<PAGE>

                                                                    EXHIBIT 13.1

                             C-ATS SOFTWARE, INC.

                                     1996

                                 ANNUAL REPORT








<PAGE>


                      SELECTED CONSOLIDATED FINANCIAL DATA

   The statement of operations data set forth below for the years
ended December 31, 1994, 1995 and 1996 and the balance sheet data at December
31, 1995 and 1996, are derived from, and are qualified by reference to,
the audited financial statements and should be read in conjunction with
the Consolidated Financial Statements and the Notes to the Consolidated
Financial Statements ("Notes").

<TABLE>
<CAPTION>

                                                                YEAR ENDED DECEMBER 31,
                                                     -------------------------------------------
                                                     1992      1993      1994     1995      1996
                                                     ----      ----      ----     ----      ----
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                <C>       <C>      <C>       <C>      <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:


      License revenue                              $11,358   $14,103   $17,342   $20,359   $19,322
      Service and other Revenue                         25       200     1,120     1,939       823
                                                   -------   -------   -------   -------   -------
      Total revenues                                11,383    14,303    18,462    22,298    20,145
                                                   -------   -------   -------   -------   -------
   Costs and expenses:
      Cost of revenues                                 464        20       556     1,174       272
      Research and development                       2,261     2,452     3,117     3,582     6,166
      Sales and marketing                            5,878     6,965     8,551    10,273    11,084
      General and administrative                     1,658     1,958     2,533     2,838     2,617
      In-process research and development of
        acquired business                               --        --        --        --     7,066
                                                   -------   -------   -------   -------   -------
      Total costs and expenses                      10,261    11,395    14,757    17,867    27,205
                                                   -------   -------   -------   -------   -------
   Operating income (loss)                           1,122     2,908     3,705     4,431    (7,060)
   Interest income                                     218       174       269       931       863
                                                   -------   -------   -------   -------   -------
   Income (loss) before provision for income taxes   1,340     3,082     3,974     5,362    (6,197)
   Provision (benefit) for income taxes                (53)    1,602     1,391     1,877         0
                                                   -------   -------   -------   -------   -------
   Net income (loss)                               $ 1,393   $ 1,480   $ 2,583   $ 3,485   $(6,197)
                                                   -------   -------   -------   -------   -------
                                                   -------   -------   -------   -------   -------
   Net income (loss) per share (1)                 $   .33   $   .34   $   .52   $   .57   $ (0.95)
                                                   -------   -------   -------   -------   -------
                                                   -------   -------   -------   -------   -------
   Weighted average common shares outstanding (1)    4,250     4,416     4,942     6,062     6,528
                                                   -------   -------   -------   -------   -------
                                                   -------   -------   -------   -------   -------

                                                                      DECEMBER 31,
                                                     -------------------------------------------
                                                     1992      1993      1994     1995      1996
                                                     ----      ----      ----     ----      ----
                                                                     (IN THOUSANDS)

CONSOLIDATED BALANCE SHEET DATA:
    Cash, cash equivalents  and short-term
      investments                                  $ 5,975   $ 8,585   $ 9.964   $26,701   $22,129
    Working capital                                      8       997     3,920    21,564    19,846
    Total assets                                    10,279    15,321    18,906    38,500    32,999
    Total stockholders' equity                         388     2,094     5,002    22,892    21,911
</TABLE>

    (1)     See Note 2 of Notes to Consolidated Financial Statements for an
    explanation of the determination of the number of shares used in computing
    per share amounts.

                                       2

<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS SET FORTH IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" UNDER "FACTORS THAT MAY AFFECT FUTURE
RESULTS" AND ELSEWHERE IN THIS REPORT.

OVERVIEW

     C-ATS Software Inc. (the "Company" or "C-ATS") was organized in 1988 as
a successor to a partnership formed in 1986. The Company's first product,
SWAPWARE-Registered Trademark-, was released in 1986. The Company has since
introduced additional products such as OPTIONS, FUTURES AND BONDS, MARKET
DATA, RISK MANAGER and OPERATIONS MANAGER. In late 1994, the Company
introduced C-ATALYST, an enhanced version of its product family which
includes GLOBAL RISK MANAGER, a product for firm-wide risk management, and
FICAD, a software tool for financial computer-aided design (CAD). These
products serve the established market for derivatives risk management and the
emerging market for firm-wide risk management. During February 1996, the
Company acquired the assets of LOR/Geske Bock Associates, Inc. ("LOR/Geske
Bock" or "LORGB") and released an enhanced version of CARMA, which extends
the Company's offerings for Firm-wide risk management applications. While the
Company was profitable on an annual basis from 1992 through 1995, R&D
expenses associated with the acquisition of LOR/Geske Bock resulted in a net
loss for 1996. The Company's revenues are derived primarily from annual
renewable license fees. International revenues accounted for 80%, 80% and 76%
of total revenues in 1996, 1995 and 1994, respectively.

RESULTS OF OPERATIONS

     The following table sets forth for the periods indicated the percentage
of revenues represented by certain line items in the Company's Consolidated
Statements of Operations:

                                                PERCENT OF TOTAL REVENUE
                                                -------------------------
                                                 YEAR ENDED DECEMBER 31,
                                                -------------------------
                                                1994       1995      1996
                                                ----       ----      ----
Revenues:
  License revenue                                94%        91%       96%
  Service and other revenue                        6          9         4
                                                 ---        ---       ---
Total revenues                                   100        100       100
                                                 ---        ---       ---
Costs and expenses:
  Cost of revenues                                 3          5         1
  Research and development                        17         16        31
  Sales and marketing                             46         46        55
  General and administrative                      14         13        13
  In-process research and development
    of acquired business                          --         --        35
                                                 ---        ---       ---
Total costs and expenses                          80         80       135
                                                 ---        ---       ---
Operating income (loss)                           20         20       (35)
Interest income (loss)                             2          4         4
                                                 ---        ---       ---
Income (loss) before provision for
  income taxes                                    22         24       (31)
Provision for income taxes                         8          8         0
                                                 ---        ---       ---
   Net income (loss)                             14%        16%      (31%)
                                                 ---        ---       ---
                                                 ---        ---       ---


                                      3


<PAGE>

LICENSE AND SERVICE REVENUE

     Total revenues were $20.1 million in 1996, down from $22.3 million in
1995 and up from $18.5 million in 1994. The Company's revenues are derived
primarily from annual renewable license fees. These fees are non-refundable,
are typically payable in full at the beginning of the annual term and are
recognized pro-rata over the term of the license. The annual renewable
license fee includes rights to use the Company's software products, updates
to the products, if any, product installation, initial client training,
documentation and software support services for one year. In addition to its
annual licenses, the Company makes available its services on a contract basis
to assist clients with services beyond those included in its licenses. These
services typically include additional client training and assisting clients
in their generation of client-specific reports, data base integration and
system optimization. Although the Company does not pursue opportunities to
perform systems integration services for its clients, it has from time to
time performed or subcontracted such limited projects for large clients who
might not otherwise license the Company's standard software products.
Revenues from such projects are included in service and other revenues. They
are recognized when delivered or based upon the percentage-of-completion
method and are typically affected by the commencement or completion of
significant services projects.

     License revenue decreased to $19.3 million in 1996 from $20.4 million
in 1995 and increased from $17.3 million in 1994. License revenue decreased
in 1996 primarily as a result of several large customers deciding not to
renew their license agreements in favor of utilizing in-house developed
programs. The increase in license revenue from 1994 to 1995 resulted from
increases in the number of customer sites where the Company's products are
licensed.

   The Company licenses its products on a per site basis with the price
per site varying based upon the selection of products licensed, the number of
authorized users for each product at each site and the number of licensed
sites. As a result, total revenues in any year depend upon the number of new
and renewed annual licenses, the number of sites which use the Company's
products, product prices, and the number of users per site. The Company
renewed licenses for 82% of its existing clients in 1996, 94% of its existing
clients in 1995, and 87% of its existing clients in 1994. Average revenue per
site increased by 6% in 1996, 8% in 1995 and 6% in 1994. The Company believes
the average revenue per site has increased because the Company continues to
offer new products and enhancements to existing products, and because clients
have increased the number of users licensed per site, which factors have been
partially offset by declines in unit pricing per product. Although the
Company has historically been able to offset declines in unit pricing with
increases in functionality and new product introductions, there can be no
assurance that the Company will continue to introduce new products or
enhancements to existing products or that such products when introduced will
result in increased revenue per client site.

     Service and other revenue decreased  to $0.8 million in 1996 from
$1.9 million in 1995 and $1.1 million in 1994. Service and other revenue
decreased in 1996 primarily due to completion in late 1995 of a $1.5 million
systems integration project that was undertaken and subcontracted by the Company
in the middle of 1994. Service and other revenue increased in 1995 from 1994
primarily due to the initiation of this project and increases in the Company's
installed client base.


                                       4


<PAGE>

COST OF REVENUES

     Cost of revenues includes the cost of documentation materials, royalties
and the cost of subcontracted services. Costs of revenues in 1996 were $0.3
million versus $1.2 million in 1995, the decrease being attributable to
reductions in the cost of subcontracted services, referred to above, for a
systems integration project that was completed in the fourth quarter of 1995.
In 1994, the cost of revenues was principally comprised of the cost of
subcontracted services for a systems integration project and the cost of
documentation materials.

RESEARCH AND DEVELOPMENT

     Most of the Company's research and development expenditures are
personnel related. Total expenditures for research and development increased
to $6.2 million in 1996 from $3.6 million in 1995 and $3.1 million in 1994.
The increase in research and development expenditures was due primarily to
increases in expenditures for continuation and completion of in-process
research ($2.0 million in 1996) and new product development. The increase in
1996 includes the addition of research staff from the acquired firm of
LOR/Geske Bock during the first quarter of 1996. In connection with the
LOR/Geske Bock acquisition, the Company recognized a one-time expense
amounting to $7.1 million of in-process research and development as the
technology had not yet reached technological feasibility and does not have
alternative future uses (See Note 3 of the Notes to the Consolidated
Financial Statements). The amounts of software development costs which could
have been capitalized were immaterial and, therefore, no software development
costs have been capitalized by the Company to date. The Company believes that
significant investment for product research and development is essential to
product and technical leadership, and the Company anticipates that it will
continue to commit substantial resources to research and development in the
future. The focus of this increased research and development spending will be
to expand the platforms upon which the Company's products operate; to
integrate the acquired products from LORGB; and to continue to enhance the
features and functionality of the company's products. The Company anticipates
that research and development expenditures will increase in dollar amount in
1997.

