<PAGE>

                       Securities and Exchange Commission
                             Washington, D.C. 20549
                                    FORM 10-K

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

                     FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
                                               -----------------
                                         OR

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

                         COMMISSION FILE NUMBER: 00-26810
                                                 --------

                               LOGIC WORKS, INC.
            (Exact name of registrant as specified in its charter)

             DELAWARE                                        22-2663477
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                            Identification No.)

                        111 CAMPUS DRIVE, PRINCETON, NJ 08540
             (Address of principal executive offices including zip code)

                                    (609) 514-1177
                 Registrant's telephone number, including area code

         SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
            SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                          COMMON STOCK, $0.01 PAR VALUE
                                 (TITLE OF CLASS)

Indicate by check mark  whether  the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange Act
of 1934 during the preceding 12 months (or for such shorter  period that the
registrant was required to file such reports),  and (2) has been subject to
such filing  requirements  for the past 90 days.  Yes  /X/      No  / /

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

While it is difficult to determine the number of shares owned by
non-affiliates, the registrant estimates that the aggregate market value of
outstanding Common Stock on March 23, 1998, (based upon the average bid and
ask prices of the Company's Common Stock on the Nasdaq National Market on
March 23, 1998), held by non-affiliates was approximately $135 million. For
this computation, the registrant has excluded the market value of all shares
of its Common Stock reported as beneficially owned by officers, directors and
certain significant stockholders of the registrant. Such exclusion shall not
be deemed to constitute an admission that any such stockholder is an
affiliate of the registrant.

As of March 23, 1998, there were outstanding 12,776,497 shares of the
registrant's Common Stock, par value $.01.

DOCUMENTS INCORPORATED BY REFERENCE.

Proxy  Statement of Logic Works,  Inc.  relative to the Annual Meeting of
Stockholders.  which is  incorporated by reference into Part III of this Form
10-K.

<PAGE>
                            LOGIC WORKS, INC
                      1997 FORM 10-K ANNUAL REPORT
                           Table of Contents

                                                                            PAGE

                                 PART I

Item 1.  Business...........................................................  3

Item 2.  Properties......................................................... 20

Item 3.  Legal Proceedings.................................................. 20

Item 4.  Submission of Matters to a Vote of Security-Holders................ 20


                                 PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder
         Matters............................................................ 21

Item 6.  Selected Financial Data............................................ 22

Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations.............................................. 23

Item 8.  Consolidated Financial Statements and
         Supplementary Data ............................. See pages F-1 to F-17

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure............................................... 29

                                 PART III

Item 10. Directors and Executive Officers of the Registrant................. 29

Item 11. Executive Compensation............................................. 29

Item 12. Security Ownership of Certain Beneficial Owners and Management..... 29

Item 13. Certain Relationships and Related Transactions..................... 29

                                  PART IV

Item 14. Exhibits, Consolidated Financial Statement Schedules and
         Reports on Form 8-K................................................ 30

SIGNATURES.................................................................. 31

"LOGIC WORKS," "ERWIN," "TESTBYTES," "BPWIN," "OOWIN," AND "RPTWIN" ARE
REGISTERED TRADEMARKS OF THE COMPANY. "MODELMART," "Universal Directory,"
"UNIVERSAL MODELING ARCHITECTURE (UMA)," "LOGIC WORKS" WITH LOGO AND THE
PHRASE "MAKING DATABASE DESIGN EASIER IN A CLIENT/SERVER WORLD" ARE
TRADEMARKS OF THE COMPANY. THIS FILING ON FORM 10-K ALSO INCLUDES TRADEMARKS
AND TRADENAMES OF COMPANIES OTHER THAN LOGIC WORKS, INC.


                                       2
<PAGE>

THIS ANNUAL REPORT ON FORM 10K CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THE RESULTS
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN "BUSINESS
CONSIDERATIONS" CONTAINED HEREIN.

                                  PART I

ITEM 1. BUSINESS

         Logic Works, Inc. ("Logic Works" or "the Company") is a leading
provider of client/server database design and business process modeling
software. The Company's Windows-based products allow customers to realize the
benefits of client/server systems by enabling easy, rapid and high-quality
design, deployment and management of relational databases and related
applications. The Company's award-winning products have been licensed to
approximately 50,000 users in 7,000 organizations worldwide, including, AT&T,
Barnett Banks, Coca-Cola, Dell, GTE, Hewlett-Packard, Intel, ITT, JP Morgan,
Johnson & Johnson, Merck, Microsoft, Monsanto, Republic National Bank, Union
Pacific Railroad, Universal Studios, Visa International and the U.S. Army.

INDUSTRY BACKGROUND

         In response to increasing competitive pressures to lower costs,
enhance product and service quality, and improve the efficiency of
operations, many organizations have begun to restructure, or re-engineer,
their critical business processes. As part of these re-engineering efforts,
organizations have sought to gain competitive advantage by improving their
existing information technology. In the early 1990's this need to improve
information systems, together with technological developments, drove the
evolution from mainframe "legacy" systems to client/server systems.
Presently, this shift to client/server continues to evolve and embraces data
warehousing, next generation application packages and data-centric intranet
sites.

         Organizations adopting these technologies want to achieve increased
flexibility, improve end-user access to information, and gain competitive
advantage in today's rapidly changing business and technology environment. In
contrast to the closed, proprietary, single-vendor nature of legacy
environments, these systems are open, distributed, and composed of hardware,
networking components, databases and application development tools from
multiple vendors. As a result, developing, deploying and managing these
systems are difficult, time-consuming and expensive.

         Relational database management systems ("RDBMS") software is a key
enabling technology for information management systems. As a result, the
market for RDBMS software has grown from $482 million in 1991 to $8 billion
in 1997. RDBMS software, which organizes the collection, storage and
retrieval of data, allows software developers to develop applications which
provide end-users with improved access to the data they need to manage their
business processes. The advent and proliferation of RDBMS software has
supported the development of increasingly complex applications which handle
critical business functions, such as financial reporting, human resource
administration, inventory and production control, sales order management and
customer service. The demand for these applications has grown significantly
over the last few years as expectations of their business value have
increased and organizations seek to realize the potential benefits of
information management systems. With the rapid shift of companies to internet
technologies, these databases are being extended to manage a whole new set of
objects--sound, video, geospatial, time-series data--creating a new
generation of object relational databases, ("ORDBMS").


                                       3
<PAGE>

         Traditional software development has been unable to keep pace with
this increased demand. The increasing complexity of applications and systems,
the growing inventory of existing applications that require maintenance, the
difficulty of coordination and communication between business analysts and
software developers and a shortage of qualified developers have created a
significant backlog for new applications and enhancements to existing
applications. Due to the length of time required to develop applications or
enhancements, the related business requirements have often changed by the
time the application or enhancement is developed. The difficulties of
application development are also exacerbated by flawed database design. The
design of the underlying database is often not based on the organization's
underlying business processes, rules and logic. As a result, the database
cannot adequately capture or provide access to data in an organized manner
that aligns with the goals, activities and processes of the organization.
Improper database design leads to a number of problems, including poor
application performance, limited scalability, delayed database deployment and
incomplete business process re-engineering efforts.

LIMITATIONS OF EXISTING DATABASE DESIGN TOOLS

         Because the performance of business applications is highly dependent
on the quality of database design and because developers are under intense
time pressures, software developers are increasingly relying on specialized
software design and analysis tools to enhance the quality and speed of the
design of databases and applications. A number of products, including
Computer-Aided Software Engineering ("CASE") tools, tools offered by database
vendors and client-side graphical user interface ("GUI") application
development tools, have been marketed to address these needs. For several
reasons, these tools do not fully meet the needs of users and often do not
provide the expected productivity gains:

 DIFFICULT TO USE. Many existing tools are difficult, costly and
time-consuming to use. Some of these tools also require that users adopt the
vendor's complex, proprietary development methodology which is often
difficult to learn.

 PROPRIETARY. Many existing tools are provided by RDBMS vendors which support
only their own databases and do not interoperate with databases from other
vendors. Finally, most existing tools do not support multiple front-end GUI
application development tools.

 LIMITED FUNCTIONALITY. Most existing tools lack the dual capabilities of
complete-compare, enabling iterative forward engineering, and reverse
engineering. Forward engineering permits developers to automatically generate
the code needed to implement a specific physical database from a logical data
model. Reverse engineering permits developers to recover a logical model
embedded in an existing physical database. In combination, the developer can
iteratively revise either the model or the physical database to reflect
changes as the application evolves.

 LACK OF FOCUS ON BUSINESS PROCESSES. Most current tools focus only on the
flow of data within an information system instead of on the underlying
business processes. These tools do not support business process modeling,
which enables business analysts and application designers to visualize and
better understand the business processes they are charged with re-engineering.

THE LOGIC WORKS SOLUTION

         The Company believes that its model-based technology enables
organizations to rapidly design and deploy high-quality relational databases
and supports ongoing database management and business process re-engineering
efforts. In addition, the Company also provides technical support, training
and consulting services which are designed to help customers achieve maximum
productivity gains from the Company's products.


                                       4
<PAGE>



         The Company's products are designed to provide the following key
benefits:

 POWERFUL, EASY-TO-USE RDBMS DESIGN TOOL. ERwin, the Company's flagship
product, is a Windows-based database design tool that allows organizations to
draw blueprints of business rules governing the data used in database-driven
applications. From this blueprint, ERwin can automatically complete the
physical database design process by generating the SQL data definition code
and transferring the code to the target server to create the database.
Logical modeling helps ensure that the database captures the correct,
critical information, which improves the data integrity, and the quality and
performance of the applications accessing data from the RDBMS software. The
Company believes that its model-driven approach makes database design easier
and improves developer productivity by utilizing a simple, open development
methodology that is easier to learn and use than many existing proprietary
tools.

BENEFITS TO MULTIPLE USERS. Logic Works ModelMart promotes the sharing and
management of models by multiple users or workgroups. This enables
organizations to scale the deployment of Logic Works products, supporting a
broad range of benefits, from model merging, impact analysis, version
control, concurrent modeling, flexible levels of security, attached or
detached modeling, and partitioning of large enterprise models.

OPEN, MULTI-VENDOR SUPPORT. ERwin'S open architecture is designed to support
leading application development tools, popular database software and other
modeling tools. ERwin'S open architecture provides a bridge between the
client and the server in the application development process and allows ERwin
to be database and platform independent. Logic Works ERwin links with leading
application development tools, such as Sybase PowerBuilder and Microsoft
Visual Basic. This allows developers to export the data model attributes
directly into the client-side application development tool enabling the rapid
development of client/server applications directly from the database design.
On the server side, ERwin supports leading RDBMS software, including products
offered by Oracle, Microsoft, IBM, Sybase and Informix. In addition, ERwin
supports most popular desktop databases, including Microsoft Access,
Microsoft FoxPro, Borland Paradox and Centura SQL Base. Since many
organizations have made significant investments in existing CASE tools, the
Company also offers CASE migration utilities.

