<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                -----------------
                                    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, 1999

/  /  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)
                         PREFERRED STOCK PURCHASE RIGHTS

     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-K 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, 1999 was approximately
$114,000,000.

     The number of shares of the common stock of the registrant outstanding as
of March 31, 1999 was 25,022,259.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held on June 22, 1999 are incorporated by reference into Part III of this
Form 10-K.


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                                           TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                            Page
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<S>                                                                                         <C>
PART I .....................................................................................   1

     ITEM 1   BUSINESS .....................................................................   1
     ITEM 2   PROPERTIES ...................................................................  11
     ITEM 3   LEGAL PROCEEDINGS.............................................................  11
     ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................  12

PART II ....................................................................................  12

     ITEM 5   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS...........................................................  12
     ITEM 6   SELECTED FINANCIAL DATA.......................................................  12
     ITEM 7   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS.........................................................  14
              CAUTIONARY STATEMENT..........................................................  18
     ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
              MARKET RISK ..................................................................  29
     ITEM 8   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................  30
     ITEM 9   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE..........................................................  50

PART III ...................................................................................  50

     ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ...........................  50
     ITEM 11  EXECUTIVE COMPENSATION........................................................  50
     ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ...............  50
     ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...............................  51

PART IV ....................................................................................  51

     ITEM 14  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K .............  51

SIGNATURES .................................................................................  53

INDEX TO EXHIBITS ..........................................................................  54

</TABLE>

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                                     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.

         Note that throughout this Annual Report, dollar amounts are expressed
in thousands, except per share data, unless otherwise specified.

OVERVIEW

         Information Advantage, Inc. ("IA" or the "Company") develops, markets
and supports a comprehensive suite of enterprise scalable Business Intelligence
software. MyEureka!, the Company's Internet-based Business Intelligence
solution, combines the industry's first Business Intelligence portal with
powerful, robust and flexible reporting and analysis capabilities to provide
easy access to all business information and transform raw data into meaningful
information. MyEureka! enables organizations to leverage e-commerce activities
and become closer to their customers at all levels, thereby creating an
"intelligent enterprise," capable of quickly identifying and reacting to market
opportunities. MyEureka! supports UNIX and Windows NT operating systems,
includes an extensive and configurable set of Business Intelligence components
for information access, analysis and distribution, and is based on a secure and
scalable architecture.

INDUSTRY BACKGROUND

         In order to compete effectively in today's global and e-commerce
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 thousands of employees,
customers, suppliers and others. Collectively, these functions have come to be
known as Business Intelligence, and refer to the organization and analysis of
information ranging from accounting and inventory management data to customer
demographic information.

         To meet these challenges, organizations typically maintain a variety of
databases and technology solutions, each addressing a portion of their overall
requirements. Popular Business Intelligence applications utilize data warehouses
and data marts, query and on-line analytical processing (OLAP) tools, reporting
systems, Customer Relationship Management (CRM) applications and Enterprise
Resource Planning (ERP) applications. META Group, an independent industry
analyst, cites estimates showing that the market for data warehouse products and
services is expected to grow from $4.5 billion in 1996 to $15 billion by the
year 2000.

         In one segment of the Business Intelligence market, query tools
(sometimes referred to as "reporting and analysis" products) are designed to
provide end users with a means to directly retrieve specified data from various
data sources including transaction systems, operational systems, data warehouses
and data marts. Multi-media reporting products provide a content-rich working
environment preferred by the vast majority of users (compared to the
spreadsheet-oriented environment preferred by analysts). Multi-media reports
graphically bring together information from multiple sources, converting complex
information into more easily understood documents.


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         Another segment of the Business Intelligence market is found in the
data warehouse and OLAP markets. Data warehouses and data marts are repositories
of summarized historical data often extracted from enterprise databases. OLAP
solutions provide a means to analyze and explore data using an intuitive set of
business rules and dimensions. An example would be an analysis that tracks
profitability by product, channel, geography, customer or fiscal period. In
addition, OLAP search engines allow business users within an organization to
perform their own analyses, rather than rely on a company's MIS department to
generate such reports. Typically, OLAP solutions also provide 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, three architectures dominate the OLAP marketplace. Desktop OLAP
(DOLAP) is designed for personal analysis and mobile users, and provides a
quick, low-cost solution for applications that involve small data sets that do
not require frequent updates. Multidimensional OLAP (MOLAP) products use a
specialized, non-relational, highly-indexed database technology well-suited for
workgroups and departments requiring fast access to medium-sized data sets
(e.g., tens of gigabytes of data). Relational OLAP (ROLAP) products leverage
powerful relational database management systems to provide access to larger
amounts of detailed data (up to several terabytes) for what can amount to
thousands of users with complex analytic requirements (such as customer
relationship management or category management). All three architectures are
popular in the marketplace, and in fact, many organizations employ more than one
OLAP product in an effort to address the requirements of several analytic
applications.

         A key trend in this environment is the search by organizations to
extend the benefits of installed databases to empower employees, suppliers,
partners and customers at all levels to make better business decisions and react
faster to market opportunities. Organizations are increasingly seeking simpler,
more cost effective, more complete and more thoroughly integrated Business
Intelligence solutions. Moreover, organizations require Business Intelligence
solutions to offer cost-effective deployment and maintenance capabilities and
compliance with industry standards to preserve the ability to integrate hardware
and software from a variety of vendors.

         This trend has also led organizations to create Web-based
infrastructures through which they can disseminate information to both internal
and external user groups. Intranets now provide organizations with a
cost-effective means of securely distributing information to employees,
customers, suppliers, partners and others. Internet portals (such as Yahoo! and
Excite) are providing an easy way to navigate the vast amount of information
available on the Internet. Meanwhile, corporate users are beginning to rely on
Business Intelligence portals to navigate the wide variety of decision-making
information on the organization's intranet and the Internet. Business
Intelligence solutions must provide users with easy portal access to all
information, comprehensive abilities to access, analyze, report and proactively
deliver information, standards-based security and scalability.

THE INFORMATION ADVANTAGE SOLUTION

         Information Advantage develops, markets and supports enterprise
scalable Business Intelligence software. The Company's comprehensive solution,
MyEureka!, combines the industry's first portal to Business Intelligence with a
powerful set of components for transforming raw data into meaningful
information. Through the use of an advanced architecture, the Company designed
MyEureka! to let organizations start with a small application and grow to
accommodate thousands of active users analyzing terabytes of data. By enabling
organizations to push effective decision making to all levels of the
organization, MyEureka! helps organizations create an "intelligent enterprise"
capable of quickly identifying and reacting to market opportunities. Key
attributes of the MyEureka! solution include:

         EASY ACCESS TO ALL CORPORATE INFORMATION. MyEureka! is a Business
Intelligence portal which gives employees at all skill levels access to
corporate information from a single point of entry. Similar to the way that
certain Internet portals give Internet users a simple way to access and organize
the vast resources of the Internet, MyEureka! gives corporate users a means to
search, access and organize Business Intelligence information for
decision-making. With MyEureka!, users can find and access a broad variety of
Business Intelligence resources, including queries, reports, OLAP analyses,
spreadsheets, and multimedia presentations, either on the organization's

                                       2
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intranet or anywhere on the Internet. The user can then transparently launch the
appropriate application to immediately create a powerful decision-making tool.
Customers can organize their companies' resources into "channels" to make them
easily available to colleagues interested in the same content, or they can
broadcast Business Intelligence resources when the situation calls for immediate
attention. Personal news pages and user profiles let users tailor their views of
the MyEureka! portal to their specific information needs and visual preferences.
All of this is protected by sophisticated, industry-standard security mechanisms
that enable companies to control access to specific individuals, workgroups or
the entire enterprise.

         COMPREHENSIVE BUSINESS INTELLIGENCE SUITE. The Company offers a
comprehensive and configurable suite of Business Intelligence components. These
components provide for a wide variety of Business Intelligence capabilities
including basic query and reporting, enterprise reporting, desktop OLAP (DOLAP),
multidimensional OLAP (MOLAP) and relational OLAP (ROLAP). In addition,
user-interface components let users control their Business Intelligence
environments to match their requirements. As a result, MyEureka! can be deployed
in a wide variety of solutions including information portals, enterprise
reporting and analysis, data warehousing, Customer Relationship Management
applications and Enterprise Resource Planning applications.

         SCALABLE ARCHITECTURE. A scalable architecture is vital to keeping the
production of Business Intelligence flowing with optimal performance throughout
the organization. MyEureka!'s scalable architecture features numerous services
that are integral to supporting systems that will grow to hundreds or thousands
of users over time.

         Workgroup security assures that the right information is available to
the right users regardless of their physical location. MyEureka! provides
individual, workgroup, and public security levels for managing the flow of
information throughout the system. Encryption protects user-IDs, passwords, and
content sent across the network.

         User profiles allow administrators to regulate interaction with
MyEureka! by balancing user needs with available resources and support expenses.
Profiles also determine available functionality for each user, allowing users to
graduate to new capabilities as required over time. Administrators can capture
and monitor repository and database usage statistics to monitor services, spot
problems, tune performance and plan resources.

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

         CUSTOMER SERVICES. 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 Windows NT and UNIX operating
systems, database management, distributed computing and multidimensional
analysis. The Company believes that to enable its customers to effectively
develop and deploy Business Intelligence 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 business
consulting and implementation consulting, including: business assessment,
solution assessment, technical support, education, implementation, prototyping
workshops and other advanced services.

PRODUCTS AND TECHNOLOGY

         The Company's MyEureka! solution is composed of seven key Business
Intelligence technologies. This architecture gives customers the ability to
tailor a solution that fits their immediate requirements while allowing room for
the application to grow in terms of functionality, number of users, and the
nature and volume of data:


                                       3
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-    User Interface - Provides users with easy access to any existing Business
     Intelligence resource and consolidates them into a single screen for fast,
     seamless information delivery. Users only have access at pre-determined
     security levels that can be applied to content from intranets, extranets
     and the Internet.

-    Query Engine - Answers questions that require a view of the organization at
     a certain point in time. For example, who filed claims last week. The Query
     Engine provides direct access to transaction databases, operational
     databases, data warehouses and data marts.

-    Multi-Dimensional OLAP Engine (MOLAP) - Allows data from relational
     databases to be moved into a specialized data structure that allows shared,
     high-speed analysis of financial and product information.

-    Desktop OLAP Engine (DOLAP) - For Users that require high-speed analysis
     when disconnected from the network. DOLAP data cubes can be moved
     automatically or on demand from the content server to a personal computer.

-    Relational OLAP Engine (ROLAP) - For highly granular analyses of customers,
     transactions, and large amounts of product data. The ROLAP Engine is a
     critical component of Customer Relationship Management applications.

-    Report Engine - Produces content rich multi-media web report documents that
     may include graphic information from many sources. The Report Engine's
     object technology enables integration of structured and unstructured
     content, and complex elements.

-    Content Server - Manages and stores report documents, report objects,
     briefing books, agents, channels, events, and user profiles. The Content
     Server creates and presents a personal portal view of information to users.

                       THE MYEUREKA! PRODUCT ARCHITECTURE

                        [DIAGRAM OF PRODUCT ARCHITECTURE]

STRATEGY

         The Company's strategy is to establish itself as the leading provider
of Business Intelligence software solutions. Key elements of the Company's
strategy include:

FOCUS ON BUSINESS INTELLIGENCE SOLUTIONS

         By combining elements from its comprehensive suite of Business
Intelligence components, the Company's customers can create any of several
MyEureka! solutions that match the unique needs of various applications.

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         INFORMATION PORTAL. The Information Portal provides users with easy
access to any existing Business Intelligence resource and consolidates them into
a single screen for fast, seamless information delivery. Users only have access
at pre-determined security levels that can be applied to content from intranets,
extranets and the Internet.

         ENTERPRISE REPORTING AND ANALYSIS. MyEureka! for Enterprise Reporting
and Analysis gives users the ability to build sophisticated reports based on
information contained in relational databases (either on-line transaction
processing databases, data marts or data warehouses). In addition, MyEureka!
MOLAP and DOLAP capabilities allow users to analyze data subsets and download
them to their desktop or laptop systems - even from remote locations.

         DATA WAREHOUSING. MyEureka! for Data Warehousing allows organizations
to analyze large data sets across high user populations. The solution delivers
robust relational analysis capabilities through the easy access of the
Information Portal discussed above. Organizations can benefit from powerful
customer profiling, product analysis or any member service application that
analyzes several gigabytes or terabytes of data.

         ENTERPRISE RESOURCE PLANNING. MyEureka! for ERP simplifies data access
for reporting and analysis from complex, dynamic transactional systems -- even
across multiple ERP and legacy applications. Customers can link the solution
with an ERP vendor's own data warehouse, or they can access information directly
from the file system for applications where both flexibility and fast report
generation are critical. The Company leverages partnerships with several leading
ERP vendors including SAP and PeopleSoft.

         CUSTOMER RELATIONSHIP MANAGEMENT. MyEureka! for CRM combines our
Information Portal solution with MyEureka! relational analysis to help
organizations strengthen customer relationships by better understanding their
wants and needs. The solution can track purchases, calls to and from call
centers, Web site visits, direct mail campaigns, demographic information,
purchasing habits and more. Armed with this information, organizations can
increase customer loyalty by sending targeted messages to the right prospects.

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,
Germany, France, Holland and Australia, and has established strategic
relationships in Finland, Norway, South Africa, Sweden, Korea and Japan. The
Company is presently localizing MyEureka! for the Japanese, 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 MyEureka! for
additional foreign markets in the future.