SALES AND MARKETING

     Sales and marketing expenses consist principally of salary, commissions
and facilities related costs. Sales and marketing expenditures increased to
$11.1 million in 1996 from $10.3 million in 1995 and $8.6 million in 1994.
The increase in sales and marketing in 1996 was primarily due to increases
associated with the sales and marketing of the Company's expanded product
line. The increase in sales and marketing expenditures in 1995 was due to
increases in personnel, commissions, marketing communication programs and the
continued expansion of the Company's Hong Kong office. The Company
anticipates that sales and marketing expenses will continue to increase in
dollar amount in 1997 as it expands its sales and service organization and
promotes its recently introduced products.

GENERAL AND ADMINISTRATIVE

     General and administrative expenses consist primarily of personnel costs
for finance, contract administration, human resources and general management,
as well as legal, accounting and auditing expenses. General and
administrative expenses decreased to $2.6 million in 1996 from


                                       5


<PAGE>

$2.8 million in 1995 and $2.5 million in 1994. The decrease in general and
administrative expenses in 1996 was due to reduced costs of professional
services subsequent to becoming a publicly held company. The increase in
general and administrative expenses in 1995 was due to an increase in
personnel and costs associated with becoming a publicly held company. The
Company anticipates that general and administrative expenses will increase in
dollar amount in 1997.

INTEREST INCOME

     Interest income is comprised primarily of interest earned on the
Company's excess cash and short-term investment balances, net of interest
expense. Interest income remained at $0.9 million in 1996 and 1995 and
increased from $0.3 million in 1994. Interest income increased in 1995 and
has remained the same in 1996 due to higher cash and short-term investment
balances which were generated from the initial public offering of stock on
March 20, 1995 and cash generated from operations.

PROVISION FOR INCOME TAXES

     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
provides for a liability approach under which deferred income taxes are
provided based upon enacted laws and rates applicable to the periods in which
the taxes become payable. The provision for income taxes was 0% of income
(loss) before the provision for income taxes in 1996 due to the Company's
operating loss position, 35% in 1995 and 35% in 1994. The provision for
income taxes takes into account the effects of foreign income taxes and state
income taxes, offset by utilization of research and development and foreign
tax credits.

     As of December 31, 1996, the Company had $5.3 million of deferred tax
assets. Due to certain limitations of benefits related to tax carrybacks, the
current year operating loss position, and the uncertainty of future results,
the Company has provided a valuation allowance of $1.5 million related to the
deferred tax asset. Accrued taxes payable include reserves for tax
liabilities. The Company's tax returns for 1990 through 1993 are currently
being examined by the Internal Revenue Service. Such examination may result
in adjustments to previously filed tax returns. While the Company believes
that it has reserves sufficient to cover any actual tax liabilities as a
result of this examination, no assurance can be given that the reserves will
be adequate. See Note 6 of the Notes to Consolidated Financial Statements.

QUARTERLY INFORMATION

     The following table presents unaudited quarterly financial information
for the eight quarters ended December 31, 1996. Management believes this
information has been prepared on the same basis as the audited Consolidated
Financial Statements and that all necessary adjustments (consisting only of
normal recurring adjustments) have been included to present fairly the
unaudited quarterly results. The following should be read in conjunction with
the audited Consolidated Financial Statements of the Company and the Notes
appearing elsewhere in these Consolidated Financial Statements. These
operating results are not necessarily indicative of results for any future
period.


                                       6


<PAGE>
<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED
                                          -----------------------------------------------------------------
                                          MAR. 31, 1995    JUNE 30, 1995    SEPT. 30, 1995    DEC. 31,1995
                                          --------------   --------------   --------------   --------------
                                           (UNAUDITED)      (UNAUDITED)      (UNAUDITED)      (UNAUDITED)
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>              <C>              <C>              <C>
Revenues:
  License revenue                            $ 4,754           $4,984           $5,114           $5,507
  Service and other revenue                      429              482              661              367
                                             -------           ------           ------           ------
    Total revenues                             5,183            5,466            5,775            5,874
                                             -------           ------           ------           ------
Costs and expenses:
  Cost of revenues                               289              190              422              273
  Research and development                       881              863              933              905
  Sales and marketing                          2,289            2,590            2,662            2,732
  General and administrative                     679              723              703              733
                                             -------           ------           ------           ------
Total costs and expenses                       4,138            4,366            4,720            4,643
                                             -------           ------           ------           ------
Operating income                               1,045            1,100            1,055            1,231
Interest income                                   86              315              273              257
                                             -------           ------           ------           ------
Income before provision for income taxes       1,131            1,415            1,328            1,488
Provision for income taxes                       396              495              465              521
                                             -------           ------           ------           ------
Net income                                   $   735           $  920           $  863           $  967
                                             -------           ------           ------           ------
                                             -------           ------           ------           ------
Net income per share                         $  0.14           $ 0.14           $ 0.14           $ 0.15
                                             -------           ------           ------           ------
                                             -------           ------           ------           ------
Weighted average common shares
  outstanding                                  5,229            6,418            6,387            6,279
                                             -------           ------           ------           ------
                                             -------           ------           ------           ------

                                          MAR. 31, 1996    JUNE 30, 1996    SEPT. 30, 1996    DEC. 31,1996
                                          --------------   --------------   --------------   --------------
                                           (UNAUDITED)      (UNAUDITED)      (UNAUDITED)      (UNAUDITED)

Revenues:
  License revenue                            $ 5,386           $4,939           $4,599           $4,398
  Service and other revenue                      308              134              304               77
                                             -------           ------           ------           ------
    Total revenues                             5,694            5,073            4,903            4,475
                                             -------           ------           ------           ------
Costs and expenses:
  Cost of revenues                                54               74               78               66
  Research and development                     1,224            1,567            1,692            1,683
  Sales and marketing                          2,669            2,761            2,959            2,695
  General and administrative                     710              650              645              612
  In-process research and development of
    acquired business                          7,066               --               --               --
                                             -------           ------           ------           ------
Total costs and expenses                      11,723            5,052            5,374            5,056
                                             -------           ------           ------           ------
Operating income (loss)                       (6,029)              21             (471)            (581)
Interest income                                  231              240              198              194
                                             -------           ------           ------           ------
Income (loss) before provision for taxes      (5,798)             261             (273)            (387)
Provision (benefit) for income taxes             469               97             (101)            (465)
                                             -------           ------           ------           ------
Net income (loss)                            $(6,267)          $  164           $ (172)          $   78
                                             -------           ------           ------           ------
                                             -------           ------           ------           ------
Net income (loss) per share                  $ (1.00)          $ 0.02           $(0.03)          $ 0.01
                                             -------           ------           ------           ------
                                             -------           ------           ------           ------
Weighted average common shares
  outstanding                                  6,260            6,797            6,623            6,971
                                             -------           ------           ------           ------
                                             -------           ------           ------           ------
</TABLE>

                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED
                                          -----------------------------------------------------------------
                                          MAR. 31, 1995    JUNE 30, 1995    SEPT. 30, 1995    DEC. 31,1995
                                          --------------   --------------   --------------   --------------
<S>                                       <C>              <C>              <C>              <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
  License revenue                                92%              91%              89%              94%
  Service and other revenue                       8                9               11                6
                                            -------           ------           ------           ------
    Total revenues                              100              100              100              100
                                            -------           ------           ------           ------
Costs and expenses:
  Cost of revenues                                6                4                7                5
  Research and development                       17               16               16               15
  Sales and marketing                            44               47               47               47
  General and administrative                     13               13               12               12
                                            -------           ------           ------           ------
Total costs and expenses                         80               80               82               79
                                            -------           ------           ------           ------
Operating income                                 20               20               18               21
Interest income                                   2                6                5                4
                                            -------           ------           ------           ------
Income before provision for income taxes         22               26               23               25
Provision for income taxes                        8                9                8                9
                                            -------           ------           ------           ------
Net income                                       14%              17%              15%              16%
                                            -------           ------           ------           ------
                                            -------           ------           ------           ------

                                          MAR. 31, 1996    JUNE 30, 1996    SEPT. 30, 1996   DEC. 31, 1996
                                          --------------     -------          -------          -------
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
  License revenue                                94%              97%              94%              98%
  Service and other revenue                       6                3                6                2
                                            -------           ------           ------           ------
    Total revenues                              100              100              100              100
                                            -------           ------           ------           ------
Costs and expenses:
  Cost of revenues                                1                1                2                1
  Research and development                       22               31               35               38
  Sales and marketing                            47               55               60               60
  General and administrative                     12               13               13               14
  In-process research and development of
    acquired business                           124               --               --               --
                                            -------           ------           ------           ------
  Total costs and expenses                      206              100              110              113
                                            -------           ------           ------           ------
Operating income (loss)                        (106)               0              (10)             (13)
Interest income                                   4                5                4                4
                                            -------           ------           ------           ------
Income (loss) before provision for taxes       (102)               5               (6)              (9)
Provision (benefit) for income taxes              8                2               (2)             (11)
                                            -------           ------           ------           ------
Net income (loss)                              (110%)              3%              (4%)              2%
                                            -------           ------           ------           ------
                                            -------           ------           ------           ------
</TABLE>



     The Company's license revenue declined on a quarterly basis throughout
1996 as the Company had several large customers who chose not to renew annual
licenses in favor of utilizing systems developed in-house. The Company's
practice is to recognize revenue from its annually renewable license fees
pro-rata over the license term. Therefore the revenue impact from adding new
customers is reflected over several quarters following sales consummation.
Service and other revenue is recognized when delivered or using the
percentage-of-completion method and is typically affected by the commencement
or completion of significant services projects. Service and other revenue was
higher in 1995 due to a systems integration project undertaken for a client
that was completed in the last quarter of 1995.