 FORWARD AND REVERSE ENGINEERING CAPABILITY. ERwin'S model-driven approach
supports the forward engineering of databases by utilizing data models to
create SQL database definition code. In addition, ERwin reverse engineers
existing databases into logical data models. The ability to both forward and
reverse engineer databases enables organizations to exploit existing
databases by facilitating the migration of existing applications to new
databases and the conversion of legacy applications to client/server
applications. For example, a software developer can use ERwin to migrate a
DB2 database to operate on Oracle by reverse engineering the DB2 database
into a logical model and then forward engineering the translated logical
model into SQL code for Oracle. Similarly, a software developer can use
ERwin'S forward and reverse engineering capabilities to ensure that multiple
departmental databases across an organization are designed around a
consistent logical model. The Company believes that ERwin'S forward and
reverse engineering capabilities reduce the time necessary for new database
implementations and ensure the referential integrity of the data across an
organization.

 EXTEND APPLICATION SCALABILITY. ERwin enables sound database design which is
critical to maintaining application performance and data integrity as
applications are scaled to meet the needs of individual users, workgroups,
and the entire enterprise. Improved database design increases the scalability
of applications as the number of users increases, as the size and complexity
of the applications expand, and as the applications are migrated to new, more
powerful platforms.

 BUSINESS PROCESS RE-ENGINEERING SUPPORT. BPwin'S graphical modeling of
business processes allows organizations to easily analyze, redesign and
optimize their business processes, and identify and eliminate redundant
activities. BPwin'S bi-directional interface with ERwin allows users to
design their databases around business processes. BPwin also interfaces with
third-party business simulation tools in order to simulate new business
processes prior to implementation.


                                       5
<PAGE>

STRATEGY

         The Company's mission is to deliver innovative and integrated
software solutions that capture data and leverage information in order to
increase business knowledge and productivity at all levels of the enterprise.
To achieve this objective, the Company's market-driven strategy includes
increasing product functionality, expanding support for third-party
application development tools and databases, improving support for
application development efforts, leveraging its existing customer base,
extending distribution channels and developing its customer service and
support organization. The following are the key elements of the Company's
strategy:

 MAINTAIN TECHNOLOGICAL LEADERSHIP. Logic Works is committed to maintaining
its technological leadership through internal product development efforts and
through opportunistic acquisitions of technology and/or products from third
parties. The Company believes that as a customer-focused organization in the
rapidly evolving modeling tools market, it must support its technologically
advanced customers by providing them with products embodying new and emerging
technologies. The following are the key elements of the Company's approach:

          PROVIDE ADDITIONAL FUNCTIONALITY AND FEATURES. The Company intends to
         continue to add functionality and features to increase the usefulness
         and performance of its products. The Company believes that its core
         product features can be further developed to provide targeted support
         for emerging high-end functions, data warehousing, data replication and
         performance tuning. For example, in 1996 the Company introduced Logic
         Works ModelMart which provides the requisite data security and
         administration capabilities necessary for concurrent, multi-user model
         development. Logic Works ModelMart serves as a common platform for
         integrating ERwin AND BPwin.

          EXTEND DEVELOPMENT TOOL SUPPORT. The Company's ERwin/ERX provides
         additional support for client-side application development tools and
         develops interfaces with other CASE tools such as: Sybase PowerBuilder,
         and Microsoft Visual Basic. The Company also intends to develop or
         license interfaces to integrate with application packages, data
         warehouse and Web application development tools. Logic Works
         continually monitors the development and release of new development
         tools and plans to develop links with these new tools as they become
         popular.

          EXPAND WEB SUPPORT. ERwin/Web Publisher lets you quickly publish ERwin
         data models on a corporate intranet so users can view the database
         schemas using a standard Web browser, such as Microsoft Internet
         Explorer, or Netscape Navigator, . Because users don't need ERwin to
         view the published data models, ERwin/Web Publisher provides a
         cost-effective way to share the database design information captured in
         an ERwin data model with any number of business analysts and
         application developers throughout an organization.

          EXPAND RDBMS SUPPORT. The Company intends to support new databases as
         they achieve market acceptance, as the Company has done with the
         emerging ORDBMS market with the introduction of OR-Compass.

 LEVERAGE EXISTING CUSTOMER BASE. The Company has concentrated its sales and
marketing efforts on developing a broad customer base. As a result of these
efforts, approximately 50,000 users in 7,000 organizations worldwide have
licensed the Company's products. Logic Works seeks to leverage its existing
customer base by selling additional licenses and marketing complementary
products and services. In particular, the Company's Logic Works ModelMart
products are being marketed to existing and new customers who need concurrent
workgroup database design capabilities. The Company anticipates that these
products will be licensed by a greater number of users within an organization
than its current ERwin products.


                                       6
<PAGE>

 EXPAND BRAND NAME AWARENESS. Logic Works believes that brand name awareness
of the Company and its products is key to its success. Logic Works has
targeted its marketing efforts to establish and expand the recognition of its
corporate and product names through its advertising, direct mail campaigns,
trade show participation, promotional activities, and establishment of
indirect channels and strategic alliances. The Company believes that
establishing and expanding this market awareness is particularly important
given the emerging nature of the market in which it competes.

 EXTEND WORLDWIDE DISTRIBUTION CHANNELS. The Company believes that a broad
range of distribution channels is necessary to reach its diverse target
customer base. The Company's distribution channels include a telesales force,
a direct field sales force, a wide range of indirect channels and targeted
strategic alliances. In order to complement its existing telesales force, the
Company, in early 1995, commenced the expansion of its domestic and
international direct field sales force to market and license new complex
products such as: Logic Works ModelMart, released in March 1996, and Logic
Works Universal Directory, released in March 1997, which require a longer and
more sophisticated sales process and greater technical field support than the
Company's existing products. The Company is expanding its indirect channels
both in North America and overseas by establishing relationships with
additional VARs, dealers and distributors in new and existing markets. The
Company is also seeking to develop new strategic alliances with third-party
software vendors, primarily database vendors and development tool providers,
to develop joint marketing arrangements and agreements to bundle the
Company's products with their products in order to leverage the potential for
sales growth of such products.

 EXPAND CUSTOMER SERVICE AND SUPPORT. The Company believes that a high level
of customer service and support is critical to the Company's success and that
there is a significant opportunity to increase its revenues by providing
additional services to its customers in the future. Logic Works provides
technical support, training and consulting services, all of which are
oriented primarily toward its own products. This focus on customer service is
designed to increase customer satisfaction by ensuring that customers achieve
anticipated productivity gains, to provide feedback as to customer demands
and requirements and to provide a recurring source of revenues. The Company
provides its indirect channels with substantial training so that they can
also provide a high level of service and support for the Company's customers.






                                       7
<PAGE>

PRODUCTS

         Logic Works offers a family of products designed to model and manage
data-centric applications across a spectrum of technologies--client/server,
data warehouse and the Web. The Company's products are easy-to-use and
easy-to-learn, and provide a scaleable solution to meet the needs of both
small development teams and the enterprise.

      The following table identifies the Company's current products. The
Company's client products are designed to run on personal computers using
Windows, and server products are designed to run on Microsoft NT or UNIX
servers.

<TABLE>
<CAPTION>
                                   ORIGINAL RELEASE     MOST RECENT      SINGLE USER U.S.
          PRODUCT                        DATE           RELEASE DATE        LIST PRICE
<S>                                     <C>                <C>               <C>
Logic Works ERwin/ERX                   Q2/90              Q1/98              $3,495

Logic Works Navigator                   Q2/96              Q1/98                $795

Logic Works BPwin                       Q4/93              Q3/97              $2,495

Logic Works TESTBytes                   Q4/96              Q3/97              $1,295

Logic Works ModelMart                   Q1/96              Q1/98              $9,995

Logic Works Universal Directory         Q1/97              Q1/98             $45,000

Logic Works OR-Compass                  Q4/97                -                $2,495

</TABLE>

Logic Works ERwin

         Logic Works ERwin, the Company's flagship product, is a Windows-based
data modeling tool that enables developers to quickly and easily design
databases utilizing logical, or entity relationship (ER), modeling. Using ERwin,
a developer can create a model, or graphical representation, of an
organization's rules, thereby providing a high-level, logical view of the data.
ERwin's modeling capabilities enhance the ability of developers to design and
construct databases and facilitate communication between end-users and
developers during the design process.

DESIGN.  Logic Works ERwin automates data model design through the creation of a
         graphical representation or blueprint. The blueprint developed by ERwin
         provides a clear picture of the entities and relationships in the
         database. ERwin synchronizes the logical database model with the server
         database implementation and client application interface. This
         synchronization enforces the consistency between business rules in the
         database model with the data validation procedures on the server and
         client, thereby ensuring referential integrity. The understanding of
         referential integrity constraints that ERwin provides is essential for
         optimal database design.

          CONSTRUCTION. Logic Works ERwin's forward engineering feature allows
         the automatic creation of a physical model of the database directly
         from the logical data model while its reverse engineering capability
         enables the recovery of a logical data model from an existing database.
         These dual capabilities facilitate the migration of existing
         applications to new databases and the conversion of legacy applications
         to client/server applications, a significant benefit in heterogeneous
         computing environments. ERwin further eases application development by
         linking directly with client-side GUI application development tools.


                                       8
<PAGE>

          COMMUNICATION. Because lack of end-user input is a major reason for
         the failure of many development projects and implementations, ERwin was
         designed to create reports and documentation that can be used by
         developers to define systems requirements, to communicate those
         requirements to other systems personnel and applications end-users, and
         to ensure that the database or system satisfies those requirements.
         This improved communication, in turn, allows developers to improve
         project management and efficiency, change database design, enhance the
         system's life cycle and permit the end-user of the application to
         participate in the design of the information systems used in the
         business.

         Logic Works ERwin employs a graphical user interface and easy-to-learn,
easy-to-use features, including "point and click," "drag and drop," multi-level
viewing, toolbars and mouse-driven menus. In addition, multiple colors, fonts
and zoom levels facilitate viewing of the model at both the business level and
technical level and allow the creation of stored displays. ERwin permits
enterprise data models to be partitioned into functional areas called subject
areas, such as accounting, human resources administration and inventory and
production control, so that a developer can operate in one area of the model
without affecting others. On-diagram editing lets the user change the model in
place without opening dialogs. With attribute manipulation, the user can drag
and drop attributes from one entity to another, to make changes and normalize
"on the fly", navigate to any editor directly from the diagram using pop-up
menus. Relationship navigation lets the user move quickly across large models to
pinpoint an entity's parents or children. ERwin utilizes the IDEF1X modeling
notation, a United States Federal government standard that is increasingly
emerging as a commercial standard.

         Once the diagram is complete, tables, indexes, referential integrity
rules (primary key, foreign key), defaults, domain/column constraints, and
thousands of lines of stored procedure and trigger code are all generated
automatically. The database can be designed, documented and implemented in just
a few hours - without writing a single SQL CREATE TABLE or INDEX statement.
Because the physical design is driven by a descriptive logical model, complete
system documentation is built into the application from the start.

         Logic Works ERwin/ERX, supports leading RDBMS software, including
software offered by Oracle, Sybase, Informix, Microsoft, Centura, Progress and
IBM. In addition, ERwin/ERX supports popular desktop databases, including
Microsoft Access, Microsoft FoxPro and Borland Paradox. Using ERwin together
with Logic Works ModelMart repository allows data models to be shared, revised
and integrated on a concurrent basis to support database design and application
development by multiple users in a workgroup.

Logic Works ModelMart

         Today, organizations have found it necessary to collaborate on data
models and share them across the enterprise. Data architects use models to
design enterprise standards, database administrators use them to generate and
maintain databases and programmers rely on them to build Web and client/server
applications. As a result, organizations need an effective way to coordinate and
integrate modeling efforts.

