marketing
includes ongoing direct mail efforts to existing and prospective customers. For
prospective customers, the Company also offers seminars to assist them in
selecting enterprise scalable OLAP solutions. Seminars are offered in
conjunction with strategic partners in their local or industry-specific markets.
The Company's Web-based marketing is designed to generate new leads for the
Company. The Company increases product awareness by sponsoring large scale
events and seminars for prospective customers with key industry partners.
Finally, the Company's marketing strategy is designed to take advantage of the
Company's partnership network by including cooperative marketing programs
designed for partners' local markets. The Company's marketing partners include
HP, Red Brick, Sun, SPSS and Brio.

As of January 31, 1998, the Company's sales and marketing organization
consisted of 82 employees compared to 70 and 28 employees at January 31, 1997
and 1996, respectively.

CUSTOMER SUPPORT

The Company believes that providing superior customer service is critical
for customer success. The Company's strategy is to deliver technology and
services that enable its customers to implement OLAP applications quickly. Its
focused experience in designing and implementing decision support applications
is a significant factor in enabling the Company to implement this strategy. The
Company intends to continue to invest in specialized training of its personnel
to provide superior customer service. Most of the Company's customers currently
have maintenance agreements that entitle them to technical support and periodic
upgrades. The Company also offers additional training and consulting services
on a fee basis.

20
<PAGE>

MAINTENANCE AND TECHNICAL SUPPORT. The Company has established a
centralized corporate maintenance and technical service group that is supported
by the consulting and research and development groups. The Company provides
customers with a comprehensive array of services, including software updates,
documentation updates, telephone support, product maintenance and emergency
response. The annual fee for such services is typically 18% of the list price
of the software products licensed and supported.

EDUCATION. The Company offers a series of business and technical courses
to meet the education and training requirements of all levels of professionals
associated with data warehousing and decision support. These courses are
designed to provide the knowledge, skills and confidence to implement
enterprise-wide decision support and enhance the use of DecisionSuite. The
Company offers several modular courses that can be tailored to specific customer
needs. Education specialists meet with customers to design an education plan to
meet organizational goals. Regularly scheduled courses are offered at the
Company's training facility located in Eden Prairie, Minnesota. End user
customer courses are provided at customers' facilities.

IMPLEMENTATION SERVICES. The Company offers a wide range of customer
services to support the implementation requirements of the DecisionSuite line of
products and promote customer self-sufficiency. The Company utilizes a
proprietary methodology for implementation support, called DecisionPath.
DecisionPath was developed internally and incorporates the Company's extensive
implementation experience. Because of the varying needs of its customers, the
Company offers modular services in the following areas: business application
design; data warehouse architecture design; DecisionSuite implementation;
end-user content and delivery; and DecisionSuite optimization.

DECISIONCENTER. The Company offers a series of prototyping workshops in
its DecisionCenter facility. DecisionCenter is a fully equipped prototyping
environment, staffed with knowledgeable business and technical personnel. Each
workshop utilizes the customer's own data, making the prototyping experience as
realistic as possible. The Company believes that a successful implementation of
new technology can be traced to a successful prototype. These prototype systems
use actual company data to assist the business users in identifying the
questions they need to ask but have been unable to visualize. The time and
effort to set up an evaluation environment can be expensive and fraught with
technical infrastructure complexities. The Company provides its customers with
the training benefits of prototyping but shields them from such complexities.

ADVANCED SERVICES. The advanced services group assists in the initial
development of specific solutions for OLAP applications, including
activity-based costing, forecasting, health care analysis and customer
segmentation. This group often provides consultation in the early stages of
modeling and solution-design, combining their strong, technical OLAP expertise,
their in-depth hands-on experience with APIs, and their proven creativity in
architecture and functionality design. Their solutions address the more complex
needs of enterprise OLAP while also focusing on usability and performance for
the end users. Their extensive experience with the APIs have led to the
development of a series of DecisionSuite extensions. These extensions are
optional programs that offer functionality not otherwise available within the
core DecisionSuite product. Extensions consist of either tools for the system
administrator or for the end user.

As of January 31, 1998, the Company's services organization consisted of 60
employees compared to 41, and 26 employees at January 31, 1997 and 1996,
respectively.

RESEARCH AND DEVELOPMENT

Research and development has provided the foundation for the Company's
success in the marketplace, and the Company intends to continue to make
substantial investments in research and development and related activities to
maintain and enhance its product lines. The Company believes that its future
success will, in large part, depend on its ability to maintain and improve
current products, and to develop new products that meet emerging decision
support needs. Research is focused in three areas: identifying market needs,
designing applications for these needs and implementing such solutions in a
reliable and easy-to-use fashion. Current

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<PAGE>

development activities are focused on product enhancements in several key areas:
OLAP engine, Windows client delivery systems, Internet delivery systems, agent
technology and forecasting. The development group infrastructure provides a
full suite of documentation, quality assurance, delivery and support
capabilities (in addition to its design and implementation functions) for the
Company's products.

As of January 31, 1998, the Company's research and development organization
consisted of 59 employees compared to 45 and 32 employees at January 31, 1997
and 1996, respectively. From inception through January 31, 1998 the Company has
spent $14.3 million on research and development. Most of the senior members of
the Company's research and development organization have been employed by the
Company since its inception.

COMPETITION

Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's prospective customers. The Company's current or future indirect
channel partners may establish cooperative relationships with current or
potential competitors of the Company, thereby limiting the Company's ability to
sell its products through particular distribution channels. Accordingly, it is
possible that new competitors or alliances among current and new competitors may
emerge and rapidly gain significant market share. Such competition could
materially adversely affect the Company's ability to obtain new licenses, and
maintenance and support renewals for existing licenses, on terms favorable to
the Company. Further, competitive pressures may require the Company to reduce
the price of DecisionSuite, which would materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors, and the failure to do so would have a material adverse
effect upon the Company's business, operating results and financial condition.

The Company competes on the basis of certain factors, including data
scalability, user scalability, open architecture, analytical capabilities,
product features, product performance, product quality, time to market, ease of
use, customer support and price. The Company believes it presently competes
favorably with respect to each of these factors. However, the Company's market
is still evolving and there can be no assurance that the Company will be able to
compete successfully against current and future competitors, and the failure to
do so successfully will have a material adverse effect upon the Company's
business, operating results and financial condition.

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<PAGE>

INTELLECTUAL PROPERTY RIGHTS

The Company relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary technology. For example, the Company licenses its
software pursuant to signed license agreements, which impose certain
restrictions on licensees' ability to utilize the software. In addition, the
Company seeks to avoid disclosure of its trade secrets, including requiring
those persons with access to the Company's proprietary information to execute
confidentiality agreements with the Company and restricting access to the
Company's source code. The Company seeks to protect its software, documentation
and other written materials under trade secret and copyright laws, which afford
only limited protection. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of many countries do not protect the Company's
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that the Company's competitors will not independently
develop similar technology.

The Company provides its products to end users under non-exclusive
licenses, which generally are non-transferable and have a perpetual term. The
Company generally licenses its products solely for the customer's internal
operations. The Company also licenses its software on an enterprise-wide basis.
The Company has entered into source code escrow agreements for its products.
Generally, customers are required to obtain separate licenses for the database
management systems they select directly from the RDBMS vendors. Furthermore,
customers must obtain separate licenses for any spreadsheets or other PC tools
they use directly from such other vendors.

EMPLOYEES

As of January 31, 1998, the Company had a total of 228 employees, of which
202 were based in the United States, 17 were based in the United Kingdom, 4 were
based in Canada and 5 in Germany. Of the total, 84 were engaged in sales and
marketing, 62 were in research and development, 62 were in services, and 20 were
in finance, administration and operations. The Company's future performance
depends in significant part upon the continued service of its key technical,
sales and senior management personnel, six of whom are bound by employment
agreements. None of the Company's employees is represented by a labor union.
The Company has not experienced any work stoppages and considers its relations
with its employees to be good.

ITEM 2 PROPERTIES

The Company's principal administrative, sales, marketing, support, and
research and development facility is located in approximately 36,500 square feet
of space in Eden Prairie, Minnesota. The lease on this office space expires on
June 30, 2002. The Company also leases other domestic sales offices throughout
the United States, as

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<PAGE>

well as international offices in Canada, the United Kingdom and Germany. The
Company believes that suitable additional or alternative space will be available
in the future on commercially reasonable terms as needed.

ITEM 3 LEGAL PROCEEDINGS

The Company is not currently subject to any material legal proceeding.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On November 21, 1997, the Company solicited from a majority of its
stockholders written consent to amend the Certificate of Incorporation and the
Predecessor Plan. The written action authorized amendments to the Certificate
of Incorporation, which effectuated a 1-for-21/2 reverse split of the capital
stock of the Company, decreased the number of authorized shares of Preferred
Stock of the Company from 60,000,000 to 5,000,000, authorized a change of the
name of the Company from "Information Advantage Software, Inc." to "Information
Advantage, Inc.," and eliminated the description of the terms, rights and
preferences of the Preferred Stock of the Company. The written action also
authorized an amendment to the Predecessor Plan which increased the number of
shares available for issuance thereunder from 6,000,000 to 6,600,000 (on a
pre-reverse split basis).

In compliance with Section 228 of the General Corporation Law of the State
of Delaware, a majority of the outstanding stock of each class of the Company
entitled to vote on the above matters approved the written action as follows:

- ----------------------------------------------------------------------------------
Stockholders For Against Abstain Non-Vote
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 2,490,391 0 0 0
- ----------------------------------------------------------------------------------
Preferred Series A 8,062,528 0 0 0
- ----------------------------------------------------------------------------------
Preferred Series B 6,607,369 0 0 0
- ----------------------------------------------------------------------------------
Preferred Series C 3,229,776 0 0 0
- ----------------------------------------------------------------------------------
Preferred Series D 2,728,314 0 0 0
- ----------------------------------------------------------------------------------
</TABLE>

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table provides information with respect to the Company's
executive officers as of March 31, 1998. Each executive officer has been
appointed to serve until his or her successor is duly appointed by the Board of
Directors or his or her earlier removal or resignation from office. See
"Directors and Executive Officers of the Registrant."

Name Age Position
- ---- --- --------
<S> <C> <C>
Larry J. Ford 56 President, Chief Executive Officer and
Director
Richard L. Tanler 47 Chairman of the Board and Senior Vice
President, Strategic Planning and Marketing
Donald W. Anderson 44 Vice President and Chief Financial Officer
Mark Furtney 52 Vice President, Engineering
Richard S. Parker 42 Vice President, Marketing
Robin L. Pederson 38 Vice President, Worldwide Sales
Rory C. (Butch) Terrien 37 Senior Vice President, Research and
Development
Mary K. Trick 42 Vice President, Customer Services
</TABLE>

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<PAGE>

PART II

ITEM 5 MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Common Stock of the Company has been included in the Nasdaq National
Market under the symbol "IACO" since the completion of its initial public
offering on December 17, 1997. The following table sets forth the approximate
high and low closing prices for the Common Stock for the periods indicated as
reported by the Nasdaq National Market. Share prices have been adjusted to
reflect the Company's 1-for-2 1/2 reverse stock split effected on December 3,
1997. Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.

PERIOD HIGH LOW
------ ---- ---
<S> <C> <C>
1997
Fourth Quarter . . . . . . . . . . . . . . $ 6-1/2 $ 5-7/16
1998
First Quarter through April 6, 1998. . . . $ 8-5/8 $ 6
</TABLE>

As of April 6, 1998, the Company had 145 shareholders of record, including
33 holders of Preferred Stock who had yet to present their share certificates
for reissuance into Common Stock.

The Company has never paid or declared any cash dividends on its Common
Stock and does not intend to declare or pay dividends on its Common Stock in the
foreseeable future. The Company presently expects to retain its earnings to
finance the development and expansion of its business. The declaration or
payment by the Company of dividends, if any, on its Common Stock in the future
is subject to the discretion of the Board of Directors and will depend on the
Company's earnings, financial condition, capital requirements and other relevant
factors.

SALES OF UNREGISTERED SECURITIES

On December 4, 1997, the Company issued five-year warrants to purchase a
total of 30,000 shares of Series D Convertible Redeemable Preferred Stock to
certain holders of outstanding Preferred Stock, at a per share purchase price of
$5.00, in conjunction with a $3.0 million revolving loan commitment from such
investors to the Company (the "Loan Agreement"). In the event the Company had
requested advances from such lenders, the Company would have been required to
issue additional warrants on a pro rata basis to the lenders, with the number of
shares subject to such additional warrants equal to 4% of the principal amount
of each advance from the lenders. The Loan Agreement terminated ten days
following the closing of the initial public offering. The Company did not draw
down any funds under the Loan Agreement. On December 17, 1997, the
above-described warrants to purchase shares of Series D Convertible Redeemable
Preferred Stock automatically converted to warrants to purchase shares of Common
Stock.

On February 28, 1997, the Company issued 1,399,992 shares of Series D
Convertible Redeemable Preferred Stock for an aggregate purchase price of
$7,000,000 to a group of 29 investors. On December 17, 1997, such shares of
Series D Convertible Redeemable Preferred Stock automatically converted to
shares of Common Stock.

During fiscal 1998, the Company issued 234,636 shares of its Common Stock
to employees and consultants at a prices ranging from $0.875 to $2.125 per
share pursuant to exercises of options under the Predecessor Plan.

All of the above issuances were made in reliance upon the exemption from
registration provided in Rule 701 promulgated under the Securities Act or
Section 4(2) of the Securities Act as transactions by an issuer not involving
any public offering. The purchasers of the securities described above
represented their intentions to

25
<PAGE>

acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof. The foregoing securities are
restricted as to sale or transfer, unless registered under the Securities Act,
and certificates representing such securities contains restrictive legends
preventing sale, transfer or other disposition unless registered under the Act.
In addition, all recipients had access, through their relationships with the
Company, to information concerning the Company. No underwriting commissions or
discounts were paid with respect to the issuances of the securities described
above.

USE OF PROCEEDS FROM INITIAL PUBLIC OFFERING

The Company's Registration Statement on Form S-1 (File No. 333-37707) was
declared effective by the Securities and Exchange Commission (the "Commission")
on December 16, 1997, and the initial public offering commenced on December 17,
1997. The Company closed on the sale of 3,334,000 shares of its Common Stock on
December 22, 1997, and held an overallotment closing, which involved the sale of
an additional 500,100 shares of its Common Stock, on January 16, 1998.
BancAmerica Robertson Stephens, NationsBanc Montgomery Securities, Inc., Piper
Jaffray Inc. and First Albany Corporation served as underwriters of the
above-described securities.

The Company registered an aggregate offering amount of 3,834,100 shares of
Common Stock with an estimated aggregate offering price of approximately
$30,673,000 (based on a proposed maximum offering price per share of $8.00).
The Company sold the 3,834,100 shares it registered at a price of $6.00 per
share, resulting in gross proceeds of approximately $23,005,000.

Through January 31, 1998, the Company had incurred total expenses of
approximately $3,237,000 in connection with its initial public offering. Such
expenses include: (i) $1,610,000 in underwriting discounts and commissions paid
to the above-named underwriters, (ii) $646,000 paid to attorneys, (iii)
$314,000 paid to an insurance company, (iv) $245,000 paid to printers, (v)
$168,000 paid to accountants, and (vi) $254,000 paid for filing fees, travel,
prospectus design and other sundry expenses related to the offering. After
deducting the total expenses of the initial public offering, the net proceeds to
the Company were approximately $19,768,000.

From the effective date of the Registration Statement on Form S-1 through
January 31, 1998, the Company had used approximately $3,137,000 of the net
proceeds for the repayment of indebtedness .

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<PAGE>

ITEM 6 SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this Annual Report. Fiscal 1993 is
the Company's first fiscal year subsequent to its inception and is not a full
fiscal year. The consolidated statement of operations data for the fiscal years
ended January 31, 1993 and 1994 and the consolidated balance sheet data at
January 31, 1993, 1994 and 1995 are derived from unaudited consolidated
financial statements not included herein and in the opinion of the Company,
include all adjustments, consisting solely of normal recurring accruals, which
are necessary to present fairly the data for such periods and as of such dates.
The consolidated statement of operations data for the fiscal years ended
January 31, 1995, 1996, 1997 and 1998, and the consolidated balance sheet data
at January 31, 1996, 1997 and 1998 are derived from the audited Consolidated
Financial Statements.

Period From Fiscal Year Ended
April 14, 1992 January 31
(Inception) to ---------------------------------------------------------
January 31, 1993 1994 1995 1996 1997 1998
---------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(In thousands, except per share data)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License. . . . . . . . . . . . . . $ 213 $ 2,704 $ 1,826 $ 2,686 $ 6,491 $ 13,661
Service. . . . . . . . . . . . . . 1,538 1,644 1,991 2,956 5,255 11,929
--------- --------- --------- --------- --------- ---------
Total revenues . . . . . . . . . . 1,751 4,348 3,817 5,642 11,746 25,590
--------- --------- --------- --------- --------- ---------

Cost of revenues:
License. . . . . . . . . . . . . . 16 49 72 118 132 185
Service. . . . . . . . . . . . . . 1,103 2,266 1,636 2,129 3,308 7,455
--------- --------- --------- --------- --------- ---------
Total cost of revenues. . . . . 1,119 2,315 1,708 2,247 3,440 7,640
--------- --------- --------- --------- --------- ---------
Gross margin . . . . . . . . . . . . 632 2,033 2,109 3,395 8,306 17,950
--------- --------- --------- --------- --------- ---------
Operating expenses:
Sales and marketing. . . . . . . . 593 1,431 3,406 3,854 11,350 17,072
Research and development . . . . . 495 1,158 2,162 2,089 3,189 5,211
General and administrative . . . . . 1,870 591 853 1,247 2,147 2,133
--------- --------- --------- --------- --------- ---------
Total operating expenses. . . . 2,958 3,180 6,421 7,190 16,686 24,416
--------- --------- --------- --------- --------- ---------
Loss from operations . . . . . . . . (2,326) (1,147) (4,312) (3,795) (8,380) (6,466)
Other income (expense), net. . . . . (51) (54) (83) 6 (96) (54)
--------- --------- --------- --------- --------- ---------
Loss before provision for
income taxes . . . . . . . . . . . (2,377) (1,201) (4,395) (3,789) (8,476) $ (6,520)
Provision for income taxes . . . . . 0 0 0 0 0 0
--------- --------- --------- --------- --------- ---------
Net loss . . . . . . . . . . . . . . $ (2,377) $ (1,201) $ (4,395) $ (3,789) $ (8,476) $ (6,520)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------

Net loss per share . . . . . . . . $ (2.02) $ (1.20) $ (4.51) $ (3.87) $ (8.32) $ (2.24)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Pro forma net loss
per share(1). . . . . . . . . . $ (0.84) $ (0.54)
--------- ---------
--------- ---------

Shares used in computing net loss
per share:
basic and assuming dilution . . 1,179 998 975 978 1,019 2,906
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
pro forma (1) . . . . . . . . . 10,103 11,977
--------- ---------
--------- ---------

CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit). . . . . $ (1,020) $ (544) $ (2,071) $ 1,097 $ (2,102) $ 20,013
Total assets . . . . . . . . . . . 980 1,839 1,599 4,321 5,918 30,916
Total liabilities. . . . . . . . . 2,167 2,256 3,428 2,791 7,823 10,903
Convertible redeemable
preferred stock . . . . . . . . -- 2,337 5,337 12,487 17,410 --
Stockholders' equity
(deficit) . . . . . . . . . . . (1,193) (2,755) (7,165) (10,957) (19,315) (20,013)
</TABLE>

- -------------------
(1) Pro forma net loss per share reflects, for the entire period, the
conversion of all outstanding Preferred Stock into Common Stock and the
exercise of warrants to purchase shares of Common Stock upon completion of
the offering.