EXPAND STRATEGIC RELATIONSHIPS AND OTHER MARKETING CHANNELS

         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 Acxiom, DynaMark, IBM and PeopleSoft are developing industry specific
software applications in which MyEureka! is embedded. The Company sells its
products directly to solution development partners who integrate and sell
solutions to customers; the above partnerships are the direct result of a
focused effort on the Company's part to develop OEM relationships with software
vendors offering technology that can leverage the Company's suite of products.
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 Hewlett-Packard,
Sun Microsystems, and SPSS, who provide complementary marketing programs
designed to promote product awareness for MyEureka!. These relationships provide
additional sales and marketing channels, thereby enhancing the Company's
position as the leading provider of enterprise scalable Business Intelligence
software solutions. The Company's objective is to 


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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 IMPLEMENTATIONS

         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 MyEureka! 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 promote such success.

CUSTOMERS AND APPLICATIONS

         A relatively small number of customers have accounted for a significant
percentage of IA's revenues. While no single customer accounted for more than
10% of total revenues in fiscal 1999, 1998 or 1997, 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. See also "Management's
Discussion and Analysis of Financial Condition and Results of Operations-
Cautionary Statement."

         The following list of customers is representative of the businesses and
industries in which the Company's products have been installed in the past:

<TABLE>

<S>                                              <C>
RETAIL                                           INSURANCE
Ahold USA, Inc.                                  Cigna-Intracorp, Inc.
Dayton Hudson Corporation                        CNA Insurance Company
DFS Group, Ltd                                   Regence Blue Shield
Dial Corporation                                 Liberty Health (CANADA)
Fingerhut Corporation                            Northland Insurance Company
Gap Inc.                                         The Northwestern Mutual Life
Longs Drug Stores California, Inc                  Insurance Company
National Grocers Co., Limited (CANADA)           The Prudential Insurance
Neiman-Marcus                                      Company of America
Proffitt's Inc. 
J. Sainsbury PLC (U.K.)                          TECHNOLOGY/TELECOMMUNICATIONS
Sears Canada, Inc. (Canada)                      360(0)Communications Company
Sears Roebuck, & Co.                             Aerial Communications, 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 
Dayton Hudson Corporation, Target                GOVERNMENT
  Stores Division                                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
                                                 United States Customs Service
                                                 United States Department of Defense
                                                 University of California, Berkeley
</TABLE>


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<TABLE>

<S>                                              <C>
PACKAGED GOODS                                   MANUFACTURING
Birds Eye Walls, Inc. (U.K.)                     Amgen, Inc.
Brunswick Corporation                            The Goodyear Tire and Rubber Company
ConAgra Frozen Foods                             Mattel, Inc.
Dominick's Finer Foods                           Minnesota Mining and Manufacturing Company
Land O'Lakes, Inc.                               Rockwell International Corporation
Nabisco, Inc.                                    Snap-On Incorporated
The Quaker Oats Company

FINANCIAL SERVICES                               OTHER
Banc One Services Corporation                    Acxiom Corporation
DynaMark, Inc.                                   The Automobile Association (U.K.)
Honor Technologies, Inc.                         Cargill, Inc.
MasterCard International Incorporated            Dana Computer Corporation
T. Rowe Price Investment Technologies Inc.       Electronic Data Systems Corporation
                                                 Federal Express Corporation
                                                 MidAmerican Energy Company
HEALTH CARE                                      Miller Brewing Company
Fairview Health Systems                          Northwest Airlines Corporation
MCC Behavioral Care                              NTT Data (Japan)
Owens Healthcare, Inc.                           Agora Food Merchants
Vencor                                           Perseco
United HealthCare Corporation                    The Reader's Digest Association, Inc.
                                                 Regie Media Belge S.A. (Netherlands)
                                                 VIPS (a division of First Data Corp.)
</TABLE>


         Below are several examples of uses of the Company's products and
technology.

         LEADING CAR RENTAL COMPANY. With car rental locations in suburban and
on-airport locations throughout the U.S., a major car rental company uses the
MyEureka! Information Portal to improve customer service and overall
profitability. The solution helps the company better monitor customer rental
habits and vehicle utilization by offering a single, easy-to-use point of entry
to Business Intelligence information on its corporate intranet.

         LARGE GOVERNMENT ENTITY. A large United States government entity uses
MyEureka! for Enterprise Reporting and Analysis to reduce costs and make
efficient use of its physical resources. The MyEureka! solution currently
enables 3,500 employees to track and analyze the use and asset value of all of
its properties.

         GLOBAL MANUFACTURING COMPANY. Selling more than 50,000 products in 200
countries, this manufacturer uses MyEureka! for Data Warehousing to help fulfill
its strategic goal of presenting a single interface to its customers. Targeted
for 30,000 users worldwide, MyEureka! analyzes and delivers standardized and
digitized data from the company's entire enterprise within a terabyte-sized data
warehouse, helping employees in all of its business units to quickly and
effectively respond to customer inquiries.

         LEADING RETAILER. One of the world's largest retailers, this
organization depends on MyEureka! for Data Warehousing to strengthen business
analysis and simplify decision-making throughout its enterprise. With MyEureka!,
human resources staff can quickly analyze associate sales performance, home
service professionals can evaluate product reliability and credit offices can
accurately assess account performance.

         GLOBAL LOGISTICS AND DELIVERY ORGANIZATION. Handling an average of 3.1
million packages daily, this leading logistics company uses MyEureka! for Data
Warehousing to deliver an enterprise-wide application. More than 10,000 of its
employees -- including air and ground operations, customer service, sales and
management -- use the application to easily access the information they need to
provide superior customer service. Customers can even track the status of their
mailings themselves on the Internet.


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SALES AND MARKETING

SALES

         The Company sells its products in North America, Europe and Australia
primarily through its direct sales and services organizations. The Company
employs highly skilled engineers and technically proficient sales
representatives 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 and Virginia. The Company
has international sales and support offices in Toronto, Canada; London, England;
Cologne, Germany; Paris, France; Amsterdam, Holland; and Sydney, Australia. See
Note 14 to the Consolidated Financial Statements.

         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 relationships with Cambridge Technology
Group, EDS, Ernst & Young, KPMG, and Andersen Consulting.

         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, IBM, Acxiom, JBA and PeopleSoft.

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 Business Intelligence 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. In December, the Company introduced the
first of an on-going program of "Cyber-seminars." Since then, 1,500 individuals
have participated. 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 Hewlett Packard, Sun Microsystems, and SPSS.


                                       8
<PAGE>

         As of January 31, 1999, the Company's sales and marketing organization
consisted of 195 employees compared to 150 and 155 employees at January 31, 1998
and 1997, respectively.

CUSTOMER SERVICES

         The Company believes that providing superior service is critical for
customer success. The Company's strategy is to deliver technology and services
that enable its customers to implement Business Intelligence solutions quickly.
Its focused experience in designing and implementing 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
pay for maintenance agreements that entitle them to technical support and
periodic upgrades. The Company also offers additional training and consulting
services on a fee basis.

TECHNICAL SUPPORT

         The Company has established corporate maintenance and technical call
centers in Atlanta, Minneapolis, the United Kingdom and Holland. The Company
provides customers with a comprehensive array of services, including software
updates, documentation updates, telephone support, and product maintenance. The
annual fee for such services is typically 18% of the list price of the software
products licensed and supported.

PROFESSIONAL SERVICES

         The Company offers a series of business and technical courses to meet
the education and training requirements of all levels of professionals
associated with Business Intelligence. These courses are designed to provide the
knowledge, skills and confidence to implement enterprise-wide Business
Intelligence solutions and enhance the use of MyEureka!. 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 facilities located in Minneapolis, Atlanta, London and Cologne,
Germany. End user customer courses are provided at customers' facilities. In
addition, the Company offers the "Online University," an Internet-based learning
solution that offers customers the ability to access tutorials via the World
Wide Web.

         The Company offers a wide range of consulting services to support the
implementation requirements of the MyEureka! 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 intelligence application design; data
warehouse architecture design; MyEureka! implementation; end-user content and
delivery; and MyEureka! optimization.

         The Company offers a series of prototyping workshops in its
DecisionCenter facility in Eden Prairie, a suburb of Minneapolis. The
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 for a company to set up
an evaluation environment can be expensive and fraught with technical
infrastructure complexities. The DecisionCenter provides the Company's customers
with the training benefits of prototyping but shields them from such
complexities.

ADVANCED SERVICES

         The Company's advanced services personnel are specialists in designing
and developing Business Intelligence applications. They have extensive knowledge
of the MyEureka! development environment, and use this 


                                       9
<PAGE>

expertise to assist customers in building custom applications. The development
services provided by the advanced services group fall into three categories:

-    custom Business Intelligence applications such as pricing analysis,
     activity-based costing, and customer relationship management,

-    product extensions, which are sold as optional product software, and
     provide extended capabilities for the end user or administrator, and

-    software outsourcing, which provides development enhancement and
     maintenance for specific software products.

         As of January 31, 1999, the Company's services organization consisted
of 115 employees compared to 114 and 85 employees at January 31, 1998 and 1997,
respectively.

RESEARCH AND DEVELOPMENT

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

         As of January 31, 1999, the Company's research and development
organization consisted of 109 employees compared to 88 and 77 employees at
January 31, 1998 and 1997, respectively. For the five-year period ending January
31, 1999 the Company has spent $31,735 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

         The Company operates in a market which 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 four
categories:

-    vendors of desktop OLAP software such as Cognos and Business Objects;

-    vendors of multidimensional OLAP software such as Oracle (Express), Arbor
     Software, Seagate (Holos) and SAS;

-    vendors of OLAP/relational database software such as MicroStrategy and
     Platinum Technology (Prodea); and

-    vendors of enterprise reporting software, such as Actuate, Business
     Objects, Cognos, and Seagate (Crystal Reports).

         See also "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Cautionary Statement."

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

         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, IA licenses 


                                       10
<PAGE>

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.

         To date, the Company has not been notified that the Company's products
infringe the proprietary rights of third parties.

         See also "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Cautionary Statement."

EMPLOYEES

         As of January 31, 1999, the Company had a total of 457 employees, of
which 378 were based in the United States, 57 were based in the United Kingdom,
6 were based in Canada, 11 were based in other European countries, and 5 were
based in Australia. Of the total, 195 were engaged in sales and marketing, 109
were in research and development, 115 were in services, and 38 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 have signed 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. In connection with the merger with IQ Software Corporation
("IQ"), the Company assumed a lease on a 28,000 square foot facility in
Norcross, Georgia. The lease on this facility expires on February 28, 2002. In
March 1999, the Company signed a five-year lease on a 42,300 square-foot office
facility in Bloomington, Minnesota. The Company also leases other domestic sales
offices throughout the United States, as well as international offices in
Canada, the United Kingdom, Australia, France, Holland 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

         On October 23, 1997, a complaint was served on IQ and certain of its
executive officers on behalf of purchasers of IQ Common Stock between May 8,
1996 and February 3, 1997 alleging violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934. The claim alleges that IQ failed to disclose
the risks and liabilities assumed by IQ in connection with the transition of its
sales force from an inside telesales model to an outside field-based model. The
Company believes that the claim is without merit and is vigorously defending the
action. The parties to the action have reached a tentative agreement to settle
the action. The agreement is subject to court approval by the U.S. District
Court of the Northern District of Georgia, Atlanta Division, before it becomes
final. In the event the Company is unsuccessful in finalizing the agreement and
ultimately defending against the claim, the Company's business, operating
results and financial condition could be materially and adversely affected.


                                       11
<PAGE>

ITEM 4      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of the Company's
most recently completed fiscal year.

                                     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. Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.

<TABLE>
<CAPTION>

         Period                                                        High           Low
         ------                                                        ----           ---
<S>                                                                 <C>            <C> 
         Fiscal 1998
           Fourth Quarter.........................................  $  6-1/2       $ 5-7/16
         Fiscal 1999
           First Quarter..........................................  $  9-5/8       $ 6
           Second Quarter.........................................    10-1/8         5-7/8
           Third Quarter..........................................     6-5/8         3
           Fourth Quarter.........................................    12-11/16       5-5/16
         Fiscal 2000
           First Quarter through March 31, 1999...................  $ 13-9/16      $ 6-5/8
</TABLE>


         As of April 7, 1999, the Company had 238 shareholders of record,
including 14 holders of Preferred Stock and 10 holders of IQ Common Stock who
had yet to present their share certificates for reissuance into Common Stock,
and approximately 4,800 beneficial owners.

         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.

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 SEC on December 16, 1997, and the initial public
offering commenced on December 17, 1997. From the effective date of the
Registration Statement on Form S-1 through January 31, 1999, the Company had
used approximately $3,486 of the net proceeds of $19,768 for the repayment of
indebtedness.

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. The
consolidated balance sheet data at January 31, 1995 are derived in part from
unaudited consolidated financial statements not included herein. In the opinion
of 


                                       12
<PAGE>

the Company, such data include all adjustments, consisting solely of normal
recurring accruals, which are necessary to present fairly the data as of such
date. The consolidated statement of operations data for the fiscal years ended
January 31, 1999, 1998, 1997, 1996 and 1995 and the consolidated balance sheet
data at January 31, 1999, 1998, 1997 and 1996 are derived from the Company's
audited Consolidated Financial Statements contained herein or previously filed
by IA and IQ. The following financial data reflect the merger with IQ, which was
accounted for as a pooling transaction, and are presented as though the two
companies had been combined as of the earliest period shown.