         Logic Works ModelMart is an enterprise class model management system
for coordinating client/server, Web and data warehouse database development.
Easy to set up and maintain, Logic Works ModelMart provides convenient, secure
and controlled access to ERwin data and BPwin process models, promoting reuse
and productivity. ModelMart encourages teamwork and model sharing, with a robust
set of management tools that provide complete control. ModelMart is platform and
network independent, and can be hosted on Sybase, Microsoft SQL Server, Oracle
or Informix databases.


                                       9
<PAGE>

Logic Works Universal Directory

         Logic Works Universal Directory is an advanced business information
directory tool that collects, classifies, and publishes information gathered
from the information inventory throughout a company's data warehouse. Logic
Works Universal Directory tracks all the references to all the information that
pertains to a business, much like the yellow pages that keep references to all
the businesses in an area. Logic Works Universal Directory acts as the hub of a
company's data warehousing activity. By centralizing meta data, it improves the
way the company can manage the entire data warehousing development life cycle.

         Logic Works Universal Directory is an information directory that can
inventory, publish and search the meta data about in a data warehouse. It makes
developing and maintaining an effective data warehouse easier than ever before.

Logic Works TESTBytes

         Logic Works TESTBytes is a test data generation tool that connects to a
database to create test data for relational databases. Logic Works TESTBytes
automatically generates up to millions of rows of meaningful test data,
eliminating days or weeks of time-consuming effort and reducing costs. Logic
Works TESTBytes automates test data generation, providing many essential
capabilities for all database professionals, from developers and data modelers
to QA testers and database administrators.

Logic Works BPwin

         BPwin is a effective modeling tool for analyzing, documenting and
improving complex business processes. It helps eliminate redundant or
inefficient activities, reduce costs, improve flexibility and enhance customer
services.

         A BPwin model clearly documents important factors such as what
activities are needed, how they are performed and what resources are needed.
This provides an integrated picture of how an organization gets things done,
from small department workflow models to complex node tree diagrams. And if a
company is building or purchasing software - business process models serve as
requirements documentation - helping to ensure that the company's IT investments
fulfill its business needs.

OR-Compass

         Object-relational database systems represent a tremendous increase in
database capability. However, these new capabilities also dramatically increase
the complexity of the database. Designers are faced with tremendous challenges
in creating systems to effectively take advantage of the new capabilities and
extensions available in these databases.

         Logic Works OR-Compass is a comprehensive, extensible,
object-relational modeling environment enabling the effective design, generation
and maintenance of many aspects of an object-relational database. ORoCompass
assists designers in building innovative solutions which take advantage of the
advanced databases functions and customer extensions available in leading
object-relational databases.

         OR-Compass was initially released in December 1997 and currently
supports the Informix Dynamic Server with Universal Data Option.

CUSTOMERS

         The Company's customers include a wide variety of organizations in a
broad range of industries worldwide, including financial services, professional
services, manufacturing and health care, as well as governmental agencies,
distributors and resellers. The Company's products have been licensed to


                                       10
<PAGE>

approximately 50,000 users in 7,000 organizations worldwide. The Company's
products are included on the approved schedule issued by the U.S. General
Services Administration for purchasing by the Federal government. Since 1992, no
end-user customer has accounted for more than 5% of the Company's total revenues
in any year.

SERVICES

         The Company believes that a high level of customer service and support
is critical to the Company's success. The services provided by the Company
include technical support, maintenance, training and consulting. These services
are designed to increase customer satisfaction, provide feedback to the Company
as to customers' demands and requirements, and generate recurring revenue. The
Company plans to continue to expand its services and support programs as the
complexity of the products offered by the Company increases and believes there
is a significant opportunity to sell additional services to its customers in the
future.

TECHNICAL SUPPORT AND MAINTENANCE. The Company offers customer support through
telephone, electronic mail, Internet and fax and provides new software releases,
maintenance releases and enhancements under annual maintenance and support
agreements with customers. Additional customer support is provided by the
Company's VARs, dealers and distributors. Maintenance and customer support are
not included in software license fees, but are purchased separately for an
annual fee generally equivalent to 15% to 18% of the then current list prices of
the licensed products.

TRAINING AND CONSULTING. The Company offers comprehensive education and
training programs, as well as customized consulting services, to its users. Fees
for education, training and consulting services are generally charged on a per
diem basis, separately from the Company's software products.

SALES AND MARKETING

         The Company markets and sells its products and services directly and
through indirect channels such as VARs, dealers and distributors. To support its
sales efforts, the Company conducts a wide variety of programs and activities
intended to market and position its products. These include advertising, direct
mail campaigns, public relations initiatives, product seminars and trade shows.
The Company also conducts ongoing customer communications programs.

DIRECT SALES. The Company's direct sales effort consists of a telesales and
telemarketing staff complemented by a field sales force that the Company began
to establish in January 1995. Telesales are typically generated through outbound
telephone solicitation of leads obtained from the Company's marketing efforts.
For its current single seat licensed products, the Company believes that
telesales has been a cost-effective means of distributing its products. The
telesales cycle for the Company's product has been typically less than one
month. The largely customer-initiated nature of telesales makes forecasting of
these sales difficult.

         Since January 1, 1995, the Company has opened a limited number of
direct field sales offices in North America to complement its telesales effort
and has established a European direct sales organization, headquartered in the
United Kingdom. As of December 31, 1997, the Company's North American telesales
force consisted of 24 individuals supplemented by a direct field sales force of
35 individuals, 13 of whom serviced North America from the Company's Princeton,
New Jersey headquarters, 22 of whom were located in 8 field offices throughout
North America. The Company's international sales force was comprised of 20
people at December 31, 1997, 17 of whom were located overseas, principally in
Europe. The Company believes that its direct sales organization will enable the
Company to enhance its selling efforts, particularly for higher-priced, more
complex products. For example, due to the anticipated higher average sales price
and requirement for greater technical field support, the Company's Logic Works
ModelMart and Logic Works Universal Directory products, require a longer and
more sophisticated sales process directed to more senior decision makers than
its single seat license products. In addition, the Company is utilizing its
field sales force and telesales force to increase sales to existing customers,
as well as to expand its customer base.


                                       11
<PAGE>

INDIRECT SALES. The Company seeks to identify potential markets and develop a
diversified set of indirect distribution channels targeted to cover these
markets efficiently. The Company's VARs, dealers and distributors purchase
products from the Company at a discount from list price and are licensed to
resell these products to end-users. The Company provides VARs, dealers and
distributors with substantial training so that they can also provide a high
level of service and support to the Company's customers.

STRATEGIC RELATIONSHIPS. The Company has established strategic relationships
with a number of organizations that it believes are important to its worldwide
sales, marketing and support activities. The Company is seeking to broaden
existing relationships as well as to establish new relationships. The Company's
relationships with RDBMS vendors, application development tools vendors, and
other software vendors, hardware vendors and consultants provide marketing and
sales opportunities to the Company's direct sales force, expand the distribution
of its products, and broaden its product offerings through product bundling. The
Company's strategic relationships also assist the Company in keeping pace with
the technological and marketing developments of major software vendors, and in
certain instances, provide the Company with product development services.

INTERNATIONAL SALES. The Company derived approximately $12.2 million, $9.1
million and $6.9 million or approximately 24.1%, 21.4%, and 22.5% of its
total revenues, from international customers in 1997, 1996 and 1995,
respectively. The Company believes that international sales present a
significant opportunity and will continue to increase as a percentage of
total revenues. The Company has a direct field sales force in Europe, which
is now headquartered in the United Kingdom, with additional field offices in
Germany, France and Australia. In countries in which the Company has no
direct presence, channel sales, principally through distributors, comprise
the majority of international sales and in Japan represent all sales of the
Company's products.

The Company expects to hire additional sales and marketing personnel and to
increase its promotional and advertising expenditures in 1998. As a result, the
Company's sales and marketing expenses will increase in absolute dollar amounts.

PRODUCT DEVELOPMENT

         Since its inception, the Company has made substantial investments in
research and development. The Company believes that its future performance will
depend in large part on its ability to maintain and enhance its current product
line, develop new products that achieve market acceptance, maintain
technological competitiveness and meet an expanding range of customer
requirements. The Company plans to introduce and market new products and new
versions and enhancements to its existing products in 1998. Although the Company
expects that certain of its new products will be developed internally, the
Company may, based on timing and cost considerations, acquire technology and/or
products from third parties or consultants.

         The client/server software market is characterized by rapid
technological change, changes in customer requirements, frequent new product
introductions and enhancements, and emerging industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable.
Accordingly, the life cycles of the Company's products are difficult to
estimate. The Company's future success will depend in part upon its ability to
enhance its current products, to develop and introduce new products that respond
to evolving customer requirements and to keep pace with technological
developments and emerging industry standards, such as new operating systems,
hardware platforms, application development methodologies, user interfaces,
database software and third party application development tools. There can be no
assurance that the Company will be successful in developing and marketing
product enhancements or new products that respond to technological change,
changes in customer requirements, or emerging industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of such products and
enhancements, or that any new products or enhancements that it may introduce
will achieve market acceptance. The inability of the Company for technological
or other reasons to develop and introduce new products or enhancements in a
timely manner in response to changing customer requirements,


                                       12
<PAGE>

technological change or emerging industry standards, would have a material
adverse effect on the Company's business, results of operations and financial
condition.

         Software products such as those offered by the Company often encounter
development delays and may contain undetected errors or failures when introduced
or when new versions are released. The Company has in the past experienced
delays in the development of software. Those delays have resulted in delays in
the shipment of the Company's products. There can be no assurance that, despite
testing by the Company and by current and potential customers, errors will not
be found in new products or releases after commencement of commercial shipments,
or that the Company will not experience development delays, resulting in loss of
or delay in market acceptance, which could have a material adverse effect on the
Company's business, results of operations and financial condition.

         As of December 31, 1997, the Company's research and development staff
consisted of 69 employees. The Company's total expenses for research and
development for 1997, 1996 and 1995 were $7.2 million, $6.0 million and $4.0
million, respectively. The Company anticipates that it will continue to commit
substantial resources to research and development in the future. As a result,
the Company's research and development expenses will increase in absolute dollar
amounts. To date, the Company's development efforts have not resulted in any
significant capitalized software development costs.

COMPETITION

         The client/server software market is intensely competitive and rapidly
changing. The Company believes its ability to compete depends upon many factors
within and outside its control, including the timing and market acceptance of
new products and enhancements developed by the Company and its competitors,
product functionality, ease of use, performance, price, reliability, customer
service and support, user preference to purchase software from a single vendor,
sales and marketing efforts, and product distribution channels. The Company's
competitors vary in size and in the scope and breadth of the products and
services offered. The Company encounters competition from a number of sources,
including (i) database and application development tools vendors that offer
their own tools, including Oracle and Sybase, (ii) CASE tool vendors, such as
Popkin, Select Software Inc., Sterling, Cayenne and Intersolv, (iii) modeling
tool vendors, such as CSA and Embarcadero and (iv) vendors that offer business
process modeling tools, including Meta Software, Micrografx and Visio
Corporation

         Many of the Company's competitors are substantially larger than the
Company and have significantly greater financial, technical and marketing
resources and established, extensive direct and indirect channels of
distribution. As a result, they may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products than the
Company. As is typical in the software industry, many of the Company's strategic
partners are also competitors of the Company. The Company's products compete to
a lesser degree with proprietary software developed by third-party professional
service organizations and management information systems departments of
potential customers. Due to the relatively low barriers to entry in the software
market, the Company expects additional competition from other established and
emerging companies as the client/server applications software market continues
to develop and expand. The Company expects that vendors of application
development tools will add and improve their database modeling functions over
time and that, therefore, their products could become more competitive with the
Company's products. The Company also expects that competition will increase as a
result of software industry consolidations. The Company anticipates that its
competitors may develop or acquire products that provide functionality that is
similar to that provided by the Company's products and that such products may be
offered at a significantly lower price or bundled with other products. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share, any of which would have a material adverse effect on the
Company's business, results of operations and


                                       13
<PAGE>

financial condition. There can be no assurance that the Company will be able
to compete successfully against current or future competitors or that
competitive pressures will not have a material adverse effect on the
Company's business, results of operations and financial condition.