27
<PAGE>

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

THE FOLLOWING DESCRIPTION OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE INFORMATION INCLUDED
ELSEWHERE IN THIS ANNUAL REPORT. THIS DESCRIPTION CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF THE RISK FACTORS SET FORTH
BELOW AND ELSEWHERE IN THIS ANNUAL REPORT.

OVERVIEW

Information Advantage, Inc. (the "Company") develops, markets and supports
enterprise scalable OLAP software that is designed to allow a large number of
users to access and analyze large amounts of data to make quicker and more
informed business decisions. The Company's server-based solution,
DecisionSuite, provides powerful, robust and flexible analysis processing
capabilities that transform raw data into meaningful information from a wide
range of desktop and Internet platforms. Through the use of an advanced
architecture, the Company designed DecisionSuite to accommodate terabytes of
data and thousands of active users. DecisionSuite enables organizations to push
effective decision making to all levels of users thereby creating an
"intelligent enterprise," one capable of quickly identifying and reacting to
market opportunities. DecisionSuite supports many UNIX operating systems and
employs relational database technology, allowing it to access most popular
databases, data warehouses and data marts.

To date, all of the Company's revenues have been derived from licenses of
DecisionSuite and related services. The Company expects that sales of
DecisionSuite and related services will continue to account for all of the
Company's revenues for the foreseeable future. The Company's license revenues
are derived from one-time licenses for the right to use DecisionSuite in
perpetuity and are determined on a per server, per named user and database size
basis. The Company's service revenues, which have accounted for approximately
one-half of the Company's total revenues for the past three years, include fees
for maintenance, training and consulting services. The Company anticipates that
service revenues will continue to account for a significant portion of the
Company's total revenues.

The American Institute of Certified Public Accountants' has approved a new
Statement of Position (SOP), SOP 97-2, effective for transactions entered into
after December 15, 1997, which will supersede Statement of Position 91-1,
"Software Revenue Recognition." Management has assessed this new statement and
believes that its adoption will not have a material effect on the timing of the
Company's revenue recognition or cause changes to its revenue recognition
policies.

Revenues derived from software licenses are recognized upon execution of a
license agreement, delivery of the software product and fulfillment of other
delivery requirements. Revenues from software provided for demonstration or
pilot purposes are not recognized until execution of a license agreement and
fulfillment of other delivery requirements. Revenues derived from maintenance
contracts, which are bundled with the initial licenses, and all revenues from
extended maintenance contracts are deferred and recognized ratably over the term
of the maintenance contract. Revenues from maintenance contracts are included
in service revenues. Revenue from training and consulting services are
recognized as the services are performed. The Company's revenue recognition
policy is in compliance with the provisions of the American Institute of
Certified Public Accountants' Statement of Position 91-1, "Software Revenue
Recognition."

The Company licenses its software through its direct sales force and
increasingly through or in conjunction with solution development partners, sales
affiliates and marketing partners. Revenues from indirect sales involving
strategic partners accounted for approximately 9.6%, 12.7% and 11.5% of the
Company's license revenues for fiscal 1998, 1997 and 1996, respectively. The
Company intends to expand its strategic relationships, thereby increasing the
revenues generated from indirect channels as a percentage of total license
revenues. The Company

28
<PAGE>

intends to expand its international operations and has committed, and continues
to commit, significant management time and financial resources to developing
direct and indirect international sales and support channels. The Company has
international sales and support offices in Toronto, Canada; London, England; and
Koln, Germany and, to date, most of the Company's international revenues have
been derived from the United Kingdom and Canada.

Although the Company's personnel related costs are higher in Europe than
they are in the United States, and the Company's international operations are
subject to economic, fiscal and monetary policies of foreign governments, to
date, these factors have not had a material effect on the Company's results of
operations or liquidity. In addition, because all of the Company's sales have
been denominated in U.S. dollars, the Company has been able to mitigate the
impact of foreign exchange rate changes. There can be no assurance that the
Company will be able to continue to denominate foreign sales in U.S. dollars or
that international operations costs and economic, fiscal and monetary policies
of foreign governments will not in the future have a material adverse effect on
the Company's results of operations or liquidity.

Since inception, the Company has made significant strategic investments in
building an infrastructure to support long-term growth. The Company has tripled
its headcount from 75 at January 31, 1995 to 228 at January 31, 1998, reflecting
personnel increases throughout the Company. As a result, although the Company's
revenues have increased in each of the last eight quarters, the Company has
incurred net losses in each quarter since inception, and had an accumulated
deficit of $26.9 million as of January 31, 1998. The Company expects to incur
additional net losses.

The Company's limited operating history makes the prediction of future
operating results difficult and unreliable. In addition, given its limited
operating history and recent rapid growth, historical growth rates in the
Company's revenues should not be considered indicative of future revenue growth
rates or operating results. There can be no assurance that any of the Company's
business strategies will be successful or that the Company will be able to
achieve profitability on a quarterly or annual basis.

29
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data as a
percentage of total revenues for the fiscal years ended January 31:

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Revenues:
License. . . . . . . . . . . . . . . . . . . . 53.4% 55.3% 47.6%
Service . . . . . . . . . . . . . . . . . . 46.6 44.7 52.4
------ ------ ------
Total revenues. . . . . . . . . . . . . 100.0 100.0 100.0
------ ------ ------

Cost of Revenues:
License . . . . . . . . . . . . . . . . . . 0.7 1.1 2.1
Service . . . . . . . . . . . . . . . . . . 29.2 28.2 37.7
------ ------ ------
Total cost of revenues. . . . . . . . . 29.9 29.3 39.8
------ ------ ------

Gross margin . . . . . . . . . . . . . . . . . 70.1 70.7 60.2
------ ------ ------

Operating expenses:
Sales and marketing . . . . . . . . . . . . 66.7 96.6 68.3
Research and development. . . . . . . . . . 20.4 27.2 37.0
General and administrative. . . . . . . . . 8.3 18.3 22.1

Total operating expenses. . . . . . . . 95.4 142.1 127.4
------ ------ ------
Loss from operations. . . . . . . . . . (25.3) (71.4) (67.2)
------ ------ ------

Other income (expense), net. . . . . . . . . . (0.2) (0.8) (0.0)
------ ------ ------

Loss before provision for income taxes . . . . (25.5) (72.2) (67.2)
Provision for income taxes . . . . . . . . . . 0.0 0.0 0.0
------ ------ ------

Net loss . . . . . . . . . . . . . . . . . . . (25.5)% (72.2)% (67.2)%
------ ------ ------
------ ------ ------
</TABLE>

The following table sets forth, for each component of revenues, the gross
margin associated with such component of revenues for the fiscal years ended
January 31:

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Gross Margin:
License . . . . . . . . . . . . . . . 98.6% 98.0% 95.6%
Service . . . . . . . . . . . . . . . 37.5 37.1 28.0
</TABLE>

REVENUES

LICENSE. License revenues are recognized upon execution of a license
agreement and shipment of the product if no other significant obligations
remain, if payments are due within 12 months and collection of the resulting
receivable is probable. License revenues were $13.7 million, $6.5 million and
$2.7 million in fiscal 1998, 1997 and 1996, respectively, representing increases
of 110.5% from fiscal 1997 to fiscal 1998, and 141.7% from fiscal 1996 to fiscal
1997. The increase in the Company's license revenues in each period was
attributable primarily to greater market acceptance of DecisionSuite which led
to an increase in volume, an increase in the average revenues derived from each
license as the average number of seats per customer increased, and an increase
in sales headcount. To date, price increases have not had a significant impact
on revenues. The Company does not believe that the historical percentage growth
rates of license revenues will be sustainable or are indicative of future
results.

30
<PAGE>

SERVICE. Service revenues include fees from maintenance contracts,
training and consulting services. Fees for maintenance, training and consulting
services are charged separately from the license of DecisionSuite. Maintenance
fees are for ongoing support and product updates, and are recognized ratably
over the life of the contract. Revenues from training are recognized upon
completion of the related training class. Consulting revenues are recognized
when the services are performed. Service revenues were $11.9 million, $5.3
million and $3.0 million in fiscal 1998, 1997 and 1996, respectively,
representing increases of 127.0% from fiscal 1997 to fiscal 1998, and 77.8%
from fiscal 1996 to fiscal 1997. Service revenues accounted for 46.6%, 44.7%
and 52.4% of the Company's total revenues in fiscal 1998, 1997 and 1996,
respectively. In particular, maintenance revenues accounted for 35.0%, 26.6%
and 22.6% of service revenues in fiscal 1998, 1997 and 1996, respectively. The
Company anticipates that service revenues will continue to account for a
significant percentage of the Company's total revenues and that revenues from
maintenance will increase as a percentage of service revenues as additional
licenses are sold.

INTERNATIONAL REVENUES. International revenues include all revenues other
than from the United States. International revenues from the Company's direct
sales organizations in Europe and export sales to or through strategic partners
in Europe and other areas outside of the United States accounted for 9.7%, 9.5%,
and 10.7% of total revenues in fiscal 1998, 1997 and 1996, respectively. The
Company expects that international license and related service revenues will
continue to account for a significant portion of its total revenues in the
future.

COST OF REVENUES

LICENSE. Cost of license revenues consists primarily of salaries, product
packaging, documentation and production. Cost of license revenues was $185,000,
$132,000 and $118,000 in fiscal 1998, 1997 and 1996, respectively, representing
1.4%, 2.0% and 4.4% of license revenues for these years.

SERVICE. Cost of service revenues consists primarily of personnel-related
and facilities costs incurred in providing customer support, training and
consulting services, as well as third-party costs incurred in providing training
and consulting services. Cost of service revenues was $7.5 million, $3.3
million and $2.1 million in fiscal 1998, 1997 and 1996, respectively,
representing 62.5%, 62.9%, and 72.0% of service revenues for these years. The
decrease in cost of service revenues as a percentage of service revenues in
fiscal 1998, 1997 and 1996 was primarily due to improved economies of scale of
the technical support center and increased productivity from a significant
number of newly hired training, support and consulting personnel.

OPERATING EXPENSES

SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel, field
office expenses, travel and entertainment and promotional expenses. Sales and
marketing expenses were $17.1 million, $11.4 million and $3.9 million in fiscal
1998, 1997 and 1996, respectively. The increase in sales and marketing expenses
was predominantly due to the hiring of additional sales and marketing personnel
and, to a lesser extent, the increase in the number of sales offices and
expanded promotional activities. Sales and marketing expenses represented
66.7%, 96.6% and 68.3% of total revenues in fiscal 1998, 1997 and 1996,
respectively. The changes in sales and marketing expenses as a percentage of
total revenues were primarily due to the timing of hiring additional sales
personnel. The Company expects that sales and marketing expenses will continue
to increase as the Company continues to hire additional sales and marketing
personnel, establish additional sales offices and increase promotional
activities.

RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and benefits of software engineering personnel, payments
to contract programmers and expendable equipment purchases. The Company
believes that a significant level of investment for research and development is
required to remain competitive. Research and development expenses were $5.2
million, $3.2 million and $2.1 million in fiscal 1998, 1997 and 1996,
respectively. These increases were primarily attributable to additional hiring
of research and development personnel. Research and development expenses
represented 20.4%, 27.2% and 37.0% of total

31
<PAGE>

revenues in fiscal 1998, 1997 and 1996, respectively. The Company anticipates
that it will continue to devote substantial resources to research and
development and that these expenses will increase in future periods.

GENERAL AND ADMINISTRATIVE. General and administrative expenses were $2.1
million, $2.1 million and $1.2 million in fiscal 1998, 1997 and 1996,
respectively. The increase was predominantly due to increased staffing and, to
a lesser extent, associated expenses necessary to manage and support the
Company's increased scale of operations. General and administrative expenses
represented 8.3%, 18.3% and 22.1% of total revenues in fiscal 1998, 1997 and
1996, respectively. The Company believes that its general and administrative
expenses will increase in future periods as a result of an expansion of the
Company's administrative staff to support its growing operations and as a result
of an increase in expenses associated with being a public company.

OTHER INCOME (EXPENSE), NET. Other income (expense), net, represents
interest earned by the Company on its cash and short-term investments, offset by
interest expense on long-term debt and capitalized leases. See Notes 4 and 5 of
Notes to Consolidated Financial Statements.

PROVISION FOR INCOME TAXES. The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." The Company incurred net losses and consequently paid no
federal or state income taxes in fiscal 1998, 1997 and 1996. At January 31,
1998, the Company had approximately $16.5 million in federal net operating loss
carryforwards. The federal net operating loss carryforwards will begin to
expire in the year 2007 if not utilized. In addition, the Tax Reform Act of
1986 contains certain provisions that may limit the net operating loss
carryforwards available for use in any given period upon the occurrence of
certain events, including a significant change in ownership interests. Based
upon management's estimates, the initial public offering did not result in a
change of ownership.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 is effective
for financial statements for fiscal years beginning after December 15, 1997.
This standard defines comprehensive income as the changes in equity of an
enterprise except those resulting from stockholder transactions. All components
of comprehensive income are required to be reported in a new financial
statement. Management believes the adoption of SFAS No. 130 will not have a
material effect on the Company's financial statements.

In June 1997, the Financial Accounting Standards Board also issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131). SFAS No. 131 is effective for financial statements
for periods beginning after December 15, 1997. SFAS No. 131 establishes
standards for disclosures about operating segments, products and services,
geographic areas and major customers. Management believes the adoption of SFAS
No. 131 will not have a material effect on the Company's financial statements.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited consolidated statement of
operations data for the eight quarters ended January 31, 1998, as well as such
data expressed as a percentage of the Company's total revenues for the periods
indicated. This data has been derived from unaudited consolidated financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information when read in conjunction with the Consolidated
Financial Statements and Notes thereto.

32
<PAGE>

QUARTER ENDED
------------------------------------------------------------------------------
FISCAL YEAR 1997 FISCAL YEAR 1998
-------------------------------------- --------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31,
1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF TOTAL REVENUES)

Revenues:
License. . . . . . . . . . . . . $ 1,134 $ 1,819 $ 1,834 $ 1,704 $ 2,138 $ 2,862 $ 4,087 $ 4,574
Service. . . . . . . . . . . . . 1,126 1,083 1,419 1,627 2,207 2,941 3,266 3,515
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues . . . . . . . . 2,260 2,902 3,253 3,331 4,345 5,803 7,353 8,089
-------- -------- -------- -------- -------- -------- -------- --------

Cost of revenues:
License. . . . . . . . . . . . . 24 34 36 38 36 41 30 78
Service. . . . . . . . . . . . . 642 735 883 1,048 1,559 1,886 2,055 1,955
-------- -------- -------- -------- -------- -------- -------- --------
Total cost of revenues . . . . 666 769 919 1,086 1,595 1,927 2,085 2,033
-------- -------- -------- -------- -------- -------- -------- --------

Gross margin . . . . . . . . . . . 1,594 2,133 2,334 2,245 2,750 3,876 5,268 6,056
-------- -------- -------- -------- -------- -------- -------- --------

Operating expenses:
Sales and marketing. . . . . . . 2,225 2,424 3,252 3,449 3,674 4,153 4,478 4,767
Research and development . . . . 616 651 877 1,045 1,106 1,267 1,544 1,294
General and administrative . . . 439 515 581 612 485 550 504 594
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses . . . 3,280 3,590 4,710 5,106 5,265 5,970 6,526 6,655
-------- -------- -------- -------- -------- -------- -------- --------

Loss from operations . . . . . . . (1,686) (1,457) (2,376) (2,861) (2,515) (2,094) (1,258) (599)
Other income (expense), net. . . . 17 (28) (30) (55) (23) (17) (49) 35
-------- -------- -------- -------- -------- -------- -------- --------

Loss before provision for
income taxes . . . . . . . . . . (1,669) (1,485) (2,406) (2,916) (2,538) (2,111) (1,307) (564)
Provision for income taxes . . . . 0 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- --------

Net Loss . . . . . . . . . . . . . $ (1,669) $ (1,485) $ (2,406) $ (2,916) $ (2,538) $ (2,111) $ (1,307) $ (564)
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------

AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
License. . . . . . . . . . . . . 50.2% 62.7% 56.4% 51.2% 49.2% 49.3% 55.6% 56.5%
Service. . . . . . . . . . . . . 49.8 37.3 43.6 48.8 50.8 50.7 44.4 43.5
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues . . . . . . . . 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- -------- -------- -------- -------- --------

Cost of revenues:
License. . . . . . . . . . . . . 1.1 1.2 1.1 1.1 0.8 0.7 0.4 1.0
Service. . . . . . . . . . . . . 28.4 25.3 27.2 31.5 35.9 32.5 28.0 24.1
-------- -------- -------- -------- -------- -------- -------- --------
Total cost of revenues . . . . 29.5 26.5 28.3 32.6 36.7 33.2 28.4 25.1
-------- -------- -------- -------- -------- -------- -------- --------

Gross margin . . . . . . . . . . . 70.5 73.5 71.7 67.4 63.3 66.8 71.6 74.9
-------- -------- -------- -------- -------- -------- -------- --------