     Cost of revenues has been relatively minor with the exception that the
four quarters of 1995 reflect the cost of subcontracting the systems
integration project referred to above. This project


                                       8


<PAGE>

was completed in the fourth quarter of 1995. The Company has generally
increased operating expenses to support higher revenue levels and product
development efforts. Research and development costs were higher in each
quarter of 1996 as compared to 1995 due to increases in staffing and the
integration of Research and Development personnel from the acquisition of
LOR/Geske Bock. Sales and marketing costs were higher in each quarter of 1996
as compared to 1995 due to increases in staffing, commissions, marketing
communications programs and the continued expansion of the Company's Hong
Kong sales and service offices. General and administrative costs were lower
on a dollar basis in each subsequent quarter of 1996 as compared to 1995 due
to efficiencies in utilizing professional service providers, but higher on a
percentage basis due to lower revenues in each quarter.

     Although the Company has increased its installed base in terms of number
of clients and maintained its number of client sites, there can be no
assurance that the Company will continue to be able to renew its existing
client base or expand the number of clients or client sites where the
Company's products are licensed. A number of factors affect a client's
decision to license or continue to license the Company's products. These
factors include the status of a client's internal systems development
programs, competitiveness of the Company's current product offerings,
pricing, and level of satisfaction with the Company's sales, service and
support staff. From time to time in the past, the Company has experienced
delays in developing and introducing new products, which has slowed the rate
of growth. There can be no assurance that similar delays may not occur in the
future. The Company's expense levels are based, in part, on expectations of
future revenues. If revenues do not meet expectations, operating results
could be adversely affected. Net income may be disproportionately affected by
a reduction in revenues because only a small portion of the Company's
expenses varies with revenues.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has funded its operations to date through cash flow from
operations and its initial public offering of stock effective March 20, 1995.
As of December 31, 1996, the Company had $22.1 million in cash, cash
equivalents and short-term investments, and no long-term debt. Short-term
investments consist principally of auction market preferred stock and
tax-preferred securities.

     Net cash utilized by operating activities totaled $0.4 million in 1996,
while $3.1 million and $1.6 million was provided by operating activities in
1995 and 1994, respectively. Net cash of $2.9 million was provided by
investing activities in 1996, whereas investing activities used net cash of
$21.0 million in 1995 and $1.8 million in 1994. The Company's investments in
short-term investments decreased by $7.4 million in 1996, whereas they
increased by $20.2 million in 1995 and $1.3 million in 1994. The Company
purchased $0.7 million of property and equipment in 1996, $0.7 million in
1995 and $0.6 million in 1994. The Company has no other significant capital
commitments and currently anticipates that normal additions and replacements
to property and equipment for 1997 will be approximately $0.8 million.

     On February 13, 1996, C-ATS Sub, Inc. (a wholly owned subsidiary of the
Company), merged with LOR/Geske Bock Associates, Inc. (LORGB), a California
Corporation, pursuant to an "Agreement and Plan of Reorganization" dated
January 30, 1996. LORGB designs, develops, and markets integrated,
organization-wide market and credit risk management software systems. As a
result of the merger, LORGB, Inc. ceased to exist while C-ATS Sub continued
as the surviving corporation. The transaction was accounted for as a
"purchase" and accordingly,


                                       9

<PAGE>

the operating results of the acquired business have been included in the
consolidated statement of operations from the date of the acquisition.

     At the consummation of the merger, the outstanding LORGB common stock
was exchanged for an aggregate of approximately 578,651 shares of the
Company's common stock (the stock price was valued at $7.00 as of the merger
date) and approximately $3,294,000 in cash. In addition, the Company assumed
all options to purchase LORGB capital stock outstanding at the effective time
of the merger. Additionally, the Company assumed options representing the
right to purchase approximately 167,000 shares of the Company's common stock.

     Historically, more client licenses are generally due for renewal in the
second and fourth quarters of each year than in the first and third quarters.
Because of the Company's pro-rata revenue recognition policy, this pattern
has not had a significant impact on quarterly revenues. However, this pattern
has and will likely continue to impact the timing of cash flows and the
Company's cash and accounts receivable balances. Any decline or delay in
contract renewals could have a material adverse effect on the Company's cash
balances.

     Financing activities including the issuance of stock during the
Company's initial public offering on March 20, 1995 provided cash of $14.3
million. The Company believes that the net proceeds from the initial public
offering, together with available funds, and the cash flow expected to be
generated from operations will be adequate to meet the Company's anticipated
working capital and capital expenditure requirements for at least the next
twelve months.

FACTORS THAT MAY AFFECT FUTURE RESULTS

     The Company's business, financial condition and results of operations
can be impacted by a number of factors including without limitation the
following factors.

CONTINUED DEPENDENCE ON DERIVATIVES RISK MANAGEMENT PRODUCT

     C-ATS has derived substantially all of its revenues from the sale of
software products and services for derivatives risk management, and its
future growth is critically dependent on increased revenues from products for
this use. The target clients for the Company's products include large banks
and financial institutions, many of whom rely on internally developed
derivative risk management systems. Their acceptance of the Company's
products depends, among other things, on the products' functionality and
performance characteristics, the ability of these clients to achieve cost
savings by using third party software, the development time and cost of
internally developed software, the willingness of these institutions to rely
on third party software for mission critical financial applications, and
their assessment of C-ATS' financial resources as well as its technical,
managerial, service and support capabilities. The Company has generally found
that the costs of switching to a new derivatives risk management system are
so substantial that clients will generally not change systems unless they
perceive a significant deficiency with their existing system.

     A number of factors could adversely affect market acceptance of the
Company's products for derivatives risk management applications. First,
although the Company's products include software applications for a number of
widely traded derivatives, such as swaps, options, swaptions and futures,
they do not include software applications for many other derivative
instruments. Although applications for these derivatives can be developed
using FiCAD or may be included in the Company's future products, the absence
of applications for specific derivatives may


                                      10

<PAGE>


reduce market acceptance of the Company's products. Second, some financial
institutions may require a higher level of product customization and
technical support than is customarily provided by C_ATS. To the extent these
clients cannot obtain this support from C-ATS or third party service
organizations, they may be reluctant to use the Company's products. Finally,
C-ATALYST has a long sales cycle that can adversely affect sales and increase
marketing costs. As a result of these and other factors, there can be no
assurance that C-ATALYST will achieve significant market acceptance.

EARLY STAGE OF DEVELOPMENT OF MARKET FOR FIRM-WIDE RISK MANAGEMENT; NO
ASSURANCE OF MARKET ACCEPTANCE OF FIRM-WIDE RISK MANAGEMENT PRODUCTS

     The market for firm-wide risk management software products is in an
early stage of development. Although many financial institutions and
organizations are exploring firm-wide risk management, C-ATS believes that
only a small number of firms have actually implemented firm-wide risk
management systems. A number of factors will determine when and if a
significant market for firm-wide risk management software products develops,
including regulatory actions, client education and awareness of the need for
firm-wide risk management and the availability of commercially accepted
firm-wide risk management systems. Even if a significant market develops,
there can be no assurance that the Company's products will achieve commercial
acceptance.

     First, there can be no assurance that the Company's approach to
firm-wide risk management will be accepted in the marketplace. Although
several companies are using prior versions of the Company's products for
site-wide or firm-wide risk management, the newest version of CARMA was
released for commercial sales in December 1996. This product is a substantial
enhancement of the product obtained in the acquisition of LOR/Geske Bock,
designed for firm-wide market and credit risk management. While financial
institutions are potentially subject to regulatory guidelines to implement a
firm-wide market risk management system, there can be no assurance that the
Company's products will achieve substantial acceptance in the marketplace.
Second, although the Company's products facilitates firm-wide risk
management, the process of creating a firm-wide risk management system can be
extremely complex and in most cases requires substantial additional software
engineering in order to connect the many independent systems in place at most
institutions and to link these systems to the Company's products. The cost of
such a process is likely to far exceed the cost of licensing the Company's
products. There is no assurance that a significant number of institutions
will be willing to undertake such a large project or to incur such costs.
Third, many institutions implementing firm-wide risk management will require
substantial outside assistance in software engineering. The Company intends
primarily to provide standard products and to rely on third parties to
provide such assistance. Revenues from firm-wide risk management products
will be limited if such third-party support is not readily available. Fourth,
the development of sophisticated firm-wide risk management systems will
depend on the availability of extensive price and risk data which the client
must provide for portfolios not managed with the Company's products. Lack of
access to such data may restrict an institution's ability to perform
firm-wide risk management.

     Finally, many of the factors that affect market acceptance of the
Company's products for derivatives risk management, such as the decision to
develop software internally or rely on third-party software, also will affect
market acceptance of the Company's products for firm-wide risk management.
See "Factors That May Affect Future Results-Continued Dependence on
Derivatives Risk Management Products." Failure of a significant market for
firm-wide risk management products to develop or, if it does, failure of the

                                      11

<PAGE>

Company's products to achieve broad market acceptance could have a material
adverse affect on the Company's business, operating results and financial
condition.

LIMITED SUPPORT, TRAINING AND CUSTOMIZATION

     Some financial institutions may require a higher level of product
customization and technical support and training than the Company customarily
provides or can provide. The Company intends primarily to rely on third
parties to provide such customization and support. Additionally, the Company
has limited resources to devote to training. To the extent financial
institutions cannot obtain desired levels of customization, support and
training, they may be reluctant to use the Company's products, which could
slow market acceptance of the Company's products. This could impede the
Company's growth and could have a material adverse effect on the Company's
business, operating results and financial condition.

POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS

     The Company's quarterly operating results may fluctuate substantially as
a result of a variety of factors including the volume and timing of license
renewals by existing clients, license agreements with new clients, the timing
and market acceptance of new products or technological advances by the
Company or its competitors, price levels, and unexpected expenses. The
Company's expense levels are based, in part, on expectations of future
revenues. If revenues in a particular quarter do not meet expectations,
operating results could be adversely affected. The Company expects that its
operating results will fluctuate in the future as a result of these and other
factors. Additionally, the Company has accrued a reserve for tax liabilities
in connection with an Internal Revenue Service examination. There can be no
assurance that such reserve will be adequate to cover any liabilities. See
Note 6 of the Notes to Consolidated Financial Statements. Results of past
quarters should not be relied on as an indication of future results.