EMPLOYEES

         As of December 31, 1997, the Company had 253 full-time employees,
including 69 in research and development, 12 in the professional services group,
134 in sales and marketing, and 38 in finance and administration. The Company's
employees are not covered by any collective bargaining agreements. The Company
believes that relations with its employees are good.

PROPOSED MERGER

On March 14, 1998, the Company and PLATINUM TECHNOLOGY, INC. ("PLATINUM")
executed a definitive merger agreement (the "Merger Agreement") pursuant to
which PLATINUM will acquire the Company. PLATINUM is a provider of software and
services that help information technology organizations manage and improve the
information technology infrastructure. It is expected that the acquisition -
which is anticipated to be consummated in mid 1998 - will qualify as a tax-free
reorganization and be accounted for as a pooling of interest. This acquisition,
which has been approved by the Board of Directors of both companies, is subject
to the filing of a registration statement with the Securities and Exchange
Commission, the approval of the stockholders of the Company and customary legal
and regulatory conditions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Proposed Merger".

BUSINESS CONSIDERATIONS

         The Company's future business, financial condition and results of
operations are dependent on the Company's ability to successfully manage the
following risks. No assurance can be given that the Company will be able to
manage such risks successfully. The failure to manage such risks successfully
could have a material adverse effect on the Company's business, financial
conditions and results of operations.

POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS;
SEASONALITY. The Company has experienced, and may in the future experience,
significant quarter to quarter fluctuations in its results of operations. Such
fluctuations may result in volatility in the price of the Company's Common
Stock. Quarterly results of operations may fluctuate as a result of a variety of
factors, including demand for the Company's products, the timing of introduction
of new products and product enhancements by the Company or its competitors,
market acceptance of new products, the mix of direct and indirect sales, the mix
of license fee and services revenue, the mix of products within license fee
revenue, the mix of maintenance, training and consulting services within
services revenue, the geographic mix of revenue, the nature and timing of
significant marketing and joint marketing programs, the number and timing of new
hires, competitive conditions in the industry, foreign currency exchange rate
fluctuations and general economic conditions. The Company has historically
recognized a substantial portion of its revenues in the last month of a quarter,
with these revenues frequently concentrated in the last week of the quarter. As
a result, license fees in any quarter are substantially dependent on orders
booked and shipped in the last month and last week of that quarter. The
Company's revenues are difficult to forecast because of the Company's relatively
short historic sales cycle, the reliance on customer-initiated inquiries for a
substantial portion of the Company's telesales, variations in the size, type and
purchasing procedures of the Company's customers, the use of indirect
distribution channels that place orders on an as-needed basis and the Company's
limited backlog. A high percentage of the Company's operating expenses is based
primarily on planned product introductions and sales forecasts and the Company
may be unable to adjust spending in a timely manner to compensate for any
unexpected shortfalls in revenues. Accordingly, the Company believes that period
to period comparisons of results of operations are not necessarily meaningful
and should not be relied upon as an indication of future results of operations.
There can be no assurance that the Company will be profitable in any future
quarter. The Company has historically experienced increased demand for its
products during the third quarter, due primarily to the purchasing


                                       14
<PAGE>

patterns of United States Federal governmental agencies and increased demand
in the fourth quarter, due to other customers' buying patterns and the
effects of quarterly and annual sales performance quotas. Due to the
foregoing factors, it is likely that in future quarters the Company's
operating results may be below the expectations of public market analysts and
investors. Such an event could have a material adverse effect on the price of
the Company's Common Stock.

SUSTAINED REVENUE GROWTH. Although the Company has experienced significant
growth in total revenues in recent years, the Company does not believe that such
growth rates are sustainable. Accordingly, the rate at which the Company has
grown in the past should not be considered to be indicative of future revenue
growth, if any, or future operating results. There can be no assurances that the
Company will be profitable on a quarterly or annual basis. The Company's limited
operating history makes the prediction of future operating results difficult, if
not impracticable.

DEPENDENCE ON ERwin PRODUCT LINE. The ERwin line of products and related
services accounted for approximately 78.3%, 78.9% and 89.5% of the Company's
license revenues in 1997, 1996 and 1995, respectively. These products and
services are expected to continue to account for the majority of the
Company's revenues for the foreseeable future. Accordingly, the Company's
future results of operations will depend, in part, on achieving broader
market acceptance of ERwin and related services. Customer acceptance of ERwin
will also depend on the Company's ability to preserve its open architecture
by continuing to support leading relational database management systems,
client-side application development tools and other modeling tools. This
multi-vendor support may place a significant strain on the development
resources of the Company. Failure to provide support for databases and tools
that achieve broad market acceptance may materially and adversely affect
sales of ERwin. A reduction in demand or increase in competition in the
market for its ERwin line of products and related services, or decline in
sales of such products and services, would have a material adverse effect on
the Company's business, results of operations and financial condition.

RISKS ASSOCIATED WITH THE MARKET ACCEPTANCE OF LOGIC WORKS MODELMART. In March
of 1996, the Company introduced Logic Works ModelMart, which serves as a
repository of ERwin data models. While this new product has accounted for 10.0%
of total license revenues for the year ended December 31, 1997, there can be no
assurance that the Company will be successful in achieving increasing market
acceptance for Logic Works ModelMart. This product has resulted in higher
average order sizes than the Company's existing single use license products and
represents for its users a commitment to a model-driven development approach at
the workgroup or enterprise level rather than the individual developer level.
The Company believes that, due to the anticipated higher average order sizes and
increased sophistication, this product requires a longer and more involved sales
process, purchase decisions to be made at a higher management level and greater
technical field support than its existing products. There can be no assurance
that the Company's direct sales force will be successful in marketing this
product at a level that offsets the costs of a direct field sales force. The
Company's business and results of operations and financial condition would be
materially and adversely affected if Logic Works ModelMart fails to achieve
market acceptance or if the direct field sales force is unable to generate
significant sales of this product.

 RISKS ASSOCIATED WITH THE MARKET ACCEPTANCE OF LOGIC WORKS UNIVERSAL DIRECTORY.
The Company introduced Logic Works Universal Directory in February of 1997,
which is anticipated to result in significantly higher average order sizes than
the Company's existing single user license products and represents for its users
a commitment to the data warehouse market. The Company believes that, due to the
anticipated higher average order sizes and increased sophistication, as with
Logic Works ModelMart, this product will require a longer and more involved
sales process, purchase decisions to be made at a higher management level and
greater technical field support than its existing products. There can be no
assurance that the Company's direct sales force will be successful in marketing
this product at a level that offsets the costs of a direct field sales force.
Since the Company's future growth is based, in large part, on the success of
this product, the Company's business, results of operations and financial
condition would be materially and adversely affected if Logic Works Universal
Directory fails to achieve market acceptance or if the direct field sales force
is unable to generate significant sales of this product. See "Business -
Products."


                                       15
<PAGE>

EVOLVING MARKET FOR MODEL-DRIVEN DEVELOPMENT TOOLS. The market for client/server
database design tools is subject to frequent and continuing changes in customer
preferences and technology. The adoption of the Company's products requires
acceptance and a commitment to a model-driven development approach and the use
of the IDEF1X notation for data modeling or Information Engineering (IE).
Although the IDEF1X notation is part of the Federal Information Processing
Standard, other competing modeling notations exist that have been widely
accepted, including MERISE and object-oriented notations. The use of the IDEF1X
notation may require end-users who have adopted other notations to invest in
training to make effective use of the Company's products. To date, many
customers have only ordered limited numbers of copies of the Company's software
and have not yet fully deployed the software in their application development
efforts. There can be no assurance as to the rate of adoption of client/server
technology and model-driven development tools or that the Company's products
will achieve market acceptance among organizations that adopt client/server
systems.

MANAGEMENT OF GROWTH. The Company has recently experienced a period of
significant growth that has placed a significant strain upon its management
systems and resources. The Company has recently introduced financial budgeting
and forecasting procedures and is adding new financial and management controls
and reporting systems. The Company's ability to compete effectively and to
manage future growth, if any, will require the Company to continue to improve
its financial and management controls, reporting systems and procedures and
budgeting and forecasting capabilities on a timely basis and expand, train and
manage its employee work force. There can be no assurance that the Company will
be able to do so successfully. The Company's failure to do so could have a
material adverse effect upon the Company's business, results of operations and
financial condition.

EXPANSION OF INDIRECT CHANNELS; POTENTIAL FOR CHANNEL CONFLICT. An integral
part of the Company's strategy is to expand indirect marketing channels using
VARs, dealers and distributors. The Company dedicates specific resources to
develop indirect marketing channels. There can be no assurance that the Company
will be able to attract and retain VARs, dealers and distributors that will be
able to market the Company's products effectively and will be qualified to
provide timely and cost-effective customer support and service. The Company's
agreements with such third parties do not restrict such third parties from
marketing competitive products. In many cases, these agreements may be
terminated by either party at any time without cause. Therefore, there can be no
assurance that any VAR, dealer or distributor will continue to represent the
Company's products, and the inability to attract and retain important VARs,
dealers or distributors could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, if the
Company is successful in selling products through these channels, the Company
expects that any material increase in the Company's indirect sales as a
percentage of total revenues will materially and adversely affect the Company's
average selling prices and gross margins due to the lower unit prices that the
Company receives when selling through indirect channels. Selling through
indirect channels limits the Company's direct contacts with its customers which
can hinder the Company's ability to accurately forecast sales, evaluate customer
satisfaction and recognize emerging customer requirements. The Company's
strategy of marketing its products directly to end-users and indirectly through
VARs, dealers and distributors may result in distribution channel conflicts. The
Company's direct sales efforts may compete with those of its indirect channels
and to the extent different resellers target the same customers, resellers may
also come into conflict with each other. Although the Company has attempted to
allocate the markets for its products among its distribution channels in a
manner to avoid potential conflicts, there can be no assurance that channel
conflict will not materially and adversely affect its relationships with
existing VARs, dealers or distributors or adversely affect its ability to
attract new VARs, dealers and distributors. See "Business - Sales and
Marketing."