Operating expenses:
Sales and marketing. . . . . . . 98.4 83.5 99.9 103.5 84.5 71.6 60.9 58.9
Research and development . . . . 27.3 22.4 27.0 31.4 25.5 21.8 21.0 16.0
General and administrative . . . 19.4 17.8 17.9 18.4 11.2 9.5 6.9 7.4
-------- -------- -------- -------- -------- -------- -------- --------

Total operating expenses . . . 145.1 123.7 144.8 153.3 121.2 102.9 88.8 82.3
-------- -------- -------- -------- -------- -------- -------- --------

Loss from operations . . . . . . . (74.6) (50.2) (73.1) (85.9) (57.9) (36.1) (17.1) (7.4)
Other income (expense), net. . . . 0.8 (1.0) (0.9) (1.7) (0.5) (0.3) (0.7) 0.4
-------- -------- -------- -------- -------- -------- -------- --------

Loss before provision for
income taxes . . . . . . . . . . (73.8) (51.2) (74.0) (87.6) (58.4) (36.4) (17.8) (7.0)
Provision for income taxes . . . . 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
-------- -------- -------- -------- -------- -------- -------- --------

Net loss . . . . . . . . . . . . (73.8)% (51.2)% (74.04)% (87.6)% (58.4)% (36.4)% (17.8)% (7.0)%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
</TABLE>

The Company's limited operating history and the susceptibility of the
Company's operating results to significant fluctuations makes the prediction of
future operating results unreliable and the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
The Company's operating results in any given period can vary due to factors such
as demand for the Company's products, the size and timing of significant orders
and their fulfillment, the number, timing and significance of product
enhancements and new product announcements by the Company and its competitors,
changes in pricing policies by the Company or its competitors, customer order
deferrals in anticipation of enhancements or new products offered by the Company
or its competitors, the ability of the Company to develop, introduce and market
new and enhanced versions of its products on a timely basis, changes in the
Company's level of operating expenses, budgeting cycles of its customers,
product life cycles, software

33
<PAGE>

defects and other product quality problems, hiring needs and personnel changes,
changes in the Company's sales incentive plans, changes in the mix of domestic
and international revenues, the level of international expansion, foreign
currency exchange rate fluctuations, performance of indirect channel partners,
changes in the mix of indirect channels through which the Company's products are
offered, the impact of acquisitions of competitors and indirect channel
partners, the Company's ability to control costs and general domestic and
international economic and political conditions. A significant portion of the
Company's revenues has been, and the Company believes will continue to be,
derived from a limited number of orders placed by large organizations, and the
timing of such orders and their fulfillment have caused and are expected to
continue to cause material fluctuations in the Company's operating results,
particularly on a quarterly basis. A significant portion of the Company's
revenues is derived from existing customers. To the extent that such customers
no longer require new licenses, or ongoing support, the Company's business,
financial condition and operating results could be materially adversely
affected. The Company has, from time to time, often recognized a substantial
portion of its revenues in the last month of a quarter, with these revenues
frequently concentrated in the last two weeks of a quarter. In addition, the
Company does not operate with a large order backlog because its software
products are typically shipped shortly after orders are received, which makes
product revenues in any quarter substantially dependent on orders booked and
shipped throughout that quarter. Accordingly, revenues for any future quarter
are difficult to predict. The Company also expects that as international sales
increase as a percentage of sales it will experience weaker demand for
DecisionSuite during the summer months. Product revenues are also difficult to
forecast because the market for OLAP applications is rapidly evolving, and the
Company's sales cycle, which may last from six to twelve months or more, varies
substantially from customer to customer. The Company's expense level and plans
for expansion, including its plan to significantly increase its research and
development efforts, are based in significant part on the Company's expectations
of future revenues and therefore are relatively fixed in the short term. If
revenue levels are below expectations, operating results are likely to be
adversely and disproportionately affected because only a small portion of the
Company's expenses vary with its revenues. In addition, the Company expects
that sales derived through indirect channels, which are more difficult to
forecast and generally have lower gross margins than direct sales, will increase
as a percentage of total revenues.

Based upon all of the factors described above, the Company believes that
its quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its
operating results are not necessarily meaningful and that, in any event, such
comparisons should not be relied upon as indications of future performance.
Accordingly, the Company has limited ability to forecast future revenues, and
it is likely that in some future quarter the Company's operating results will
be below the expectations of public market analysts and investors. In the
event that operating results are below expectations, or in the event that
adverse conditions prevail or are perceived to prevail generally or with
respect to the Company's business, the price of the Common Stock would be
materially adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $3.4 million, $6.4 million and
$3.6 million in fiscal 1998, 1997 and 1996, respectively. For such periods, net
cash used in operating activities resulted primarily from net operating losses
and increases in prepaid expenses and accounts receivable associated with
increases in revenues, partially offset by increases in accounts payable,
accrued liabilities and deferred revenues.

Since 1995, the Company's investing activities have consisted primarily of
purchases of property and equipment. Capital expenditures, including those
under capital leases, totaled $1.7 million, $1.1 million and $335,000 in fiscal
1998, 1997 and 1996, respectively. Capital leases are used to acquire property
and equipment, primarily computer hardware, for the Company's growing employee
base. The Company expects that its capital expenditures will continue to
increase as the Company's employee base grows. At January 31, 1998, the Company
had no material commitments for capital expenditures.

The Company's financing activities provided $26.1 million, $6.0 million and
$5.4 million in fiscal 1998, 1997 and 1996, respectively. In fiscal 1998, the
cash provided by financing activities was comprised primarily

34
<PAGE>

of (i) an initial public offering of 3,834,100 shares (including an
overallotment of 500,100 shares) of Common Stock which generated net proceeds of
$19.8 million, (ii) proceeds from the sale of Series D Convertible Redeemable
Preferred Stock of $7.0 million, (iii) proceeds from the exercise of stock
options and stock purchase warrants of $1.1 million, and (iv) proceeds from
borrowings under lines of credit and long-term debt of $2.1 million, offset by
net reduction of debt under credit line borrowings and long-term borrowings of
$3.7 million.

In fiscal 1997, the cash provided by financing activities was comprised
primarily of $4.9 million received in connection with the sale of Series C
Convertible Redeemable Preferred Stock and $1.5 million in proceeds from
long-term debt, offset by principal payments on long-term debt of $502,000. In
fiscal 1996, the cash provided by financing activities was comprised primarily
of $5.1 million received in connection with the sale of Series B Convertible
Redeemable Preferred Stock and $1.0 million in proceeds from notes issued to
stockholders, offset by repayments of notes payable to a bank of $435,000 and
principal payments on long-term debt of $217,000.

The Company has a revolving credit line of $2.0 million and a $400,000
equipment note with a bank. There were no amounts outstanding under these
facilities as of January 31, 1998. See Note 4 of Notes to Consolidated
Financial Statements.

Total borrowings under the revolving credit line are limited generally to
the lesser of 70% of eligible accounts receivable or $2.0 million. In October
1997, the Company borrowed $1.7 million under the revolving line, bearing an
annual interest rate of 1.75% over the bank's prime lending rate. The Company
used the proceeds from the initial public offering to repay such indebtedness.
The Company's line of credit contains certain financial covenants and
restrictions as to various matters including the Company's ability to pay cash
dividends and effect mergers or acquisitions without the bank's prior approval.
The Company is currently in compliance with such financial covenants and
restrictions. The Company has granted a first priority security interest in
substantially all of its assets as security for its obligations under its credit
line which expires in September 1998.

In addition to its $2.0 million bank line of credit, the Company entered
into a $3.0 million revolving line of credit with certain holders of its
Preferred Stock in December 1997 pursuant to the terms of a Loan and Warrant
Purchase Agreement (the "Loan Agreement"). The Loan Agreement terminated ten
days following the closing of the initial public offering. The Company did not
draw down any funds under the Loan Agreement.

On April 12, 1996, the Company issued a subordinated promissory note in
favor of Comdisco, Inc. in the principal amount of $1,500,000, which bore
interest at an annual rate of 13.5%. The Company repaid amounts outstanding
under this note with proceeds from the initial public offering. See Note 5 of
Notes to Consolidated Financial Statements.

The Company believes that the net proceeds from the initial public offering
and its existing cash and cash equivalents will be adequate to meet its cash
needs for at least the next 12 months. Thereafter, the Company may require
additional funds to support its working capital requirements or for other
purposes and may seek to raise such additional funds through public or private
equity financing or from other sources. There can be no assurance that
additional financing will be available at all or that, if available, such
financing will be obtainable on terms favorable to the Company or will not be
dilutive.

YEAR 2000 COMPLIANCE

The Company is currently in the process of evaluating its information
technology infrastructure for Year 2000 compliance. The Company plans to
develop and implement its Year 2000 compliance plan in fiscal 1999. The Company
does not expect the cost to modify its information technology infrastructure to
be Year 2000 compliant to be material to its consolidated financial condition or
results of operations.

The Company uses outside vendors to supply its most significant data
processing software. These vendors have indicated their products are Year 2000
compliant or will be Year 2000 compliant in the near future. In the

35
<PAGE>

event that any of the Company's key suppliers or customers do not successfully
and timely achieve Year 2000 compliance, the Company's business or operations
could be adversely affected. The Company's Year 2000 compliance plan will
address the Year 2000 compliance status of key suppliers, customers and other
third parties.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

36
<PAGE>

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INFORMATION ADVANTAGE, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----
<S> <C>
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Consolidated Financial Statements:
Consolidated Balance Sheet as of January 31, 1998 and 1997 . . . . . . . . . . . . . . . 39
Consolidated Statement of Operations for the Years Ended
January 31, 1998, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Consolidated Statement of Stockholders' Equity (Deficit) for the Years Ended
January 31, 1998, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Consolidated Statement of Cash Flows for the Years Ended January 31, 1998, 1997 and 1996 42
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>

37
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Information Advantage, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of
Information Advantage, Inc. and its subsidiaries at January 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended January 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PRICE WATERHOUSE LLP

Minneapolis, Minnesota
February 20, 1998

38
<PAGE>

INFORMATION ADVANTAGE, INC.

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

January 31
------------------
1998 1997
-------- --------

<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 22,170 $ 874
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 5,400 3,215
Receivable from officer . . . . . . . . . . . . . . . . . . . . 80 70
Prepaid expenses and other current assets . . . . . . . . . . . 582 318
-------- --------

Total current assets. . . . . . . . . . . . . . . . . . . . 28,232 4,477
-------- --------

Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . 2,579 1,294
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 147
-------- --------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,916 $ 5,918
-------- --------
-------- --------

LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion--long-term debt . . . . . . . . . . . . . . . . $ 349 $ 790
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . 1,628 580
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . 2,747 1,838
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . 5,920 3,371
-------- --------

Total current liabilities . . . . . . . . . . . . . . . . . 10,644 6,579
-------- --------

Long-term debt, less current portion . . . . . . . . . . . . . . . 234 1,244
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . 25 --
-------- --------

Total liabilities . . . . . . . . . . . . . . . . . . . . . 10,903 7,823
-------- --------

COMMITMENTS AND CONTINGENCIES (NOTES 6 and 8)
Series A convertible redeemable preferred stock, $0.01 par value . -- 5,337
Series B convertible redeemable preferred stock, $0.01 par value . -- 7,150
Series C convertible redeemable preferred stock, $0.01 par value . -- 4,923
Series D convertible redeemable preferred stock, $0.01 par value . -- --
Stockholders' equity (deficit):
Common stock, $0.01 par value; 60,000,000 shares authorized;
15,508,097 and 1,059,139 shares issued and outstanding,
respectively. . . . . . . . . . . . . . . . . . . . . . . . 155 11
Additional paid-in-capital. . . . . . . . . . . . . . . . . . . 46,806 1,007
Cumulative translation adjustments. . . . . . . . . . . . . . . (2) 19
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (26,946) (20,352)
-------- --------

Total stockholders' equity (deficit) . . . . . . . . . . . . . . . 20,013 (19,315)
-------- --------

$ 30,916 $ 5,918
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

39
<PAGE>

INFORMATION ADVANTAGE, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

Years Ended January 31
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
License . . . . . . . . . . . . . . . . . . . . . . . $ 13,661 $ 6,491 $ 2,686
Service . . . . . . . . . . . . . . . . . . . . . . . 11,929 5,255 2,956
---------- ---------- ----------
Total revenues. . . . . . . . . . . . . . . . . . 25,590 11,746 5,642
---------- ---------- ----------

Cost of Revenues:
License . . . . . . . . . . . . . . . . . . . . . . . 185 132 118
Service . . . . . . . . . . . . . . . . . . . . . . . 7,455 3,308 2,129
---------- ---------- ----------
Total cost of revenues. . . . . . . . . . . . . . 7,640 3,440 2,247
---------- ---------- ----------

Gross margin . . . . . . . . . . . . . . . . . . . . . . 17,950 8,306 3,395
---------- ---------- ----------

Operating expenses:
Sales and marketing. . . . . . . . . . . . . . . . . . . 17,072 11,350 3,854
Research and development . . . . . . . . . . . . . . . . 5,211 3,189 2,089
General and administrative . . . . . . . . . . . . . . . 2,133 2,147 1,247
---------- ---------- ----------
Total operating expenses. . . . . . . . . . . . . . . 24,416 16,686 7,190
---------- ---------- ----------
Loss from operations . . . . . . . . . . . . . . . . . . (6,466) (8,380) (3,795)

Other income (expense):
Interest expense. . . . . . . . . . . . . . . . . . . (247) (244) (110)
Interest income . . . . . . . . . . . . . . . . . . . 193 148 116
---------- ---------- ----------
Total other income (expense). . . . . . . . . . . (54) (96) 6
---------- ---------- ----------

Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (6,520) $ (8,476) $ (3,789)
---------- ---------- ----------
---------- ---------- ----------

Loss per share:
Basic and assuming dilution . . . . . . . . . . . . . $ (2.24) $ (8.32) $ (3.87)
---------- ---------- ----------
---------- ---------- ----------

Unaudited pro forma - basic and assuming dilution . . $ (0.54) $ (0.84)
---------- ----------
---------- ----------

Shares used in computing loss per share:
Basic and assuming dilution . . . . . . . . . . . . . 2,905,524 1,019,199 977,801
---------- ---------- ----------
---------- ---------- ----------
Unaudited pro forma net loss. . . . . . . . . . . . . 11,977,487 10,103,410
---------- ----------
---------- ----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>
INFORMATION ADVANTAGE, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>

TOTAL
COMMON STOCK ADDITIONAL CUMULATIVE STOCKHOLDERS'
--------------------- PAID-IN TRANSLATION ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL ADJUSTMENTS DEFICIT (DEFICIT)
--------- -------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1995............. 975,659 $ 10 $ 843 $ -- $ (8,018) $ (7,165)
Preferred stock issuance costs..... -- -- -- -- (26) (26)
Stock options...................... 3,600 -- 4 -- -- 4
Translation adjustments............ -- -- -- 19 -- 19
Net loss........................... -- -- -- -- (3,789) (3,789)
--------- ------- -------- ------- --------- ---------

Balance, January 31, 1996............ 979,259 10 847 19 (11,833) (10,957)
Preferred stock issuance costs..... -- -- -- -- (43) (43)
Stock options...................... 79,880 1 160 -- -- 161
Translation adjustments............ -- -- -- -- -- --
Net loss........................... -- -- -- -- (8,476) (8,476)
--------- ------- -------- ------- --------- ---------

Balance, January 31, 1997............ 1,059,139 11 1,007 19 (20,352) (19,315)
Preferred stock issuance costs.... -- -- -- -- (74) (74)
Proceeds from initial public
offering, net of offering costs. 3,834,100 38 19,730 -- -- 19,768
Preferred stock converted to
common......................... 9,483,334 95 24,315 -- -- 24,410
Stock options.................... 234,636 2 955 -- -- 957
Stock purchase warrants
exercised...................... 896,888 9 799 -- -- 808
Translation adjustments........... -- -- -- (21) -- (21)
Net loss.......................... -- -- -- -- (6,520) (6,520)
---------- ------- -------- ------- --------- ---------

Balance, January 31, 1998........... 15,508,097 $ 155 $ 46,806 $ (2) $ (26,946) $ 20,013
---------- ------- -------- ------- --------- ---------
---------- ------- -------- ------- --------- ---------

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

41
<PAGE>

INFORMATION ADVANTAGE, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS)
<TABLE>
<CAPTION>

YEARS ENDED JANUARY 31
--------------------------------------------
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (6,520) $ (8,476) $(3,789)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 1,466 470 193
Interest expense converted to preferred stock . . . . . . . . . . -- -- 58
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . (2,195) (1,723) (801)
Prepaid expenses and other current assets. . . . . . . . . . . (264) (206) (1)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 1,048 161 15
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 909 1,286 27
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . 2,149 2,101 670
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 (50) (18)
---------- ---------- --------

Net cash used by operating activities . . . . . . . . . . . . . . . (3,386) (6,437) (3,646)
---------- ---------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture and equipment. . . . . . . . . . . . . . . . (1,397) (592) (32)
---------- ---------- --------
Net cash used by investing activities . . . . . . . . . . . . . . . . (1,397) (592) (32)
---------- ---------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net. . . . . . . . . . . . . 19,768 -- --
Proceeds from exercise of stock options . . . . . . . . . . . . . . 267 86 4
Proceeds from exercise of stock purchase warrants . . . . . . . . . 808 -- --
Proceeds from sale of convertible redeemable
preferred stock, net of expenses. . . . . . . . . . . . . . . . . 6,926 4,880 5,067
Proceeds from issuance of notes payable-stockholders. . . . . . . . -- -- 1,000
Borrowings under lines of credit. . . . . . . . . . . . . . . . . . 1,685 -- --
Repayments on lines of credit . . . . . . . . . . . . . . . . . . . (1,685) -- (435)
Proceeds from long-term debt. . . . . . . . . . . . . . . . . . . . 400 1,500 --
Principal payments on long-term debt. . . . . . . . . . . . . . . . (2,090) (502) (217)
---------- ---------- --------

Net cash provided by financing activities . . . . . . . . . . . . . . 26,079 5,964 5,419
---------- ---------- --------

Net increase (decrease) in cash and cash equivalents. . . . . . . . . 21,296 (1,065) 1,741
Cash and cash equivalents, beginning of period. . . . . . . . . . . . 874 1,939 198
---------- ---------- --------

Cash and cash equivalents, end of period. . . . . . . . . . . . . . . $ 22,170 $ 874 $ 1,939
---------- ---------- --------
---------- ---------- --------

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest. . . . . . . . . . . . . . . $ 258 $ 234 $ 132
---------- ---------- --------
---------- ---------- --------

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

42
<PAGE>

INFORMATION ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

NOTE 1 ORGANIZATION AND INITIAL PUBLIC OFFERING

Information Advantage, INC. (the Company) develops, markets and supports
enterprise scalable on-line analytical processing software that is designed to
allow large numbers of users to access and analyze large amounts of data to make
quick and more informed business decisions. The Company's relational
server-based solution, DecisionSuite, provides powerful, robust and flexible
analysis processing capabilities that transform raw data into meaningful
information from a wide range of desktop and Internet platforms. The Company
also provides a comprehensive range of related training, consulting and customer
support services.