DEPENDENCE ON RENEWABLE LICENSES; SIGNIFICANT POTENTIAL PRICE COMPETITION

     The Company's revenues are derived primarily from annual renewable
license fees. These fees are non-refundable, typically paid in full at the
beginning of the annual term and recognized as revenue pro-rata over the term
of license. In 1996, 82% of the Company's existing licenses were renewed.
Although the Company has been successful to date in negotiating renewable
licenses rather than perpetual licenses, the Company may encounter resistance
to renewable licenses in the future. In such event, the Company's business
model may cause it to decline market opportunities. A significant decline in
the percentage of clients who renew their license or the failure of the
Company to continue to enter into renewable licenses would have a material
adverse effect on the business, operating results and financial condition of
the Company.

     Because the software industry is intensely competitive, software
products have often experienced price erosion. As is typical in the industry,
the Company's fixed costs as a percentage of revenues are high, and
significant price erosion could have a material adverse effect on the
Company's business, operating results and financial condition. Although to
date any price decline in unit prices of the Company's products has been
offset by the introduction of new or enhanced products, there can be no
assurance that significant price erosion will not occur in the future.

                                      12

<PAGE>

DEPENDENCE ON INTERNATIONAL OPERATIONS AND SALES

     Clients outside the United States accounted for approximately 80%, 80%
and 76% of the Company's revenues in 1996, 1995 and 1994, respectively. The
Company anticipates that its revenues for the next several years will also
substantially derive from international sales. The Company markets and
licenses its products outside the United States through its international
branch offices and subsidiaries. The Company has offices in Tokyo, London,
Hong Kong and Geneva as well as the United States, and the Company has
licensed clients in 19 countries. International sales and operations may be
limited or disrupted by the imposition of government controls, export license
requirements, political instability, trade restrictions, changes in tariffs
and exchange rates, difficulties in staffing, coordinating communications,
managing international operations and other factors. The Company prices its
products in U.S. dollars, but it incurs expenses in local currencies for its
overseas operations.

     The Company attempts to reduce its exposure to exchange rate
fluctuations by purchasing foreign currencies every three to six months in
amounts equal to the operating expenses estimated to be payable in such
currencies during the next six to twelve months. However, no assurance can be
given that this strategy will be sufficient to offset any dramatic declines
in the value of the U.S. dollar. Regulatory compliance requirements differ
among foreign countries and are also different from those established in the
United States, and any inability to obtain necessary foreign regulatory
approvals on a timely basis could have an adverse effect on the Company's
international sales, and thereby on its business, financial condition and
results of operations. Additionally, the Company's business, financial
condition and international operating results may be adversely affected by
fluctuations in currency exchange rates as well as increases in duty rates,
difficulties in obtaining export licenses, ability to maintain or increase
prices and competition.

DEPENDENCE ON KEY PERSONNEL; SUBSTANTIAL EXECUTIVE COMPENSATION

     The Company's success depends to a significant extent upon the
contributions of its executive officers, and key sales, marketing, technical
service and engineering personnel. None of the Company's personnel are
subject to a noncompetition agreement or other long-term employment contract
with the Company. Further, in order to attract and retain its executive
officers, the Company has in the past paid to its executive officers
substantial compensation and bonuses. In addition, the Company's future
success will depend significantly on its continuing ability to attract and
retain highly qualified technical, sales and marketing personnel. Because the
Company's business requires that many of these personnel have specialized
knowledge of advanced computer programming and financial theory, and because
the pool of such qualified personnel is extremely limited, competition for
such personnel is intense, particularly among the Company's clients who have
substantially greater financial resources than the Company. Failure to
attract and retain such personnel could have a material adverse affect on the
Company's business, operating results and financial condition.

NEW MANAGEMENT RESPONSIBILITIES; GROWTH

     Many of the Company's executive officers have joined the Company in the
last twelve months. Although each of the new executives brings significant
prior experience to the Company, some are new to the Company's specific
business segment. In addition, future growth will require increased
personnel, expanded information systems and additional financial and
administrative control procedures, particularly because the Company has
significant international

                                      13

<PAGE>

operations. There can be no assurance that the Company would be able to
attract and retain additional qualified personnel or successfully manage
expanding operations, including an increasing number of client relationships
and geographically dispersed locations or maintain adequate managerial,
financial and operating systems and controls.

DEPENDENCE ON DIRECT SALES FORCE; ABSENCE OF INDIRECT SALES CHANNELS.

     C-ATS currently distributes its products exclusively through its direct
sales force. As is typical of many companies, the Company has experienced
turnover of its sales force in the past, and there can be no assurance that
the Company will be able to attract and retain adequate sales and marketing
personnel. Moreover, there can be no assurance that the Company will be able
to adequately address its markets without establishing indirect distribution
channels such as distributors, value-added resellers and system integrators.
Although the Company may seek to add indirect distribution channels in the
future, there can be no assurance that the Company will establish and
maintain such indirect distribution channels, or if it seeks to do so, that
such distribution channels, if established, will provide effective sales and
marketing support for the Company. Failure to increase the Company's direct
sales force or establish effective indirect sales channels could have a
material adverse effect on the Company's business, operating results or
financial condition.

DEPENDENCE ON FINANCIAL INDUSTRY; CHANGE IN DERIVATIVES MARKET AND REGULATORY
ENVIRONMENT

     Substantially all of the Company's current clients are domestic and
international financial institutions. An economic downturn in the commercial
and investment banking industries or in the level of derivatives trading
could have a material adverse effect on the Company's business, operating
results and financial condition. Any adverse change in the derivatives market
affecting demand for the Company's products, whether by regulation,
consolidation within the financial industry, negative publicity or otherwise,
could have a material adverse effect on the Company's business, operating
results and financial condition.

     Derivative instruments have been involved in a number of well-publicized
financial losses, including those involving Barings Bank and Orange County of
California. Such losses have led to increasing governmental scrutiny and
potential regulation of derivatives markets generally. Current legislative
and regulatory measures reportedly being considered include additional
reporting requirements pertaining to the current values of and risks
associated with derivatives positions, and regulation of the mathematical
models used to measure such values and risks. The Company believes that
regulations which impose requirements of increased management controls or
increased reporting may increase the demand for the Company's products.
However, some legislators have questioned whether certain types of
derivatives trading should be prohibited. Prohibitions on trading activities
could reduce the size of the Company's markets.

COMPETITION

     The market for financial risk management software is intensely
competitive and is characterized by rapid technological change and frequent
introduction of new products and features. The Company competes generally on
the basis of product features and functions, product architecture, price, the
speed and accuracy of the product processing capability, client service, the
availability of sufficiently trained technical staff, and the vendor
financial stability. In order to maintain or improve its position in this
industry, the Company must continue to enhance its current


                                      14

<PAGE>

products and develop new products in a timely fashion. There can be no
assurance that the Company will succeed in this effort.

     A major source of competition for the Company's products are
applications that are internally developed by the financial institutions
which are its potential clients, as well as institutions that are current
clients. Even those financial institutions, including the Company's clients,
that use the Company's products or other third-party software for some
applications usually use internally developed software for the same or
related applications. Many of these organizations have substantial internal
development resources with the capability to develop specific products for
their needs. Many of these organizations also value the ability to control
the source code for their software systems. The Company does not typically
make its source code available. There can be no assurance that the Company
will successfully market its products to these organizations.

     There are a significant number of independent commercial competitors for
the Company's products. Some of these competitors, including SunGard Data
Systems Inc., Infinity, Inc., and ACT Group plc., are larger than the Company
and have longer operating histories and significantly greater financial,
technical, sales and marketing and other resources, greater name recognition
and a larger installed client base.

TECHNOLOGICAL CHANGE

     The financial risk management software industry is characterized by
rapid technological advances, changes in client requirements and preferences,
and frequent new product introductions and enhancements. Historically, the
Company has released product enhancements at intervals of one to three years.
The Company's future success will depend, in significant part, upon its
ability to enhance its current products and to develop and market new
products on a timely basis that keep pace with technological developments,
respond to evolving client requirements and achieve market acceptance. In
particular, the Company believes it must continue to respond quickly to
users' needs for additional functionality and to advances in hardware and
software platforms. Any failure by the Company to anticipate or respond
adequately to technological developments and client requirements, or any
significant delays or excessive costs in product development or introduction,
could have a material adverse effect on the Company's operating results and
financial condition. Because of the complexity of the Company's products,
from time to time development efforts have taken longer than expected,
causing delays in the release of new products and product enhancements, and
this may occur again in the future. Any such delays could have a material
adverse effect on the Company's business, operating results or financial
condition. There can be no assurance that the Company will be successful in
developing and marketing new products or product enhancements on a timely
basis or that the Company will not experience significant delays or excessive
costs in the future that could have a material adverse effect on the
Company's operating results and financial condition.

     Because the Company has limited resources, the Company must restrict its
product development efforts and its porting efforts to a relatively small
number of products and operating platforms. There can be no assurance that
these efforts will be successful or, even if they are successful, that any
resulting products or operating platforms will achieve market acceptance.
Additionally, the Company offers standardized products designed for use
worldwide. These products do not include general ledger systems or certain
other product features tailored for specific regional markets or industry
segments. The failure to include these features may adversely affect market
acceptance of the Company's products. Furthermore, there can be no assurance
that the cost of


                                      15

<PAGE>

research and development efforts required to keep pace with technological
changes will not have an adverse effect on the Company's business, operating
results or financial condition.

     New software products often contain undetected defects, or "bugs," that
can adversely affect the performance of the product or otherwise disrupt a
user's operations. If the Company's products contain material defects, client
acceptance of such products could be adversely affected. Further, the Company
could be subject to liability claims (for which it may not carry adequate
insurance) that could have a material adverse effect on the Company's
operating results and financial condition.

LIMITED INTELLECTUAL PROPERTY PROTECTION

     The Company's ability to compete effectively depends in large part on
its ability to develop and maintain proprietary aspects of its technology.
The Company relies on a combination of trade secret, copyright and trademark
law, nondisclosure agreements and various measures including physical and
logical access controls, to protect its proprietary rights in its software
products. Despite these precautions it may be possible for unauthorized third
parties to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Moreover, the laws of
some foreign countries do not protect the Company's proprietary rights in its
products to the same extent as do the laws of the United States. In addition,
some aspects of the Company's products are not subject to intellectual
property protection.