<TABLE>
<CAPTION>

                                                                          Fiscal Year Ended
                                                                              January 31
                                                    --------------------------------------------------------

                                                      1999        1998        1997        1996        1995
                                                    --------    --------    --------    --------    --------
<S>                                                 <C>         <C>         <C>         <C>         <C>     

CONSOLIDATED STATEMENT OF OPERATIONS DATA:

Revenues:
  License                                           $ 42,283    $ 28,970    $ 23,676    $ 18,268    $ 17,140
  Service                                             28,407      21,325      12,749       9,229       6,774
                                                    --------    --------    --------    --------    --------
     Total revenues                                   70,690      50,295      36,425      27,497      23,914
                                                    --------    --------    --------    --------    --------

Cost of revenues:
  License                                              1,601       1,564       1,446       1,055         691
  Service                                             12,854      11,113       6,724       4,835       3,687
                                                    --------    --------    --------    --------    --------
     Total cost of revenues                           14,455      12,677       8,170       5,890       4,378
                                                    --------    --------    --------    --------    --------
Gross margin                                          56,235      37,618      28,255      21,607      19,536
                                                    --------    --------    --------    --------    --------

Operating expenses:
  Sales and marketing                                 34,636      28,497      23,198      14,564      11,281
  Research and development                             9,065       7,582       5,333       4,883       4,872
  General and administrative                           6,500       6,083       5,764       4,716       4,192
  Non-recurring charges                                6,502        --          --         4,868       1,002
                                                    --------    --------    --------    --------    --------
     Total operating expenses                         56,703      42,162      34,295      29,031      21,347
                                                    --------    --------    --------    --------    --------

Loss from operations                                    (468)     (4,544)     (6,040)     (7,424)     (1,811)
Other income, net                                      1,491         506         398         601         268
                                                    --------    --------    --------    --------    --------

Income (loss) before provision for
  (benefit from) income taxes                          1,023      (4,038)     (5,642)     (6,823)     (1,543)

Provision for (benefit from)
  income taxes                                        (5,644)        506         669        (139)      1,115
                                                    --------    --------    --------    --------    --------

Net income (loss)                                   $  6,667    $ (4,544)   $ (6,311)   $ (6,684)   $ (2,658)
                                                    --------    --------    --------    --------    --------
                                                    --------    --------    --------    --------    --------

Income (loss) per share
     Basic                                          $   0.27    $  (0.38)   $  (0.63)   $  (0.71)   $  (0.29)
                                                    --------    --------    --------    --------    --------
                                                    --------    --------    --------    --------    --------
     Diluted                                        $   0.25    $  (0.38)   $  (0.63)   $  (0.71)   $  (0.29)
                                                    --------    --------    --------    --------    --------
                                                    --------    --------    --------    --------    --------
Shares used in computing income (loss) per share:
     Basic                                            24,776      12,030      10,011       9,414       9,093
                                                    --------    --------    --------    --------    --------
                                                    --------    --------    --------    --------    --------
     Diluted                                          26,880      12,030      10,011       9,414       9,093
                                                    --------    --------    --------    --------    --------
                                                    --------    --------    --------    --------    --------


CONSOLIDATED BALANCE SHEET DATA:

  Working capital                                   $ 44,708    $ 37,256    $ 15,177    $ 14,752    $ 13,196
  Total assets                                        71,207      59,246      31,213      26,445      23,916
  Total liabilities                                   19,350      15,177      11,290       6,895       6,993
  Convertible redeemable
     preferred stock                                    --          --        17,410      12,487       5,337
  Stockholders' equity                                51,857      44,069       2,513       7,063      11,586

</TABLE>

                                       13
<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

         In September 1998, the Company completed a merger with IQ Software
Corporation (IQ), a software development company which develops and markets a
suite of business intelligence products and related services. The transaction
was accounted for as a pooling, and all financial information has been presented
as if the two companies had been combined as of the earliest period discussed.
References to "the Company" within this discussion are intended to mean the
combined company composed of the businesses of IA and IQ.

         The Company's license revenues are derived from (a) one-time perpetual
licenses for the right to use its software products, and (b) licenses to
resellers which authorize the sale of the Company's software as a component of
the resellers' software. License fees from resellers are generally determined on
the basis of the number of servers, the number of users and the size of
databases in the application. The Company's service revenues, which have
accounted for approximately 40 percent 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 Company licenses its software through its direct sales force and
through indirect channels, including solution development partners, sales
affiliates and marketing partners. Revenues from indirect channels were
approximately 13.3%, 17.4% and 24.4% of the Company's license revenues for
fiscal 1999, 1998 and 1997, 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 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; Cologne, Germany;
Paris, France; Amsterdam, Holland; and Sydney, Australia. To date, most of the
Company's international revenues have been derived from the United Kingdom,
Germany and Canada. There can be no assurance that the Company will be
successful in expanding its indirect channels or international operations.

         The American Institute of Certified Public Accountants' has approved a
new Statement of Position (SOP), SOP 97-2, "Software Revenue Recognition"
effective for transactions entered into in fiscal years beginning after December
15, 1997. The Company has adopted this new statement and management has
concluded that its adoption has not had a material effect on the timing of the
Company's revenue recognition or caused changes to its revenue recognition
policies.



                                       14
<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>

                                             1999      1998      1997
                                            -----     -----     -----
<S>                                         <C>        <C>       <C>  

Revenues:
  License ...............................   59.8 %     57.6%     65.0%
  Service ...............................    40.2      42.4      35.0
                                            -----     -----     -----
Total revenues ..........................   100.0     100.0     100.0

Cost of Revenues:
   License ..............................     2.3       3.1       4.0
   Service ..............................    18.2      22.1      18.4
                                            -----     -----     -----
        Total cost of revenues ..........    20.5      25.2      22.4
                                            -----     -----     -----

Gross margin ............................    79.5      74.8      77.6

Operating expenses:
   Sales and marketing ..................    49.0      56.6      63.8
   Research and development .............    12.8      15.1      14.6
   General and administrative ...........     9.2      12.1      15.8
   Non-recurring charges ................     9.2       0.0       0.0
                                            -----     -----     -----
Total operating expenses ................    80.2      83.8      94.2
                                            -----     -----     -----
Loss from operations ....................    (0.7)     (9.0)    (16.6)
                                            -----     -----     -----
Other income, net .......................     2.1       1.0       1.1
                                            -----     -----     -----

Income (loss) before provision for
     (benefit from) income taxes ........     1.4      (8.0)    (15.5)
(Benefit from) provision for income taxes    (8.0)      1.0       1.8
                                            -----     -----     -----
Net income (loss) .......................     9.4%     (9.0)%   (17.3)%
                                            -----     -----     -----
                                            -----     -----     -----

</TABLE>


REVENUES

         LICENSE. License revenues were $42,283, $28,970, and $23,676 in fiscal
1999, 1998 and 1997, respectively, representing increases of 46.0% from fiscal
1998 to fiscal 1999, and 22.4% from fiscal 1997 to fiscal 1998. The increase in
the Company's license revenues in each period was attributable primarily to
greater market acceptance of the Company's ROLAP engine 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. Also, the Company experienced an increase in direct sales of the IQ
suite of products from fiscal 1997 to fiscal 1999, which offset decreasing
indirect sales of these products. 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. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Cautionary Statement."

         SERVICE. Service revenues include fees from maintenance contracts,
training and consulting services. Service revenues were $28,407, $21,325 and
$12,749 in fiscal 1999, 1998 and 1997, respectively, representing increases of
33.2% from fiscal 1998 to fiscal 1999, and 67.3% from fiscal 1997 to fiscal
1998. The Company anticipates that service revenues will continue to account for
a significant percentage of the Company's total revenues.


                                       15
<PAGE>

         INTERNATIONAL REVENUES. International revenues include revenues from
all countries other than the United States. International revenues from the
Company's direct sales organizations in Europe and export sales to or through
indirect channel partners in Europe and other areas outside of the United States
accounted for 19.1%, 19.9%, and 21.9% of total revenues in fiscal 1999, 1998 and
1997, 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. The Company has not experienced significant exposure to
foreign exchange rate changes. As the Company's foreign operations grow, there
can be no assurance that future foreign operational costs and the economic,
fiscal and monetary policies of foreign governments will not have a material
adverse effect on the Company's future results of operations or liquidity.

COST OF REVENUES

         LICENSE. Cost of license revenues consists primarily of salaries, 
product packaging, documentation and production. Cost of license revenues was 
$1,601, $1,564, and $1,446 in fiscal 1999, 1998 and 1997, respectively. The 
continuing decrease in cost of license revenues as a percent of revenues from 
1997 through 1999 results from economies of scale.

         SERVICE. Cost of service revenues consists primarily of
personnel-related and facilities costs incurred to provide customer support,
training and consulting services, as well as third-party costs incurred to
provide training and consulting services. Cost of service revenues was $12,854,
$11,113 and $6,724 in fiscal 1999, 1998 and 1997, respectively. The increases
each year were primarily due to the hiring of additional customer service
employees. The decrease in cost of service revenues as a percentage of service
revenues in fiscal 1999, 1998 and 1997 was primarily due to improved economies
of scale of the technical support center and increased productivity due to
growth in the number of increasingly experienced 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 $34,636, $28,497 and $23,198 in fiscal 1999, 1998 and
1997, 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. The decrease in sales and marketing expenses as a
percentage of total revenues was primarily due to the increased productivity of
the sales and marketing personnel as they became more experienced in selling the
Company's products. The Company expects that total 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 for software engineering personnel, payments
to contract programmers and expendable equipment purchases. Research and
development expenses were $9,065, $7,582 and $5,333 in fiscal 1999, 1998 and
1997, respectively. These increases were primarily attributable to hiring of
additional research and development personnel. 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 consist
primarily of salaries, professional fees, occupancy expenses and bad debt
expense. General and administrative expenses were $6,500, $6,083 and $5,764 in
fiscal 1999, 1998 and 1997, 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. The decrease in
general and administrative expense as a percentage of revenues from 1997 through
1999 is attributable primarily to economies of scale. 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 and facilities to
support its growing operations.


                                       16
<PAGE>

         NON-RECURRING CHARGES. Non-recurring charges for fiscal 1999 relate to
the Company's merger with IQ which was completed in September 1998. In
connection with the merger, the Company incurred direct transaction and other
related expenses of $6,500. Merger related expenses consisted of approximately
$3,250 of investment banking, legal and professional fees; approximately $1,650
of costs to combine and reorganize the operations of IA and IQ, principally
related to lease terminations and severance; approximately $700 of adjustments
to write-off certain intangible assets not utilized by the combined company; and
approximately $900 of other one-time merger related expenses.

         OTHER INCOME. Other income represents interest earned by the Company on
its cash, cash equivalents and available-for-sale securities. The significant
increase in fiscal 1999 is the result of earnings from the investment of a large
portion of the net proceeds from IA's initial public offering completed in late
fiscal 1998.

         INTEREST EXPENSE. Interest expense relates to long-term debt and
capitalized leases. Expense for 1998 and 1997 relate primarily to borrowings
held by IA. The decrease in 1999 is due to the repayment of substantially all
long-term debt from the proceeds of IA's initial public offering completed in
late fiscal 1998.

         PROVISION FOR (BENEFIT FROM) INCOME TAXES. The benefit from income
taxes for fiscal 1999 represents primarily a reduction in the valuation
allowance associated with the Company's deferred tax assets. During fiscal 1999,
the Company reduced deferred tax valuation allowances and recorded current and
long-term deferred tax assets of $8,542. Deferred tax assets arise primarily
from net operating loss carryforwards and other timing differences. While the
combined Company incurred net losses in fiscal 1998 and 1997, such losses
related to the IA portion of the business and may not be used to offset the
pre-merger operating income of IQ.

RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 1998 the Financial Accounting Standards Board issued FASB No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This
Statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. Changes in the fair value of a derivative (that is, gains and
losses) are accounted for within earnings or as a component of other
comprehensive income, depending on the intended use of the derivative and the
resulting designation. This Statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999, but should not be applied
retroactively to financial statements of prior periods. Because the Company does
not currently utilize derivative instruments or hedges, the implementation of
this accounting standard will have no impact on the Company's results of
operations or financial condition.

LIQUIDITY AND CAPITAL RESOURCES

         OPERATING ACTIVITIES: Net cash (used in) or provided by operating
activities was $(2,356), $2,282 and $(4,789) in fiscal 1999, 1998 and 1997,
respectively. For fiscal 1999, net cash used in operating activities resulted
primarily from increases in accounts receivable, partially offset by increases
in accrued liabilities and income taxes payable. For fiscal 1998, net cash
provided by operating activities resulted primarily from decreases in accounts
payable, accrued liabilities and deferred revenues. For fiscal 1997, 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.

         INVESTING ACTIVITIES: Net cash used in investing activities was $6,261,
$5,858 and $4,835 in fiscal 1999, 1998 and 1997, respectively. Since 1997, the
Company's investing activities have consisted primarily of purchases of property
and equipment and investments in marketable securities. In fiscal 1998, the
Company also received $1,800 in full repayment of a loan to an affiliate.
Capital expenditures, including those under capital leases, totaled 


                                       17
<PAGE>

$2,630, $1,801 and $1,132 in fiscal 1999, 1998 and 1997, 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, 1999, the Company had no material commitments for capital
expenditures.

         FINANCING ACTIVITIES: The Company's financing activities provided cash
flows of $828, $26,201 and $7,118 in fiscal 1999, 1998 and 1997, respectively.
In fiscal 1999, cash provided by financing activities came primarily from
proceeds of stock issued upon exercise of options and warrants offset by
payments on long-term debt.

         In fiscal 1998, the cash provided by financing activities was comprised
of (1) an initial public offering of 3,834,100 shares (including an
overallotment of 500,100 shares) of Common Stock of IA which generated net
proceeds of $19,768, (2) proceeds from the sale of Series D Convertible
Redeemable Preferred Stock of $6,926, (3) proceeds from the exercise of stock
options and stock purchase warrants of $1,197, and (4) proceeds from borrowings
under lines of credit and long-term debt of $2,085, offset by net reduction of
debt under credit line borrowings and long-term borrowings of $3,775.