In December 1997, the Company completed an initial public offering of its
common stock, which generated $19.8 million net proceeds. A portion of the net
proceeds was used to repay in full the Company's lines of credit and
subordinated debt. In addition, concurrent with the offering, the Company's
convertible preferred stock and substantially all stock purchase warrants were
converted to common stock.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include accounts of the Company and
wholly-owned subsidiaries operating in the United Kingdom and Germany. All
significant intercompany accounts and transactions have been eliminated.

REVERSE STOCK SPLIT

On October 8, 1997, the Company's Board of Directors approved a reverse
1-for-2 1/2 stock split which became effective on December 3, 1997. The effect
of the reverse stock split has been reflected for all periods presented in the
accompanying financial statements.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

FOREIGN CURRENCY TRANSLATION

All assets and liabilities of the Company's foreign subsidiaries are
translated from local currencies to U.S. dollars at period end rates of
exchange, while the consolidated statement of operations is translated at the
average exchange rates during the period. The functional currency for the
Company's United Kingdom and German subsidiaries is the respective local
currencies. Translation adjustments arising from the translation of net assets
located outside of the United States into U.S. dollars are recorded as a
separate component of stockholders' equity. Transaction gains or losses on
sales to foreign customers which are denominated in their local currencies are
recorded in the statement of operations. The Company has not experienced any
material transaction gains or losses.

43
<PAGE>

FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash and cash equivalents consist of cash, money market instruments and
United States Government Treasury Bills having original maturities less than 90
days. Cash and money market instruments are stated at their fair values.
Treasury Bills are considered "held-to-maturity" and are stated at their
amortized cost which approximates fair value. The fair value of all other
financial instruments approximates cost as stated.

The estimated fair values of the Company's cash and cash equivalents at
January 31 are as follows:

<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Cash and money market instruments...... $ 4,667 $ 874
U.S. government treasury bills......... 17,503 --

</TABLE>

REVENUE RECOGNITION AND SIGNIFICANT CUSTOMERS

Revenues derived from software licenses are recognized upon (a) the
execution of a license agreement, (b) delivery of the software product
(c) reasonable assurance of customer acceptance of the software and
collectibility of the receivable, and (d) fulfillment of any other of the
Company's contract obligations. For software provided for demonstration or
pilot purposes, or where significant post-delivery obligations exist, revenues
are deferred until execution of a license agreement and fulfillment of all
revenue recognition requirements. Revenues derived from maintenance contracts
which are bundled with the initial licenses and all revenues from extended
maintenance contracts are deferred and recognized ratably over the term of the
maintenance contract. Revenues from maintenance contracts are included in
services revenues. Revenues from training and consulting services are
recognized as the services are performed. The Company's policy is in compliance
with the provisions of the American Institute of Certified Public Accountants'
Statement of Position 91-1, "Software Revenue Recognition."

Financial instruments which potentially subject the Company to credit risk
consist primarily of accounts receivable. The Company grants credit to
customers in the ordinary course of business. Different individual customers
accounted for approximately 6%, 10% and 14% of revenues during 1998, 1997 and
1996, respectively. As of January 31, 1998, a single customer accounted for 18%
of total accounts receivable.

Accounts receivable are stated net of the related allowance for doubtful
accounts of $201 and $101 as of January 31, 1998 and 1997, respectively.

RESEARCH AND DEVELOPMENT

Expenditures for research and software development are expensed as
incurred. Such costs are required to be expensed until the point that
technological feasibility of the product is established and the realizability of
any capitalized costs is determined. Technological feasibility is evidenced by
a working model. The period between achieving technological feasibility and the
general availability to the public of such software has been short.
Consequently, costs otherwise capitalizable after technological feasibility is
achieved have been expensed because they have been insignificant to both total
assets and net loss.

FURNITURE AND EQUIPMENT

Furniture and equipment, including those assets acquired under capital
leases, consists of computers and office equipment, and is depreciated using the
straight-line method over the estimated useful lives of the assets, which
generally range from 3 to 5 years. Significant additions or improvements
extending asset lives are capitalized, while repairs and maintenance are charged
to expense as incurred. Amortization of assets under capital leases is included
in depreciation expense. The amount of leased equipment consists of the
following:

44
<PAGE>

<TABLE>
<CAPTION>
JANUARY 31
--------------------
1998 1997
-------- --------
<S> <C> <C>
Equipment cost...................... $ 1,191 $ 927
Less: Accumulated amortization..... (689) (336)
-------- --------
$ 502 $ 591
-------- --------
-------- --------

</TABLE>

INCOME TAXES

Income taxes are accounted for on the liability method in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under the liability method, deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax
bases of assets and liabilities reduced by a valuation allowance, as necessary.

EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 applies to entities
with publicly held common stock and is effective for financial statements issued
for periods ending after December 15, 1997. Under SFAS No. 128 the presentation
of primary earnings per share is replaced with a presentation of basic earnings
per share. SFAS No. 128 requires dual presentation of basic and diluted
earnings per share for entities with complex capital structures. Basic earnings
per share includes no dilution and is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. To date, the Company has incurred net losses,
thus there has been no impact from common stock warrants and options on weighted
average shares outstanding. Should earnings be generated in future years, the
impact of warrants and options would be dilutive to earnings per share. All
earnings per share amounts for all periods have been presented or restated to
conform with the provisions of SFAS No. 128.

UNAUDITED PRO FORMA NET LOSS PER SHARE

Unaudited pro forma net loss per share is based on the unaudited pro forma
weighted average number of shares of common stock and common equivalent shares
outstanding for the period. The unaudited pro forma weighted average number of
shares assumes the conversion as of the beginning of fiscal 1997 of the
Company's convertible redeemable preferred stock into 9,483,334 shares of common
stock, and the automatic conversion of convertible preferred stock warrants to
429,565 shares of Common Stock, which occurred upon completion of the offering.

RECENTLY ISSUED ACCOUNTING STANDARDS

45
<PAGE>

disclosures about operating segments, products and services, geographic areas
and major customers. Management believes the adoption of SFAS No. 131 will not
have a material effect on the Company's financial statements.

NOTE 3 FINANCIAL STATEMENT COMPONENTS

Furniture and equipment consists of the following:

JANUARY 31
-------------------
1998 1997
------- -------
<S> <C> <C>
Computer equipment................... $2,518 $1,615
Furniture and office equipment....... 1,880 722
Less: Accumulated depreciation...... (1,819) (1,043)
------- -------
$2,579 $1,294
------- -------
------- -------

</TABLE>

Accrued expenses consist of the following:
<TABLE>
<CAPTION>

JANUARY 31
-------------------
1998 1997
------- -------
<S> <C> <C>
Accrued wages and benefits........... $2,253 $1,294
Other accrued expenses............... 494 544
------- -------
$2,747 $1,838
------- -------
------- -------

</TABLE>

NOTE 4 LINES OF CREDIT

The Company has a $2.0 million working capital line of credit with a bank
which expires September 2, 1998. Borrowings are limited to the lesser of
$2.0 million or 70% of eligible accounts receivable. Borrowings bear interest
at an annual rate of 1.75% above the bank's prime rate (8.5% at January 31,
1998) and are collateralized by all of the Company's assets. No amounts were
outstanding under the line as of January 31, 1998 or 1997. Maximum and average
borrowings during fiscal 1998 were $1,715 and $298, respectively. There were no
borrowings in fiscal 1997.

Management believes that, upon the September 2, 1998 expiration of the line
of credit, the agreement will be renewed or replaced at similar or more
favorable terms. The line of credit agreement contains certain covenants
pertaining to operating results and certain other financial ratios. The Company
is currently in compliance with these covenants.

The Company also maintained with a bank a $400 equipment line of credit,
which was collateralized by specific related assets. The line bore interest at
1.75% over the bank's prime rate (8.5% at January 31, 1998). During October
1997, the Company borrowed $400 under the line, which was repaid in full and
expired in December 1997.

46
<PAGE>

NOTE 5 LONG-TERM DEBT

Long-term debt consists of the following:

JANUARY 31
-------------------------
1998 1997
-------- -------
<S> <C> <C>
Subordinated note payable; bears interest at 13.5%
per annum: repaid in fiscal 1998 . . . . . . . . . . . . . $ -- $ 1,397
Capital lease obligations; bear interest at 8.0%
to 13.5% per annum; due in varying monthly
installments trough October 2000. . . . . . . . . . . . . . 583 581
Note payable; bears interest at 10% per annum;
due in quarterly installments of $28, plus
accrued interest, through June 1997 . . . . . . . . . . . . -- 56
-------- -------
583 2,034
Current portion-long term debt . . . . . . . . . . . . . . . . (349) (790)
-------- -------
$ 234 $ 1,244
-------- -------
-------- -------

Future payments of long-term debt are as follows:

</TABLE>

YEARS ENDING JANUARY 31,
- ------------------------
<S> <C>
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 385
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
-------
630
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . (47)
-------
$ 583
-------
-------

</TABLE>

NOTE 6 OPERATING LEASES

The Company leases equipment and office space in several facilities
under non-cancelable operating leases which expire on various dates through
June 2002. Rental expense under such leases was $1,415, $721 and $547 for
the years ended January 31, 1998, 1997 and 1996, respectively. Future
minimum payments under the lease agreements are as follows:

YEARS ENDING JANUARY 31,
- ------------------------
<S> <C>
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,266
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 847
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 664
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
$ 3,624
-------
-------

</TABLE>

NOTE 7 INCOME TAXES

At January 31, 1998, the Company had net operating loss carryforwards of
approximately $21 million for income tax purposes. The net operating loss
carryforwards will begin to expire in 2007. Utilization of these net operating
loss carryforwards in the future by the Company may be limited or deferred
subject to Section 382 of the Internal Revenue Code. No future tax benefit for
such carryforwards or other temporary differences has been recognized since
utilization of such benefits is not presently deemed by management to be more
likely than not based on the weight of available evidence.

47
<PAGE>

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

JANUARY 31,
------------------
1998 1997
-------- -------
<S> <C> <C>
Deferred tax liabilities:
Tax depreciation in excess of financial reporting. . . . . $ -- $ 37
------- -------
Deferred tax assets:
Net operating loss carryforward. . . . . . . . . . . . . . 8,113 6,284
Vacation and other accruals. . . . . . . . . . . . . . . . 1,272 851
Book depreciation in excess of tax . . . . . . . . . . . . 89 --
Research and development credit carryforward . . . . . . . 85 48
Accounts receivable allowance. . . . . . . . . . . . . . . 66 33
Amortization . . . . . . . . . . . . . . . . . . . . . . . -- 49
Total deferred tax assets . . . . . . . . . . . . . . . 9,625 7,265
------- -------

Valuation allowance. . . . . . . . . . . . . . . . . . . . (9,625) (7,228)
------- -------
Total net deferred income taxes. . . . . . . . . . . . . . $ -- $ --
------- -------
------- -------

</TABLE>

NOTE 8 CAPITAL STRUCTURE

In prior years, the Company had the following authorized capital stock:
60,000,000 common shares, 4,000,000 Series A convertible redeemable preferred
shares, 4,000,000 Series B convertible redeemable preferred shares, 1,633,198
Series C convertible redeemable preferred shares, 1,400,000 Series D convertible
redeemable preferred shares, 4,000,000 Series E convertible redeemable preferred
shares, 4,000,000 Series F convertible redeemable preferred shares, 1,633,198
Series G convertible redeemable preferred shares, and 1,400,000 Series H
convertible redeemable preferred shares (collectively, the Preferred Shares),
all of which had $0.01 par value. The Preferred Shares were converted upon the
closing of the initial public offering of the Company's common stock.

In September 1997, the Board of Directors authorized the reincorporation of
the Company in Delaware, increased the authorized shares of the Company and
designated a par value of $0.01 for common and convertible redeemable preferred
shares. All applicable share data included in the financial statements has been
adjusted to give retroactive effect to such action. In addition, the Company
authorized 5,000,000, $.01 par value preferred shares which became effective
subsequent to the closing of the initial public offering.

WARRANTS

In December 1997, the Company and certain holders of its outstanding
preferred stock (the "Lenders") entered into an agreement (the "Loan Agreement")
to provide the Company with a $3 million revolving loan commitment. In
conjunction with the Loan Agreement, which expired, unused, 10 days following
the closing of the offering, the Company granted to the Lenders warrants to
purchase a total of 30,000 shares of common stock at a purchase price of $5.00
per share. Such warrants expire December 2002. Using the fair value method
prescribed in SFAS No. 123, the fair value of the warrants was immaterial.

Immediately prior to the offering, the Company had outstanding
779,826 stock purchase warrants at conversion prices ranging from $1.50 to
$5.00. Of these, 606,407 warrants were automatically exercised and converted
into 429,565 shares of common stock upon the closing of the offering.

48
<PAGE>

NOTE 9 STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS

STOCK OPTION PLANS

The Company has a stock incentive plan (the "1992 Stock Option Plan") that
reserves a total of 2,640,000 shares of common stock for issuance of stock
options to employees, officers and directors.

In September 1997, the Company's Board of Directors adopted the 1997 Equity
Incentive Plan (the "1997 Plan"). The number of shares of common stock reserved
for issuance under the 1997 Plan is equal to 1,000,000, plus the number of
remaining shares available for grant under the Company's 1992 Stock Option Plan
at the effective date of the offering. Beginning February 1, 1999 and each year
thereafter, the number of shares reserved for issuance will automatically
increase by the lesser of 400,000 shares or 3.5% of the total number of shares
of common stock then outstanding.

The option price for stock options granted is determined by the Company's
Board of Directors on the date of grant. Canceled options are available for
future grant and unvested options issued to employees are canceled when their
employment with the Company terminates. Generally, options granted to employees
vest over a five-year period and expire ten years after the date of grant.

The Company records compensation related to stock options using the
intrinsic value method of APB No. 25. Compensation related to stock options
granted below fair market value through October 31, 1997 approximates
$1.1 million. Such compensation is considered deferred compensation and
amortized over the vesting period of the related options.

The Company has adopted the disclosure-only provisions of SFAS No. 123.
For purposes of the pro forma disclosures below, the estimated fair value of the
options is amortized to expense over the options' vesting period. Had
compensation cost for the Company's stock plan been determined based on the
minimum value at the grant date for awards during fiscal 1998 and 1997
consistent with the provisions of SFAS No. 123, the Company's net losses would
have been increased to the pro forma amounts indicated below:

JANUARY 31,
--------------------------
1998 1997
---------- -----------
<S> <C> <C>
Net loss - as reported. . . . . . . . . . . . $(6,520) $(8,476)
Net loss - pro forma. . . . . . . . . . . . . (6,724) (8,595)

</TABLE>

The minimum value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 1998 and 1997, respectively; dividend
yield of 0%; risk-free interest rates of 6.2% and 6.4%; and expected lives of
8.5 years.

A summary of the stock option activity is as follows:

WEIGHTED-
EXERCISE PRICE PER AVERAGE
OPTIONS SHARE EXERCISE PRICE
------------- ------------------- ---------------
<S> <C> <C> <C>
Outstanding at January 31, 1995. . . . . . . . . . . . . . 569,640 $0.875 - $1.125 $1.10
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . 767,632 $1.125 $1.13
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . (3,600) $0.875 - $1.125 $1.03
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . (60,040) $0.875 - $1.125 $1.13

<PAGE>

Outstanding at January 31, 1996. . . . . . . . . . . . . . 1,273,632 $0.875 - $1.125 $1.10
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . 736,120 $1.125 $1.13
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . (79,880) $0.875 - $1.125 $1.08
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . (153,220) $0.875 - $1.125 $1.13

Outstanding at January 31, 1997. . . . . . . . . . . . . . 1,776,652 $0.875 - $1.125 $1.13
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . 781,900 $1.125 - $5.50 $2.52
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . (234,636) $0.875 - $2.125 $1.14
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . (66,944) $1.125 - $4.75 $1.40
---------- ---------------- ------

Outstanding at January 31, 1998. . . . . . . . . . . . . . 2,256,972 $ 0.875 - $5.50 $1.59
---------- ---------------- ------
---------- ---------------- ------

</TABLE>

Stock options exercisable at January 31, 1998 and 1997 were 752,591 and
409,986, respectively. The weighted-average fair value of options granted
during fiscal 1998 and 1997 using the Black-Scholes option-pricing model was
$1.01 and $0.46 per share, respectively.

The following table summarizes information about fixed-price stock options
outstanding at January 31, 1998:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- ------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------------------------- ------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$0.875 - $1.125 1,850,832 6.9 $1.12 739,471 $1.12
$1.625 - $3.75 280,340 9.5 $3.15 13,120 $1.92
$4.00 - $5.50 125,800 9.8 $5.06 0 $ 0
------------- -------------
Totals 2,256,972 752,591
------------- -------------

</TABLE>

EMPLOYEE STOCK PURCHASE PLAN

In September 1997, the Board of Directors adopted the Company's 1997
Employee Stock Purchase Plan (the "Purchase Plan"). Under the Purchase Plan,
eligible employees may purchase on each purchase date, as defined, shares of
common stock at 85% of its fair market value, up to the lesser of 500 shares or
15% of the employee's compensation. 200,000 shares of common stock have been
reserved for issuance under the Purchase Plan.

NOTE 10 BENEFIT PLAN

The Company offers its employees a 401(k) savings plan. Eligible employees
may elect to contribute a portion of their salaries up to limits defined by the
Internal Revenue Code. The Company may, at its sole discretion, match up to 6%
of employee contributions. There have been no employer contributions to date.
The Company also offers employees of its subsidiaries in the United Kingdom and
Germany a defined contribution plan. The Company does not offer other
post-retirement or post-employment benefits.