     There can be no assurance that others may not independently develop the
same or similar technology or otherwise obtain access to the Company's
proprietary technology. In addition, the Company cannot be certain that
others will not independently develop substantially equivalent or superseding
proprietary technology, or that an equivalent product will not be marketed in
competition with the Company's products, thereby substantially reducing the
value of the Company's proprietary rights. There can be no assurance that any
confidentiality agreements between the Company and its employees will provide
adequate protection for the Company's proprietary information in the event of
any unauthorized use or disclosure of such proprietary information.

     While the Company is not currently engaged in any intellectual property
litigation or proceedings, there can be no assurance that the Company will
not become involved in such proceedings. An adverse outcome in litigation or
similar adversarial proceedings could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from
others or require the Company to cease the marketing or use of certain
products, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company may be
required to obtain licenses to patents or proprietary rights of others, and
there can be no assurance that any licenses required under any patents or
proprietary rights would be made available on terms acceptable to the
Company, if at all. In January 1995, the Company received a letter claiming
infringement of trademark with regard to its use of the C-ATALYST name in the
United Kingdom; however, although the Company has not received any further
correspondence on the matter and does not believe that the outcome of the
claim will have a material adverse effect on its business, there can be no
assurance as to how the matter will be resolved.

                                      16


<PAGE>

FUTURE ACQUISITIONS

     Future acquisitions by the Company may result in potentially dilutive
issuances of equity securities, the incurrence of additional debt and
amortization expenses related to goodwill and other intangible assets, which
could adversely affect the Company's profitability. For example, the Company
acquired LOR/Geske Bock Associates, Inc. on February 13, 1996. In addition,
acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, products and personnel of the acquired
company, the diversion of management's attention from other business
concerns, risks of entering markets in which the Company has little or no
direct prior experience, and the potential loss of key employees of the
acquired company. The Company has, from time to time, engaged in discussions
with a number of parties to acquire products complementary to its existing
products, and may in the future pursue acquisitions of complementary
products, technologies or businesses. While there are currently no
commitments or agreements with respect to any acquisition, in the event that
such an acquisition does occur, there can be no assurance as to the effect
thereof on the Company's business, operating results or financial condition.


                                      17

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



TO C-ATS SOFTWARE INC.:

    We have audited the accompanying consolidated balance sheets of C-ATS
Software Inc. (a California corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 financial position of C-ATS
Software Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.

                          ARTHUR ANDERSEN LLP


San Jose, California
January 20, 1997


                                      18


<PAGE>


                               C-ATS SOFTWARE INC.
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)


                                                       DECEMBER 31,
                                                   -------------------
                            ASSETS                   1996        1995
                                                   -------     -------
CURRENT ASSETS:
   Cash and cash equivalents....................   $ 7,041     $ 4,199
   Short-term investments.......................    15,088      22,502
   Accounts receivable, net of allowance
     for doubtful accounts of  $100 and $132
     in 1996 and 1995, respectively.............     4,558       7,153
   Prepaid expenses.............................       457         430
   Deferred income taxes........................     3,790       2,888
                                                   -------     -------
      Total current assets......................    30,934      37,172
                                                   -------     -------
PROPERTY AND EQUIPMENT:
   Equipment....................................     2,754       2,472
   Leasehold improvements.......................       134         306
   Furniture and fixtures.......................       457         470
                                                   -------     -------
                                                     3,345       3,248
   Less- Accumulated depreciation and amortization  (2,367)     (2,293)
                                                   -------     -------
    Net property and equipment..................       978         955
Purchased software, at cost.....................     1,464         376
      Accumulated amortization..................      (660)       (321)
                                                   -------     -------
      Net purchased software....................       804          55
OTHER ASSETS....................................       283         318
                                                   -------     -------
                                                   $32,999     $38,500
                                                   -------     -------
                                                   -------     -------

                    LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable.............................    $  573     $ 1,093
   Accrued liabilities..........................       720       1,159
   Accrued compensation.........................     1,217       1,019
   Accrued taxes payable........................        37       1,058
   Deferred revenue.............................     8,541      11,279
                                                   -------     -------
      Total current liabilities.................    11,088      15,608
                                                   -------     -------
  COMMITMENTS (see Note 4)

SHAREHOLDERS' EQUITY:
   Preferred stock, 5,000,000 shares authorized,
     no par value...............................        --          --
   Common stock, $.001 par value
        Authorized 40,000,000 shares
        Outstanding 6,639,587 shares in 1996
          and 5,868,402 shares in 1995...........        7           6
     Additional paid-in capital..................   22,758      18,205
     Cumulative translation adjustment...........      398         319

     Retained earnings (deficit).................   (1,252)      4,362
                                                   -------     -------
        Total shareholders' equity...............   21,911      22,892
                                                   -------     -------
                                                   $32,999     $38,500
                                                   -------     -------
                                                   -------     -------

THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
                    OF THESE CONSOLIDATED BALANCE SHEETS.

                                      19


<PAGE>
                              C-ATS SOFTWARE INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                             YEAR ENDED DECEMBER 31,
                                          ------------------------------
                                            1996       1995       1994
                                          --------   --------   --------
<S>                                       <C>        <C>        <C>
REVENUES:
  License revenue.......................  $ 19,322   $ 20,359   $ 17,342
  Service and other revenue.............       823      1,939      1,120
                                          --------   --------   --------
  Total revenues........................    20,145     22,298     18,462
                                          --------   --------   --------
COSTS AND EXPENSES:
  Cost of revenues......................       272      1,174        556
  Research and development..............     6,166      3,582      3,117
  Sales and marketing...................    11,084     10,273      8,551
  General and administrative............     2,617      2,838      2,533
  In-Process research and development of
    acquired business...................     7,066         --         --
                                          --------   --------   --------
    Total costs and expenses............    27,205     17,867     14,757
                                          --------   --------   --------
    Operating income (loss).............    (7,060)     4,431      3,705

INTEREST INCOME.........................       863        931        269
                                          --------   --------   --------
INCOME (LOSS) BEFORE PROVISION FOR
  INCOME TAXES..........................    (6,197)     5,362      3,974
PROVISION FOR INCOME TAXES..............         0      1,877      1,391
                                          --------   --------   --------
NET INCOME (LOSS).......................  $ (6,197)  $  3,485   $  2,583
                                          --------   --------   --------
                                          --------   --------   --------
NET INCOME (LOSS) PER SHARE.............  $  (0.95)  $   0.57   $   0.52
                                          --------   --------   --------
                                          --------   --------   --------
WEIGHTED AVERAGE COMMON AND COMMON
  EQUIVALENT SHARES OUTSTANDING (1).....     6,528      6,062      4,942
                                          --------   --------   --------
                                          --------   --------   --------
</TABLE>

(1) EXCLUDES ANTI-DILUTIVE COMMON SHARE EQUIVALENTS IN THE WEIGHTED AVERAGE
    SHARES OUTSTANDING CALCULATION FOR 1996.

THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
                       OF THESE CONSOLIDATED STATEMENTS.

                                       20
<PAGE>
                              C-ATS SOFTWARE, INC.
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1996
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                NOTE
                                            COMMON     COMMON    ADDITIONAL  RECEIVABLE    RETAINED
                                            STOCK       STOCK    PAID-IN    FROM SALE OF   EARNINGS
                                            SHARES     AMOUNT    CAPITAL    COMMON STOCK   (DEFICIT)    TOTAL
                                          ----------   -------   --------   ------------   ---------   --------
<S>                                       <C>          <C>       <C>        <C>            <C>         <C>
BALANCE, DECEMBER 31, 1993..............  4,025,000     $  4     $ 3,803       $ (22)       $(1,706)   $  2,094
Exercise of stock options for cash at
  $.10 to $5.00 per share...............    187,499       --          96          --            --           96
Repayment of note receivable from sale
  of common stock ......................         --       --          --          22            --           22
Foreign currency translation
  adjustment............................         --       --          --          --            --          207
Net income..............................         --       --          --          --         2,583        2,583
                                          ----------   -------   --------      -----       ---------   --------
BALANCE, DECEMBER 31, 1994..............  4,212,499        4       3,899          --           877        5,002
Exercise of stock options for cash at
  $.10 to $5.00 per share...............    268,159       --         290          --            --          290
Exercise of warrants at $3.10 per
  share.................................     67,744       --         210          --            --          210
Issuance of common stock for cash at
  $12.00 per share, net of offering
  costs of $1,792.......................  1,300,000        2      13,806          --            --       13,808
Foreign currency translation
  adjustment............................         --       --          --          --            --           97
Net income..............................         --       --          --          --         3,485        3,485
                                          ----------   -------   --------      -----       ---------   --------
BALANCE, DECEMBER 31, 1995..............  5,848,402        6      18,205          --         4,362       22,892
Tax benefit related to employee stock
  options...............................         --       --          --          --           583          583
Stock issued for LORGB acquisition......    578,651        1       4,206          --            --        4,207
Exercise of stock options for cash at
  $.10 to $8.00 per share...............    178,472       --         156          --            --          156
Purchase of common stock from ESPP for
  cash at $5.10 to $6.06................     34,062       --         191          --            --          191
Foreign currency translation
  adjustment............................         --       --          --          --            --           79
Net (loss)..............................         --       --          --          --        (6,197)      (6,197)
                                          ----------   -------   --------      -----       ---------   --------
BALANCE, DECEMBER 31, 1996..............  6,639,587     $  7     $22,758       $  --        $(1,252)   $ 21,911
                                          ----------   -------   --------      -----       ---------   --------
                                          ----------   -------   --------      -----       ---------   --------
</TABLE>

THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
                       OF THESE CONSOLIDATED STATEMENTS.