         In fiscal 1997, the cash provided by financing activities was comprised
primarily of $4,880 received in connection with the sale of Series C Convertible
Redeemable Preferred Stock, $1,500 in proceeds from long-term debt, and $1,240
in proceeds from the exercise of stock options, offset by principal payments on
long-term debt of $502.

         CREDIT ARRANGEMENTS: During fiscal 1999, the Company had a revolving
credit line of $2,000 and a $400 equipment note with a bank. In October 1997,
the Company borrowed $1,685 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 line of credit
expired in September 1998. There were no amounts outstanding under these
facilities as of January 31, 1999. See Note 4 of Notes to Consolidated Financial
Statements.

         In April 1999, the Company renegotiated its line of credit. The
provisions of the new line of credit agreement include maximum borrowings of
$4,000, interest at the bank's prime lending rate, and customary financial
covenants. The Company has granted a first priority security interest in
substantially all of its assets as security for any borrowings under its line of
credit.

         In March 1999, the Company signed a five-year lease on a new facility.
This lease requires base rental payments totaling approximately $2,961 over the
lease term.

         The Company believes that its existing cash and cash equivalents will
be adequate to meet its cash needs for at least the next 12 months. If, in the
future, the Company requires additional financing, there can be no assurance
that additional financing will be available or that, if available, such
financing will be on terms favorable or acceptable to the Company. Nor can there
be assurance that any future financing will not be dilutive.

                              CAUTIONARY STATEMENT

         INFORMATION ADVANTAGE, INC., OR PERSONS ACTING ON BEHALF OF THE
COMPANY, MAY MAKE, FROM TIME TO TIME, WRITTEN OR ORAL "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 INTENDED TO QUALIFY
THE FORWARD-LOOKING STATEMENT FOR THE "SAFE HARBOR" PROVISIONS OF THE LITIGATION
REFORM ACT. WE INTEND THIS CAUTIONARY STATEMENT 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 


                                       18
<PAGE>

Cautionary Statement in the context of a forward-looking statement or statements
shall be deemed to be a statement that any one of more of the following factors
may cause actual results to differ materially from those in such forward-looking
statement or statements.

FLUCTUATIONS IN OPERATING RESULTS

         The Company's continued reliance on large contracts in a portion of its
business will continue to result in fluctuations in operating results. A
significant portion of IA's revenues have been, and the Company believes a
significant portion of total revenues will continue to be, derived from a
limited number of orders placed by large organizations. The timing of such
orders has caused, and is expected to continue to cause, material fluctuations
in the Company's operating results, particularly on a quarterly basis. 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.

         A significant portion of the Company's revenues is derived from
existing customers, including resellers. 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 often recognized a majority of its revenues in the
final 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 an
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 has been the case in the past, it will
experience weaker demand for its line of software products during the summer
months. Product revenues are also difficult to forecast because the market for
the Company's products is rapidly evolving, and the Company's sales cycle, which
may last from three to twelve months or more, varies substantially from customer
to customer.

         The Company's expense level and plans for expansion, including its plan
to increase its sales and marketing and research and development efforts, are
based largely 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 the factors described above, quarterly revenues, expenses
and operating results could vary significantly in the future. Therefore,
period-to-period comparisons of the Company's operating results are not
necessarily meaningful and, 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. If operating results are below expectations, or
if 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.

POTENTIAL EFFECTS OF YEAR 2000 ISSUES ON CUSTOMER PURCHASING PATTERNS

         Management believes that the purchasing patterns of customers and
potential customers may be affected during calendar 1999 as companies expend a
significant portion of their limited information technology resources to correct
their current software systems for Year 2000 compliance. It is possible that
companies may curtail expenditures on software that they believe is not critical
to their continued operations and focus on repairing or upgrading only those
systems which they believe are mission critical. These expenditures may result
in reduced funds available to purchase software products such as those offered
by the Company. In addition, some companies may determine that, once they have
attained Year 2000 compliance internally, they will defer making any software


                                       19
<PAGE>

purchases that would change their information systems until after January 1,
2000. While this shift in customer purchasing patterns may affect all Business
Intelligence software companies, it is possible that it could affect the Company
to an even greater extent because of the large dollar magnitude of the product
installations that the Company's customers often purchase. The deferral of
purchases of Business Intelligence products in favor of expenditures on Year
2000 issues by the Company's customers or potential customers could result in a
material adverse effect on the Company's business, operating results and
financial condition.

MANAGEMENT OF GROWTH

         IA has experienced periods of rapid growth and expansion that have
placed and will continue to place significant strains upon its management
systems, resources and personnel. To compete effectively and manage anticipated
future growth, the Company must continue to implement and improve operational,
financial and management information systems on a timely basis and expand,
train, motivate and manage its work force. There can be no assurance that the
Company's personnel, systems, procedures and controls will be adequate to
support its operations.

         The Company significantly increased its size in September 1998 with the
merger of the Company and IQ Software Corporation ("IQ"). IA and IQ entered into
the merger, among other reasons, in order to achieve potential mutual benefits
from combining each of their respective expertise, product lines and
distribution channels for the enterprise software market. Realization of these
potential benefits will require, among other things, integrating the companies'
respective product offerings and coordinating the companies' sales and marketing
and research and development efforts across geographically separated businesses.
IA and IQ each have different systems and procedures in many operational areas
that must be rationalized and integrated. There can be no assurance that such
integration will be accomplished effectively, expeditiously or efficiently.

FUTURE ACQUISITION-RELATED RISKS

         A significant component of the Company's growth strategy is the
acquisition of complementary businesses, products and technologies that meet the
Company's criteria for revenues, profitability, growth potential and operating
strategy. While the Company does not anticipate any further acquisitions in the
near term, the successful implementation of this strategy depends on the
Company's ability to identify suitable acquisition candidates, acquire such
companies on acceptable terms and integrate their operations successfully with
those of the Company. There can be no assurance that the Company will be able to
identify suitable acquisition candidates or that the Company will be able to
acquire such candidates on acceptable terms. There also can be no assurance that
any such acquisition, if successfully consummated and integrated, will
ultimately prove advantageous for the Company.

LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES

         IA was formed in 1992. Accordingly, the Company's prospects must be
considered in light of the risks and difficulties frequently encountered by
rapidly growing companies, 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.

         IA has only recently achieved operating profitability on a quarterly
basis. It is possible that the Company may not generate sufficient net income to
fully utilize its net operating loss carryforwards before they begin to expire
in 2009. 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. Based upon management's estimates, IA's initial public offering
combined with the impact of the merger of IA and IQ resulted in a change of
ownership which limits the Company's utilization of the net operating loss
carryforwards to $4,000 per year.As of January 31, 1999, the Company had an
accumulated deficit of $9,312.


                                       20
<PAGE>

         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 Business Intelligence (BI) 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 be
able to maintain profitability on a quarterly or annual basis.

LENGTHY SALES AND IMPLEMENTATION CYCLES

         The licensing of a portion of the Company's products 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 a portion of the Company's products is typically three to
12 months and subject to a number of significant risks that are beyond the
Company's control, including customers' budgetary constraints and internal
acceptance reviews.

         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, the deployment process of the
Company's products generally 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, revenue
recognition is deferred until execution of a final license and the other
prerequisites for revenue recognition have been fulfilled.

         Any delays in the implementation of the Company's products could have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, any significant delay in the future
implementation of the Company's products 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.

COMPETITION

         The Company operates in a market which 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 four
categories:

-    vendors of desktop OLAP software such as Cognos and Business Objects;
-    vendors of multidimensional OLAP software such as Oracle (Express), Arbor
     Software, Seagate (Holos) and SAS;
-    vendors of OLAP/relational database software such as MicroStrategy and
     Platinum Technology (Prodea); and 
-    vendors of enterprise reporting software, such as Actuate, Business 
     Objects, Cognos, and Seagate (Crystal Reports).


                                       21
<PAGE>

         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. 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 Business Intelligence software with other widely accepted products,
resulting in a loss of market share for the Company. 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 BUSINESS INTELLIGENCE APPLICATIONS AND RISK
OF WEB-BASED USE

         Although demand for the Company's products has grown in recent years,
the market for Business Intelligence 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 Company's business, operating results and financial condition
would be materially adversely affected by the failure of such upgrades to occur
due to the lack of continued adoption of Business Intelligence applications by
its installed customer base.

         The Company has spent, and intends to continue spending, considerable
resources educating potential customers about the Company's products and their
functions and Business Intelligence generally. However, there can be no
assurance that such expenditures will enable the Company's products to achieve
any additional degree of market acceptance. If the market for the Company's
products 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 future business, operating results
and financial condition may reflect substantial fluctuations from period to
period as a consequence of patterns and general economic conditions in the
software industry.

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 believes that its future success will depend in large
part on its ability to:

-    support popular operating systems and databases,
-    maintain and improve its current product line,
-    develop new products on a timely basis that achieve market acceptance,
     maintain technological competitiveness and meet an expanding range of
     customer requirements, and
-    support the use of Web-based Business Intelligence products.

         As a result of the complexities inherent in Business Intelligence,
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 


                                       22
<PAGE>

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

         Historically, a substantial portion of IA's revenues have been
attributable to the ROLAP engine and related services. Such products and
services are currently expected to account for a substantial portion of the
Company's revenues for the foreseeable future. Consequently, a decline in the
demand for, or market acceptance of, the Company's products 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 IA's revenues. While no single customer accounted for more than
10% of total revenues in fiscal 1999, 1998 or 1997, 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, if the
Company fails to successfully sell its products or services to one or more
targeted new or existing customers in any particular period, or one or more of
these customers defers or cancels orders, the Company's business, operating
results and financial condition could be materially adversely effected. The loss
of a major customer, or any reduction in orders by such customer, 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 40.0%, 42.4% and 35.0% of total revenues for fiscal 1999,
1998 and 1997, 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 sales of professional services and the acceptance of maintenance
contracts by the Company's growing installed customer base. If service revenues
are less than anticipated, the Company's business, operating results and
financial condition could be materially adversely affected.

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. Indirect channels have accounted for 13% to 
24% of total revenues for the past three years. 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 these channels, which could
adversely affect the Company's business, operating results and financial
condition 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 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. The failure to recruit strategic partners
could adversely affect the Company's business, operating results and financial
condition. In addition, if it is successful in selling products through these
channels, 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.


                                       23
<PAGE>

RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS

         During fiscal 1999, 1998 and 1997, the Company derived 19.1%, 19.9% and
21.9% 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

         IA 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 the geographic area of its operations. From January 31,
1995 to January 31, 1998, IA increased its headcount from 75 to 228. The merger
with IQ combined with IA's own internal hiring has increased the total headcount
of the Company to 457 at January 31, 1999.

         Further significant increases in the number of employees are
anticipated in fiscal 2000. For example, the Company currently plans to expand
its sales and marketing services and research and development efforts by, among
other 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.


                                       24
<PAGE>

         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 any one of these 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 experienced and continues to experience
difficulty in recruiting qualified personnel. The loss of the services of one or
more of the Company's key individuals or failure to attract and retain
additional qualified personnel 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

         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, IA 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.

         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 on the Company's business,
operating results and financial condition.

IQ CLASS ACTION LITIGATION

         On October 23, 1997, a complaint was served on IQ and certain of its
executive officers on behalf of purchasers of IQ Common Stock between May 8,
1996 and February 3, 1997 alleging violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934. The claim alleges that IQ failed to disclose
the risks and liabilities assumed by IQ in connection with the transition of its
sales force from an inside telesales model to an outside field-based model. The
Company believes that the claim is without merit and is vigorously defending the
action. The parties to the action have reached a tentative agreement to settle
the action. The agreement is subject to approval by 


                                       25
<PAGE>

the U.S. District Court of the Northern District of Georgia, Atlanta Division,
before it becomes final. If the Company is unsuccessful in finalizing the
agreement and ultimately defending against the claim, the Company's business,
operating results and financial condition would be materially and adversely
affected.

RISK OF SOFTWARE DEFECTS

         Software products as internally complex as those offered by the Company
frequently contain errors or defects, especially when first introduced or when
new versions or enhancements are released. Despite significant product quality
efforts, the Company has in the past released versions of its products with
defects and has discovered software errors in those products after their
introduction. Although the Company has not experienced material adverse effects
resulting from any such defects and errors to date, there can be no assurance
that defects and errors will not be found in new versions or enhancements after
commencement of commercial shipments. The discovery of such defects or errors
could result in loss of revenues or delay in market acceptance, which could have
a material adverse effect upon the Company's business, operating results and
financial condition.

YEAR 2000 READINESS DISCLOSURE

         The Company is presently assessing its Year 2000 readiness for
operations worldwide, focusing on critical operating and applications systems,
particularly the Year 2000 compliance of: (a) product lines, (b) key
software/hardware vendors, and (c) financial accounting systems.

         The Company believes that its products are Year 2000 compliant. With
respect to other areas of its operations, the Company has performed an initial
high-level assessment of mission critical systems that will require Year 2000
modification. During this initial assessment, the Company determined that Year
2000 issues exist with regard to its internal financial reporting application,
its voicemail system, and one stand-alone component of the sales transaction
process. The Company plans to replace or modify each of these systems during
calendar 1999.

         During the second quarter of calendar 1999, management plans to use
internal staff, supplemented by consultants, to conduct a more thorough,
detailed analysis of remaining systems, including all personal computers, the
computer networking hardware and software, the electronic mail system, and
non-IT systems such as building security and climate control systems. The
Company plans to conduct Year 2000 readiness testing and take appropriate action
during the last half of calendar 1999 to correct any remaining Year 2000 issues
that arise during this second quarter review.