RISKS ASSOCIATED WITH INTERNATIONAL CUSTOMERS AND OPERATIONS. The Company
derived approximately $12.2 million, $9.1 million, and $6.9 million, or 24.1%,
21.4% and 22.5% of its total revenues, from international customers in 1997,
1996 and 1995, respectively. The Company expects that such revenues will
continue to represent a significant percentage of its total revenues. The
Company believes that its continued growth will require expansion of its sales
in foreign markets. The Company intends to continue to expand its operations
outside of the United States and enter additional international markets, which
will require significant management attention and financial resources. Since
certain international markets have adopted MERISE or other modeling notations
which are different from the IDEF1X standard used by the Company's products,


                                       16
<PAGE>

acceptance of the Company's products in certain international markets may
require the customer to adopt a new modeling standard. In addition, acceptance
of the Company's products in certain international markets has required, and may
in the future require, extensive, time-consuming and costly modifications to the
Company's products to localize the products for use in particular markets. There
can be no assurance that the Company will be able to achieve market acceptance
of its products in international markets or maintain or increase international
market demand for its products and services. To date, the majority of the
Company's international license fees and services revenue have been denominated
in United States dollars. An increase in the value of the United States dollar
relative to foreign currencies could make the Company's products more expensive
and, therefore, potentially less competitive in foreign markets. The Company
does not currently hedge its exposure to foreign currency fluctuations. The
Company anticipates that, in the future, an increasing proportion of the
Company's sales will be denominated in foreign currencies. In such event,
foreign currency translations may contribute to significant fluctuations in the
Company's results of operations and the Company may enter into hedging
transactions to mitigate the effects of future exchange rate variations.
Additional risks inherent in the Company's international business activities
generally include unexpected changes in regulatory requirements, tariffs and
other trade barriers, longer accounts receivable payment cycles, difficulties in
managing international operations, potentially adverse tax consequences,
restrictions on repatriation of earnings, and the burdens of complying with a
wide variety of foreign laws. There can be no assurance that such factors will
not have a material adverse effect on the Company's future international
revenues and, consequently, on the Company's business, results of operations and
financial condition.

RELIANCE ON CERTAIN RELATIONSHIPS. The Company has established strategic
relationships with a number of organizations that it believes are important to
its worldwide sales, marketing and support activities, as well as to its product
development efforts. The Company's relationships with RDBMS vendors, application
development tool vendors, and other software vendors, hardware vendors and
consultants provide marketing and sales opportunities for the Company's direct
sales force, expand the distribution of its products, and broaden its product
offerings through product bundling. These relationships also assist the Company
in keeping pace with the technological and marketing developments of major
software vendors, and in certain instances, provide the Company with technical
assistance for the Company's product development efforts. There can be no
assurance that these companies, most of which have significantly greater
financial and marketing resources than the Company, will not develop or market
software products which compete with the Company's products in the future or
will not otherwise discontinue their relationships with or support of the
Company. The failure by the Company to maintain its existing relationships, or
to establish new relationships in the future, because of a divergence of
interests, acquisition of one or more of these third parties or other reason,
could have a material adverse effect on the Company's business, results of
operations and financial condition.

NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE. The client/server software market
is characterized by rapid technological change, changes in customer
requirements, frequent new product introductions and enhancements, and emerging
industry standards. The introduction of products embodying new technologies and
the emergence of new industry standards can render existing products obsolete
and unmarketable. Accordingly, the life cycles of the Company's products are
difficult to estimate. The Company's future success will depend in part upon its
ability to enhance current products and to develop and introduce new products
that respond to evolving customer requirements and keep pace with technological
developments and emerging industry standards, such as new operating systems,
hardware platforms, user interfaces, RDBMS software and third-party application
development tools. There can be no assurance that the Company will be successful
in developing and marketing product enhancements or new products that respond to
technological change, changes in customer requirements, or emerging industry
standards, that the Company will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of new products
and enhancements, or that any new products or enhancements that it may introduce
will achieve market acceptance. The inability of the Company for technological
or other reasons, to develop and introduce new products or enhancements in a
timely manner in response to changing customer requirements, technological
change or emerging industry standards, would have a material adverse effect on
the Company's business, results of operations and financial condition.


                                       17
<PAGE>

RISK OF PRODUCT DEFECTS OR DEVELOPMENT DELAYS. Software products such as those
offered by the Company often encounter development delays and may contain
undetected errors or failures when introduced or when new versions are released.
The Company has in the past experienced delays in the development of software of
up to one year in certain circumstances. There can be no assurance that, despite
testing by the Company and by current and potential customers, errors will not
be found in new products or releases after commencement of commercial shipments,
or that the Company will not experience development delays, resulting in delays
in the shipment of products and a loss of or delay in market acceptance, which
could have a material adverse effect on the Company's business, results of
operations and financial condition.

DEPENDENCE ON PROPRIETARY RIGHTS; RISKS OF INFRINGEMENT. The Company's success
is heavily dependent upon its proprietary technology. The Company regards its
software as proprietary, and relies primarily on a combination of contract,
copyright and trademark law, trade secrets, confidentiality agreements and
contractual provisions to protect its proprietary rights. The Company has no
patents or patent applications pending, and existing trade secrets and copyright
laws afford only limited protection. Despite the Company's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem, particularly in international markets and as a result of the growing
use of the Internet. The Company may in the future make source code for one or
more of its products available to certain of its customers and strategic
partners which may increase the likelihood of misappropriation or other misuse
of the Company's software. In selling its products, the Company relies primarily
on "shrink wrap" licenses that are not signed by licensees and, therefore, it is
possible that such licenses may be unenforceable under the laws of certain
jurisdictions. In addition, the laws of some foreign countries do not protect
the Company's proprietary rights to the same extent as do the laws of the United
States. There can be no assurance that the steps taken by the Company to protect
its proprietary rights will be adequate or that the Company's competitors will
not independently develop technologies that are substantially equivalent or
superior to the Company's technologies.

         The Company is not aware that any of its products, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products. As
the number of software products in the industry increases and the functionality
of these products further overlaps, the Company believes that software
developers may become increasingly subject to infringement claims. Any such
claims, with or without merit, can be time consuming and expensive to defend,
cause product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty agreements, if required, may not be available
on terms acceptable to the Company, or at all, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.

PRODUCT LIABILITY. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. In selling its products, the Company relies
primarily on "shrink wrap" licenses that are not signed by licensees and,
therefore, it is possible that such licenses may be unenforceable under the laws
of certain jurisdictions. As a result, it is possible that the limitation of
liability provisions contained in the Company's license agreements may not be
effective. Although the Company has not experienced any product liability claims
to date, the sale and support of products by the Company may entail the risk of
such claims. A successful product liability claim brought against the Company
could have a material adverse effect upon the Company's business, results of
operations and financial condition.

DEPENDENCE ON KEY PERSONNEL. The Company's future performance depends in
significant part upon the continued service of its key technical, sales and
marketing and senior management personnel, none of whom is bound by an
employment agreement. The loss of the services of one or more of the Company's
executive officers or other key employees could have a material adverse effect
on the Company's business, results of operations and financial condition. The
Company is a party to employment agreements with certain executive officers and
key employees. The Company's future success also depends on its continuing
ability to attract and


                                       18
<PAGE>

retain highly qualified technical, sales and managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company can retain its key technical, sales and managerial employees or
that it can attract, assimilate or retain other highly qualified technical,
sales and managerial personnel in the future.





















                                       19
<PAGE>

ITEM 2.  PROPERTIES

         The Company's corporate headquarters are located in Princeton, New
Jersey in leased facilities consisting of 70,155 square feet under a lease
expiring in 2005. The Company leases additional facilities and offices,
including facilities located in the Atlanta, Chicago, Austin, San Francisco,
Toronto and Washington, D.C. metropolitan areas. The Company also leases
international sales and support offices outside of North America in Sydney,
Australia; London, England; and Hamburg, Germany. While the Company believes
that its facilities are adequate for its present needs, the Company is
continually reviewing its needs and may add facilities in the future. The
Company believes that additional space would be available on commercially
reasonable terms.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is not subject to any lawsuits or other claims which, in
the opinion of management, based upon consultation with legal counsel, could
have a material adverse effect on the Company's business, financial condition,
and/or results of operations.

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

         (a)   A Special Meeting of Stockholders of the Company was held on
               October 30, 1997.

         (b)   The motions before stockholders were:

                  1.  To approve an amendment to the Company's Employee Stock
                      Purchase Plan which will (i) increase the maximum
                      number of shares of Common Stock authorized for
                      issuance over the term of the Purchase Plan by 500,000
                      shares, (ii) provide that a new twenty-four (24) month
                      offering period will begin in the event that the fair
                      market value of the Common Stock on any semi-annual
                      purchase date within an offering period is less than
                      the fair market value of the Common Stock on the start
                      date of such offering period and (iii) amend the
                      stockholder approval provisions consistent with recent
                      amendments to Rule 16b-3 of the Securities Exchange
                      Commission which exempt certain officer and director
                      transactions under the Purchase Plan from the
                      short-swing liability provisions of the Federal
                      securities laws.

                      Votes For          6,108,823
                      Votes Against        132,839
                      Abstentions           16,669

                  2.  To approve an amendment to the 1995 Stock Option/Stock
                      Issuance Plan to, among other things, effect an increase
                      of the number of shares of Common Stock of the Company
                      available for issuance by 1,000,000 shares.

                      Votes For          5,379,648
                      Votes Against        863,316
                      Abstentions           15,367


                                       20
<PAGE>




                                                      PART II

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

STOCKHOLDER INFORMATION

TRANSFER AGENT

American Stock Transfer
40 Wall Street
New York, NY 10005

MARKET INFORMATION

The Company's Common Stock began public trading over-the-counter on
October 17, 1995 under The Nasdaq National Market symbol, LGWX.

The high and low closing prices of the Company's  Common Stock on The Nasdaq
National  Market during 1997 and 1996 were:

QUARTER ENDED:                      HIGH          LOW
December 31, 1997                 $12.75        $7.94
September 30, 1997                  9.88         5.81
June 30, 1997                       7.00         4.88
March 31, 1997                      8.13         5.50

December 31, 1996                   8.63         5.50
September 30, 1996                 13.00         7.75
June 30, 1996                      21.25        12.00
March 31, 1996                     18.50        11.25

DIVIDENDS

The Company has not declared or paid dividends on its Common Stock. While
future dividend payments are at the discretion of the Board of Directors, the
Company is growth-oriented and there is no present intention to pay a cash
dividend on its Common Stock.

COMMON STOCKHOLDERS OF RECORD

At December 31, 1997, the Company estimates that there were approximately
7,500 stockholders of record of the Company's Common Stock.


                                       21
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS
(In thousands, except per share amounts)

<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31,                    1997        1996        1995        1994       1993
-----------------------               --------------------------------------------------------
<S>                                   <C>         <C>         <C>         <C>         <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA
License fees                          $  37,161   $  33,017   $  25,255   $  11,639   $  3,855
Maintenance & service fees               13,353       9,523       5,433       1,663        370
Total revenues                           50,514      42,540      30,688      13,302      4,225
Operating income (loss)                   6,017     (4,796)       2,152       1,161        678
Net income (loss)                         4,606     (3,062)       1,407         701        413
Diluted earnings (loss) per
  common share                        $    0.36   $  (0.27)   $    0.14   $    0.07   $   0.05
Shares used in per share computation*    12,859      11,335      10,373       9,721      7,716

CONSOLIDATED BALANCE SHEET DATA

Working capital                       $  37,168   $  28,297   $  30,896   $   1,300   $  1,647
Total assets                             59,450      48,369      43,891       6,551      2,923
Total debt                                    -           -           -           -          -
Redeemable preferred stock                    -           -           -       1,801      1,709
Total stockholders' equity            $  43,298   $  34,315   $  33,517   $   1,010   $    131

</TABLE>

* For an explanation of the number of shares used to compute diluted earnings
(loss) per share, see Note 2 of Notes to Consolidated Financial Statements.