50
<PAGE>

NOTE 11 RELATED PARTY TRANSACTION

At January 31, 1998 and 1997, the Company has a receivable from an officer
in the amount of $80 and $70, respectively. The receivable bears interest at
5.3%, is secured by 12,700 shares of Company common stock and is due sixty days
after demand by the Company.

NOTE 12 SEGMENT AND GEOGRAPHIC AREAS

The Company operates in one industry segment, the development and marketing
of business analysis software products for data warehouse applications and
related services. International operations include operations in the United
Kingdom and Germany by the Company's wholly-owned subsidiaries. The Company's
subsidiaries in the United Kingdom and Germany sell the Company's software
products and services in Europe. The following table presents a summary of
operating information and certain balance sheet information by geographic
region:

FISCAL YEARS ENDED JANUARY 31
-----------------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Revenues:
Domestic operations . . . . . . . . . . . . . . . $23,115 $10,629 $ 5,037
International operations. . . . . . . . . . . . . 2,475 1,117 605
-------- -------- --------

Consolidated . . . . . . . . . . . . . . . . . . . . $25,590 $11,746 $ 5,642
-------- -------- --------
-------- -------- --------

Net loss:
Domestic operations . . . . . . . . . . . . . . . $(4,795) $(7,495) $(3,437)
International operations. . . . . . . . . . . . . (1,725) (981) (352)
-------- -------- --------

Consolidated . . . . . . . . . . . . . . . . . . . . $(6,520) $(8,476) $(3,789)
-------- -------- --------
-------- -------- --------

Identifiable assets:
Domestic operations . . . . . . . . . . . . . . . $29,406 $ 4,942 $ 3,809
International operations. . . . . . . . . . . . . 1,510 976 512
-------- -------- --------

Consolidated . . . . . . . . . . . . . . . . . . . . $30,916 $ 5,918 $ 4,321
-------- -------- --------
-------- -------- --------

</TABLE>

NOTE 13 NON-CASH TRANSACTIONS

During fiscal 1998, 1997, and 1996, the Company acquired $264, $486, and
$303, respectively, of fixed assets through capital leases.

During fiscal 1996, $2 million of notes payable--stockholders was converted
to Series B convertible redeemable preferred stock at $0.95 per share.

During fiscal 1998, 9,483,334 shares of preferred stock and 606,407 stock
purchase warrants were converted in cashless exercises to 9,912,899 shares of
common stock.

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

Not applicable.

51
<PAGE>

PART III

ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

BOARD MEMBERS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
directors and executive officers of the Company as of March 31, 1998. Directors
are elected for staggered terms of three years. Class I directors are elected
to serve until the first annual meeting of stockholders following the initial
public offering. Class II directors are elected to serve until the second
annual meeting of stockholders following the initial public offering. Class III
directors are elected to serve until the third annual meeting of stockholders
following the initial public offering. Executive officers are elected by the
Board of Directors to hold office until their successors are elected and
qualified.

Name Age Position
- ------- --- --------
<S> <C> <C>
Larry J. Ford (1) . . . . . . . . 56 President, Chief Executive Officer and Director
Richard L. Tanler (2) . . . . . . 47 Chairman of the Board and Senior Vice President, Strategic Planning
and Marketing
Donald W. Anderson . . . . . . . 44 Vice President and Chief Financial Officer
Mark Furtney . . . . . . . . . . 52 Vice President, Engineering
Richard S. Parker . . . . . . . . 42 Vice President, Marketing
Robin L. Pederson . . . . . . . . 38 Vice President, Worldwide Sales
Rory C. (Butch) Terrien . . . . . 37 Senior Vice President, Research and Development
Mary K. Trick . . . . . . . . . . 42 Vice President, Customer Services
Fredric R. (Rick) Boswell(3)(4) . 53 Director
Ronald E.F. Codd(1)(5) . . . . . 42 Director
Promod Haque(1)(4) . . . . . . . 49 Director
Donald R. Hollis(2)(4) . . . . . 62 Director
Jay H. Wein(3)(5) . . . . . . . . 65 Director
William H. Younger, Jr.(2)(5) . . 48 Director

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

</TABLE>

(1) Class III director.
(2) Class I director.
(3) Class II director.
(4) Member of the Compensation Committee.
(5) Member of the Audit Committee.

LARRY J. FORD has been President, Chief Executive Officer and a director
since May 1995. From August 1991 to November 1994, Mr. Ford served as Chairman
and Chief Executive Officer of Systems Software Associates, a Chicago-based,
enterprise-wide, vertically integrated applications software company
specifically targeting the manufacturing sector. Prior to August 1991, Mr. Ford
held several executive positions at IBM including President of the Latin America
Division, Vice President of Marketing for mid-range computing, and Vice
President of Information and Telecommunications Systems. Mr. Ford serves as a
director of Telular Corporation, where he serves on the Compensation and Audit
Committees. Mr. Ford holds a B.S. in Mathematics and Economics from Claremont
Men's College.

RICHARD L. TANLER has been Chairman of the Board of Directors and Senior
Vice President, Strategic Planning and Marketing since May 1995. Mr. Tanler is
a founder of the Company and served as President and Chief Executive Officer
from June 1992 through May 1995. Prior to this position, Mr. Tanler served as
Director of Services, Business Unit at Metaphor Computer Systems, Inc., a
software company ("Metaphor"). Mr. Tanler holds a B.S. in Business Quantitative
Systems from Arizona State University.

52
<PAGE>

DONALD W. ANDERSON has been Vice President and Chief Financial Officer
since November 1996. From May 1996 to November 1996, Mr. Anderson served as
Vice President, Finance for the School Product Unit of The Learning
Company, Inc., an educational software company that merged with his previous
employer, the Minnesota Educational Computing Corporation ("MECC").
Mr. Anderson served as Senior Vice President, Finance and Chief Financial
Officer of MECC from August 1988 to May 1996 and held various positions at MECC
since joining MECC in 1980, including Vice President, Operations. Mr. Anderson
holds a B.A. in Accounting from Metropolitan State University.

MARK FURTNEY has been Vice President, Engineering since July 1997. From
1988 to July 1997, Dr. Furtney worked for Cray Research, Inc., a supercomputer
supplier, in a variety of positions, including Senior Director of Technology.
Dr. Furtney holds a Ph.D. in Computer Science from the University of Virginia,
an M.S. in Nuclear Engineering from the Massachusetts Institute of Technology
and a B.S. in Mechanical Engineering from Clarkson University.

RICHARD S. PARKER has been Vice President of Marketing since January 1994.
He is a founder of the Company and served as Director of Marketing from April
1990 through December 1993. From September 1984 to April 1990, Mr. Parker was
employed with Metaphor in a variety of positions, including Director of Data
Management, Marketing Manager and Manager of Business Development for the
Metaphor Consulting Group. Mr. Parker attended the University of Minnesota,
majoring in Business Administration.

ROBIN L. PEDERSON has been Vice President, Worldwide Sales for the Company
since April 1996. From June 1995 to April 1996, Mr. Pederson was Senior Vice
President, Worldwide Sales, Marketing and Support for Great Plains
Software, Inc., a financial applications software company. From October 1990 to
June 1995, Mr. Pederson worked for Banyan Systems, Inc., a network software
provider, in a variety of positions including Vice President, Americas.
Mr. Pederson holds a B.S. in Business Administration from the University of
North Dakota.

RORY C. (BUTCH) TERRIEN has been Senior Vice President, Research and
Development since June 1992. Prior to joining the Company, Mr. Terrien was
employed with Metaphor as the Development Manager for the Metaphor Consulting
Group. Mr. Terrien holds a B.S. in both Mechanical Engineering and Computer
Science from Northwestern University and an M.S. in Mechanical Engineering from
the University of Minnesota.

MARY K. TRICK has been Vice President, Customer Services since June 1995.
From November 1992 to July 1995, Ms. Trick was employed by Keane, Inc., a
technical consulting firm, in a variety of positions including Branch Manager
for the Minneapolis Branch. From October 1980 to November 1992, Ms. Trick was
employed by Wang Industries, a hardware and software firm, in a variety of
positions including business consultant, presales, Practice Manager and Services
Director for various regions. Ms. Trick attended the University of Minnesota.

FREDRIC R. (RICK) BOSWELL has been a director of the Company since March
1993. Since April 1989, Dr. Boswell has served as the Executive Vice President
of St. Paul Venture Capital, Inc., a venture capital firm. From September 1985
to May 1989, Dr. Boswell served as President and Chief Operating Officer of ADC
Telecommunications, Inc., a manufacturer of telecommunications equipment and
systems. Prior to September 1985, Dr. Boswell served as President and Chief
Executive Officer of the E.F. Johnson Company, a manufacturer of components,
equipment and systems for wireless communications. Dr. Boswell has served as a
director of the Telecommunications Industry Association and the Minnesota High
Technology Council and as a member of the Executive Advisory Board of the
National Communications Forum. Dr. Boswell holds a B.S. in electrical
engineering and an M.S. and a Ph.D. in computer engineering from Case Western
Reserve University as well as an M.B.A. from the Harvard Business School.

RONALD E.F. CODD has been a director of the Company since August 1997.
Mr. Codd has worked at PeopleSoft, Inc., a software products company, since
1991, and has served as the Senior Vice President of Finance and Administration
and Chief Financial Officer. From March 1989 to August 1991, Mr. Codd served as
Corporate Controller of MIPS Computer Systems, Inc. Mr. Codd currently serves
as a director of Adept Technology, Inc.

53
<PAGE>

Mr. Codd holds a B.S. in Accounting from the University of California, Berkeley
and an M.M. from the J.L. Kellogg Graduate School of Management, Northwestern
University.

PROMOD HAQUE has been a director of the Company since March 1993.
Dr. Haque joined Norwest Venture Capital Management, Inc., a venture capital
firm, in November 1990 and is currently a General Partner of Norwest Equity
Partners V, L.P. and a General Partner of Norwest Equity Partners IV, L.P.
Dr. Haque currently serves as a director of Optical Sensors, Inc., Prism
Solutions, Raster Graphics, Inc., Connect, Inc., Transaction Systems
Architects, Inc. and several privately held companies. Dr. Haque holds a
B.S.E.E. from the University of Delhi, India, an M.S.E.E. and a Ph.D.E.E. from
Northwestern University, and an M.M. from the J.L. Kellogg Graduate School of
Management, Northwestern University.

DONALD R. HOLLIS has been a director of the Company since August 1996.
Mr. Hollis is President of DRH Strategic Consulting, Inc., a consulting firm,
where he has been employed since March 1996. Prior to January 1996, Mr. Hollis
served as an Executive Vice President of First Chicago Corporation/First
National Bank of Chicago. Mr. Hollis serves as a director of Deluxe
Corporation, Teltrend, Inc., Edify, Inc., Open Port Technology and the Cambridge
Assessment Center. Mr. Hollis holds a B.B.A. from Kent State University.

JAY H. WEIN has been a director of the Company since June 1992. Mr.
Wein has worked as an independent investor and business consultant since
September 1989. From June 1992 to May 1995, Mr. Wein served as Chairman of
the Board of the Company. Between July 1974 and August 1989, Mr. Wein served
as Managing Partner of the Minneapolis/St. Paul office of Arthur Andersen &
Co. Mr. Wein serves as a director of Great Hall Investment Funds, Inc. and
of several private companies and non-profit organizations. Mr. Wein holds a
B.S.B.A. from the University of South Dakota.

WILLIAM H. YOUNGER, JR. has been a director of the Company since July
1995. Since 1992, Mr. Younger has been a managing director of Sutter Hill
Ventures, LLP, a venture capital management firm. Mr. Younger currently
serves as a director of COR Therapeutics, Inc., Celeritek, Inc., Oacis
Healthcare Systems, Inc. and Fort, Software, Inc. Mr. Younger holds a
B.S.E.E. from the University of Michigan and an M.B.A. from Stanford
University.

COMMITTEES

The Audit Committee consists of Messrs. Codd, Wein and Younger. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent accountants, reviews the results and scope of audit and
other services provided by the Company's independent accountants and reviews and
evaluates the Company's audit and control functions.

The Compensation Committee consists of Drs. Boswell and Haque and
Mr. Hollis. The Compensation Committee makes recommendations regarding the Plan
and makes decisions concerning salaries and incentive compensation for employees
and consultants of the Company.

DIRECTOR COMPENSATION

Directors currently do not receive any cash compensation from the Company
for their services as members of the Board of Directors, although members are
reimbursed for certain expenses in connection with attendance at Board of
Directors and Committee meetings. Messrs. Hollis and Wein also serve as
part-time consultants to the Company for which they have been compensated
separately. Non-employer directors will also receive periodic option grants
under the Plan.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, directors and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Commission and to provide the Company with
copies of all such reports. To the Company's knowledge, based solely on a
review of copies of reports filed with the

54
<PAGE>

Commission during fiscal 1998, all applicable Section 16(a) filing requirements
were satisfied, except that one report on Form 4 setting forth the acquisition
of 4,000 shares of Common Stock by Ronald E.F. Codd on December 17, 1997 was not
filed on a timely basis.

ITEM 11 EXECUTIVE COMPENSATION

The following table sets forth information with respect to compensation
paid by the Company for services rendered to the Company by the Chief Executive
Officer and the four other highest paid executive officers (collectively, the
"Named Executive Officers") during fiscal 1998, 1997 and 1996:

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
ANNUAL ------------------------------------
COMPENSATION AWARDS
----------------------- ------------------------------------
SECURITIES
UNDERLYING ALL OTHER
YEAR SALARY ($) BONUS ($) OPTIONS COMPENSATION($)(1)
----- ----------- ---------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
Larry J. Ford . . . . . . . . . . . . . . . . . . . 1998 $ 175,000 $ 72,500 92,000 $ 0
President, Chief Executive Officer and Director 1997 175,000 74,100 0 25,000
1996 133,269 12,000 490,982 0

Richard L. Tanler . . . . . . . . . . . . . . . . . 1998 150,000 35,567 46,000 0
Chairman of the Board and Senior Vice President, 1997 150,000 42,400 0 0
Strategic Planning and Marketing 1996 150,000 19,000 134,691 0

Donald W. Anderson (2). . . . . . . . . . . . . . . 1998 126,000 20,194 0 0
Vice President and Chief Financial Officer 1997 19,385 0 80,000 0
1996 0 0 0 0

Robin L. Pederson (3) . . . . . . . . . . . . . . . 1998 150,000 73,916 48,000 0
Vice President, Worldwide Sales 1997 119,423 56,250 172,000 15,612
1996 0 0 0 0

Mary K. Trick (4) . . . . . . . . . . . . . . . . . 1998 125,000 34,666 16,000 0
Vice President, Customer Services 1997 120,000 29,375 38,000 0
1996 60,000 8,000 30,000 0

</TABLE>

- --------------------------------------------
(1) Consists of moving expenses.
(2) Mr. Anderson's employment commenced on November 25, 1996 at an annual base
salary of $126,000.
(3) Mr. Pederson's employment commenced on April 18, 1996 at an annual base
salary of $150,000.
(4) Ms. Trick's employment commenced on July 24, 1995 at an annual base salary
of $120,000.

<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth each grant of stock options during the
fiscal year ended January 31, 1998 to each of the Named Executive Officers. No
stock appreciation rights ("SARs") were granted during such fiscal year.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM ($)(4)
---------------------------------------------------------------- -------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (1) FISCAL 1998 (2) ($/SHARE) (3) DATE 5% 10%
--------------------------- ------------- ----------------- --------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Larry J. Ford . . . . . . 92,000 11.8 % $ 1.125 2/05/07 $ 65,091 $ 164,952
Richard L. Tanler . . . . 46,000 5.9 1.125 2/05/07 32,545 82,476
Donald W. Anderson. . . . 0 0 -- -- -- --
Robin L. Pederson . . . . 20,000 2.6 3.750 8/07/07 47,167 119,531
28,000 3.6 1.125 2/05/07 19,810 50,203
Mary K. Trick . . . . . . 4,000 0.5 1.125 2/05/07 2,830 7,172
12,000 1.5 3.750 8/07/07 28,300 71,718

</TABLE>
- ----------------------
(1) Generally, 20% of these options vest on the first anniversary of the date
of grant; and an additional 20% of these options vest on each anniversary
of the date of grant occurring in 1999, 2000, 2001 and 2002. These options
have a ten year term, subject to earlier termination in the event of the
optionee's cessation of service with the Company.
(2) Based on an aggregate of 781,900 shares subject to options granted to
employees of the Company under the Predecessor Plan.
(3) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or any other method
approved by the Board.
(4) The potential realizable value is calculated based on the term of the
option at the time of grant (ten years). Stock price appreciation of 5%
and 10% is assumed pursuant to rules promulgated by the Commission and does
not represent the Company's prediction of its stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by
assuming that the exercise price on the date of grant appreciates at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price.

OPTION VALUES

The following table sets forth information concerning options to purchase
Common Stock exercised by the Named Executive Officers during fiscal 1998 and
the number and value of the unexercised options that are held by the Named
Executive Officers as of the end of fiscal 1998. No SARs were exercised by the
Named Executive Officers in fiscal 1998 or were outstanding at the end of that
year.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END AT FY-END ($) (1)
VALUE ---------------------------- ----------------------------
SHARES REALIZED
NAME ACQUIRED ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------- ---------- ----------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Larry J. Ford. . . . 28,000 $ 147,000 270,657 284,324 $ 1,420,949 $ 1,429,701
Richard L. Tanler. . 0 0 162,670 128,821 856,718 676,310
Donald W. Anderson . 32,000 168,000 0 48,000 0 252,000
Robin L. Pederson. . 34,400 180,600 0 185,600 0 921,900
Mary K. Trick. . . . 9,200 48,300 19,600 55,200 102,900 258,300
</TABLE>

- ---------------------
(1) Value realized is based on the January 30, 1998 closing price of $6.375 per
share of Common Stock as listed on the Nasdaq National Market less the
exercise price for such shares.