         The Company uses outside vendors to supply its most significant
financial accounting software. As part of the integration of IQ, the Company is
currently in the process of converting its financial application to a platform
that is Year 2000 compliant. The replacement of the voicemail system and the
stand-alone component of the sales transaction process is still in the planning
phase, and no reliable estimate of the ultimate cost has been determined.
However, the Company believes that its internal Year 2000 issues are of lesser
complexity than other industries that may have huge, custom-programmed legacy
computer systems or numerous embedded microprocessors controlling complex
processes. Replacements for any of the Company's non-compliant internal systems
are commercially available, and will be purchased and installed as necessary
during calendar 1999.

         To date, all remediation efforts have been conducted by internal 
staff, and the costs incurred have not been material. The Company intends to 
complete its Year 2000 remediation efforts with both internal resources and 
external consultants. The Company believes it has sufficient liquidity to 
fund the internal Year 2000 remediation described above. The Company believes 
that capital expenditures related to replacing non-compliant systems may 
exceed $1,000. Management believes that the expense related to completing the 
Company's readiness assessment will not exceed $250.

         During the second quarter of calendar 1999, the Company intends to
perform a compliance survey of its critical vendors. The critical external
systems on which the Company's operations, both domestically and
internationally, depend include:


                                       26
<PAGE>

-    telephone systems,
-    utilities, such as electricity and water,
-    airline transportation,
-    delivery and courier services,
-    product packaging manufacturers,
-    payroll processing providers, and
-    financial institutions.

         The Company intends to develop alternative sources of these critical
services, as necessary and where available, based on the results of its survey.
In the event that any such key suppliers do not achieve Year 2000 compliance in
a timely manner, or at all, and a suitable replacement service cannot be located
(for example, electrical power), the Company's business or operations could be
adversely affected.

         The Company recognizes the need for Year 2000 contingency plans in the
event that remediation is not fully successful or that the remediation efforts
of its vendors, suppliers and governmental/regulatory agencies are not completed
in a timely manner. To the extent possible, the Company will develop alternative
relationships to ensure the availability of critical products and services, or
will implement alternative means of packaging, selling and delivering its
products. The Company intends to more formally address contingency planning
during the second half of calendar 1999, following its completion of its
detailed readiness and risk assessment.

         The Company recognizes that issues related to Year 2000 constitute a
material known uncertainty. Except as discussed above, the Company is not aware
of any potential material adverse effects which could result from these issues.
There can be no assurance that the processes described above can be completed on
the timetable described above or that remediation will be fully effective. The
Company's failure to identify and remediate Year 2000 issues, or the failure of
customers, key vendors or other critical third parties who do business with the
Company to timely remediate their Year 2000 issues could cause system failures
or errors, business interruptions or, in a worst case scenario, the inability to
engage in normal business practices for an unknown length of time. The effect on
the Company's operations, income and financial condition could be materially
adverse.

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.

POTENTIAL VOLATILITY OF STOCK PRICE

         The market price of the Common Stock is likely to be highly volatile
and may be significantly affected by factors including, but not limited to:

-    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, 
-    market perceptions of Year 2000 effects on the software industry, 
-    general market conditions, and 
-    unanticipated events or announcements.


                                       27
<PAGE>

         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.
Such litigation is currently pending against IQ, and there can be no assurance
that such litigation will not occur in the future with respect to the Company.
Such litigation could 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 21% of the
outstanding Common Stock. As a result, these stockholders may effectively
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, DELAWARE LAW AND RIGHTS AGREEMENT

         The Company's Certificate of Incorporation, as amended and restated,
and Bylaws, as amended, 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.

         On February 25, 1999, the Board of Directors declared a dividend of one
preferred share purchase right (a "Right") to purchase one one-hundredth of a
share of the Company's Series A Junior Participating Preferred Stock, par value
$0.01 per share (the "Preferred Shares"), for each share of the Company's Common
Stock outstanding as of the close of business on March 15, 1999. Each right will
entitle the registered holder to purchase from the Company, under certain
conditions, one one-hundredth of a Preferred Share at an initial price of
$60.00. The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to anyone attempting to acquire the Company in a hostile
takeover. The Rights should not interfere with any merger or other business
combination approved by the Board of Directors since the Board of Directors may,
at its option and in its sole discretion, redeem the Rights as provided in the
Rights Agreement.

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 31,1999, the Company had outstanding 25,022,259 shares of Common Stock.
Substantially all of these shares are freely tradable without registration or
further restriction unless purchased by affiliates. Of the outstanding shares
which have not been registered, certain stockholders holding approximately
10,401,890 shares of Common Stock (assuming the exercise of warrants to purchase
30,000 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 


                                       28
<PAGE>

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.

         In addition, as of March 31, 1999, there were outstanding warrants to
purchase 158,419 shares of Common Stock and options to purchase 4,908,081 shares
of Common Stock under various stock option plans.

         The Company has issued options and warrants to acquire Common Stock at
prices below the current market price of its Common Stock. To the extent such
outstanding options and warrants 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, 1999, the Company had no specific plans to use the remaining 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 acquisition 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
has invested the remaining net proceeds in investment-grade, interest-bearing
securities.

ITEM 7A   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Market risk represents the risk of changes in value of a financial
instrument, derivative or non-derivative, caused by fluctuations in interest
rates, foreign exchange rates and equity prices.

         The Company's primary market risk is interest rate risk. The Company
minimizes such risk by investing in accordance with established policies. The
Company does not engage in derivative transactions, and no financial instrument
transactions are entered into for hedging purposes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Revenues."

         Because the Company's total cash and investments exceed outstanding
short and long-term debt, exposure to interest rate risk relates primarily to
the Company's investment portfolios. Most of the investments are fixed-rate
municipal or U.S. government securities. The Company actively manages
investments to increase returns on investment, but, in order to ensure
liquidity, invests only in instruments having high credit quality where a
secondary market exists.

         The market risk sensitivity analysis performed by management estimates
the hypothetical change in fair value of those financial instruments held by the
Company at January 31, 1999, which are sensitive to changes in interest rates.
Market risk is estimated as the potential change in fair value resulting from an
immediate hypothetical one-half of one percentage point change in market
interest rates. The fair values of the Company's investments are based on quoted
market prices. As the carrying amounts of investments with maturities of less
than 90 days approximate their fair value, these are excluded from the
sensitivity analysis. The fair value of the Company's fixed rate investments
whose remaining maturities exceed 90 days is $10,667. Although not expected in
the immediate future, a 0.5 percentage point increase in market interest rates
would decrease the fair value of such investments by approximately $965.


                                       29
<PAGE>


ITEM 8    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                           INFORMATION ADVANTAGE, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                        Page
                                                                        ----

<S>                                                                    <C>
Report of Independent Accountants........................................ 31
Report of Independent Auditors........................................... 32
Consolidated Financial Statements:
  Consolidated Balance Sheet as of January 31, 1999 and 1998............. 33
  Consolidated Statement of Operations for the Years Ended
  January 31, 1999, 1998 and 1997........................................ 34
  Consolidated Statement of Stockholders' Equity for
   the Years Ended January 31, 1999, 1998 and 1997....................... 35
  Consolidated Statement of Cash Flows for the Years Ended
   January 31, 1999, 1998 and 1997....................................... 36
  Notes to Consolidated Financial Statements............................. 37

</TABLE>



                                       30
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

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

     In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Information Advantage, Inc. and its
subsidiaries at January 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended January 31,
1999, 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 did not audit the financial statements of IQ Software
Corporation, a wholly owned subsidiary, for the years ended January 31, 1998 and
1997. Those statements, which were audited by other auditors, reflect total
assets of $28.3 million at January 31, 1998, and net income of $2.0 million and
$2.2 million for the years ended January 31, 1998 and 1997, respectively. The
report of the other auditors has been furnished to us, and our opinion expressed
herein, insofar as it relates to the amounts included for IQ Software
Corporation, is based solely on the report of the other auditors. 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 and the report of other auditors provide a reasonable basis for the
opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

Minneapolis, Minnesota
March 3, 1999



                                       31
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
IQ Software Corporation

We have audited the consolidated balance sheet of IQ Software Corporation and 
subsidiaries (the Company) as of January 31, 1998, and the related 
consolidated statements of operations, shareholders' equity and cash flows 
for each of the two years in the period ended January 31, 1998 (not presented 
separately herein). 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of IQ
Software Corporation and subsidiaries at January 31, 1998, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended January 31, 1998, in conformity with generally accepted
accounting principles. 

                                                          /s/ ERNST & YOUNG LLP

Atlanta, Georgia
February 20, 1998


                                       32
<PAGE>


                           INFORMATION ADVANTAGE, INC.
                           CONSOLIDATED BALANCE SHEET
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                            January 31
                                                            ----------
                                                         1999       1998
                                                         ----       ----
<S>                                                   <C>         <C>     
ASSETS
Current assets:
   Cash and cash equivalents ......................   $ 20,041    $ 27,765
   Available-for-sale securities ..................     12,725       9,177
   Accounts receivable, net .......................     23,534      13,176
   Prepaid expenses and other current assets ......      1,363       1,572
   Current deferred tax assets, net ...............      5,812        --
                                                      --------    --------

       Total current assets .......................     63,475      51,690
Computers, furniture and office equipment, net ....      4,111       3,856
Long-term deferred taxes and other assets .........      3,621       3,700
                                                      --------    --------
                                                      $ 71,207    $ 59,246
                                                      ========    ========


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion--long-term debt ................   $    187    $    349
   Accounts payable ...............................      1,918       2,200
   Accrued expenses ...............................      9,752       4,178
   Deferred revenue ...............................      6,910       7,707
                                                      --------    --------

       Total current liabilities ..................     18,767      14,434
Long-term liabilities, less current portion .......        583         743
                                                      --------    --------

       Total liabilities ..........................     19,350      15,177
                                                      --------    --------

COMMITMENTS AND CONTINGENCIES (NOTES 6 and 8)

Stockholders' equity:
   Common stock, $0.01 par value; 60,000,000 shares
       authorized; 24,992,809 and 24,654,370 shares
       issued and outstanding, respectively .......        250         247
   Additional paid-in-capital .....................     60,962      59,788
   Accumulated other comprehensive income .........        (43)         13
   Accumulated deficit ............................     (9,312)    (15,979)
                                                      --------    --------

       Total stockholders' equity .................     51,857      44,069
                                                      --------    --------

                                                      $ 71,207    $ 59,246
                                                      --------    --------
                                                      --------    --------
</TABLE>



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


                                       33
<PAGE>


                                            INFORMATION ADVANTAGE, INC.
                                       CONSOLIDATED STATEMENT OF OPERATIONS
                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                         Years Ended January 31
                                                    ---------------------------------
                                                      1999       1998         1997

<S>                                                 <C>         <C>         <C>     
Revenues:

   License ......................................   $ 42,283    $ 28,970    $ 23,676
   Service ......................................     28,407      21,325      12,749
                                                    --------    --------    --------
       Total revenues ...........................     70,690      50,295      36,425
                                                    --------    --------    --------

Cost of revenues:

   License ......................................      1,601       1,564       1,446
   Service ......................................     12,854      11,113       6,724
                                                    --------    --------    --------
       Total cost of revenues ...................     14,455      12,677       8,170
                                                    --------    --------    --------
Gross margin ....................................     56,235      37,618      28,255
                                                    --------    --------    --------

Operating expenses:

   Sales and marketing ..........................     34,636      28,497      23,198
   Research and development .....................      9,065       7,582       5,333
   General and administrative ...................      6,500       6,083       5,764
   Merger-related expenses ......................      6,502        --          --
                                                    --------    --------    --------
       Total operating expenses .................     56,703      42,162      34,295
                                                    --------    --------    --------

Loss from operations ............................       (468)     (4,544)     (6,040)

Other income, primarily investment earnings .....      1,522         753         642
Interest expense ................................        (31)       (247)       (244)
                                                    --------    --------    --------
Income (loss) before income taxes ...............      1,023      (4,038)     (5,642)

(Benefit from) provision for income taxes .......     (5,644)        506         669
                                                    --------    --------    --------
Net income (loss) ...............................   $  6,667    $ (4,544)   $ (6,311)
                                                    --------    --------    --------
                                                    --------    --------    --------

Income (loss) per share:
   Basic ........................................   $   0.27    $  (0.38)   $  (0.63)
                                                    --------    --------    --------
                                                    --------    --------    --------


   Diluted ......................................   $   0.25    $  (0.38)   $  (0.63)
                                                    --------    --------    --------
                                                    --------    --------    --------


Shares used in computing income (loss) per share:
   Basic ........................................     24,776      12,030      10,011
                                                    --------    --------    --------
                                                    --------    --------    --------
   Diluted ......................................     26,880      12,030      10,011
                                                    --------    --------    --------
                                                    --------    --------    --------
</TABLE>

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

                                       34
<PAGE>


                                            INFORMATION ADVANTAGE, INC.
                                  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                       (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                   Accumulated
                                            Common Stock          Additional         Other                             Total
                                      ------------------------     Paid-in       Comprehensive     Accumulated     Stockholders'
                                         Shares        Amount      Capital          Income           Deficit          Equity
                                      -----------    ---------   -----------    --------------    ------------    -------------