                                       21
<PAGE>
                              C-ATS SOFTWARE INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                             YEAR ENDED DECEMBER 31,
                                          ------------------------------
                                            1996       1995       1994
                                          --------   --------   --------
<S>                                       <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).....................  $ (6,197)  $  3,485   $  2,583
  Adjustments to reconcile net income
    (loss) to net cash provided (used)
    by operating activities-
    Depreciation and amortization.......       919        582        582
    In-process research and development
     of acquired business...............     7,066         --         --
    Change in assets and liabilities-
      (Increase) decrease in accounts
       receivable.......................     2,595     (2,072)    (1,345)
      (Increase) decrease in prepaid
       expenses.........................       556        (34)      (239)
      (Increase) in deferred tax
       asset............................      (902)      (473)      (637)
      (Increase) decrease in other
       assets...........................        35       (127)        --
      Increase (decrease) in accounts
       payable..........................      (520)       731        139
      Increase (decrease) in accrued
       liabilities and accrued
       compensation.....................      (241)       339       (177)
      (Decrease) in accrued taxes
       payable..........................    (1,021)       (42)      (274)
      Increase (decrease) in deferred
       revenue..........................    (2,738)       676        989
                                          --------   --------   --------
        Net cash provided (used) by
        operating activities............      (448)     3,065      1,621
                                          --------   --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Sale (purchase) of short-term
    investments, net....................     7,414    (20,227)    (1,273)
  Investment in acquisition of LORGB....    (8,084)        --         --
  Purchases of property and equipment...      (673)      (733)      (567)
                                          --------   --------   --------
      Net cash provided (used) by
       investing activities.............     1,343    (20,960)    (1,840)
                                          --------   --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of note receivable from sale
    of common stock.....................        --         --         22
  Proceeds from issuance of common
    stock...............................     4,554     16,100         96
  Common stock offering costs...........        --     (1,792)        --
                                          --------   --------   --------
      Net cash provided by financing
       activities.......................     4,554     14,308        118
                                          --------   --------   --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
  AND CASH EQUIVALENTS..................        79         97        207
                                          --------   --------   --------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS...........................     2,842     (3,490)       106
CASH AND CASH EQUIVALENTS AT BEGINNING
  OF PERIOD.............................     4,199      7,689      7,583
                                          --------   --------   --------
CASH AND CASH EQUIVALENTS AT END OF
  PERIOD................................  $  7,041   $  4,199   $  7,689
                                          --------   --------   --------
                                          --------   --------   --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
  Cash paid for interest................  $     --   $     --   $      2
                                          --------   --------   --------
                                          --------   --------   --------
  Cash paid for income taxes............  $    818   $  1,417   $    697
                                          --------   --------   --------
                                          --------   --------   --------
</TABLE>

THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
                       OF THESE CONSOLIDATED STATEMENTS.

                                       22


<PAGE>


                              C-ATS SOFTWARE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996

1.    NATURE OF OPERATIONS:

      C-ATS Software Inc. (the "Company") was organized in 1988 as a
successor to a partnership formed in 1986. The Company develops and markets
client/server software for financial risk management. The majority of the
Company's current clients are domestic and international financial
institutions.  On March 20, 1995, the Company completed an initial public
offering of 1,300,000 shares of common stock at $12.00 per share. Total
proceeds to the Company (net of offering costs) were $13.8 million.

      On February 13, 1996, C-ATS Sub, Inc. (a wholly owned subsidiary of the
Company), merged with LOR/Geske Bock Associates, Inc. (LORGB), a California
Corporation, pursuant to an "Agreement and Plan of Reorganization" dated
January 30, 1996. LORGB designs, develops, and markets integrated,
organization-wide market and credit risk management software systems. As a
result of the merger, LORGB, ceased to exist while C-ATS Sub, Inc. continued
as the surviving corporation. The transaction was accounted for as a
"purchase". Accordingly, the operating results of the acquired business have
been included in the consolidated statement of operations from the date of
the acquisition. (See Note 3)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF FINANCIAL STATEMENT PRESENTATION

      The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.

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

 REVENUE RECOGNITION

      The Company licenses its products to end users under annual license
agreements which include rights to maintenance support services and product
upgrades. Accordingly, license revenues are recognized ratably over twelve
months.  In addition, the Company provides training and consulting services
to its clients. Revenue from such services is generally recognized as the
services are performed.


                                      23

<PAGE>


SOFTWARE DEVELOPMENT COSTS

      The Company capitalizes software development costs incurred after
technological feasibility has been demonstrated. To date, amounts that could
have been capitalized have been immaterial and, therefore, no software
development costs have been capitalized.

NET INCOME (LOSS) PER SHARE

      Net income (loss) per share has been computed using the weighted
average number of shares of common stock, common equivalent shares from the
convertible preferred stock (when dilutive using the if converted method at
date of issuance) and common equivalent shares from stock options and
warrants outstanding (when dilutive using the treasury stock method).
Pursuant to certain Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares issued during the twelve-month
period prior to the Company's initial public offering at a price less than
the initial public offering price have been included in the calculation as if
they were outstanding for all periods presented (even if antidilutive using
the treasury stock method). Common share equivalents, if included on
quarterly and annual net loss per share calculations, would have an
anti-dilutive effect, and are therefore excluded from both the primary and
fully diluted calculations for certain quarterly and the annual 1996 per
share calculations.

CONCENTRATIONS OF CREDIT RISK

     Financial instruments which potentially subject the Company  to
concentrations of credit risk consist principally of cash investments,
short-term investments and trade receivables. The Company has cash investment
policies that limit investments to short-term low risk instruments.


                                      24

<PAGE>

CASH EQUIVALENTS AND MARKETABLE SECURITIES

     The Company considers all highly liquid investments including treasury
bills and money market fund investments purchased with an original maturity
of three months or less to be cash equivalents.

     The Company accounts for its investments pursuant to the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under Statement No. 115, debt and
marketable securities are required to be classified in one of three
categories: trading, available-for-sale, or held to maturity. The Company has
no investment securities held for "trading".  Securities classified as
"available-for-sale" are primarily investment grade municipal and corporate
bonds, amounting to $8.1 million and $12.3 million as of December 31, 1996
and December 31, 1995, respectively, and recorded at fair value. Under
Statement No. 115, unrealized holding gains and losses, net of the related
tax effect, are not to be reflected in earnings, but are to be reported as a
separate component of shareholders equity until realized. At December 31,
1996 and 1995, the unrealized gain was not material.

     Investments classified as "held-to-maturity" amounting to $7.0 million
and $10.2 million at December 31, 1996 and 1995 respectively, are short-term
in nature (typically 3-7 days) and changes in market interest rates would not
have a significant impact on fair value of these securities. These securities
are carried at amortized cost which approximate fair value. At December 31,
1996 and 1995, the Company did not  hold any debt or equity securities from a
single issuer that exceeded 10 percent of the Company's investments or
shareholders' equity.

FOREIGN CURRENCY TRANSLATION

     The functional currency of foreign operations is deemed to be the local
country's currency.  Consequently, assets and liabilities of the Company's
foreign operations are translated at each balance sheet date into United
States dollars using exchange rates in effect at that date in accordance with
Statement of Financial Accounting Standards No. 52.  Income and expenses of
the foreign operations are translated at average exchange rates for the
period. Company revenues and corresponding receivables are typically U.S
dollar denominated and therefore are not impacted by translation adjustments.
The effects of foreign currency translation adjustments are included as a
component of shareholders' equity.

     To fund its foreign operations, the Company purchases local currency at
current exchange rates in amounts sufficient to cover three  to six month
operating expenses; therefore no transaction gain or loss is realized at the
time of purchase. The currency is used to fund actual operating expenses as
they are incurred. The annual amounts purchased for each country are
approximately equivalent to the annual revenue by geographic region (see
Note 8).  At December 31, 1996 and 1995, the Company held approximately
$106,000 and $970,000, respectively, in these local denominated currency
accounts, sufficient to cover at least one months operating expenses in each
of the operating countries.

                                      25

<PAGE>

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. The cost of equipment and
furniture and fixtures is depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from three to five years.
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance are expensed. Leasehold
improvements are amortized using the straight-line method over the lesser of
the remaining term of the lease or the estimated economic life of the
improvement. The cost and accumulated depreciation applicable to assets
retired are removed from the accounts and the gain or loss on disposition
recognized in income. During 1996, computer equipment, software, and property
acquired during the years 1988 through 1991 with original cost and
accumulated depreciation of $869,000 was retired.

CAPITAL STOCK

    The Company follows the practice of recording amounts received upon the
exercise of options by crediting common stock and additional capital.  No
charges are reflected in the consolidated statements of operations as a
result of the grant or exercise of stock options. The Company realizes an
income tax benefit from the exercise or early disposition of certain stock
options. This benefit results in a decrease in current income taxes payable
and an increase in additional capital.

CHANGE IN CAPITAL STOCK

     Upon the consummation of the Company's initial public offering of common
stock (March 20, 1995), all of the preferred stock outstanding as of that
date was converted into an aggregate of 3,029,918 shares of common stock and
the Company's authorized preferred stock was increased to 5,000,000 shares
from 4,615,000 shares. Common stock was established at a par value of $0.001.
Accordingly, all share and per share amounts presented in the accompanying
consolidated financial statements have been retroactively restated to reflect
the conversion, and the change in par value.

ACCOUNTING FOR STOCK BASED COMPENSATION

    The Company has two stock option plans which reserve shares of common
stock for issuance to executives, key employees, consultants and directors.
The Company accounts for stock-based compensation under the provisions of
Accounting Board Opinion No. 25 "Accounting for Stock Issued to Employees"
(APB 25). The exercise price of options granted under these plans is equal to
the market price of the Company's stock on the date of grant, and
accordingly, no compensation cost is recorded under APB 25.  The Company has
adopted the disclosure only provisions of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation," effective
January 1, 1996.

RECLASSIFICATIONS

     Certain reclassifications have made to prior year amounts to conform
to current year presentation.


                                     26

<PAGE>

3.   ACQUISITION OF LORGB:

     On February 13, 1996, the Company completed the acquisition of all the
outstanding common stock of LORGB. The purchase price of approximately $8.2
million included an issuance of 578,651 shares of the Company's common stock,
approximately $3.3 million in cash and assumption of options to purchase
approximately 167,000 shares of the Company's common stock.  The acquisition
has been recorded using the purchase method of accounting.  The aggregate
purchase price has been allocated to the acquired assets and liabilities of
LORGB, of which the net tangible assets were not significant. The allocation
resulted in $8,044,000 allocated to purchased technology, $7,066,000 of which
represented in-process research and development.  The  $7,066,000 was
expensed in the accompanying statements of operations as the technology had
not yet reached technological feasibility and does not have alternative
future uses.  The capitalized amount of $977,000 is included in "Purchased
software" in the accompanying balance sheets and is amortized over four years.