56
<PAGE>

STOCK PLANS

1997 EQUITY INCENTIVE PLAN

The Company's 1997 Equity Incentive Plan (the "Plan") was adopted by the
Board on September 23, 1997, subject to stockholder approval. The number of
shares of Common Stock reserved for issuance under the Plan is equal to
(i) 1,000,000 plus (ii) 107,871, the aggregate number of shares remaining
available for grants under the Company's 1992 Stock Option Plan (the
"Predecessor Plan") on October 31, 1997. As of February 1 of each year,
commencing with the year 1999, the number of shares reserved for issuance under
the Plan will be increased automatically by the lesser of (i) 3.5% of the total
number of shares of Common Stock then outstanding or (ii) 400,000 shares. As of
March 31, 1998, options to purchase 2,241,412 shares of Common Stock were
outstanding under the Plan. Under the Plan, employees, non-employee members of
the Board ("Outside Directors") and consultants may be awarded options to
purchase shares of Common Stock, SARs, restricted shares or stock units
(collectively, the "Awards"). Options may be incentive stock options designed
to satisfy Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or nonstatutory stock options not designed to meet such requirements.
If restricted shares or shares issued upon the exercise of options granted under
this Plan or the Predecessor Plan are forfeited, then such shares will again
become available for awards under the Plan. If stock units, options or SARs
granted under this Plan or the Predecessor Plan are forfeited or terminate for
any other reason before being exercised, then the corresponding shares will
again become available for awards under the Plan.

The Plan is administered by the Company's Compensation Committee (the
"Committee"). The Committee has complete discretion to determine which eligible
individuals are to receive any award, determine the type, number, vesting
requirements and other features and conditions of such award, interpret the Plan
and make all other decisions relating to the operation of the Plan.

The exercise price for non-qualified and incentive stock options granted
under the Plan may not be less than 85% or 100%, respectively, of the fair
market value of the Common Stock on the option grant date and may be paid in
cash or in outstanding shares of Common Stock. Options may also be exercised by
using a cashless exercise method, a pledge of shares to a broker or a promissory
note. The payment for the award of newly issued restricted shares will be made
in cash, by promissory note or the rendering of past or future services.

The Committee has the authority to modify, extend or assume outstanding
options and SARs or may accept the cancellation of outstanding options or SARs
in return for the grant of new options or SARs for the same or a different
number of shares and at the same or a different exercise price.

Each Outside Director who first becomes a member of the Board after the
initial public offering will receive a one-time option grant for 8,000 shares of
Common Stock upon taking office. This option will become exercisable with
respect to 20% of the shares upon the completion of 12 months of Board service
and with respect to the balance of the shares in equal installments on a monthly
basis thereafter for the next four years of service. Upon the conclusion of
each regular annual meeting of stockholders held in the 1998 calendar year and
thereafter, each Outside Director who will continue to serve as a Board member
will receive an option for 1,600 shares of Common Stock, except that an Outside
Director will not receive an annual grant for 1,600 shares in the same year he
or she received the one-time option grant for 8,000 shares. The option for
1,600 shares will become exercisable upon the completion of 60 months of Board
service from the grant date. The exercisability of each 8,000-share or
1,600-share option granted to an Outside Director will accelerate in the event
of the optionee's death, disability or retirement at age 65 and may accelerate
in the event of a Change in Control (as defined below).

The Board may decide to implement a program that allows an Outside Director
to elect to receive his or her annual retainer payments and meeting fees from
the Company in the form of cash, options, restricted shares, stock units or a
combination thereof. The number and terms of such options, restricted shares or
stock units to be granted to Outside Directors in lieu of annual retainers and
meeting fees will be calculated in a manner determined by the Board.

57
<PAGE>

Upon a Change in Control, an Award will become fully exercisable as to all
shares subject to such Award if such Award is not assumed by the surviving
corporation or its parent and the surviving corporation or its parent does not
substitute such Award with another award of substantially the same terms. In
the event of an involuntary termination within 12 months following a Change in
Control, the vesting of an Award will accelerate, as if the holder of the Award
performed services for the Company for an additional 12 months.

A Change in Control includes (i) a merger or consolidation of the Company
after which the Company's then current stockholders own less than 50% of the
surviving corporation, (ii) sale of all or substantially all of the assets of
the Company, (iii) a proxy contest that results in replacement of more than
one-third of the directors over a 24-month period or (iv) acquisition of 50% or
more of the Company's outstanding stock by a person other than a trustee of any
of the Company's employee benefit plans or a corporation owned by the
stockholders of the Company in substantially the same proportions as their stock
ownership in the Company. In the event of a merger or other reorganization,
outstanding options, SARs, restricted shares and stock units will be subject to
the agreement of merger or reorganization, which may provide for the assumption
of outstanding Awards by the surviving corporation or its parent, for their
continuation by the Company (if the Company is a surviving corporation), for
accelerated vesting and accelerated expiration, for settlement in cash or for
cancellation of the outstanding Awards.

The Board may amend or terminate the Plan at any time. Amendments may be
subject to stockholder approval to the extent required by applicable laws.

1997 EMPLOYEE STOCK PURCHASE PLAN

The Board adopted the Company's 1997 Employee Stock Purchase Plan (the
"Purchase Plan") on September 23, 1997, subject to stockholder approval. A
total of 200,000 shares of Common Stock have been reserved for issuance under
the Purchase Plan. The Purchase Plan is intended to qualify under Section 423
of the Code. Each calendar year, two overlapping offering periods each with a
duration of 18 months will commence on January 1 and July 1 (except that the
first offering period commenced on December 16, 1997 and will end on June 30,
1999). Each offering period contains three six-month accumulation periods, with
purchases occurring at the end of each six-month accumulation period. However,
the initial accumulation period began on December 16, 1997 and will end on
June 30, 1998. The Purchase Plan is administered by the Committee. All
employees who are employed by the Company for at least 20 hours per week and for
more than five months per year are eligible to participate. The Purchase Plan
permits each eligible employee to purchase Common Stock through payroll
deductions, which may not exceed 15% of an employee's compensation. No more
than 1,000 shares may be purchased on any purchase date. The price of each
share of Common Stock purchased under the Purchase Plan will be 85% of the lower
of (i) the fair market value per share of Common Stock on the date immediately
prior to the first date of the applicable offering period (except that in the
case of the first offering period, the price per share will be the price offered
to the public in the offering) or (ii) the date at the end of the applicable
accumulation period. Employees may end their participation in the Purchase Plan
at any time during the accumulation period, and participation ends automatically
upon termination of employment with the Company.

In the event of a Change in Control, all offering periods and accumulation
periods will terminate and each outstanding purchase right will be exercised.
The Board may amend or terminate the Purchase Plan at any time. However, the
Board may not, without stockholder approval, increase the number of shares of
Common Stock reserved for issuance under the Purchase Plan.

401(k) PLAN

The Company has adopted a 401(k) retirement savings plan referred to as the
"Information Advantage, Inc. Employees 401(k) Plan." This plan is available to
all employees who have attained age 21 and have completed six months of service.
An employee may contribute, on a pre-tax basis, up to 20% of the employee's
wages from the Company to limitations specified under the Code. Under the terms
of the Information Advantage, Inc. Employees 401(k) Plan, the Company may match
employee contributions up to six percent of the employee's compensation and may
make discretionary profit sharing contributions, but has not elected to do
either. Contributions are

58
<PAGE>

allocated to each employee's individual account and are, at the employee's
election, invested in one, all, or some combination of the investment funds
available under this 401(k) plan. Employee contributions are fully vested and
non-forfeitable. Employees will vest in any Company contributions at the rate
of 20% for each year of service.

EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS

The Company has employment contracts and severance agreements in effect
with Richard L. Tanler, Chairman of the Board and Senior Vice President,
Strategic Planning and Marketing; Larry J. Ford, President and Chief Executive
Officer; Robin L. Pederson, Vice President, Worldwide Sales; Rory C. (Butch)
Terrien, Senior Vice President, Research and Development; Donald W. Anderson,
Vice President and Chief Financial Officer; and Richard S. Parker, Vice
President, Marketing. The Company also has severance agreements in effect with
Mark Furtney, Vice President, Engineering; Mary K. Trick, Vice President,
Customer Service; Keith Deane, General Manager --United Kingdom division; and
Michael Gaard, General Manager - Financial Services business unit. Each
severance agreement provides for the acceleration of all unvested stock options
of the officer following a Change in Control if either (i) his or her employment
by the Company is terminated without cause, or (ii) he or she voluntarily
terminates his or her employment as a result of a reduction in authority or
responsibility as an employee of the Company.

The Company and Mr. Tanler are parties to an employment agreement and an
amendment thereto dated June 11, 1992 and April 27, 1995, respectively,
governing his employment with the Company. The agreement sets forth
Mr. Tanler's compensation level and eligibility for salary increases, bonuses,
benefits and option grants under the Predecessor Plan. Pursuant to the
agreement, Mr. Tanler's employment is voluntary and may be terminated by the
Company or Mr. Tanler at any time with 30 days prior written notice, provided
however, that if the Company terminates Mr. Tanler's employment without cause,
Mr. Tanler shall receive an amount equal to his base salary per month at the end
of each of the six months immediately following the date of termination but in
no event shall he receive any such payments after he gains employment elsewhere.
The Company may immediately terminate Mr. Tanler's employment for cause upon
written notice with no further obligation to Mr. Tanler.

The Company and Mr. Ford are parties to an employment agreement and an
amendment thereto dated April 19, 1995 and May 23, 1995, respectively, governing
his employment with the Company. The agreement sets forth Mr. Ford's
compensation level and eligibility for salary increases, bonuses, benefits and
option grants under the Predecessor Plan. Mr. Ford's employment with the
Company under the agreement is voluntary and may be terminated by the Company or
Mr. Ford at any time with 30 days prior written notice, provided that if the
Company terminates Mr. Ford's employment for reasons other than cause, the
Company shall pay to Mr. Ford a sum equal to his current base salary for a
period of six months following such termination. Notwithstanding the foregoing,
if Mr. Ford's employment is terminated (for reasons other than cause) due to a
"change in control of the Company" (defined to mean the acquisition by a person
not currently a stockholder of the Company of shares of Company stock
representing more than 50% of the voting power of the outstanding shares),
Mr. Ford shall receive a sum equal to his then current base salary for an
additional 12 month period. The Company may terminate Mr. Ford's employment for
cause without notice and without any further obligation to Mr. Ford. The
agreement also provides for full acceleration of vesting of his unvested stock
options or shares if one of the following events shall occur: (i) the sale by
the Company of all or substantially all of its assets and the discontinuance of
its business; or (ii) a change in control of the Company (as previously defined)
resulting in the termination of Mr. Ford's employment with the Company, a
substantial change in the scope of Mr. Ford's employment responsibilities or job
relocation.

The Company and Mr. Anderson are parties to a letter agreement executed on
November 4, 1996 governing his employment with the Company. The agreement sets
forth Mr. Anderson's compensation level and eligibility for salary increases,
bonuses, benefits and option grants under the Predecessor Plan. Pursuant to the
agreement, Mr. Anderson is entitled to receive, in the event of termination of
employment for reasons other than cause or if Mr. Anderson is not employed in a
capacity comparable to his then current position due to a change of ownership of
the Company, a sum equal to 12 months of base compensation. The agreement also
provides for accelerated vesting of unvested stock options if a change of
ownership of the Company occurs. If the change of ownership

59
<PAGE>

occurs within the first two years of Mr. Anderson's first day of employment with
the Company, all his unvested options shall immediately vest.

The Company and Mr. Parker are parties to an employment agreement dated
June 11, 1992 governing his employment with the Company. The agreement sets
forth Mr. Parker's compensation level and eligibility for salary increases,
bonuses, benefits and option grants under the Predecessor Plan. Pursuant to the
agreement, Mr. Parker's employment is voluntary and may be terminated by the
Company or Mr. Parker at any time with 30 days prior written notice, provided
however, that if the Company terminates Mr. Parker's employment without cause,
Mr. Parker shall receive an amount equal to his base salary per month at the end
of each of the six months immediately following the date of termination, but in
no event shall he receive any such payments after he gains employment elsewhere.
The Company may immediately terminate Mr. Parker's employment for cause upon
written notice with no further obligation to Mr. Parker.

The Company and Mr. Pederson are parties to a letter agreement dated
March 6, 1996 governing his employment with the Company. The agreement sets
forth Mr. Pederson's compensation level and eligibility for salary increases,
bonuses, benefits and option grants under the Predecessor Plan. Pursuant to the
agreement, Mr. Pederson is entitled to receive, in the event of termination of
Mr. Pederson's employment with the Company (for reasons other than cause) or if
Mr. Pederson is not employed in a capacity comparable to his then current
position due to a change in ownership of the Company, a sum equal to 12 months
of base compensation. The agreement also provides for accelerated vesting of
any unvested stock options or shares in the event of a change in ownership of
the Company. If Mr. Pederson is employed by the acquiring or surviving entity
in a capacity comparable to his then current position, 50% of his unvested stock
options or shares shall immediately vest; the remaining 50% shall vest over the
subsequent 24 months at a rate of 50% per year. Conversely, if Mr. Pederson's
employment with the acquiring or surviving entity is terminated (for reasons
other than cause) or if Mr. Pederson is not retained by such acquiring or
surviving entity in a capacity comparable to his then current position with the
Company, all his unvested stock options shall immediately vest, up to a maximum
gain to Mr. Pederson of $4.0 million.

The Company and Mr. Terrien are parties to an employment agreement dated
June 11, 1992 governing his employment with the Company. The agreement sets
forth Mr. Terrien's compensation level and eligibility for salary increases,
bonuses, benefits and option grants under the Predecessor Plan. Pursuant to the
agreement, Mr. Terrien's employment is voluntary and may be terminated by the
Company or Mr. Terrien at any time with 30 days prior written notice, provided,
however, that if the Company terminates Mr. Terrien's employment without cause,
Mr. Terrien shall receive an amount equal to his base salary per month at the
end of each of the six months immediately following the date of termination but
in no event shall he receive any such payments after he gains employment
elsewhere. The Company may immediately terminate Mr. Terrien's employment for
cause upon written notice to Mr. Terrien.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Company's Board was formed in 1993, and
the members of the Compensation Committee are Drs. Boswell and Haque and Mr.
Hollis. None of these individuals was at any time during the year ended
January 31, 1998, or at any other time, an officer or employee of the Company.
No member of the Compensation Committee of the Company serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board or Compensation
Committee.

60
<PAGE>

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to the Company
regarding beneficial ownership of its Common Stock as of March 31, 1998, by
(i) each person who is known by the Company to own beneficially more than five
percent of the Company's Common Stock, (ii) each of the Company's directors,
(iii) each of the Named Executive Officers, and (iv) all current executive
officers and directors as a group. Unless otherwise noted, each person
identified below has sole voting and investment power with respect to such
shares.

<TABLE>
<CAPTION>
NUMBER OF PERCENT
SHARES BENEFICIALLY
BENEFICIALLY OWNED
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED (1) (2) (1) (2)
- --------------------------------------- ------------- -------
<S> <C> <C>
Entities affiliated with Norwest Equity Partners (3)
2800 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402. . . . . . . . . . . . . . . . . . . . . . . 3,188,229 20.5%
Entities affiliated with St. Paul Venture Capital, Inc. (4)
8500 Normandale Lake Blvd.
Suite 1940
Bloomington, MN 55437. . . . . . . . . . . . . . . . . . . . . . . 2,472,518 15.9
Entities affiliated with Sutter Hill Ventures (5)
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304. . . . . . . . . . . . . . . . . . . . . . . . 1,256,977 8.1
Pathfinder Venture Capital Fund III (6)
Suite 585, One Corporate Center
7300 Metro Blvd.
Edina, MN 55439. . . . . . . . . . . . . . . . . . . . . . . . . . 1,238,056 8.0
Entities affiliated with Menlo Ventures (7)
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025 . . . . . . . . . . . . . . . . . . . . . . . 1,083,160 7.0
Entities affiliated with Weiss, Peck & Greer (8)
555 California Street
Suite 3130
San Francisco, CA 94104. . . . . . . . . . . . . . . . . . . . . . 768,900 5.0
Donald W. Anderson. . . . . . . . . . . . . . . . . . . . . . . . . . 52,000 *
Larry J. Ford (9) . . . . . . . . . . . . . . . . . . . . . . . . . . 341,389 2.2
Robin L. Pederson (10). . . . . . . . . . . . . . . . . . . . . . . . 72,800 *
Richard L. Tanler (11). . . . . . . . . . . . . . . . . . . . . . . . 214,587 1.4
Mary K. Trick (12). . . . . . . . . . . . . . . . . . . . . . . . . . 28,800 *
Ronald E.F. Codd. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 *
Fredric R. (Rick) Boswell (4) . . . . . . . . . . . . . . . . . . . . 2,472,518 15.9
Promod Haque (3). . . . . . . . . . . . . . . . . . . . . . . . . . . 3,188,229 20.5
Donald R. Hollis (13) . . . . . . . . . . . . . . . . . . . . . . . . 44,000 *
Jay H. Wein . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315,359 2.0
William H. Younger, Jr. (5) . . . . . . . . . . . . . . . . . . . . . 1,256,977 8.1
All directors and executive officers as a group (14 persons) (14) . . 8,113,059 52.3%

- -------------------
</TABLE>

* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.

(1) Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting or investment power with respect to
securities. Unless otherwise indicated, the address for each listed
stockholder

61
<PAGE>

is c/o Information Advantage, Inc., 7905 Golden Triangle Drive, Eden
Prairie, Minnesota 55344-7227. To the Company's knowledge, except as
indicated in the footnotes to this table and pursuant to applicable
community property laws, the persons named in the table have sole voting
and investment power with respect to all shares. The number of shares
beneficially owned includes shares issuable pursuant to warrants and stock
options that are exercisable within 60 days of March 31, 1998.

(2) Percentage of beneficial ownership is based on 15,515,810 shares
outstanding as of March 31, 1998. Shares issuable pursuant to warrants and
stock options are deemed outstanding for computing the percentage of the
person holding such warrants or options but are not deemed outstanding for
computing the percentage of any other person.

(3) Includes 1,930,792 shares held by Norwest Equity Partners IV, a Minnesota
Limited Partnership, and 1,257,437 shares held by Norwest Equity Partners
V, a Minnesota Limited Partnership. Includes 9,384 shares issuable upon
the exercise of a warrant. Dr. Haque is a partner of Itasca Partners and
Itasca Partners V, which are the General Partners of Norwest Equity
Partners IV and Norwest Equity Partners V, respectively. Dr. Haque
disclaims beneficial ownership of the shares held by Norwest Equity
Partners IV, a Minnesota Limited Partnership and Norwest Equity Partners V,
a Minnesota Limited Partnership, except to the extent of his pecuniary
interest therein arising from his partnership interests in Itasca Partners
and Itasca Partners V.