<S>                                    <C>           <C>         <C>            <C>               <C>             <C>        
Balance, January 31, 1996 .....        9,789,343     $     98    $    12,166    $      (194)      $    (5,006)    $     7,064
  Preferred stock issuance
    costs .....................                                                                           (44)            (44)
  Translation adjustments .....             --           --             --              116              --               116
  Unrealized gain on
    marketable securities
    available for sale.........             --           --             --               20              --                20
  Net loss ....................             --           --             --             --              (6,311)         (6,311)
                                                                                                                  -----------
  Comprehensive income for
     fiscal 1997 ..............                                                                                        (6,219)
  Stock options ...............          379,154            4          1,311           --                --             1,315
  Tax benefit from
    exercise of
    non-qualified stock options
    and disqualifying
    dispositions of incentive
    stock options .............             --           --              353           --                --               353
                                     -----------     --------    -----------    -----------       -----------     -----------
Balance, January 31, 1997 .....       10,168,497          102         13,830            (58)          (11,361)          2,513
  Preferred stock issuance
    costs .....................             --           --             --             --                 (74)            (74)
  Translation adjustments .....             --           --             --               39              --                39
   Unrealized gain on
      marketable securities
      available for sale ......             --           --             --               32              --                32
  Net loss ....................             --           --             --             --              (4,544)         (4,544)
                                                                                                                  -----------
  Comprehensive income for
    fiscal 1998 ...............                                                                                       (4,547)
  Proceeds from initial public,
     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 ...............          271,551            3          1,077           --                --             1,080
  Stock purchase warrants
    exercised .................          896,888            9            799           --                --               808
  Tax benefit from exercise of
    non-qualified stock
    options and disqualifying
    dispositions of incentive
    stock options .............             --           --               37           --                --                37
                                     -----------     --------    -----------    -----------       -----------     -----------
Balance, January 31, 1998 .....       24,654,370          247         59,788             13           (15,979)         44,069
  Translation adjustments .....             --           --             --             (104)             --              (104)
   Unrealized gain on
      marketable securities
      available for sale ......             --           --             --               48              --                48
  Net income ..................             --           --             --             --               6,667           6,667
                                                                                                                  -----------
  Comprehensive income for
     fiscal 1999 ..............                                                                                         6,611
  Stock options and stock
    purchase warrants .........          164,355            1            277           --                --               278
  Issuance of stock under
    employee stock purchase
    plan ......................          174,084            2            897           --                --               899
                                     -----------     --------    -----------    -----------       -----------     -----------
Balance, January 31, 1999 .....       24,992,809     $    250    $    60,962    $       (43)      $    (9,312)    $    51,857

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

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

                                       35
<PAGE>



                           INFORMATION ADVANTAGE, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      YEARS ENDED JANUARY 31
                                                                1999           1998           1997
                                                              --------       --------       --------
<S>                                                           <C>            <C>            <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                           $  6,667       $ (4,544)      $ (6,311)
  Adjustments to reconcile net loss to net cash used by
    operating activities:
    Depreciation and amortization                                3,600          3,369          2,455
    Provision for doubtful accounts                              1,125            824            952
    Acquired research and development costs                       --              280           --
  Changes in operating assets and liabilities:
       Accounts receivable                                     (11,306)        (2,738)        (4,802)
       Deferred income taxes                                    (7,577)          (159)          (155)
       Prepaid expenses and other current assets                    39             43           (241)
       Accounts payable                                           (981)         1,052           (253)
       Accrued expenses                                          5,670          1,061          1,102
       Deferred revenue                                           (682)         2,631          2,060
       Income tax payable                                        1,056            442            454
       Other assets and liabilities                                 33             21            (50)
                                                              --------       --------       --------
  Net cash (used) provided by operating activities              (2,356)         2,282         (4,789)
                                                              --------       --------       --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to computers, furniture and office equipment        (2,630)        (1,801)        (1,132)
  Additions to capitalized software costs                         (148)        (1,001)          (805)
  Proceeds under Note receivable from affiliate                   --            1,800           --
  Payments for acquisitions                                       --             (656)          (563)
  Purchases of marketable securities                            (3,500)        (4,212)        (2,324)
  Other investing activities                                        17             12            (11)
                                                              --------       --------       --------
Net cash used by investing activities                           (6,261)        (5,858)        (4,835)
                                                              --------       --------       --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from Information Advantage initial
     public offering, net                                         --           19,768           --
  Proceeds from exercise of stock options and stock
     purchase warrants and issuance of stock under
     employee stock purchase plan                                1,177          1,197          1,240
  Proceeds from sale of convertible redeemable
    preferred stock, net of expenses                              --            6,926          4,880
  Borrowings under lines of credit                                --            1,685           --
  Repayments on lines of credit                                   --           (1,685)          --
  Proceeds from long-term debt                                    --              400          1,500
  Principal payments on long-term debt                            (349)        (2,090)          (502)
                                                              --------       --------       --------
Net cash provided by financing activities                          828         26,201          7,118
                                                              --------       --------       --------
Effect of exchange rates on cash                                    65              7             67
                                                              --------       --------       --------
Net (decrease) increase in cash and cash equivalents            (7,724)        22,632         (2,439)
Cash and cash equivalents, beginning of year                    27,765          5,133          7,572
                                                              --------       --------       --------
                                                              --------       --------       --------
Cash and cash equivalents, end of year                        $ 20,041       $ 27,765       $  5,133
                                                              --------       --------       --------
                                                              --------       --------       --------

SUPPLEMENTAL CASH FLOW INFORMATION:

  Cash paid during the year for interest                      $     31       $    259       $    240
                                                              --------       --------       --------
                                                              --------       --------       --------
  Cash paid during the year for income taxes                  $    732       $    549       $    381
                                                              --------       --------       --------
                                                              --------       --------       --------
</TABLE>

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




                                       36
<PAGE>

                           INFORMATION ADVANTAGE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 1    BUSINESS AND ORGANIZATION

            Information Advantage, Inc. ("IA" or the "Company") develops,
markets and supports a comprehensive suite of enterprise-scalable Business
Intelligence 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 Internet-based Business Intelligence solution,
MyEureka!, combines a Business Intelligence portal with powerful, robust and
flexible reporting and analysis processing capabilities to provide easy access
to all business information and transform raw data into meaningful information.
The Company also provides a comprehensive range of related training, consulting
and customer support services.

     In December 1997, IA completed an initial public offering of its common
stock, which generated $19,768 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.

     In September 1998, the Company completed a merger with IQ Software
Corporation ("IQ"), a software development company which develops and markets a
suite of business intelligence products and related services. The merger was
accounted for as a pooling of interests. As a result of the merger, the Company
issued 9,177,622 shares of its Common Stock to the stockholders of IQ. The
accompanying financial statements have been presented to reflect the balance
sheets, results of operations and cash flows of the companies as if they had
been combined from the earliest date presented.

     The following presents the separate results, in each of the periods
presented, of the Company (excluding the results of IQ prior to the date on
which it was acquired) and IQ up to the date on which the merger was completed:

<TABLE>
<CAPTION>

                             The
                           Company           IQ          Total
                          ----------      --------      --------
<S>                       <C>             <C>           <C>     
FOR THE YEAR ENDED
  JANUARY 31, 1997:
Revenues                   $ 11,747       $ 24,678      $ 36,425
Net income (loss)            (8,475)         2,164        (6,311)

FOR THE YEAR ENDED
  JANUARY 31, 1998:
Revenues                   $ 25,590       $ 24,705      $ 50,295
Net income (loss)            (6,520)         1,976        (4,544)

FOR THE PERIOD ENDED
  SEPTEMBER 24, 1998:
Revenues                   $ 23,865       $ 16,456      $ 40,321
Net income (loss)              (663)           503          (160)

</TABLE>


                                       37
<PAGE>

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 France, Australia, Holland, 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.

REVENUE RECOGNITION

     Revenues derived from software licenses are recognized upon (a) the
execution of a license agreement, (b) delivery of the related 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 that 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
in the accompanying consolidated statement of operations. 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 (SOP) 97-2, "Software
Revenue Recognition."

RESEARCH AND DEVELOPMENT

     Expenditures of the combined company for research and software development
are expensed as incurred from the date of the merger forward. 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. A working model or a detailed program design evidences technological
feasibility. The period between achieving technological feasibility and the
general availability to the public of such software has historically 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 income (loss).

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
(including the disclosure of contingent assets and liabilities) as of the
balance sheet date 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 each of
the Company's foreign subsidiaries is the respective local currency. 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.


                                       38
<PAGE>

FAIR VALUE OF FINANCIAL INSTRUMENTS

     Cash and cash equivalents consist of cash, money market instruments and
U.S. 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 estimated fair values of the Company's cash and cash equivalents at
January 31 are as follows:

<TABLE>
<CAPTION>

                                        1999          1998
                                       -------      -------
<S>                                    <C>          <C>    
Cash and money market instruments      $12,090      $10,262
U.S. government treasury bills           7,951       17,503
                                       -------      -------
                                       $20,041      $27,765
                                       -------      -------
                                       -------      -------
</TABLE>



     The Company accounts for marketable securities in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 115. SFAS
No. 115 addresses the accounting and reporting for investments in fixed maturity
securities and for equity securities with readily determinable fair values.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Currently, all debt securities with original maturity dates of greater than 90
days are classified as available-for-sale. Available-for-sale securities are
carried at fair value as determined by quoted market prices, with unrealized
gains and losses, net of tax, reported within a separate component of
stockholders' equity. Interest and dividends on securities classified as
available-for-sale are included in investment income. All available-for-sale
securities are classified as current since they are available for use in the
Company's current operations.

     The following is a summary of available-for-sale securities at January 31,
1999 and 1998:

<TABLE>
<CAPTION>

                                     Gross      Estimated
                                   Unrealized      Fair
                         Cost        Gain         Value
                       -------      -------      -------
<S>                    <C>          <C>          <C>    
JANUARY 31, 1999
Debt securities        $12,383      $    74      $12,457
Equity securities          250           18          268
                       -------      -------      -------
                       $12,633      $    92      $12,725
                       -------      -------      -------
                       -------      -------      -------
JANUARY 31, 1998
Debt securities        $ 8,844      $    75      $ 8,919
Equity securities          250            8          258
                       -------      -------      -------
                       $ 9,094      $    83      $ 9,177
                       -------      -------      -------
                       -------      -------      -------
</TABLE>

     The adjustment to accumulated other comprehensive income related to
unrealized holding gains on available-for-sale securities included as a separate
component of stockholders' equity totaled $101 and $53, net of deferred taxes,
as of January 31, 1999 and 1998, respectively.



                                       39
<PAGE>

     Except for U.S. Government Treasury bills purchased with original
maturities of 90 days or less, which are classified as cash equivalents, as of
January 31, 1999 and 1998, the Company had no marketable securities considered
held-to-maturity. The amortized cost and estimated fair market value of debt
securities at January 31, 1999 by contractual maturity are as follows:

<TABLE>
<CAPTION>

                                                  Estimated
                                                     Fair
                                       Cost         Value
                                      -------      -------
<S>                                   <C>          <C>    
Due in 1 year or less                 $ 4,095      $ 4,147
Due after 1 year through 3 years        3,979        3,996
Due after 3 years                       4,309        4,314
                                      -------      -------
                                      $12,383      $12,457
                                      -------      -------
                                      -------      -------
</TABLE>


SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK

     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. No individual customers accounted for over
10% of revenues during fiscal 1999, 1998 or 1997. There were no individual
customer receivable balances greater than 10% of total receivables at January
31, 1999 or 1998.

     Accounts receivable are stated net of the related allowance for doubtful
accounts of $1,516 and $1,030 as of January 31, 1999 and 1998, respectively.

COMPUTERS, FURNITURE AND OFFICE EQUIPMENT

     Computers, furniture and office equipment, including those assets acquired
under capital leases, are 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:

<TABLE>
<CAPTION>
T
                                           JANUARY 31
                                     ---------------------
                                       1999         1998
                                     -------       -------
<S>                                  <C>           <C>    
Equipment cost                       $ 1,285       $ 1,191
Less:  Accumulated amortization       (1,048)         (689)
                                     -------       -------
                                     $   237       $   502
                                     -------       -------
                                     -------       -------
</TABLE>



INCOME TAXES

     Income taxes are accounted for under the liability method in accordance
with 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.


                                       40
<PAGE>

INCOME (LOSS) PER SHARE

     The Company accounts for income (loss) per share in accordance SFAS No.
128, "Earnings Per Share." SFAS No. 128 applies to entities with publicly held
common stock, and 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.

     A reconciliation of the denominators of the basic and diluted income (loss)
per share computations for the years ended January 31, 1999, 1998 and 1997 is
presented below:

<TABLE>
<CAPTION>

                                        1999          1998           1997
                                      --------      --------       --------
<S>                                   <C>           <C>            <C>      
Net income (loss)                     $  6,667      $ (4,544)      $ (6,311)
                                      --------      --------       --------
                                      --------      --------       --------
Shares Calculation:
   Weighted average basic
      shares outstanding                24,776        12,030         10,011
   Effect of dilutive securities
      Options                            2,019          --             --
      Warrants                              85          --             --
                                      --------      --------       --------
   Total shares used to compute
       diluted income (loss)
       per share                        26,880        12,030         10,011
                                      --------      --------       --------
                                      --------      --------       --------
Net income (loss) per share:
   Basic                              $   0.27      $  (0.38)      $  (0.63)
                                      --------      --------       --------
                                      --------      --------       --------
   Diluted                            $   0.25      $  (0.38)      $  (0.63)
                                      --------      --------       --------
                                      --------      --------       --------
</TABLE>



RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998 the Financial Accounting Standards Board issued FASB No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This Statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. Changes in the fair value
of a derivative (that is, gains and losses) are accounted for within earnings or
as a component of other comprehensive income, depending on the intended use of
the derivative and the resulting designation. This Statement is effective for
all quarters of fiscal years beginning after June 15, 1999. Because the Company
does not currently utilize derivative instruments or hedges, the implementation
of this accounting standard will have no impact on the Company's results of
operations or financial condition.