                                      22
<PAGE>


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

The discussion in this Annual Report contains forward-looking statements that
involve risks and uncertainties. Such statements are only predictions and actual
events or results may differ materially. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in the
Business Considerations in Item 1 as well as those discussed in this section and
elsewhere in this Annual Report.

OVERVIEW

Logic Works was founded in 1988 to develop, market and support modeling and
design solutions. The Company commenced commercial shipments of its ERwin
software in 1990. Since inception, a majority of the Company's revenues have
been derived from licenses for ERwin and related maintenance and support,
training and consulting. The Company currently expects that ERwin-related
revenues will continue to account for a substantial portion of the Company's
revenues for the foreseeable future and, as such, the Company's future operating
results are still dependent upon the continued market acceptance of ERwin and
related enhancements.

         In 1997, the Company made significant strides in addressing the needs
of enterprise accounts by utilizing a solution sales approach highlighting the
benefits of a focused and integrated software solution. During 1997, total
revenues increased $8.0 million, or 18.8%, to $50.5 million from $42.5 million
in 1996. The Company's growth rate accelerated in the second half of 1997 to 30%
over the year earlier amounts due to an increase in sales personnel and by
improved sales productivity resulting from an increased penetration into the
Company's targeted enterprise accounts. The increased revenue levels and
productivity, in addition to certain cost cutting measures implemented during
the fourth quarter of 1996, resulted in improved profitability as earnings rose
to $0.36 per share in 1997 from a loss of $0.27 in 1996. Revenues from the
international sector increased to 24.1% of total revenue in 1997 from 21.4% of
total revenue in 1996. Management believes that the mix of revenues contributed
from international markets will continue to increase in 1998.

         Since inception, the Company has invested significant resources in
developing its client/server database software, as well as building its sales
and marketing organizations. As a result, the Company's operating expenses have
increased in absolute dollar amounts since inception. The Company expects to
hire additional research and development, sales and marketing personnel and to
increase its promotional and advertising expenditures in 1998.


                                      23
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth certain operating data as a percentage of total
revenues for the periods indicated (subtotals not adjusted for rounding):

                                       YEAR ENDED DECEMBER 31,
                                    1997         1996         1995
---------------------------------------------------------------------
PERCENTAGES OF REVENUES:
Revenues:
   License fees                     73.6%        77.6%        82.3%
   Maintenance & service fees       26.4         22.4         17.7
---------------------------------------------------------------------
   Total revenues                  100.0        100.0        100.0
---------------------------------------------------------------------

Cost of revenues:
   License fees                      5.6          5.4          6.9
   Maintenance & service fees        6.9          8.9          9.1
---------------------------------------------------------------------
   Total cost of revenues           12.5         14.3         16.0
---------------------------------------------------------------------
Gross margin                        87.5         85.7         84.0
---------------------------------------------------------------------
Operating expenses:
   Sales and marketing             49.2         56.5         53.4
   Research and development        14.2         14.2         12.9
   General and administrative      12.2         14.0         10.7
   Acquired In-process research
     & development                 -             2.3         -
    Special charges                -             9.9         -
---------------------------------------------------------------------
   Total operating expenses        75.6         96.9         77.0
---------------------------------------------------------------------
Operating income (loss)            11.9        (11.2)         7.0
---------------------------------------------------------------------
Other income, net                   2.7          2.2          0.4
---------------------------------------------------------------------
Income (loss) before
income taxes                       14.6         (9.0)         7.4
---------------------------------------------------------------------
Income tax provision (benefit)      5.5         (1.9)         2.8
---------------------------------------------------------------------
Net income (loss)                   9.1%        (7.1)%        4.6%
=====================================================================

GROSS MARGINS:

Gross margin on license fees       92.4%        93.0%        91.6%
Gross margin on maintenance &
service fees                       73.9%        60.1%        48.5%

TOTAL REVENUES. The Company's revenues are derived from two sources: license
fees and maintenance and service fees. Total revenues increased 18.8% to $50.5
million in 1997 from $42.5 million in 1996 and increased 38.4% in 1996 from
$30.7 million in 1995. North American revenues (including Canada) increased
14.7% to $38.3 million in 1997 from $33.4 million in 1996 and increased 40.3% in
1996 from $23.8 million in 1995. The Company derived approximately $12.2
million, $9.1 million and $6.9 million, or 24.1%, 21.4% and 22.5% of its total
revenues from international customers in 1997, 1996 and 1995, respectively. To
date, the majority of the Company's international license fees and maintenance
and service fees have been denominated in U. S. dollars and, accordingly, the
Company has not hedged its exposure to foreign currency fluctuations. During the
fourth quarter of 1997, the U.S. dollar strengthened against certain major
international currencies. The Company believes that the strengthening of the
U.S. dollar against international currencies will not have a material adverse
effect on consolidated revenues. The Company believes it has adequate revenue
and accounts receivable reserves in total and specifically for this sector of
business. The Company anticipates that, in the future, an increasing proportion
of the Company's sales will be from the international sector. In such event, an
increasingly significant portion of the Company's revenues will be subject to
the risks inherent in international operations. These risks include, but are not


                                      24
<PAGE>

limited to, unexpected changes in regulatory requirements, tariffs and other
barriers, and potentially adverse tax consequences.

LICENSE FEES. License fees include revenues from software licensed either
directly from the Company or through value added resellers, dealers or
distributors, and from the resale of third party software. License fees
increased 12.7% to $37.2 million in 1997 from $33.0 million in 1996 and
increased 30.4% in 1996 from $25.3 million in 1995. These increases resulted
from increased market acceptance of the Company's products, primarily ERwin,
which was stimulated by the Company's sales and marketing activities, including
the expansion of the Company's direct and indirect distribution channels. The
ERwin product line accounted for 78.3%, 78.9% and 89.5% of the Company's license
fees for 1997, 1996 and 1995, respectively. The Company anticipates that this
product will continue to generate increased license fee revenue in absolute
dollars, but not as a percentage of license fees in the future. In 1996, the
Company introduced ModelMart, a workgroup model management tool, which accounted
for 10.0% of license fees in 1997 and 9.0% of license fees in 1996. The Company
anticipates that ModelMart will account for a larger percentage of license fees
in the future. The remainder of the license fees were received primarily from
licenses of BPwin and Universal Directory, the Company's information directory
product that enables users to index, search and publish the information stored
in their data warehouse/datamart which began shipping in March, 1997.

COST OF LICENSE FEES. Cost of license fees consists primarily of the costs of
product media, duplication, manuals and shipping for software licensed to the
Company's customers. Cost of license fees as a percentage of license fee
revenues was 7.6%, 7.0% and 8.4% for the years ended 1997, 1996 and 1995
respectively. The dollar increase in the cost of license fees reflects the
growth in license fees during the periods presented. The percentage increase in
the cost of license fees as a percentage of license fees in 1997 is primarily
the result of the redesign of the packaging of all the Company's products to
create a unified brand image of the product suite. The decrease in the cost of
license fees as a percentage of license fees in 1996 resulted from the
termination of an agreement with Sybase Corp.'s ("Sybase") Powersoft Unit in
August, 1995 which had permitted the Company to sell Powersoft's PowerBuilder
product as part of an ERwin/PowerBuilder bundled product. Cost of license fees
during 1995 included the cost of purchasing PowerBuilder from Sybase for
inclusion in the bundle. The Company anticipates entering into, from time to
time, other arrangements under which the Company will resell third party
products which could, result in future increases in costs of license fees.

MAINTENANCE & SERVICE FEES. Maintenance and service fees increased 41.1% to
$13.4 million in 1997 from $9.5 million in 1996 and increased 75.9% in 1996 from
$5.4 million in 1995. The growth in maintenance and service fees during the
periods presented was primarily the result of increased maintenance fees as a
result of a targeted effort from the sales force to increase the renewal rate on
maintenance agreements.

COST OF MAINTENANCE & SERVICE FEES. Cost of maintenance and service fees
consists primarily of personnel and related costs for training, consulting
and payments to third party service providers. Cost of maintenance and
services also reflects the costs of customer support as well as costs
associated with product media, duplication, manuals and shipping product
upgrades to customers who have subscribed to the Company's maintenance plans.
Cost of maintenance and service fees as a percentage of maintenance and
service fee revenues was 26.1%, 39.9% and 51.5% for the years ended 1997,
1996 and 1995, respectively. The percentage decrease in cost for these
periods is the result of a larger increase in maintenance fees which has a
lower cost than training and consulting services. Training and consulting
fees generate lower margins than maintenance fees because of the labor
intensive nature of training and consulting. In 1998, the Company believes
that the cost of services as a percentage of maintenance and service fees
will likely increase as revenues from training and consulting services become
a larger percentage of maintenance and service fees.

SALES AND MARKETING. Sales and marketing expenses consist primarily of salaries,
commissions and bonuses paid to sales and marketing personnel, as well as travel
and promotional expenses. Sales and


                                      25
<PAGE>

marketing expenses increased to $24.9 million in 1997 from $24.0 million in
1996 and from $16.4 million in 1995 and represented 49.2%, 56.5% and 53.4% of
total revenues, respectively. The decrease in sales and marketing as a
percentage of total revenues is attributable to an increased level of
productivity from the Company's sales force in 1997. The 1997 dollar increase
in sales and marketing reflects the continued expansion of its direct sales
force. In March 1997, the Company also hosted its first International User
Conference in New Orleans. The significant growth in the Company's sales and
marketing expenses in 1996 and 1995 reflected the expansion of its direct
field sales force and the establishment and development of its European sales
and marketing staff. The dollar increase in sales and marketing during the
periods presented also reflects increased advertising and promotional
programs related to releases of extended versions of ERwin, ModelMart, BPwin
and TESTBytes and releases of new products such as Universal Directory, in
March 1997 and OR Compass, in December 1997. During each of the periods
presented, the Company has increased the number of employees in its sales and
marketing organization. The sales and marketing headcount was 134, 113, and
88 at December 31, 1997, 1996 and 1995, respectively.

RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of
software engineering, personnel costs, software for development purposes and
costs of outside consultants hired by the Company to assist in its product
development efforts. Research and development expenses increased to $7.2 million
in 1997 from $6.0 million in 1996 and from $4.0 million in 1995 and represented
14.2%, 14.2% and 12.9% of total revenues, respectively. The growth in research
and development expenses during the periods presented was the result of the
Company's ongoing development of extended versions of ERwin, BPwin, ModelMart
and TESTBytes, the development of Universal Directory, and the continuation of
its quality control and quality assurance programs. In addition, during 1997,
the Company began developing a modeling tool that will enable the effective
design, generation and maintenance of next generation object relational
databases. This product, Logic Works OR Compass, began shipping in December
1997. Research and development expenses are generally charged to operations as
they are incurred and have not been capitalized, since capitalizable costs have
not been material.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of administrative, executive and financial personnel,
provision for doubtful accounts and outside professional fees. General and
administrative expenses increased to $6.1 million in 1997 from $6.0 million in
1996 and from $3.3 million in 1995 and represented 12.2%, 14.0% and 10.7% of
total revenues, respectively. The percentage decrease from 1996 to 1997 resulted
from the Company's concerted effort to control costs and specifically general
and administrative headcount. The increase in general and administrative
expenses, from 1995 to 1996 related to the overall expansion of the Company's
operations and facilities, including the relocation of its corporate office in
February 1996.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. On September 30, 1996, the Company
acquired the source code for TESTBytes, an automatic test data generation tool,
from a privately-held software company. The total cost of the transaction,
including acquisition costs, was approximately $1.6 million. Subsequent to an
independent valuation, the Company recorded a charge of $1.0 million for the
acquisition of in-process research and development, and acquisition costs in the
quarter ended September 30, 1996.