(4) Includes 2,163,128 shares held by St. Paul Fire and Marine Insurance
Company and 301,788 shares held by St. Paul Venture Capital IV, L.L.C.
Includes 7,602 shares issuable upon the exercise of a warrant.
Dr. Boswell is the Executive Vice President of St. Paul Venture Capital,
Inc., which is an affiliate of St. Paul Fire and Marine Insurance Company
and a managing member of St. Paul Venture Capital IV, L.L.C. Dr. Boswell
disclaims beneficial ownership of the shares held by St. Paul Fire and
Marine Insurance Company and St. Paul Venture Capital IV, L.L.C.

(5) Includes 749,393 shares of Common Stock held by Sutter Hill Ventures, a
California Limited Partnership ("Sutter Hill"), 83,097 shares held by
Mr. William H. Younger, Jr. as Trustee of a living trust, and 424,487
shares held of record for 15 other individuals and entities associated with
Sutter Hill. Includes 3,699 shares issuable upon the exercise of a
warrant. Mr. Younger is a General Partner of Sutter Hill and shares voting
and investment power with respect to the shares held by Sutter Hill.
Mr. Younger disclaims beneficial ownership of the shares held by Sutter
Hill and the individuals and entities associated with Sutter Hill, except
as to the shares held of record in his name and as to his partnership
interest in Sutter Hill.

(6) Includes 3,858 shares issuable upon the exercise of a warrant. Messrs.
Brian P. Johnson, Andrew J. Greenshields, Gary A. Stoltz, Jack Ahrens,
Eugene Fischer and Ms. Barbara L. Santry are the General Partners of
Pathfinder Venture Capital Fund III.

(7) Includes 1,064,001 shares held by Menlo Ventures VI, L.P. and 15,970 shares
held by Menlo Entrepreneurs Fund VI, L.P. Includes 3,189 shares issuable
upon the exercise of a warrant. Messrs. H. Dubose Montgomery, Thomas H.
Bredt, Douglas C. Carlisle, John W. Jarve, Michael D. Laufer, M.D. and Ms.
Sonja L. Hoel are the General Partners of MV Management VI, L.P., the
General Partner of Menlo Ventures VI, L.P. and Menlo Entrepreneurs Fund VI,
L.P. These individuals disclaim beneficial ownership of the shares held by
Menlo Ventures VI, L.P. and Menlo Entrepreneurs Fund VI, L.P., except to
the extent of their respective pecuniary interests therein.

(8) Includes 348,612 shares held by Weiss, Peck & Greer Venture Associates III,
L.P. and 419,258 shares held by WPG Enterprise Fund II, L.P. Includes
1,030 shares issuable upon the exercise of a warrant. Messrs. Philip
Greer, Gill Cogan, Phil Black and Christopher J. Schaepe and Ms. Ellen
Feeney and Ms. Annette Bianchi are the General Partners of WPG Venture
Partners III, L.P., the General Partner of Weiss, Peck & Greer Venture
Associates III, L.P. and WPG Enterprise Fund II, L.P. These individuals
disclaim beneficial ownership of the shares held by Weiss, Peck & Greer
Venture Associates III, L.P. and WPG Enterprise Fund II, L.P. except to the
extent of their respective pecuniary interests therein.

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<PAGE>

(9) Includes 303,389 shares issuable upon the exercise of stock options.

(10) Includes 38,400 shares issuable upon the exercise of stock options.

(11) Includes 186,016 shares issuable upon the exercise of stock options.

(12) Includes 19,600 shares issuable upon the exercise of stock options.

(13) Includes 4,000 shares issuable upon the exercise of stock options.

(14) Includes 657,805 shares issuable upon the exercise of stock options.

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since the Company's inception, the Company has raised capital primarily
through the sale of its Preferred Stock. In June 1995 the Company sold
3,010,515 shares of Series B Convertible Redeemable Preferred Stock at a price
of $2.38 per share. In March 1996, the Company sold 1,514,837 shares of Series
C Convertible Redeemable Preferred Stock at a price of $3.25 per share. In
February 1997 the Company sold 1,399,992 shares of Series D Convertible
Redeemable Preferred Stock at a price of $5.00 per share. The following table
summarizes the shares of Preferred Stock purchased by executive officers,
directors and 5% stockholders of the Company and persons associated with them
since September 1994.

<TABLE>
<CAPTION>
SERIES B SERIES C SERIES D
PREFERRED PREFERRED PREFERRED
INVESTOR STOCK STOCK STOCK
- -------- ------------- ------------- -------------
<S> <C> <C> <C>
Entities affiliated with Norwest Equity Partners (1) . . . . . . 519,665 461,538 501,123
Entities affiliated with St. Paul Venture Capital, Inc. (2). . . 519,665 183,579 200,000
Pathfinder Venture Capital Fund III (3). . . . . . . . . . . . . 223,827 61,538 50,000
Entities affiliated with Sutter Hill Ventures (4). . . . . . . . 863,469 99,147 197,568
Entities affiliated with Menlo Ventures (5). . . . . . . . . . . 842,105 93,651 100,000
Entities affiliated with Weiss, Peck & Greer (6) . . . . . . . . -- 615,384 121,049
Donald R. Hollis . . . . . . . . . . . . . . . . . . . . . . . . -- -- 40,000
William H. Younger, Jr. (7). . . . . . . . . . . . . . . . . . . 59,497 6,621 12,784
Donald W. Anderson . . . . . . . . . . . . . . . . . . . . . . . -- -- 20,000
</TABLE>
- -------------------

(1) Includes shares purchased by Norwest Equity Partners IV, a Minnesota
Limited Partnership and Norwest Equity Partners V, a Minnesota Limited
Partnership. Dr. Haque is a partner of Itasca Partners and Itasca Partners
V, which are the General Partners of Norwest Equity Partners IV and Norwest
Equity Partners V, respectively.

(2) Includes shares purchased by St. Paul Fire and Marine Insurance Company and
St. Paul Venture Capital IV, L.L.C. Dr. Boswell is the Executive Vice
President of St. Paul Venture Capital, Inc., which is an affiliate of St.
Paul Fire and Marine Company and the managing member of St. Paul Venture
Capital IV, L.L.C.

(3) Messrs. Brian P. Johnson, Andrew J. Greenshields, Gary A. Stoltz, Jack
Ahrens, Eugene Fischer and Ms. Barbara L. Santry are the General Partners
of Pathfinder Venture Capital Fund III.

(4) Includes shares purchased by Sutter Hill, Mr. William H. Younger, Jr. and
15 other individuals and entities associated with Sutter Hill. Mr. Younger
is a General Partner of Sutter Hill.

(5) Includes shares purchased by Menlo Ventures VI, L.P. and Menlo
Entrepreneurs Fund VI, L.P. Messrs. H. Dubose Montgomery, Thomas H. Bredt,
Douglas C. Carlisle, John W. Jarve, Michael D. Laufer, M.D. and

63
<PAGE>

Ms. Sonja L. Hoel are the General Partners of MV Management VI, L.P., the
General Partner of Menlo Ventures VI, L.P. and Menlo Entrepreneurs Fund VI,
L.P.

(6) Includes shares purchased by Weiss, Peck & Greer Venture Associates III,
L.P. and WPG Enterprise Fund II, L.P. Messrs. Philip Greer, Gill Cogan,
Phil Black and Christopher J. Schaepe and Ms. Ellen Feeney and Ms. Annette
Bianchi are the General Partners of WPG Venture Partners III, L.P., the
General Partner of Weiss, Peck & Greer Venture Associates III, L.P. and WPG
Enterprise Fund II, L.P.

(7) Includes shares purchased by Mr. Younger as Trustee of a living trust.

In April 1996, the Company loaned $70,000 to Richard L. Tanler, the
Company's Chairman of the Board and Senior Vice President, Strategic Planning
and Marketing. In connection with the loan, Mr. Tanler issued a promissory note
to the Company for $70,000, bearing interest at the rate of 5.33% per annum,
which note is payable 60 days after demand by the Company. As of January 31,
1998, there had been no payments on the loan and the aggregate indebtedness
under the loan was $77,258.

In August 1996, Donald R. Hollis, a director of the Company, was granted an
option to purchase 8,000 shares of Common Stock at an exercise price of $1.13
per share in connection with becoming a director. Also in August 1996,
Mr. Hollis received an option to purchase 2,000 shares of Common Stock at an
exercise price of $1.13 per share in connection with entering into a consulting
agreement with the Company.

In July 1997, in connection with the acceptance of an employment offer,
Mark Furtney, the Company's Vice President, Engineering, was granted an option
to purchase 40,000 shares of the Company's Common Stock at an exercise price of
$2.13 per share.

In August 1997, the Company granted Ronald E.F. Codd an option to purchase
8,000 shares of Common Stock at an exercise price of $3.75 per share in
connection with becoming a director.

The Company also has granted additional options to certain of its executive
officers. Such options are described further in "Executive Compensation."

The Company has entered into employment agreements with Messrs. Ford,
Tanler, Anderson, Parker, Pederson and Terrien.

In December 1997, the Company and certain holders of its outstanding
Preferred Stock (the "Lenders") entered into a Loan and Warrant Purchase
Agreement (the "Loan Agreement") to provide the Company with a source of funds
for its working capital requirements pending completion of the initial public
offering. The Loan Agreement provided the Company with a revolving loan
commitment of $3.0 million. The Loan Agreement terminated ten days after the
closing of the initial public offering. The Company did not draw down any funds
under the Loan Agreement. In consideration of the revolving loan commitment of
the Lenders, the Company issued warrants to the Lenders to purchase an aggregate
of 30,000 shares of Common Stock at a per share purchase price of $5.00. Shares
purchased upon exercise of the warrants are entitled to certain registration
rights.

The Company believes that all of the transactions set forth herein were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. All future transactions, including loans (if
any), between the Company and its officers, directors, and principal
stockholders and their affiliates will be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested Outside
Directors, and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.

64
<PAGE>

INDEMNIFICATION

The Company's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by the General Corporation
Law of the State of Delaware. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.

The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under Delaware
law. The Company has entered into indemnification agreements with its officers
and directors containing provisions that may require the Company, among other
things, to indemnify such officers and directors against certain liabilities
that may arise by reason of their status or service as directors or officers
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms.

65
<PAGE>

PART IV

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

(a)(1) Financial Statements.

Report of Independent Public Accountants
Consolidated Financial Statements
Balance Sheets
Statements of Operations
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Consolidated Financial Statements

(2) Financial Statement Schedule.

Report of Independent Public Accountants on Financial Statement
Schedule
Schedule II - Valuation and Qualifying Accounts

(3) Exhibits.

66
<PAGE>

10.10 Employment Agreement between the Company and Rory C.
(Butch) Terrien, dated June 11, 1992 (incorporated by
reference to the Company's Registration Statement on Form
S-1 (File No. 333-37707) filed on October 10, 1997).
10.11 Offer Letter to Robin L. Pederson, dated March 6, 1996
(incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 333-37707) filed on
October 10, 1997).
10.12 Offer Letter to Donald W. Anderson, executed November 4,
1996 (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 333-37707)
filed on October 10, 1997).
10.13 Amended and Restated Business Loan Agreement between the
Company and Silicon Valley Bank, dated September 3, 1997
(incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 333-37707) filed on
October 10, 1997).
10.14 Subordinated Loan and Security Agreement between the
Company and Comdisco, Inc., dated April 12, 1996
(incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 333-37707) filed on
October 10, 1997).
10.15 Severance Agreement between the Company and Larry J. Ford,
dated November 10, 1997 (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No.
333-37707) filed on October 10, 1997).
10.16 Form of Severance Agreement between the Company and
Richard L. Tanler, Robin L. Pederson, Rory C. (Butch)
Terrien, Donald W. Anderson, Richard S. Parker, Mark
Furtney, Mary K. Trick, Keith Deane and Michael Gaard,
dated November 10, 1997 (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No.
333-37707) filed on October 10, 1997).
10.17 Loan and Warrant Purchase Agreement between the Company
and certain holders of Preferred Stock, dated December 4,
1997 (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 333-37707)
filed on October 10, 1997).
21.1 Subsidiaries of the Registrant (incorporated by reference
to the Company's Registration Statement on Form S-1 (File
No. 333-37707) filed on October 10, 1997).
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule.

(b) Reports on Form 8-K.

None.

67
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on April 22, 1998.

INFORMATION ADVANTAGE, INC.

By:/s/ Larry J. Ford
-------------------------------------
Larry J. Ford
President and Chief Executive Officer

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

/s/ Larry J. Ford President, Chief Executive Officer April 22, 1998
- -------------------------- and Director (Principal Executive
Larry J. Ford Officer)

/s/ Donald W. Anderson Chief Financial Officer, Vice April 22, 1998
- -------------------------- President (Principal Financial and
Donald W. Anderson Accounting Officer)

/s/ Richard L. Tanler Chairman of the Board of Directors April 22, 1998
- -------------------------- and Senior Vice President,
Richard L. Tanler Strategic Planning and Marketing

/s/ Fredric R. Boswell Director April 22, 1998
- --------------------------
Fredric R. (Rick) Boswell

/s/ Ronald E. F. Codd Director April 22, 1998
- --------------------------
Ronald E. F. Codd

/s/ Promod Haque Director April 22, 1998
- --------------------------
Promod Haque

/s/ Donald R. Hollis Director April 22, 1998
- --------------------------
Donald R. Hollis

/s/ Jay H. Wein Director April 22, 1998
- --------------------------
Jay H. Wein

/s/ William H. Younger, Jr. Director April 22, 1998
- --------------------------
William H. Younger, Jr.

68
<PAGE>

INDEX TO EXHIBITS

Exhibit
Number Description
- ------- -----------

3.1 Certificate of Incorporation, as amended and restated (incorporated by
reference to the Company's Registration Statement on Form S-1 (File
No. 333-37707) filed on October 10, 1997).
3.2 Bylaws, as amended (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 333-37707) filed on
October 10, 1997).
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 1993 Stock Purchase Agreement (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 333-37707)
filed on October 10, 1997).
10.1 Form of Indemnification Agreement (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 333-37707)
filed on October 10, 1997).
10.2 1992 Stock Option Plan, as amended (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 333-37707)
filed on October 10, 1997).
10.3 1997 Equity Incentive Plan, as amended (incorporated by reference to
the Company's Registration Statement on Form S-1 (File No. 333-37707)
filed on October 10, 1997).
10.4 1997 Employee Stock Purchase Plan, as amended.
10.5 Employment Agreement between the Company and Larry J. Ford, dated
April 19, 1995 (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 333-37707) filed on
October 10, 1997).
10.6 Amendment to the Employment Agreement between the Company and Larry J.
Ford, dated May 23, 1995 (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 333-37707) filed on
October 10, 1997).
10.7 Amended and Restated Employment Agreement between the company and
Richard L. Tanler, dated June 11, 1992 (incorporated by reference to
the Company's Registration Statement on Form S-1 (File No. 333-37707)
filed on October 10, 1997).
10.8 Promissory Note between the Company and Richard Tanler, dated April
11, 1996 (incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 333-37707) filed on October 10, 1997).
10.9 Employment Agreement between the Company and Richard S. Parker, dated
June 11, 1992 (incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 333-37707) filed on October 10, 1997).
10.10 Employment Agreement between the Company and Rory C. (Butch) Terrien,
dated June 11, 1992 (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 333-37707) filed on
October 10, 1997).
10.11 Offer Letter to Robin L. Pederson, dated March 6, 1996 (incorporated
by reference to the Company's Registration Statement on Form S-1 (File
No. 333-37707) filed on October 10, 1997).
10.12 Offer Letter to Donald W. Anderson, executed November 4, 1996
(incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-37707) filed on October 10, 1997).
10.13 Amended and Restated Business Loan Agreement between the Company and
Silicon Valley Bank, dated September 3, 1997 (incorporated by
reference to the Company's Registration Statement on Form S-1 (File
No. 333-37707) filed on October 10, 1997).
10.14 Subordinated Loan and Security Agreement between the Company and
Comdisco, Inc., dated April 12, 1996 (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 333-37707)
filed on October 10, 1997).
10.15 Severance Agreement between the Company and Larry J. Ford, dated
November 10, 1997 (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 333-37707) filed on
October 10, 1997).

69
<PAGE>

10.16 Form of Severance Agreement between the Company and Richard L. Tanler,
Robin L. Pederson, Rory C. (Butch) Terrien, Donald W. Anderson,
Richard S. Parker, Mark Furtney, Mary K. Trick, Keith Deane and
Michael Gaard, dated November 10, 1997 (incorporated by reference to
the Company's Registration Statement on Form S-1 (File No. 333-37707)
filed on October 10, 1997).
10.17 Loan and Warrant Purchase Agreement between the Company and certain
holders of Preferred Stock, dated December 4, 1997 (incorporated by
reference to the Company's Registration Statement on Form S-1 (File
No. 333-37707) filed on October 10, 1997).
21.1 Subsidiaries of the Registrant (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 333-37707)
filed on October 10, 1997).
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule.

<PAGE>

EXHIBIT 10.4

INFORMATION ADVANTAGE, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN

(AMENDED AND RESTATED EFFECTIVE APRIL 22, 1998)

SECTION 1. PURPOSE OF THE PLAN.

The Plan was adopted by the Board on September 23, 1997, effective as of
September 24, 1997. The amended and restated Plan is effective as of April 22,
1998. The purpose of the Plan is to provide Eligible Employees with an
opportunity to increase their proprietary interest in the success of the Company
by purchasing Stock from the Company on favorable terms and to pay for such
purchases through payroll deductions. The Plan is intended to qualify under
section 423 of the Code.

SECTION 2. ADMINISTRATION OF THE PLAN.

a. COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Company, who shall be appointed by the Board.

b. COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.

c. PLAN YEAR. The Plan Year shall consist of a twelve month period
commencing on July 1 and ending on June 30. Notwithstanding the foregoing, the
first Plan Year shall be a short Plan Year commencing on the effective date of
the Plan and ending on June 30, 1998.