                                       41
<PAGE>

NOTE 3    FINANCIAL STATEMENT COMPONENTS

     Computers, furniture and office equipment consists of the following:

<TABLE>
<CAPTION>

                                           JANUARY 31
                                     ---------------------
                                       1999          1998
                                     -------       -------
<S>                                  <C>           <C>    
Computer equipment ............      $ 8,835       $ 7,625
Furniture and office equipment         3,704         2,976
Less:  Accumulated depreciation       (8,428)       (6,745)
                                     -------       -------
                                     $ 4,111       $ 3,856
                                     -------       -------
                                     -------       -------
</TABLE>



     Accrued expenses consist of the following:

<TABLE>
<CAPTION>

                                      JANUARY 31
                                  ------------------
                                   1999         1998
                                  ------      ------
<S>                               <C>         <C>   
Accrued wages and benefits .      $4,545      $2,675
Accrued merger-related costs       1,694        --
Income taxes payable .......       1,466         465
Other accrued expenses .....       2,047       1,038
                                  ------      ------
                                  $9,752      $4,178
                                  ------      ------
                                  ------      ------
</TABLE>


     See Note 11 for a discussion of the accrued merger-related costs.

NOTE 4    LINE OF CREDIT

     The Company had a $2,000 working capital line of credit with a bank which
expired September 2, 1998. Borrowings were limited to the lesser of $2,000 or
70% of eligible accounts receivable. Borrowings bore interest at an annual rate
of 1.75% above the bank's prime rate (8.5% at January 31, 1998) and were
collateralized by all of the Company's assets. No amounts were outstanding under
the line as of January 31, 1998 or 1997. There were no borrowings in fiscal
1999. Maximum and average borrowings during fiscal 1998 were $1,715 and $298,
respectively. The line of credit agreement contained certain covenants
pertaining to operating results and certain other financial ratios. The Company
was in compliance with these covenants prior to the expiration of the agreement.

     In April 1999, the Company successfully renegotiated its line of credit
which had expired in September 1998. The provisions of the new line of credit
agreement include maximum borrowings of $4,000, interest at the bank's prime
lending rate, and customary financial covenants.


                                       42
<PAGE>

NOTE 5    LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>

                                                          JANUARY 31
                                                      -----------------
                                                      1999        1998
                                                      -----       -----
<S>                                                   <C>         <C>  
Capital lease obligations; bear interest at 8.0%
   to 13.5% per annum; due in varying monthly
   installments trough October 2001 ............      $ 233       $ 583
                                                      -----       -----
                                                        233         583
Current portion-long term debt .................       (187)       (349)
                                                      -----       -----
                                                      $  46       $ 234
                                                      -----       -----
                                                      -----       -----
</TABLE>


Future payments of long-term debt for years ending January 31 are as follows:

<TABLE>
<S>                                                                         <C>  
2000 .................................................................      $ 199
2001 .................................................................         46
                                                                            -----
                                                                              245
Less: Amount representing interest ...................................        (12)
                                                                            -----
                                                                            $ 233
                                                                            -----
                                                                            -----
</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 March
2010. Rental expense under such leases was $2,656, $2,411 and $1,676 for the
years ended January 31, 1999, 1998 and 1997, respectively. Future minimum
payments under the lease agreements are as follows for years ending January 31:

<TABLE>
<S>                                                  <C>   
2000 .............................................  $ 2,169
2001 .............................................    1,875
2002 .............................................    1,804
2003 .............................................    1,421
2004..............................................    1,196
Thereafter........................................    1,494
                                                    -------
                                                     $9,959
                                                    -------
                                                    -------
</TABLE>


NOTE 7    INCOME TAXES

     At January 31, 1999, the Company had federal net operating loss
carryforwards of approximately $15,800 for income tax purposes. The federal net
operating loss carryforwards will begin to expire in 2009. 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. Based upon
management's estimates, IA's initial public offering combined with the 


                                       43
<PAGE>

impact of the merger of IA and IQ resulted in a change of ownership which limits
the Company's utilization of the net operating loss carryforwards to $4,000 per
year.

     During fiscal 1999, the Company reduced deferred tax valuation allowances
and recorded current and long-term deferred tax assets of $8,542. Deferred tax
assets arise primarily from net operating loss carryforwards and other timing
differences. Based on the successful completion of the merger with IQ and the
foundation created for current and future profitable operations, management
believes that it is more likely than not that the deferred tax asset will be
fully utilized by the Company. As of January 31, 1999, the Company has foreign
net operating loss carryforwards of approximately $2,700. No tax benefit has
been recognized for such foreign loss carryforwards as utilization of such
benefits is not presently deemed by management to be more likely than not based
on the weight of available evidence.

     The benefit from income taxes in fiscal 1999 results from the reduction in
the valuation allowance discussed above. The provision for income taxes in
fiscal 1998 and 1997 results from the taxable income of IQ which cannot be
offset with the net operating losses of IA prior to the date of the merger.
Specifically, net income tax (benefit) expense consists of the following:

<TABLE>
<CAPTION>

                                            Years ended January 31,
                                        1999          1998          1997
                                      -------       -------       -------
<S>                                   <C>           <C>           <C>    
Current:
   Federal                            $ 1,446       $   525       $   477
   State                                  213            71            84
   Foreign                                246            99           274
                                      -------       -------       -------
                                        1,905           695           835
Deferred                               (7,549)         (189)         (166)
                                      -------       -------       -------
Net provision for (benefit from)
   income taxes                       $(5,644)      $   506       $   669
                                      -------       -------       -------
                                      -------       -------       -------
</TABLE>



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


                                       44
<PAGE>

<TABLE>
<CAPTION>

                                                             JANUARY 31,
                                                     -----------------------
                                                       1999           1998
                                                     --------       --------
<S>                                                  <C>            <C>     

Deferred tax liabilities:
  Capitalized software development costs ......      $    136       $    549
  Purchased software development costs ........            37             87
  Prepaid expenses ............................           137            255
  Tax depreciation in excess of book ..........           122           --
  Other .......................................            69             58
                                                     --------       --------
     Total deferred tax liabilities ...........           501            949

Deferred tax assets:
  Net operating loss carryforwards ............         6,782          8,113
  Vacation and other accruals .................         1,002          1,272
  Book depreciation in excess of tax ..........          --              168
  Research and development credit carryforwards           360             85
  Purchased research and development costs ....            99            100
  Accounts receivable allowance ...............           381            304
  Other .......................................             1             25
                                                     --------       --------
     Total deferred tax assets ................         8,625         10,067
                                                     --------       --------

Valuation allowance ...........................        (1,082)        (9,624)
                                                     --------       --------
     Total net deferred income taxes ..........      $  7,042       $   (506)
                                                     --------       --------
                                                     --------       --------
</TABLE>



     At January 31, 1999 and 1998, net current deferred tax assets (liabilities)
were $5,812 and $(22), respectively, and net non-current deferred tax assets
(liabilities) were $1,230 and $(484), respectively.

     A reconciliation of the statutory U.S. federal income tax rate to the
effective tax rate per the statement of operations is as follows:

<TABLE>
<CAPTION>

                                                        Years ended January 31,
                                                  1999          1998          1997
                                                 -------       -------       -------
<S>                                              <C>           <C>           <C>     
 Federal tax (benefit) at statutory rates        $   348       $(1,373)      $(1,918)
 State income taxes, net of federal benefit           51          (385)         (324)
 Non-deductible foreign subsidiary losses          1,082          --            --
 Non-deductible merger expenses                    1,141          --            --
Change in deferred tax valuation allowance        (8,542)        2,397         3,137
 Foreign taxes                                       236          (184)         (215)
 Tax-free investment income                         (194)         (164)         (113)
 Other                                               234           215           102
                                                 -------       -------       -------
                                                 $(5,644)      $   506       $   669
                                                 -------       -------       -------
                                                 -------       -------       -------
</TABLE>



                                       45
<PAGE>



NOTE 8    COMMITMENTS AND CONTINGENCIES

     On October 23, 1997, a complaint was served on IQ and certain of its
executive officers on behalf of purchasers of IQ Common Stock between May 8,
1996 and February 3, 1997 alleging violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934. The claim alleges that IQ failed to disclose
the risks and liabilities assumed by IQ in connection with the transition of its
sales force from an inside telesales model to an outside field-based model. The
Company signed a Memorandum of Understanding with the plaintiffs to settle the
claim for $600, subject to certain conditions including court approval, and
recognized the related costs in fiscal 1999. The Company expects the matter to
be completely settled during the first half of fiscal 2000, and does not expect
the settlement to have a material adverse affect on its results of operations or
financial condition.

NOTE 9    CAPITAL STRUCTURE

     In September 1997, the Board of Directors authorized the reincorporation of
the Company in Delaware, set the number of authorized shares of the Company at
60 million and designated a par value of $0.01 for common shares. In addition,
the Company has authorized 5 million $.01 par value preferred shares.

     In September 1998, the Company completed a merger with IQ which was
accounted for as a pooling of interests. The merger was effected by issuing 1.96
shares of IA common stock for every share of IQ common stock outstanding as of
the date of the merger. All share amounts have been presented as though the
companies had merged as of the earliest period presented.

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 $3,000 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 "ACCOUNTING FOR STOCK-BASED COMPENSATION," 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.

NOTE 10   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 1,107,871. 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.

         At the time of the merger, IQ had outstanding a total of 659,275
options to acquire IQ common stock under 


                                       46
<PAGE>


three stock option plans. Upon consummation of the merger with IQ, each option
outstanding under IQ's stock option plans as of the merger date was converted to
options to acquire 1.96 shares of IA common stock. All stock option disclosures
have been presented in accordance with the foregoing as though the merger had
occurred as of the earliest period presented.

         As of January 31, 1999, the Company had a total of 4,863,912 shares
reserved for issuance under all stock option plans. As of February 1, 1999, such
number increased automatically by 400,000 shares.

     A summary of the stock option activity is as follows:

<TABLE>
<CAPTION>

                                                                            Weighted-
                                                      Exercise Price         Average
                                       Options          Per Share         Exercise Price
                                     ----------       --------------      --------------
<S>                                  <C>              <C>                 <C>           
Outstanding at January 31, 1996       2,041,560       $0.34 - $11.90           $2.39
Granted .......................       1,467,200       $1.13 - $12.12           $4.70
Exercised .....................        (379,154)      $0.34 - $ 6.83           $3.29
Canceled ......................        (405,080)      $0.88 - $ 9.33           $4.35

Outstanding at January 31, 1997       2,724,526       $0.82 - $12.12           $3.23
Granted .......................       2,016,700       $1.13 - $ 5.84           $4.01
Exercised .....................        (271,551)      $0.88 - $ 3.32           $1.44
Canceled ......................      (1,027,344)      $1.13 - $11.93           $7.07
                                                                          --------------

Outstanding at January 31, 1998       3,442,331       $0.82 - $12.12           $2.70
Granted .......................       1,673,220       $3.76 - $ 8.50           $5.75
Exercised .....................        (155,431)      $0.82 - $ 6.82           $1.93
Canceled ......................        (272,489)      $1.13 - $ 7.81           $4.52
                                     ----------       --------------      --------------

Outstanding at January 31, 1999       4,687,631       $0.88 - $12.18           $3.72
                                     ----------       --------------      --------------
                                     ----------       --------------      --------------

</TABLE>

     Stock options exercisable at January 31, 1999 and 1998 were 1,647,170 and
1,004,990, respectively. The weighted-average fair value of options granted
during fiscal 1999, 1998 and 1997 using the Black-Scholes option-pricing model
was $4.59, $2.08 and $2.99 per share, respectively.

     The following table summarizes information about fixed-price stock options
outstanding at January 31, 1999:

<TABLE>
<CAPTION>

                                            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 - $1.625                   1,733,352         6.0             $1.13              905,716          $1.13
$2.125 - $4.00                      696,794         6.5             $3.43              312,079          $3.43
$4.125 - $5.836                   1,365,465         7.5             $5.24              210,290          $5.26
$6.122 - $12.181                    892,020         8.0             $6.66              219,085          $6.50
                                 -------------                                      -----------------
 Totals                           4,687,631                                          1,647,170
                                 -------------                                      -----------------
                                 -------------                                      -----------------
</TABLE>


                                       47
<PAGE>


         The Company records compensation related to stock options using the
intrinsic value method of APB No. 25, "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES."

     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 option stock plans been determined based on
the minimum value at the grant date for awards during fiscal 1999, 1998 and 1997
consistent with the provisions of SFAS No. 123, the Company's net income (loss)
and net income (loss) per share would have changed to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>

                                            Years ended January 31,
                                      1999            1998           1997
                                    ---------      ---------       --------- 
<S>                                 <C>            <C>             <C>       
Net income (loss):
   As reported                      $   6,667      $  (4,544)      $  (6,311)
                                    ---------      ---------       --------- 
                                    ---------      ---------       --------- 
   Pro forma                        $   3,802      $  (5,362)      $  (6,976)
                                    ---------      ---------       --------- 
                                    ---------      ---------       --------- 
Basic income (loss) per share:
   As reported                      $    0.27      $   (0.38)      $   (0.63)
                                    ---------      ---------       --------- 
                                    ---------      ---------       --------- 
   Pro forma                        $    0.15      $   (0.45)      $   (0.70)
                                    ---------      ---------       --------- 
                                    ---------      ---------       --------- 
</TABLE>


     The fair 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 1999, 1998 and 1997, respectively;
dividend yield of 0%; risk-free interest rates of 5.0%, 6.2% and 6.4%;
volatility factors of the expected market price of the Company's common stock of
 .97, .37, and .33, respectively, and expected lives of 6.0, 6.1 and 6.5 years
respectively.

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 1,000 shares
or 15% of the employee's compensation. The Company has reserved 550,000 shares
of common stock for issuance under the Purchase Plan.

NOTE 11   MERGER-RELATED EXPENSES

     Merger-related expenses for fiscal 1999 relate to the Company's merger with
IQ which was completed in September 1998. In connection with the merger, the
Company incurred direct transaction and other related expenses of $6,500. Merger
related expenses consisted of approximately $3,250 of investment banking, legal
and professional fees; approximately $1,650 of costs to combine and reorganize
the operations of IA and IQ, principally related to lease terminations and
severance; approximately $700 of adjustments to write-off certain intangible
assets not utilized by the combined company; and approximately $900 of other
one-time merger related expenses.