SPECIAL CHARGES

RESTRUCTURING CHARGES. The Company implemented a strategic restructuring plan
and recorded a restructuring charge of $2.2 million in the fourth quarter of
1996. The focus of the Company's restructuring plan was to streamline its
operations by reducing operating expenses through workforce reductions,
consolidating and reorganizing certain operations and writing off certain fixed
assets and other assets whose value had diminished. The restructuring included
the closing and moving of several offices and the termination of approximately
25 employees across all departments and around the world. All 25 employees were
terminated during the fourth quarter of 1996. Of the total severance costs, $0.2
million and $0.8 million remained accrued at December 31, 1997 and 1996,
respectively.


                                      26
<PAGE>

CHANGE IN ESTIMATE AND OTHER NONRECURRING EXPENSES. During the fourth quarter of
1996, the Company completed a review of its depreciation policy for computer
equipment. The Company determined that, as a result of the change in its
purchasing patterns, the competitive nature of its products, and the continued
improvements in technology, the actual lives of computer equipment were shorter
than the useful lives for depreciation purposes. Therefore, the Company changed
the depreciable lives from five years to two years. The amount required to
adjust asset values of computer equipment resulting from this change in
accounting estimate was $0.8 million.

         The remaining $1.1 million of nonrecurring costs were the result of
write-downs to net realizable value of certain assets whose value had diminished
as a result of activities in the fourth quarter of 1996 and the write-off of
excess lease costs at the Company's corporate headquarters.

INCOME TAXES. The Company recorded a tax provision at an effective rate of
37.4% in 1997 and 38.0% for 1995.  The Company recorded a tax benefit at an
effective tax rate of 21.0% for 1996. These effective tax rates were based on
the federal and state statutory rates. See Note 6 of Notes to Consolidated
Financial Statements.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1997, the Financial
Accounting Standards Board issued Statement No. 130, "REPORTING COMPREHENSIVE
INCOME" ("FAS 130"), effective for years beginning after December 15, 1997.
FAS 130 establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. The adoption of FAS 130 will not affect results of operations or
financial position, but will affect the disclosure of shareholder equity
changes in such items as foreign currency translation adjustments and the
unrealized gains (losses) of available-for-sale securities. Management is
currently evaluating the disclosure impact of FAS 130.

         In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION"
("FAS 131"), effective for years beginning after December 15, 1997. FAS 131
requires that a public company report financial and descriptive information
about its reportable operating segments in annual and interim financial
statements. The adoption of FAS 131 will not affect results of operations or
financial position, but may affect the Company's reporting of segment
information. Management is currently evaluating the disclosure impact of FAS
131.

         In October 1997, the AICPA issued SOP 97-2, "SOFTWARE REVENUE
RECOGNITION" ("SOP 97-2"), which changes the requirements for revenue
recognition effective for transactions that the Company will enter into
beginning January 1, 1998. The Company believes the impact of the SOP 97-2 will
not materially affect results of operations or financial position.

IMPACT OF YEAR 2000. The Year 2000 Issue is the result of computer programs
being written using two digits rather than four to define the applicable year.
Any of the computer programs used by the Company in its operations, that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.

         During the last eighteen months, the Company has implemented new
financial, order processing and sales contact management software packages which
are all Year 2000 compliant. As a result of the replacement of its information
technology, the Company believes that it will not be required to further modify
or replace significant portions of its software in order for its computer
systems to function properly with respect to dates in the year 2000 and
thereafter. The Company presently believes that the Year 2000 Issue will not
pose significant operational problems for its computer systems nor will it have
a material impact on results of operations of the Company.

         The Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 Issues. However, there can be no guarantee that
the systems of other companies on which the Company's systems rely will be
timely converted and would not


                                      27
<PAGE>

have an adverse effect on the Company's systems. The Company has determined
it has no material exposure to contingencies related to the Year 2000 Issue
for the products it sells and has sold.

PROPOSED MERGER. On March 14, 1998, the Company and PLATINUM TECHNOLOGY, INC.
("PLATINUM") announced the execution of a definitive merger agreement (the
"Merger Agreement") pursuant to which PLATINUM will acquire the Company. Under
the terms of the Merger Agreement, the Company will become a wholly-owned
subsidiary of PLATINUM and PLATINUM will exchange 0.5769 of a share of PLATINUM
common stock for each share of the Company's common stock. PLATINUM will also
assume the Company's stock options which will convert into options to purchase
PLATINUM common stock at the same exchange ratio. It is expected that the
acquisition - anticipated to be completed in mid-1998 - will qualify as a
tax-free reorganization and be accounted for as a pooling of interests. This
acquisition is subject to the filing of a registration statement with the
Securities and Exchange Commission, the approval of the stockholders of the
Company and customary legal and regulatory conditions.

LIQUIDITY AND CAPITAL RESOURCES. At December 31, 1997, the Company had cash and
cash equivalents of $26.2 million and marketable securities of $12.2 million.

         The Company's operating activities provided cash of $10.1 million, $0.9
million, and $2.5 million in 1997, 1996 and 1995, respectively. Net cash
provided during these periods consisted primarily of net income (loss) for the
respective periods, increases in depreciation and amortization, accrued
compensation and other accrued liabilities and deferred revenue, offset by
increases in accounts receivable and other assets.

         Net cash and cash equivalents used in investing activities were $6.2
million, $2.6 million and $11.9 million in 1997, 1996 and 1995, respectively.
Net cash used during these periods consisted primarily of purchases of
marketable securities, the acquisition of TESTBytes assets, increased purchases
of property and equipment resulting from the growing headcount, and the move of
the Company's corporate headquarters from a 27,000 square foot facility to a
70,000 square foot facility in 1996. This activity is offset by the proceeds
received from marketable securities which matured in 1997 and 1996.

         Net cash provided by financing activities was $1.9 million, $2.4
million, and $28.1 million in 1997, 1996, and 1995, respectively. Net cash
provided during these periods included the initial public offering of the
Company's Common Stock completed in October 1995, the exercising of options to
purchase shares of the Company's Common Stock, borrowing and repayment of a term
loan and line of credit and dividends paid on redeemable preferred stock.

         The Company believes that its existing cash balances together with cash
flow from operations will be sufficient to meet its cash requirements through
1998.


                                      28
<PAGE>

ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See pages F-1 to F-17 herein.

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

         None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information in response to this item is incorporated herein by reference
to "Election of Directors" in Logic Works, Inc.'s Proxy Statement to be filed
with the Securities and Exchange Commission (the "SEC").

ITEM 11. EXECUTIVE COMPENSATION

Information in response to this item is incorporated herein by reference to
"Executive Compensation" in the Company's Proxy Statement to be filed with the
SEC.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information in response to this item is incorporated herein by reference to
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement to be filed with the SEC.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information in response to this item is incorporated herein by reference to
"Certain Transactions" in the Company's Proxy Statement to be filed with the
SEC.


                                      29
<PAGE>

PART IV

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

(a)(1)  The response to this portion of Item 14 is submitted as a
separate section of this report.


   (2)  FINANCIAL STATEMENT SCHEDULE

   Schedule II  -  Valuation and Qualifying Accounts for the three  years
ended December 31, 1997

   Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in
Consolidated Financial Statements or notes thereto.

   (3)  EXHIBITS

NUMBER                                      DESCRIPTION

3.1*     Second Amended and Restated Certificate of Incorporation of the
         Registrant.
3.2*     Amended and Restated By-Laws of the Registrant.
4.1*     See Exhibits 3.1 and 3.2 for provisions of the Certificate of
         Incorporation and By-laws of the Registrant defining rights of holders
         of Common Stock of the Registrant.
10.1*    Series A Preferred Stock Purchase Agreement.
10.2*    1995 Stock Option/Stock Issuance Plan.
10.3*    1995 Employee Stock Purchase Plan.
10.4     Lease agreement, dated October 20, 1995, between the Registrant and
         West Windsor Associates L.P. Incorporated by reference to Exhibit 10.8
         filed with the Company's Form 10K in March 1996.
10.5     Asset Purchase Agreement By and Among Logic Works Inc. and
         InfoStructures, Inc.
10.6#    Employment Agreement, dated April 21, 1997, between the Registrant
         and Benjamin C. Cohen.
21.1#    List of subsidiaries.
23.1#    Consent of Ernst & Young LLP.
27#      Financial Data Schedule

------------
#  Filed herewith.
*  Incorporated by reference to Exhibits filed with the Company's Registration
   Statement on Form S-1  File No. 33-96134.

(b)  REPORTS ON FORM 8-K

None.

                                      30
<PAGE>


SIGNATURES

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

LOGIC WORKS, INC.

By:  /s/ Gregory A. Peters                                        March 27, 1998
     --------------------------------------------
     Gregory A. Peters, Chief Executive Officer,
     President


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

                            SIGNATURE                                 DATE

By:  /s/ Gregory A. Peters                                       March 27, 1998
     ---------------------------------------------------------
     Gregory A. Peters, Chief Executive Officer, President and
     Director (Principal Executive Officer)

By:  /s/ Gregory A. Peters                                       March 27, 1998
     ---------------------------------------------------------
     Gregory A. Peters, Chief Financial
     Officer (Principal Financial Officer)

By:  /s/ Kenneth W. Zeng                                         March 27, 1998
     ---------------------------------------------------------
     Kenneth W. Zeng, Controller (Principal Accounting Officer)

By:  /s/ Benjamin C. Cohen                                       March 27, 1998
     ---------------------------------------------------------
     Benjamin C. Cohen, Chairman of the Board

By:  /s/ Paul E. Blondin                                         March 27, 1998
     ---------------------------------------------------------
     Paul E. Blondin, Director

By:  /s/ Charles Federman                                        March 27, 1998
     ---------------------------------------------------------
     Charles Federman, Director

By:  /s/ Richard A. Hosley,II                                    March 27, 1998
     ---------------------------------------------------------
     Richard A. Hosley, II, Director


                                      31
<PAGE>

ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Auditors                                         F-2
Consolidated Balance Sheets                                            F-3
Consolidated Statements of Operations                                  F-4
Consolidated Statements of Cash Flow                                   F-5
Consolidated Statements of Changes in Stockholders' Equity             F-6
Notes to Consolidated Financial Statements                             F-7
















                                      F-1
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


The Board of Directors
Logic Works, Inc.

We have audited the accompanying consolidated balance sheets of Logic Works,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flow for each of the three years in the period ended December 31, 1997. Our
audits also included the financial statement schedule listed in the Index at
Item14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Logic
Works, Inc. and subsidiaries at December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flow for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.