SECTION 3. ENROLLMENT AND PARTICIPATION.

a. OFFERING PERIODS. While the Plan is in effect, two overlapping
Offering Periods shall commence in each calendar year. The Offering Periods
shall consist of the 18-month periods commencing on each January 1 and July 1,
except that the first Offering Period shall commence on the date of the IPO and
end on June 30, 1999.

b. ACCUMULATION PERIODS. While the Plan is in effect, two Accumulation
Periods shall commence in each calendar year. The Accumulation Periods shall
consist of the six-month periods commencing on each January 1 and July 1, except
that the first Accumulation Period shall commence on the date of the IPO and end
on June 30, 1998.

c. ENROLLMENT. Any individual who, on the day preceding the first day of
an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Company at the prescribed location not later than 10 days prior
to the commencement of such Offering Period. Notwithstanding the foregoing, the
Committee may designate a date that is fewer than 10 days prior to the
commencement of the first Offering Period under the Plan as the date by which
enrollment forms must be filed with respect to the first Offering Period; in no
event, however, shall the Committee designate a date that is subsequent to the
date of the IPO.

d. DURATION OF PARTICIPATION. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Accumulation Period in which his or her employee contributions were
discontinued under Section 4(d) or 8(b). A Participant who discontinued
employee contributions under Section 4(d) or withdrew from the Plan

<PAGE>

under Section 5(a) may again become a Participant, if he or she then is an
Eligible Employee, by following the procedure described in Subsection (c) above.
A Participant whose employee contributions were discontinued automatically under
Section 8(b) shall automatically resume participation at the beginning of the
earliest Accumulation Period ending in the next calendar year, if he or she then
is an Eligible Employee.

e. APPLICABLE OFFERING PERIOD. For purposes of calculating the Purchase
Price under Section 7(b), the applicable Offering Period shall be determined as
follows:

i. Once a Participant is enrolled in the Plan for an Offering
Period, such Offering Period shall continue to apply to him or her until
the earliest of (A) the end of such Offering Period, (B) the end of his or
her participation under Subsection (d) above or (C) re-enrollment in a
subsequent Offering Period under Paragraph (ii) below.

ii. In the event that the Fair Market Value of Stock on the last
trading day before the commencement of the Offering Period in which the
Participant is enrolled is higher than on the last trading day before the
commencement of any subsequent Offering Period, the Participant shall
automatically be re-enrolled for such subsequent Offering Period.

iii. When a Participant reaches the end of an Offering Period but his
or her participation is to continue, then such Participant shall
automatically be re-enrolled for the Offering Period that commences
immediately after the end of the prior Offering Period.

SECTION 4. EMPLOYEE CONTRIBUTIONS.

a. FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase shares of
Stock under the Plan solely by means of payroll deductions. Payroll deductions
shall occur on each payday during participation in the Plan and shall be
determined based upon the Payroll Withholding Rate designated by the Participant
pursuant to Subsection (b) below.

b. PAYROLL WITHHOLDING RATE. An Eligible Employee shall designate on the
enrollment form the portion of his or her Compensation that he or she elects to
have withheld during a calendar year for the purchase of Stock (the "Payroll
Withholding Rate"). Such portion shall be a whole percentage of the Eligible
Employee's Compensation, but not less than 1% nor more than 15% of Compensation.
In no event may an Eligible Employee contribute more than 15% of his or her
Compensation during a calendar year for the purchase of shares of Stock under
the Plan.

c. CHANGING WITHHOLDING RATE. If a Participant wishes to change his or
her Payroll Withholding Rate, he or she may do so by filing a new enrollment
form with the Company at the prescribed location at any time. The new Payroll
Withholding Rate shall be effective as soon as reasonably practicable after such
form has been received by the Company. The new Payroll Withholding Rate shall
be a whole percentage of the Eligible Employee's Compensation, but not less than
1% nor more than 15% of Compensation.

d. DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Company at the prescribed location at any time.
Payroll withholding shall cease as soon as reasonably practicable after such
form has been received by the Company. (In addition, employee contributions may
be discontinued automatically pursuant to Section 8(b).) A Participant who has
discontinued employee contributions may resume such contributions by filing a
new enrollment form with the Company at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Company.

e. LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more than two
elections under Subsection (c) or (d) above during any Accumulation Period.
Notwithstanding any provision to the contrary herein, a Participant may make up
to three (3) elections under Subsections (c) and (d) during the Accumulation
Period ending June 30, 1998.

<PAGE>

SECTION 5. WITHDRAWAL FROM THE PLAN.

a. WITHDRAWAL. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Company at the prescribed location at any
time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.

b. RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.

SECTION 6. CHANGE IN EMPLOYMENT STATUS.

a. TERMINATION OF EMPLOYMENT. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a). (A transfer from one Participating
Company to another shall not be treated as a termination of employment.)

b. LEAVE OF ABSENCE. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another BONA FIDE leave of absence, if the leave was approved by the Company
in writing. Employment, however, shall be deemed to terminate 90 days after the
Participant goes on a leave, unless a contract or statute guarantees his or her
right to return to work. Employment shall be deemed to terminate in any event
when the approved leave ends, unless the Participant immediately returns to
work. Notwithstanding the foregoing, an employee of Information Advantage GmbH
or Information Advantage International shall not be deemed to have terminated
employment for purposes of the Plan as a result of a leave of absence except to
the extent allowed by and consistent with German or United Kingdom law, as
applicable.

c. DEATH. In the event of the Participant's death, the amount credited
to his or her Plan Account shall be paid to a beneficiary designated by him or
her for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Company at the
prescribed location before the Participant's death.

SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.

a. PLAN ACCOUNTS. The Company shall maintain a Plan Account on its books
in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be
trust funds and may be commingled with the Company's general assets and applied
to general corporate purposes. No interest shall be credited to Plan Accounts.

b. PURCHASE PRICE. The Purchase Price for each share of Stock purchased
at the close of an Accumulation Period shall be the lower of:

i. 85% of the Fair Market Value of such share on the last trading
day in such Accumulation Period; or

ii. 85% of the Fair Market Value of such share on the last trading
day before the commencement of the applicable Offering Period (as
determined under Section 3(e)) or, in the case of the first Offering Period
under the Plan, 85% of the price at which one share of Stock is offered to
the public in the IPO.

c. NUMBER OF SHARES PURCHASED. As of the last day of each Accumulation
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Stock calculated in accordance with this Subsection (c), unless the
Participant has previously elected to withdraw from the Plan in accordance with
Section 5(a). The amount then in the Participant's Plan Account shall be
divided by the Purchase Price, and the number of shares that results shall be
purchased from the Company with the funds in the Participant's Plan Account.
The

<PAGE>

foregoing notwithstanding, no Participant shall purchase more than 500 shares of
Stock with respect to any Accumulation Period nor more than the amounts of Stock
set forth in Sections 8(b) and 13(a). The Committee may determine with respect
to all Participants that any fractional share, as calculated under this
Subsection (c), shall be (i) rounded down to the next lower whole share or (ii)
credited as a fractional share.

d. AVAILABLE SHARES INSUFFICIENT. In the event that the aggregate number
of shares that all Participants elect to purchase during an Accumulation Period
exceeds the maximum number of shares remaining available for issuance under
Section 13(a), then the number of shares to which each Participant is entitled
shall be determined by multiplying the number of shares available for issuance
by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.

e. ISSUANCE OF STOCK. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Accumulation Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the names of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.

f. UNUSED CASH BALANCES. An amount remaining in the Participant's Plan
Account that represents the Purchase Price for any fractional share shall be
carried over in the Participant's Plan Account to the next Accumulation Period.
Any amount remaining in the Participant's Plan Account that represents the
Purchase Price for whole shares that could not be purchased by reason of
Subsection 4(b), Subsection (c) above, Section 8(b) or Section 13(a) shall be
refunded to the Participant in cash, without interest. Notwithstanding any
provision to the contrary herein, the Company shall, upon written request of any
Participant and as soon as practicable following March 6, 1998, refund to such
Participant any and all amounts in excess of $2,550 contributed by such
Participant on or before March 6, 1998.

g. STOCKHOLDER APPROVAL. Any other provision of the Plan
notwithstanding, no shares of Stock shall be purchased under the Plan unless and
until the Company's stockholders have approved the adoption of the Plan.

SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.

a. FIVE PERCENT LIMIT. Any other provision of the Plan notwithstanding,
no Participant shall be granted a right to purchase Stock under the Plan if such
Participant, immediately after his or her election to purchase such Stock, would
own stock possessing more than 5% of the total combined voting power or value of
all classes of stock of the Company or any parent or Subsidiary of the Company.
For purposes of this Subsection (a), the following rules shall apply:

i. Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;

ii. Each Participant shall be deemed to own any stock that he or she
has a right or option to purchase under this or any other plan; and

iii. Each Participant shall be deemed to have the right to purchase
500 shares of Stock under this Plan with respect to each Accumulation
Period.

b. DOLLAR LIMIT. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:

i. In the case of Stock purchased during an Offering Period that
commenced in the current calendar year, the limit shall be equal to (A)
$25,000 minus (B) the Fair Market Value of the Stock that the Participant
previously purchased in the current calendar year (under this Plan and all
other employee stock purchase plans of the Company or any parent or
Subsidiary of the Company).

<PAGE>

ii. In the case of Stock purchased during an Offering Period that
commenced in the immediately preceding calendar year, the limit shall be
equal to (A) $50,000 minus (B) the Fair Market Value of the Stock that the
Participant previously purchased (under this Plan and all other employee
stock purchase plans of the Company or any parent or Subsidiary of the
Company) in the current calendar year and in the immediately preceding
calendar year.

iii. In the case of Stock purchased during an Offering Period that
commenced in the second preceding calendar year, the limit shall be equal
to (A) $75,000 minus (B) the Fair Market Value of the Stock that the
Participant previously purchased (under this Plan and all other employee
stock purchase plans of the Company or any parent or Subsidiary of the
Company) in the current calendar year and in the two preceding calendar
years.

For purposes of this Subsection (b), the Fair Market Value of Stock shall be
determined in each case as of the beginning of the Offering Period in which such
Stock is purchased. Employee stock purchase plans not described in section 423
of the Code shall be disregarded. If a Participant is precluded by this
Subsection (b) from purchasing additional Stock under the Plan, then his or her
employee contributions shall automatically be discontinued and shall resume at
the beginning of the earliest Accumulation Period ending in the next calendar
year (if he or she then is an Eligible Employee).

SECTION 9. RIGHTS NOT TRANSFERABLE.

The rights of any Participant under the Plan, or any Participant's interest
in any Stock or moneys to which he or she may be entitled under the Plan, shall
not be transferable by voluntary or involuntary assignment or by operation of
law, or in any other manner other than by beneficiary designation or the laws of
descent and distribution. If a Participant in any manner attempts to transfer,
assign or otherwise encumber his or her rights or interest under the Plan, other
than by beneficiary designation or the laws of descent and distribution, then
such act shall be treated as an election by the Participant to withdraw from the
Plan under Section 5(a).

SECTION 10. NO RIGHTS AS AN EMPLOYEE.

Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Company for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.

Even if the right to purchase shares is granted hereunder three times in
succession to a Participant, this does not mean that the Participant remains
further entitled to purchase Stock. Such right to purchase Stock is granted
voluntarily by the Company and may be revoked by the Company at any time.

The rights and obligations of any Participant employed by any Participating
Company incorporated in England or Wales under a contract governed by English
law under the terms of his office with or employment by such Participating
Company shall not be affected by his participation in the Plan or by the
discontinuance of the Plan or by the discontinuance of any right which he may
have to participate in the Plan. Such Participant waives any and all rights to
compensation or damages in consequence of the termination of his office or
employment for any reason whatsoever insofar as those rights arise or may arise
from his ceasing to have rights under the Plan as a result of such termination
of his office or employment.

SECTION 11. NO RIGHTS AS A STOCKHOLDER.

A Participant shall have no rights as a stockholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Accumulation
Period.

<PAGE>

SECTION 12. SECURITIES LAW REQUIREMENTS.

Shares of Stock shall not be issued under the Plan unless the issuance and
delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.

SECTION 13. STOCK OFFERED UNDER THE PLAN.

a. AUTHORIZED SHARES. The aggregate number of shares of Stock available
for purchase under the Plan shall be 200,000, subject to adjustment pursuant to
this Section 13.

b. ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of Stock
offered under the Plan, the 500-share limitation described in Section 7(c) and
the price of shares that any Participant has elected to purchase shall be
adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Company, the distribution of the shares of a Subsidiary to the Company's
stockholders or a similar event.

c. REORGANIZATIONS. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Change in Control, the Offering
Period and Accumulation Period then in progress shall terminate and shares shall
be purchased pursuant to Section 7. In the event of a merger or consolidation
to which the Company is a constituent corporation and which does not constitute
a Change in Control, the Plan shall continue unless the plan of merger or
consolidation provides otherwise. The Plan shall in no event be construed to
restrict in any way the Company's right to undertake a dissolution, liquidation,
merger, consolidation or other reorganization.

SECTION 14. AMENDMENT OR DISCONTINUANCE.

The Board shall have the right to amend, suspend or terminate the Plan at
any time and without notice. Except as provided in Section 13, any increase in
the aggregate number of shares of Stock to be issued under the Plan shall be
subject to approval by a vote of the stockholders of the Company. In addition,
any other amendment of the Plan shall be subject to approval by a vote of the
stockholders of the Company to the extent required by an applicable law or
regulation. The right to purchase Stock granted herein is granted voluntarily
by the Company and can be revoked at any time.

SECTION 15. DEFINITIONS.

a. "ACCUMULATION PERIOD" means a six-month period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 3(b).

b. "BOARD" means the Board of Directors of the Company, as constituted
from time to time.

c. "CHANGE IN CONTROL" means:

i. The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization, if more
than 50% of the combined voting power of the continuing or surviving
entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not
stockholders of the Company immediately prior to such merger, consolidation
or other reorganization;

ii. The sale, transfer or other disposition of all or substantially
all of the Company's assets;

iii. A change in the composition of the Board, as a result of which
fewer than two-thirds of the incumbent directors are directors who either
(i) had been directors of the Company on the date 24

<PAGE>

months prior to the date of the event that may constitute a Change in
Control (the "original directors") or (ii) were elected, or nominated for
election, to the Board with the affirmative votes of at least a majority of
the aggregate of the original directors who were still in office at the
time of the election or nomination and the directors whose election or
nomination was previously so approved; or

iv. Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing at least
50% of the total voting power represented by the Company's then outstanding
voting securities. For purposes of this Paragraph (d), the term "person"
shall have the same meaning as when used in sections 13(d) and 14(d) of the
Exchange Act but shall exclude (i) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or of a Parent or
Subsidiary and (ii) a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of the common stock of the Company.

A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.

d. "CODE" means the Internal Revenue Code of 1986, as amended.

e. "COMMITTEE" means a committee of the Board, as described in Section 2.

f. "COMPANY" means Information Advantage, Inc., a Delaware corporation.

g. "COMPENSATION" means (i) the total taxable compensation paid to a
Participant by a Participating Company during a calendar year as reported on the
Participant's form W-2, including salaries, wages, bonuses, incentive
compensation, commissions, overtime pay and shift premiums, plus (ii) any
pre-tax contributions made by the Participant under sections 401(k) or 125 of
the Code. Notwithstanding the foregoing, "Compensation" shall exclude all
non-cash items, moving or relocation allowances, cost-of-living equalization
payments, car allowances, tuition reimbursements, imputed income attributable to
cars or life insurance, severance pay, fringe benefits, contributions or
benefits received under employee benefit plans, income attributable to the
exercise of stock options, and similar items. The Committee shall determine
whether a particular item is included in Compensation.

h. "ELIGIBLE EMPLOYEE" means any employee of a Participating Company
whose customary employment is for more than five months per calendar year and
for more than 20 hours per week.

The foregoing notwithstanding, an individual shall not be considered an
Eligible Employee if his or her participation in the Plan is prohibited by law
of any country in which he or she resides, performs work for the Company and
receives Compensation from the Company, or if he or she works in a job
classification covered by a collective bargaining agreement and the parties to
that agreement have bargained in good faith about stock purchase benefits and
the bargaining agreement does not provide for participation in this Plan.

i. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

j. "FAIR MARKET VALUE" means the market price of Stock, determined by the
Committee as follows:

i. If stock was traded over-the-counter on the date in question but
was not traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
then the Fair Market Value shall be equal to the mean between the last
reported representative bid and ask prices quoted for such date by the
principal automated inter-dealer quotation system on which Stock is quoted
or, if the Stock is not quoted on any such system, by the "Pink Sheets"
published by the National Quotation Bureau, Inc.;

ii. If Stock was traded over-the-counter on the date in question and
was traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
then the Fair Market Value shall be equal to the last-transaction price
quoted for such date by the Nasdaq National Market or the Nasdaq SmallCap
Market;

<PAGE>

iii. If the Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; and

iv. If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.

Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in THE WALL STREET JOURNAL or as reported
directly to the Company by Nasdaq or a comparable exchange. Such determination
shall be conclusive and binding on all persons.

k. "IPO" means the initial offering of Stock to the public pursuant to a
registration statement filed by the Company with the Securities and Exchange
Commission.

l. "OFFERING PERIOD" means an 18-month period with respect to which the
right to purchase Stock may be granted under the Plan, as determined pursuant to
Section 3(a).

m. "PARTICIPANT" means an Eligible Employee who elects to participate in
the Plan, as provided in Section 3(c).

n. "PARTICIPATING COMPANY" means (i) the Company and (ii) each present or
future Subsidiary designated by the Committee as a Participating Company.

o. "PLAN" means this Information Advantage, Inc. 1997 Employee Stock
Purchase Plan, as it may be amended from time to time.

p. "PLAN ACCOUNT" means the account established for each Participant
pursuant to Section 7(a).

q. "PURCHASE PRICE" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 7(b).

r. "STOCK" means the Common Stock of the Company.

s. "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

SECTION 16. GOVERNING LAW.

The Plan shall be construed consistent with and governed by the laws of the
State of Minnesota and the laws of the United States.

SECTION 17. EXECUTION.

To record the adoption of the Amended and Restated Plan as of April 22,
1998, the Company has caused its authorized officer to execute the same.

INFORMATION ADVANTAGE, INC.

By: /s/Brian D. Wenger
-----------------------
Title: Secretary
-----------

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-44635 and 333-47913) of Information Advantage,
Inc. of our report dated February 20, 1998 appearing in this Annual Report on
Form 10-K.

/s/ Price Waterhouse LLP

Price Waterhouse LLP
Minneapolis, Minnesota
April 22, 1998

<PAGE>
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