     The Company had recorded as of January 31, 1999, accrued merger-related
expenses of approximately $1,700, consisting primarily of costs to reorganize
the Company's operations. Substantially all changes to merger-related accruals
since the merger date were the result of payments of related expenses.

NOTE 12   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, 


                                       48
<PAGE>

provide profit sharing contributions. The Company matches up to 6% of employee
contributions. Expense related to Company matching contributions were $31, $32,
and $13 in fiscal 1999, 1998 and 1997 respectively. 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.

NOTE 13   RELATED PARTY TRANSACTIONS

     At January 31, 1999 and 1998, the Company has a receivable from an officer
in the amount of $86 and $80, 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.

     During fiscal 1999, the Company entered into a strategic partnership
agreement with a software development and marketing company. A member of the
Company's board of directors was an employee of the strategic partner during
calendar 1998. The three-year agreement provides for annual license fees to be
paid to the Company, in exchange for a license granting the right to the
strategic partner to embed the Company's products within the partner's software
products. Management believes that the terms of the agreement are representative
of terms which would be reached in an arm's length negotiation.

NOTE 14   SEGMENT INFORMATION AND GEOGRAPHIC AREAS

     The Company operates in one industry segment, the development and marketing
of business analysis software products for Business Intelligence applications
and related services. Generally, product and service revenues result from sales
to external customers and are attributable to the Company's Business
Intelligence software products.

     International operations include operations in the United Kingdom, France,
Australia, Holland, Canada, and Germany by the Company's wholly-owned
subsidiaries. The Company's subsidiaries sell the Company's software products
and services in foreign countries. The following table presents a summary of
operating information and certain balance sheet information by geographic
region:

<TABLE>
<CAPTION>

                                             FISCAL YEARS ENDED JANUARY 31
                                        --------------------------------------
                                          1999           1998           1997
                                        --------       --------       --------
<S>                                     <C>            <C>            <C>     
Revenues:
   Domestic operations ...........      $ 57,183       $ 40,293       $ 28,430
   United Kingdom operations .....        10,357          9,377          7,607
   Other international operations          3,150            625            388
                                        --------       --------       --------

Consolidated .....................      $ 70,690       $ 50,295       $ 36,425
                                        --------       --------       --------
                                        --------       --------       --------


Income (loss) before income taxes:
   Domestic operations ...........      $  3,369       $ (2,379)      $ (5,420)
   United Kingdom operations .....        (1,742)          (889)          (100)
   Other international operations           (604)          (770)          (122)
                                        --------       --------       --------

Consolidated .....................      $  1,023       $ (4,038)      $ (5,642)
                                        --------       --------       --------
                                        --------       --------       --------

Identifiable assets:
   Domestic operations ...........      $ 62,856       $ 56,673       $ 29,529
   United Kingdom operations .....         6,761          2,378          1,684
   Other international operations          1,590            195           --
                                        --------       --------       --------

Consolidated .....................      $ 71,207       $ 59,246       $ 31,213
                                        --------       --------       --------
                                        --------       --------       --------

</TABLE>



                                       49
<PAGE>


NOTE 15   NON-CASH TRANSACTIONS

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

     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.

NOTE 16   SUBSEQUENT EVENTS

SHAREHOLDER RIGHTS PLAN

     In February 1999, the Board of Directors declared a dividend of one
preferred share purchase right (a "Right") to purchase one one-hundredth of a
share of the Company's Series A Junior participating Preferred Stock, par value
$0.01 per share (the "Preferred Shares"), for each share of the Company's Common
Stock outstanding as of the close of business on March 15, 1999. Each Right will
entitle the registered holder to purchase from the Company, under certain
conditions, one one-hundredth of a Preferred Share at an initial price of
$60.00. The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to anyone attempting to acquire the Company in a hostile
takeover. The Rights should not interfere with any merger or other business
combination approved by the Board of Directors since the Board of Directors may,
at its option and in its sole discretion, redeem the Rights as provided in the
Rights Agreement.

OPERATING LEASE

     In March 1999, the Company entered into an operating lease for an office
facility. The lease requires base rental payments of approximately $2,961 plus
operating expenses over its five-year term. These payments are in addition to
the amounts disclosed in Note 8 above.

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

     Not applicable.

                      PART III

ITEM 10   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information in response to this Item is incorporated by reference herein 
from the sections entitled "Proposal No. 1 - Election of Directors" and 
"Section 16(a) Benefical Ownership Reporting Compliance" within the Company's 
1999 Proxy Statement.

ITEM 11   EXECUTIVE COMPENSATION

     Information in response to this Item is incorporated by reference herein
from the section entitled "Executive Compensation" within the Company's 1999
Proxy Statement.

ITEM 12   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information in response to this Item is incorporated by reference herein
from the section entitled "Security Ownership of Certain Beneficial Owners and
Management" within the Company's 1999 Proxy Statement.


                                       50
<PAGE>


ITEM 13   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information in response to this Item is incorporated by reference herein
from the section entitled "Certain Relationships and Related Transactions"
within the Company's 1999 Proxy Statement.

                                       PART IV

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

   (a)(1) Financial Statements.

               Reports of Independent 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 Schedules

    Schedule have been omitted because the information required to be set
    forth therein is not applicable or is readily available in the financial
    statements or notes thereto.

    (3)   Exhibits.

                        2.1*        Amended and Restated Agreement and Plan of
                                    Merger dated as of June 29, 1998 among IQ
                                    Software Corporation, the Registrant and IAC
                                    Merger Corp. (included as Appendix A to the
                                    Joint Proxy Statement/Prospectus included in
                                    Part I of the Registration Statement on Form
                                    S-4 filed on August 21, 1998).
                        3.1         Certificate of Incorporation, as amended and
                                    restated
                        3.2**       Bylaws, as amended.
                        4.1**       Specimen Common Stock Certificate.
                        4.2**       1993 Stock Purchase Agreement
                        4.3***      Rights Agreement dated as of March 1, 1999,
                                    between Information Advantage, Inc. and
                                    Norwest Bank Minnesota, National
                                    Association, as Rights Agent, which
                                    includes, as exhibits, the Form of
                                    Certificate of Designations of Rights,
                                    Preferences and Privileges of Series A
                                    Junior Participating Preferred Stock, the
                                    Form of Right Certificate, and the
                                    Form of Summary of Rights.
                       10.1**       Form of Indemnification Agreement.
                       10.2**       1992 Stock Option Plan, as amended.
                       10.3**       1997 Equity Incentive Plan, as amended.
                       10.4****     1997 Employee Stock Purchase Plan, as
                                    amended.
                       10.5**       Employment Agreement between the Company and
                                    Larry J. Ford, dated April 19, 1995.
                       10.6**       Amendment to the Employment Agreement
                                    between the Company and Larry J. Ford, dated
                                    May 23, 1995.
                       10.7**       Amended and Restated Employment Agreement
                                    between the company and Richard L. Tanler,
                                    dated June 11, 1992
                       10.8**       Promissory Note between the Company and
                                    Richard Tanler, dated April 11, 1996.


                                       51
<PAGE>

                       10.9**       Employment Agreement between the Company and
                                    Richard S. Parker, dated June 11, 1992.
                       10.10**      Employment Agreement between the Company and
                                    Rory C. (Butch) Terrien, dated June 11, 
                                    1992.
                       10.11**      Offer Letter to Robin L. Pederson, dated
                                    March 6, 1996.
                       10.12**      Offer Letter to Donald W. Anderson, executed
                                    November 4, 1996.
                       10.13**      Amended and Restated Business Loan Agreement
                                    between the Company and Silicon Valley Bank,
                                    dated September 3, 1997.
                       10.14**      Subordinated Loan and Security Agreement
                                    between the Company and Comdisco, Inc.,
                                    dated April 12, 1996.
                       10.15**      Severance Agreement between the Company and
                                    Larry J. Ford, dated November 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.
                       10.17**      Loan and Warrant Purchase Agreement between
                                    the Company and certain holders of Preferred
                                    Stock, dated December 4, 1997.
                       10.18*       Employment Agreement between the Registrant
                                    and Charles R. Chitty.
                       10.19*       Form of Reseller Agreement between IA and
                                    IQ, dated July 8, 1998.
                       10.20        Employment Agreement between the Company and
                                    Kurt L. Betcher, dated January 8, 1999.
                       21.1**       Subsidiaries of the Registrant.
                       23.1         Consent of Independent Accountants.
                       23.2         Consent of Ernst & Young, LLP, Independent
                                    Auditors.
                       27.1         Financial Data Schedule.

---------------------
*      Incorporated by reference to the Company's Registration Statement on
       Form S-4 (File No. 333-62079) filed on August 21, 1998


**     Incorporated by reference to the Company's Registration Statement on
       Form S-1 (File No. 333-37707) filed on October 10, 1997.

***    Incorporated by Reference to the Company's Registration Statement on
       Form 8-A (File No. 000-23475) filed on March 4, 1999.

****   Incorporated by reference to the Company's Definitive Schedule 14A (Proxy
       Statement) filed on May 19, 1998.

     (b)  Reports on Form 8-K.

          None.



                                       52
<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 28, 1999.

                                 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 28, 1999
-----------------             and Director (Principal Executive
Larry J. Ford                 Officer)

/s/ Kurt L. Betcher           Vice President, Chief Financial     April 28, 1999
-------------------           Officer (Principal Financial and
Kurt L. Betcher               Accounting Officer)

/s/ Richard L. Tanler         Chairman of the Board of Directors  April 28, 1999
---------------------         and Senior Vice President,
Richard L. Tanler             Strategic Planning and Marketing

/s/ Ronald E. F. Codd         Director                            April 28, 1999
---------------------
Ronald E. F. Codd

/s/ Promod Haque              Director                            April 28, 1999
----------------
Promod Haque

/s/ Donald R. Hollis          Director                            April 28, 1999
--------------------
Donald R. Hollis

/s/ Jay H. Wein                Director                           April 28, 1999
---------------
Jay H. Wein

/s/ William H. Younger, Jr.   Director                            April 28, 1999
--------------------------
William H. Younger, Jr.


                                       53
<PAGE>


                                INDEX TO EXHIBITS


Exhibit
Number          Description
----------      ---------------
2.1*            Amended and Restated Agreement and Plan of Merger dated as of
                June 29, 1998 among IQ Software Corporation, the Registrant and
                IAC Merger Corp. (included as Appendix A to the Joint Proxy
                Statement/Prospectus included in Part I of the Registration
                Statement on Form S-4 filed on August 21, 1998).
3.1             Certificate of Incorporation, as amended and restated.
3.2**           Bylaws, as amended.
4.1**           Specimen Common Stock Certificate.
4.2**           1993 Stock Purchase Agreement.
4.3***          Rights Agreement dated as of March 1, 1999, between Information
                Advantage, Inc. and Norwest Bank Minnesota, National
                Association, as Rights Agent, which includes, as exhibits, the
                Form of Certificate of Designations of Rights, Preferences and
                Privileges of Series A Junior Participating Preferred Stock, the
                Form of Right Certificate, and the Form of Summary of Rights.
10.1**          Form of Indemnification Agreement.
10.2**          1992 Stock Option Plan, as amended.
10.3**          1997 Equity Incentive Plan, as amended.
10.4****        1997 Employee Stock Purchase Plan, as amended.
10.5**          Employment Agreement between the Company and Larry J. Ford,
                dated April 19, 1995.
10.6**          Amendment to the Employment Agreement between the Company and
                Larry J. Ford, dated May 23, 1995.
10.7**          Amended and Restated Employment Agreement between the company
                and Richard L. Tanler, dated June 11, 1992.
10.8**          Promissory Note between the Company and Richard Tanler, dated
                April 11, 1996.
10.9**          Employment Agreement between the Company and Richard S. Parker,
                dated June 11, 1992.
10.10**         Employment Agreement between the Company and Rory C. (Butch)
                Terrien, dated June 11, 1992.
10.11**         Offer Letter to Robin L. Pederson, dated March 6, 1996.
10.12**         Offer Letter to Donald W. Anderson, executed November 4, 1996.
10.13**         Amended and Restated Business Loan Agreement between the Company
                and Silicon Valley Bank, dated September 3, 1997.
10.14**         Subordinated Loan and Security Agreement between the Company and
                Comdisco, Inc., dated April 12, 1996.
10.15**         Severance Agreement between the Company and Larry J. Ford, dated
                November 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.
10.17**         Loan and Warrant Purchase Agreement between the Company and
                certain holders of Preferred Stock, dated December 4, 1997.
10.18*          Employment Agreement between the Registrant and Charles R. 
                Chitty.
10.19*          Form of Reseller Agreement between IA and IQ, dated 
                July 8, 1998.
10.20           Employment Agreement between the Company and Kurt L. Betcher,
                dated January 8, 1999.
21.1**          Subsidiaries of the Registrant.
23.1            Consent of Independent Accountants.
23.2            Consent of Ernst & Young, LLP, Independent Auditors.
27.1            Financial Data Schedule.

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


                                       54
<PAGE>

*        Incorporated by reference to the Company's Registration Statement on
         Form S-4 (File No. 333-62079) filed on August 21, 1998
**       Incorporated by reference to the Company's Registration Statement on
         Form S-1 (File No. 333-37707) filed on October 10, 1997.
***      Incorporated by Reference to the Company's Registration Statement on
         Form 8-A (File No. 000-23475) filed on March 4, 1999.
****     Incorporated by reference to the Company's Definitive Schedule 14A
         (Proxy Statement) filed on May 19, 1998.














                                       55