     The following unaudited pro forma results of operations assume the
acquisition occurred as of January 1, 1995 (in thousands, except per  share
amounts):

Year Ended December 31,                   1996         1995
                                        -------      -------
  Revenues............................  $20,254      $25,006
  Net income (loss)...................   (6,664)       2,884
  Income (loss) per share.............    (1.01)        0.43

     The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the LORGB  acquisition been
consummated as of January 1, 1995, nor are they necessarily indicative of
future operating results.

4.   COMMITMENTS:

     The Company and its subsidiaries lease facilities under certain
noncancellable lease agreements accounted for as operating  leases.  Future
minimum rental payments under these leases are as follows (in thousands):

  YEAR ENDING DECEMBER 31,                  AMOUNT
  ------------------------                 -------
  1997...................................  $ 1,112
  1998...................................      883
  1999...................................      707
  2000...................................      641
  2001 and thereafter....................      246
                                           -------
                                           $ 3,589
                                           -------
                                           -------

      Total rental expense was approximately $1,061,000, $898,000 and
$762,000 for the years ended December 31, 1996, 1995 and 1994, respectively.

                                      27

<PAGE>

5.   COMMON STOCK:

     As of December 31, 1996, the Company had reserved shares of its common
stock for the following purposes:

  1988 Incentive Stock Plan....................................    360,013
  1995 Stock Plan..............................................  1,499,958
  1995 Employee Stock Purchase Plan............................    165,938
  1995 Director Option Plan....................................    105,000
                                                                 ---------
                                                                 2,130,909
                                                                 ---------
                                                                 ---------

1988 INCENTIVE STOCK PLAN

     The Company's 1988 Incentive Stock Plan (the "1988 Plan") provided for
the grant of incentive stock options to employees of the Company, and for the
grant of nonstatutory stock options or stock purchase rights to employees and
consultants of the Company. The exercise price of all incentive stock options
granted under the 1988 Plan are at least equal to  the fair market value (as
determined by the Board of Directors) of the common stock on the date of
grant, subject to subsequent repricing actions. The exercise price of all
nonstatutory stock options granted under the 1988 Plan is required to be at
least 85% of the fair market value of the common stock on the date of grant.
The term of options granted under the 1988 Plan shall be ten years for an
incentive stock option and ten years and one day for a nonstatutory stock
option.

     As of November 7, 1996, the Board of Directors authorized a repricing of
the 1988 Plan.  All  stock options granted under the Plan  with an option
exercise price greater than 85% of the fair market value of the Company's
stock on November 7, 1996 were repriced.  There were 85,292 stock  options
under the 1988 Plan with an exercise prices of $5.00 - $8.00 that were
canceled and repriced at an exercise price of $4.69.  No further grants will
be made under this plan.

     Option activity under the 1988 Plan was as follows:

                                 OPTIONS
                                AVAILABLE    NUMBER                  WEIGHTED
                                FOR GRANT  OF SHARES      RANGE       AVERAGE
                                ---------  ---------  -------------  --------
Balance, December 31, 1993.....   64,034    872,750   $0.10 - $1.00   $0.64
                                ---------  ---------  -------------  --------
   Authorized..................  378,300         --         --           --
   Granted..................... (319,792)   319,792   $3.00 - $5.00   $4.02
   Canceled....................   16,626    (16,626)  $0.35 - $1.00   $0.94
   Exercised...................       --   (187,499)  $0.10 - $5.00   $0.51
                                ---------  ---------  -------------  --------
Balance, December 31, 1994.....  139,168    988,417   $0.10 - $5.00   $1.74
                                ---------  ---------  -------------  --------
   Granted..................... (120,242)   120,242   $3.10 - $8.00   $5.24
   Canceled....................  169,758   (169,758)  $0.70 - $8.00   $3.79
   Exercised...................       --   (335,903)  $0.10 - $8.00   $1.49
                                ---------  ---------  -------------  --------
Balance, December 31, 1995.....  188,684    602,998   $0.10 - $8.00   $2.03
                                ---------  ---------  -------------  --------
   Granted.....................       --         --         --           --
   Canceled....................   64,555    (64,555)  $1.00 - $8.00   $3.88
   Exercised...................       --   (178,430)  $0.10 - $8.00   $0.90
   Repriced grants.............  (85,292)    85,292       $4.69       $4.69
   Repriced canceled...........   85,292    (85,292)  $5.00 - $8.00   $5.58
                                ---------  ---------  -------------  --------
Balance, December 31, 1996.....  253.239    360,013   $0.20 - $4.69   $2.03
                                ---------  ---------  -------------  --------
                                ---------  ---------  -------------  --------


                                      28

<PAGE>


     At December 31, 1996, options to purchase 304,960 shares were
exercisable at a weighted average share price of $1.71 under the 1988 Plan.

1995 STOCK PLAN

     In January 1995, the Company adopted the 1995 Stock Plan (the "1995
Plan"). The Company had initially reserved 500,000 common shares for issuance
under the 1995 Plan. Under the 1995 Plan, the Company may grant incentive
stock options or grant nonstatutory stock options and stock purchase rights
(SPR) to employees, officers and consultants. Nonqualified options and SPRs
granted under the 1995 Plan have a term of ten years and will be issued at a
price determined by the Company's Board of Directors at the date of grant.
Incentive stock options granted under the 1995 Plan may be granted only to
employees of the Company, may have a term of up to ten years, and must be
issued at a price equal to the fair market value of the Company's common
stock at the date of grant. In 1995, the Board of Directors authorized, and
in May 1996, shareholders approved an additional 1,000,000 shares under the
1995 Plan.

    As of November 7, 1996, the Board of Directors authorized a repricing of
the 1995 Plan.  All  stock options granted under the Plan  with an option
exercise price greater than 85% of the fair market value of the Company's
stock on November 7, 1996 were repriced. There were 699,100 stock options
under the 1995 Plan with an exercise prices of $5.50-$12.00 that were
canceled and repriced at an exercise price of $4.69.

     Option activity under the 1995 Plan was as follows:

<TABLE>
<CAPTION>

                                OPTIONS
                               AVAILABLE     NUMBER                      WEIGHTED
                               FOR GRANT   OF SHARES         RANGE        AVERAGE
                              ----------   ---------    ---------------    ------
<S>                           <C>          <C>          <C>              <C>
Balance, January 1, 1995         500,000          --                 --        --
   Authorized                  1,000,000          --                 --        --
   Granted                      (397,000)    397,000     $6.88 - $12.00     $8.09
   Canceled                        5,937      (5,937)   $11.75 - $12.00    $11.83
   Exercised                          --          --                 --        --
Balance, December 31, 1995     1,108,937     391,063     $6.88 - $12.00     $8.03
                              ----------   ---------    ---------------    ------
   Granted                    (1,032,200)  1,053,200      $4.69 - $7.13     $5.52
   Granted (LORGB assumed
     options)                   (167,861)    167,861      $0.08 - $0.16     $0.08
   Canceled                      202,020    (202,020)    $4.69 - $12.00     $6.96
   Exercised                          --         (42)        $7.13          $7.13
   Repriced Grants              (699,100)    699,100         $4.69          $4.69
   Repriced Canceled             699,100    (699,100)    $5.50 - $12.00     $7.02
                              ----------   ---------    ---------------    ------
Balance, December 31, 1996       110,896   1,389,062      $0.08 - $4.69     $4.13
                              ----------   ---------    ---------------    ------
                              ----------   ---------    ---------------    ------

</TABLE>

      At December 31, 1996, options to purchase 244,638 shares were
exercisable at a weighted average share price of $1.59 under the 1995 Plan.

                                      29


<PAGE>

1995 EMPLOYEE STOCK PURCHASE PLAN

     In January 1995, the Company adopted the 1995 Employee Stock Purchase
Plan and reserved 200,000 shares of the Company's common stock for issuance
under this plan. Under the terms of this plan, the Company allows eligible
employees to purchase shares of common stock at 85% of the lower of the fair
market value of the common stock at the beginning or at the end of each
offering period. Offering periods under this plan will commence on January 1
and July 1 of each year and end on June 30 and December 31, respectively.
The first offering commenced on July 3, 1995. During 1995, 19,007 shares were
subscribed under the plan and issued on January 1, 1996 at an average
purchase price of $6.06 per share. During 1996, 15,055 and 20,815 shares were
subscribed under the plan and issued on July 1, 1996 and January 1, 1997 at
average purchase prices of $5.10 and $4.375 per share, respectively.

1995 DIRECTOR OPTION PLAN

     In January 1995, the Company adopted the 1995 Director Option Plan. The
Company has authorized 105,000 shares of the Company's common stock for
issuance under the 1995 Director Option Plan, and 80,000 options were granted
under this plan at an exercise price of $8.00 per share. Options must be
issued at the fair market value of the Company's common stock at date of
grant, have a term of ten years and vest 33% each year following the date of
grant. At December 31, 1996, options to purchase 46,667 shares were
exercisable at $8.00 per share under the 1995 Director Option Plan.

OPTION FAIR VALUE

     The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," issued in October
1995. In accordance with the provisions of SFAS No. 123, the Company applies
Opinion 25 and related interpretations in accounting for its stock option
plans and, accordingly, does not recognize compensation cost.  If the Company
had elected to recognize compensation cost based on the fair value of the
options granted at grant date as prescribed by SFAS No. 123, net income
(loss) and income (loss) per share would have been changed to the pro forma
amounts indicated in the table below. The pro forma effect on net income
(loss) for 1996 and 1995 is not representative of the pro forma effect on net
income (loss) in future years because it does not take into consideration pro
forma compensation expense related to grants made prior to 1995.

<TABLE>
<CAPTION>
                                                       1996         1995
                                                      ------       ------
                                           (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

   <S>                                             <C>           <C>
   Net income (loss) - as reported..........        $ (6,197)     $ 3,485
   Net income (loss) - pro forma............        $ (6,985)     $ 3,309
   Income (loss) per share - as reported....        $  (0.95)     $  0.57
   Income (loss) per share - pro forma......        $  (1.07)     $  0.55
</TABLE>

     The fair value of each grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:  risk-free
interest rate ranging from 5.14% to 6.5%, corresponding to government
securities with original maturities similar to the estimated option life of
approximately one year; annual volatility of the Company's stock price of
65%; and a dividend yield of 0.0%.  The effects of applying the provisions of
SFAS No. 123 are not likely to be representative of the effects on the pro
forma net income (loss) in future years.  The weighted average of fair values
of options

                                      30


<PAGE>


granted during 1996 and 1995  were $5.16 and $7.41, respectively. The options
outstanding and exercisable are as follows:


<TABLE>
<CAPTION>
   OPTIONS  OUTSTANDING AT DECEMBER 31, 1996           OPTIONS EXERCISABLE AT DECEMBER 31, 1996
------------------------------------------------       ----------------------------------------
                                                         WEIGHTED                     WEIGHTED
                      NUMBER         WEIGHTED             AVERAGE                      AVERAGE
  RANGE OF          OF SHARES        AVERAGE             REMAINING        NUMBER      EXERCISE
EXERCISE PRICE     OUTSTANDING    EXERCISE PRICE       CONTRACT LIFE    EXERCISABLE     PRICE
--------------     -----------    --------------       -------------    -----------   ---------
<S>                <C>            <C>                  <C>              <C>           <C>
$0.08 - $3.00         442,582          $0.78                5.92          421,228       $0.69
        $4.69       1,306,493          $4.69                9.34          132,370       $4.69
        $8.00          80,000          $8.00                3.01           46,667       $8.00
-------------       ---------          -----                ----          -------       -----
$0.08 - $8.00       1,829,075          $3.89                8.23          596,265       $2.15
-------------       ---------          -----                ----          -------       -----
-------------       ---------          -----                ----          -------       -----

</TABLE>

6.   INCOME TAXES:

     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."  This
statement provides for a liability approach under which deferred income taxes
are provided based upon enacted tax laws and rates applicable to the periods
in which the taxes become payable.

     The provision for income taxes consisted of the following components for
the years ended December 31 (in thousands):

                                    1996       1995       1994
                                   ------     ------     ------
Current provision:
   Federal........................  $ ---     $1,034     $  784
   State and local................    ---        312        300
   Foreign........................    902      1,004        944
                                   ------     ------     ------
                                      902      2,350      2,028
Deferred benefit:
   Federal........................   (818)      (426)      (574)
   State and local................    (84)       (47)       (63)
                                   ------     ------     ------
                                     (902)      (473)      (637)
Total provision for income taxes..  $ ---     $1,877     $1,391
                                   ------     ------     ------
                                   ------     ------     ------

     The provision for income taxes for the years ended December 31, 1996,
1995 and 1994  differs from  the amount  obtained by  applying the  statutory
Federal income tax rate to income before taxes as follows (in thousands):

                                                1996       1995     1994
                                              -------     ------   ------
Federal tax expense at statutory rate.......  $(2,169)    $1,877   $1,390
State income taxes, net of Federal benefit..       --        166      122
Foreign income taxes incurred...............      902        799      840
Foreign tax credits utilized................     (818)      (763)    (750)
Change in valuation  allowance..............     (171)        --       --
FSC benefit.................................       --        (73)     (59)
Non-deductible write-off of in-process
  research and development..................    2,473         --       --
Tax credits.................................     (234)      (137)    (177)
Other.......................................       17          8       25
                                              -------     ------   ------
Total provision for income taxes...........   $    --     $1,877   $1,602
                                              -------     ------   ------
                                              -------     ------   ------


                                      31


<PAGE>

     The components of the net deferred tax asset at December 31, 1996 and
1995 are as follows (in thousands):

                                                             1996        1995
                                                            ------     -------
Revenue deferred for financial reporting purposes.........  $3,156     $ 4,323
Items not currently deductible for tax purposes...........     171         227
Foreign tax credits.......................................     818         ---
General business credits..................................     234         ---
Net operating loss carryforward...........................     902         ---
                                                            ------     -------
                                                             5,281       4,550
Valuation allowance.......................................  (1,491)     (1,662)
                                                            ------     -------
Net deferred tax asset....................................  $3,790     $ 2,888
                                                            ------     -------
                                                            ------     -------

     For income tax reporting purposes, the Company has Federal and State net
operating loss carryforwards of approximately $2,500,000 and  $1,000,000,
respectively, and Federal and State research and development tax credit
carryforwards of approximately $110,000 and $124,000, respectively, all of
which will expire on various dates through 2011.  The Internal revenue Code
contains provisions which may limit the amount of tax carryforwards available
to be used in any given year upon the  occurrence of certain events,
including changes in ownership interests. Due to certain limitations of the
benefits related to tax carrybacks, the current year operating loss, and the
uncertainty regarding future results, the Company has provided a valuation
allowance related to a portion of the deferred tax asset.

     The Company's tax returns for 1990 through 1993 are currently being
examined by the Internal Revenue Service (IRS) which has issued a notice of
assessment related to its position on certain items. If the IRS position were
to prevail in full, the net tax cost for this assessment at December 31, 1996
would be approximately $2.3 million, excluding interest and penalties. In
management's opinion the ultimate resolution of this matter will not have  a
material adverse effect on the results of operations.

7.   WORLDWIDE OPERATIONS:

     The Company operates in a single industry segment and has wholly-owned
foreign subsidiaries in the United Kingdom and Switzerland that conduct sales
representative activities in Europe and a wholly-owned subsidiary that
conducts sales representative activities in Japan. All license agreements are
entered into between the parent company and the clients, and all license and
service fees are paid directly to the parent  company in U.S. dollars. United
States operations include revenue and results of operations in the United
States as well as export revenue from all clients recognized on a worldwide
basis. Subsidiary revenues consist solely of payments from the parent company
for services performed for the benefit of the parent company at a rate of
cost plus 10%. Such transfers are eliminated in the consolidated financial
statements. Identifiable assets are those assets that can be directly
associated with a particular geographic  area and subsidiary. The  Company's
operations by geographic area were as follows (in thousands):

                                      32

<PAGE>

<TABLE>
<CAPTION>
                                            1996       1995       1994
                                          --------   --------   --------
<S>                                       <C>        <C>        <C>
Revenue:
  United States.........................  $ 20,145   $ 22,298   $ 18,462
  United Kingdom........................     2,405      2,050      1,334
  Japan.................................     1,723      2,059      1,653
  Switzerland...........................       450        798        991
  Eliminations..........................    (4,578)    (4,907)    (3,978)
                                          --------   --------   --------
Consolidated............................  $ 20,145   $ 22,298   $ 18,462
                                          --------   --------   --------
                                          --------   --------   --------
Operating income:
  United States.........................  $ (7,377)  $  4,000   $  3,430
  United Kingdom........................       162        190        194
  Japan.................................       117        134        108
  Switzerland...........................        38        107        (27)
                                          --------   --------   --------
Consolidated............................  $ (7,060)  $  4,431   $ (3,705)
                                          --------   --------   --------
                                          --------   --------   --------

<CAPTION>

                                            1996       1995       1994
                                          --------   --------   --------
<S>                                       <C>        <C>        <C>
Identifiable assets:
  United States.........................  $ 32,079   $ 37,418   $ 18,156
  United Kingdom........................     1,048      1,045        573
  Japan.................................       587        560        458
  Switzerland...........................        79         79        197
  Eliminations..........................      (794)      (602)      (478)
                                          --------   --------   --------
Consolidated............................  $ 32,999   $ 38,500   $ 18,906
                                          --------   --------   --------
                                          --------   --------   --------

    The Company's export sales to unaffiliated non-U.S. customers are as
follows (in thousands):

<CAPTION>

                                            1996       1995       1994
                                          --------   --------   --------
<S>                                       <C>        <C>        <C>
  Japan.................................  $  7,269   $  7,468   $  5,855
  United Kingdom........................     3,915      4,006      2,886
  Europe, excluding United Kingdom......     3,571      4,460      3,517
  Other.................................     1,671      1,864      1,744
                                          --------   --------   --------
                                          $ 16,426   $ 17,798   $ 14,002
                                          --------   --------   --------
                                          --------   --------   --------
</TABLE>


      Sales to a major client accounted for 10% of revenues in 1995 and in
1994, respectively.  No major client accounted for more than 10% of revenues
in 1996.

                                      33

<PAGE>

********************************************************************************

STOCK         The Company's common stock is traded on the Nasdaq National Market
TRADING       under the symbol CATX.  C-ATS Software, Inc. completed its initial
INFORMATION   public offering on March 20, 1995.  The quarterly high and low bid
              prices over the past eight quarters were as follows

                                                        HIGH          LOW
                                                        ----          ---
                  Fiscal 1996

                  Fourth Quarter                        5 1/8         4 3/8
                  Third Quarter                         6 1/4         4 7/8
                  Second Quarter                        7 1/2         5 5/8
                  First Quarter                         7 7/8         6 1/8

                  Fiscal 1995

                  Fourth Quarter                        8 7/8         6
                  Third Quarter                        13             8
                  Second Quarter                       15 1/4         9 3/4
                  First Quarter (3/20/95-3/31/95)      16 1/4        13 3/4

              BID PRICE QUOTATIONS  ARE AS REPORTED BY THE NATIONAL ASSOCIATION
              OF SECURITY DEALERS, INC.  ALL BID PRICES REFLECT INTERDEALER
              PRICES, WITHOUT RETAIL MARKUP, MARKDOWN, OR COMMISSION AND MAY NOT
              REPRESENT ACTUAL TRANSACTIONS.

              AS OF DECEMBER 31, 1996, THERE WERE APPROXIMATELY 975 SHAREHOLDERS
              OF RECORD OF COMMON STOCK OF THE COMPANY.  C-ATS SOFTWARE INC. HAS
              NEVER PAID DIVIDENDS AND HAS NO PRESENT PLANS TO DO SO.  ON
              FEBRUARY 28, 1997, THE CLOSING BID PRICE WAS $5.00 PER SHARE.

********************************************************************************


                                      34