                                         Ernst & Young LLP

Princeton, New Jersey
February 10, 1998,
except for Note 14, as to which the date is
March 14, 1998


                                      F-2
<PAGE>

CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

<TABLE>
<CAPTION>

                                                          DECEMBER 31,
                                                        1997        1996
--------------------------------------------------------------------------
<S>                                                  <C>         <C>
ASSETS
Current Assets:
   Cash and cash equivalents                          $ 26,186    $ 20,385
   Marketable securities                                12,188       8,109
   Accounts receivable (less allowance for              11,211      10,182
    doubtful accounts and sales returns of $2,317
    and $1,948 in 1997 and 1996, respectively)
   Prepaid expenses                                        514         620
   Other current assets                                    581         349
   Deferred taxes                                        2,640       2,706
--------------------------------------------------------------------------
    Total current assets                              $ 53,320    $ 42,351
Property and equipment, net                              4,305       3,761
Purchased software, net                                    496         594
Due from officer                                           250         250
Deferred taxes                                             913         646
Other assets                                               166         767
--------------------------------------------------------------------------
Total Assets                                          $ 59,450    $ 48,369
==========================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                   $  1,923    $  2,394
   Accrued compensation and related liabilities          2,574       2,014
   Accrued restructuring charges                           247       1,151
   Other accrued liabilities                             4,135       3,173
   Deferred revenue                                      6,806       5,296
   Income taxes payable                                    467          26
--------------------------------------------------------------------------
Total current liabilities                               16,152      14,054
Stockholders' equity:
   Preferred stock Series B, $0.01 par value;                -           -
    2,000,000 authorized, none outstanding
   Common stock, $0.01 par value; 35,000,000               126         117
    shares authorized, 12,605,398 and 11,689,336
    shares issued in 1997 and 1996, respectively
   Additional paid-in capital                           39,647      35,263
   Notes receivable from officers                          (25)        (25)
   Retained earnings (deficit)                           3,790        (816)
   Cumulative foreign currency translation                  39          55
    adjustment
   Common stock held in treasury - at cost;
    77,625 shares outstanding at December 31, 1997
    and 1996, respectively.                               (279)       (279)
--------------------------------------------------------------------------
Total stockholders' equity                              43,298      34,315
--------------------------------------------------------------------------
Total liabilities and stockholders' equity            $ 59,450    $ 48,369
==========================================================================

</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                      1997        1996        1995
------------------------------------------------------------------------------------
<S>                                                <C>         <C>         <C>
REVENUES:
   License fees                                    $  37,161   $  33,017   $  25,255
   Maintenance & service fees                         13,353       9,523       5,433
------------------------------------------------------------------------------------
      Total revenues                                  50,514      42,540      30,688
------------------------------------------------------------------------------------
Costs of revenues:
   Cost of license fees                                2,843       2,306       2,125
   Cost of maintenance & service fees                  3,490       3,801       2,796
------------------------------------------------------------------------------------
      Total costs of revenues                          6,333       6,107       4,921
------------------------------------------------------------------------------------
Gross margin                                          44,181      36,433      25,767

OPERATING EXPENSES:
   Sales and marketing                                24,864      24,049      16,376
   Research and development                            7,154       6,031       3,954
   General and administrative                          6,146       5,973       3,285
   Acquired In-process research development                -         995           -
   Special charges                                         -       4,181           -
------------------------------------------------------------------------------------
      Total operating expenses                        38,164      41,229      23,615
------------------------------------------------------------------------------------
Operating income (loss)                                6,017      (4,796)      2,152
Interest and other expense                              (308)       (361)       (194)
Interest and other income                              1,654       1,277         315
------------------------------------------------------------------------------------
Income (loss) before income taxes                      7,363      (3,880)      2,273
Income tax provision (benefit)                         2,757        (818)        866
------------------------------------------------------------------------------------
Net income (loss)                                      4,606      (3,062)      1,407
Less: Preferred stock cash dividends                       -           -          79
      Accretion of preferred stock redemption
       requirement                                         -           -          17
------------------------------------------------------------------------------------
Net income (loss) applicable to common shares      $   4,606   $  (3,062)   $  1,311
====================================================================================
Net income (loss) per common share:
   Basic                                           $    0.38   $   (0.27)   $   0.15
====================================================================================
   Diluted                                         $    0.36   $   (0.27)   $   0.14
====================================================================================
Weighted average common and common equivalent
   shares outstanding:
   Basic                                              12,125      11,335       8,595
====================================================================================
   Diluted                                            12,859      11,335      10,373
====================================================================================
</TABLE>

See acompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOW
(dollars in thousands)

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                      1997        1996        1995
------------------------------------------------------------------------------------
<S>                                                <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                  $   4,606   $  (3,062)   $  1,407
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
   Depreciation and amortization                       1,963       2,123         616
   Compensation element of common
     stock, warrants and stock option grants             100         271         438
   Acquired in-process research and development          -           995         -
   Changes in operating assets and liabilities:
      (Increase) in accounts receivable, net          (1,029)     (2,193)     (4,533)
      (Increase) in prepaid expenses and other
         current assets                                 (127)        (59)       (392)
      (Increase) decrease in other assets                275        (136)        117
      Increase (decrease) in accounts payable           (471)       (189)      1,389
      Increase (decrease) in restructuring charge       (516)      1,151         -
      Increase in accrued compensation and all
         other accrued liabilities                     1,522       2,027       1,624
      Increase in deferred revenue                     1,510       2,216       1,635
      Increase in income taxes payable                 2,481         397         925
      Changes in deferred taxes, net                    (201)     (2,605)       (748)
------------------------------------------------------------------------------------
Net cash provided by operating activities             10,113         936       2,478
------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment                    (1,848)     (3,387)     (1,564)
Acquisition of TESTBytes                                 -        (1,075)        -
Purchase of marketable securities                    (19,773)    (11,428)    (10,217)
Proceeds from sale of marketable securities           15,693      13,537         -
Other                                                   (233)       (289)        (93)
------------------------------------------------------------------------------------
Net cash used in investing activities                 (6,161)     (2,642)    (11,874)
------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from initial public offering                    -           -        27,908
Proceeds from exercise of options and warrants         1,865       1,988         769
Dividends paid                                           -           -          (179)
Repayments from loans to officers                        -           681         -
Loans to officers                                        -          (250)       (421)
Borrowings from bank                                     -           -           950
Repayments to bank                                       -           -          (950)
------------------------------------------------------------------------------------
Net cash provided by financing activities              1,865       2,419      28,077
------------------------------------------------------------------------------------

Effect of foreign exchange rate on cash                  (16)         44          11
------------------------------------------------------------------------------------

Net increase in cash and cash equivalents              5,801         757      18,692
Cash and cash equivalents at beginning of period      20,385      19,628         936
------------------------------------------------------------------------------------
Cash and cash equivalents at end of period         $  26,186   $  20,385    $ 19,628
====================================================================================
Supplemental disclosure of cash flow information
Cash paid during the period for interest           $      23   $     -      $     38
Cash paid during the period for income taxes       $   1,514   $   1,463    $    134

</TABLE>

See accompanying notes to consolidated financial statements


                                      F-5
<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands)

<TABLE>
<CAPTION>
                                                        Common Stock                                                  Retained
                                                     ----------------------  Additional    Notes                      Earnings
                                                      Number of               Paid-in    Receivable      Deferred   (Accumulated
                                                        Shares      Amount    Capital   from Officers  Compensation    Deficit)
                                                     ----------------------------------------------------------------------------
<S>                                                   <C>           <C>       <C>         <C>         <C>            <C>
Balance at January 1, 1995                            5,845,544     $   58    $   642     $     -     $       (175)  $     935

Stock options expense                                                             278
Issuance of common shares                             3,074,000         31     28,228
Conversion of redeemable preferred stock              2,400,000         24      1,694
Stock options exercised                                 316,332          3      1,077                          (97)
Tax benefit from stock options exercised                                          352
Note receivable from officer                                                                 (565)
Amortization of deferred compensation                                                                          160
Retirement of treasury stock                           (600,000)        (6)      (444)
Foreign currency translation adjustments
Net income                                                                                                               1,407
Dividends and accretion of Series A Preferred Stock                                                                        (96)
                                                     ----------------------------------------------------------------------------
Balance at December 31, 1995                         11,035,876        110     31,827        (565)            (112)      2,246

Stock options expense                                                             209
ESPP shares issued                                      137,915          2        934
Stock options exercised                                 515,545          5      1,047
Tax benefit from stock options exercised                                        1,297
Purchase of treasury stock                                                        (51)        279               51
Repayment note receivable from officer                                                        261
Deferred compensation expense                                                                                   61
Foreign currency translation adjustments
Net loss                                                                                                                (3,062)
                                                     ----------------------------------------------------------------------------
Balance at December 31, 1996                         11,689,336        117     35,263         (25)               -        (816)

Stock options expense                                                             100
ESPP shares issued                                      119,954          1        686
Stock options exercised                                 796,108          8      1,558
Tax benefit from stock options exercised                                        2,040
Foreign currency translation adjustments
Net income                                                                                                               4,606
                                                     ----------------------------------------------------------------------------
Balance at December 31, 1997                         12,605,398      $ 126    $39,647     $   (25)          $    -     $ 3,790
                                                     ============================================================================

<CAPTION>
                                                                       Treasury Stock
                                                      Cumulative      --------------------         Total
                                                      Translation     Number of                 Stockholders'
                                                      Adjustments      Shares       Amount         Equity
                                                     --------------------------------------------------------
<S>                                                     <C>           <C>           <C>          <C>
Balance at January 1, 1995                              $    -         600,000      $   (450)   $  1,010

Stock options expense                                                                                278
Issuance of common shares                                                                         28,259
Conversion of redeemable preferred stock                                                           1,718
Stock options exercised                                                                              983
Tax benefit from stock options exercised                                                             352
Note receivable from officer                                                                        (565)
Amortization of deferred compensation                                                                160
Retirement of treasury stock                                          (600,000)          450           -
Foreign currency translation adjustments                    11                                        11
Net income                                                                                         1,407
Dividends and accretion of Series A Preferred Stock                                                  (96)
                                                     --------------------------------------------------------
Balance at December 31, 1995                                11               -             -      33,517

Stock options expense                                                                                209
ESPP shares issued                                                                                   936
Stock options exercised                                                                            1,052
Tax benefit from stock options exercised                                                           1,297
Purchase of treasury stock                                              77,625          (279)          -
Repayment note receivable from officer                                                               261
Deferred compensation expense                                                                         61
Foreign currency translation adjustments                    44                                        44
Net loss                                                                                          (3,062)
                                                     --------------------------------------------------------
Balance at December 31, 1996                                55          77,625          (279)     34,315

Stock options expense                                                                                100
ESPP shares issued                                                                                   687
Stock options exercised                                                                            1,566
Tax benefit from stock options exercised                                                           2,040
Foreign currency translation adjustments                   (16)                                      (16)
Net income                                                                                         4,606
                                                     --------------------------------------------------------
Balance at December 31, 1997                            $   39       $  77,625        $ (279)   $ 43,298
                                                     ========================================================
</TABLE>

See accompanying notes to consolidated financial statements

                                      F-6
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

1. BUSINESS

Logic Works, Inc. (the "Company") is a leading provider of modeling and design
solutions. These solutions cover client/server database design, data warehouse
and business process re-engineering software. The Company was incorporated in
Delaware in 1985 and operates in one industry segment. The Company has
subsidiaries in Australia, Canada, England, Germany and France to further
broaden its global market. The Company markets its products worldwide primarily
through direct and indirect sales and marketing channels.

2. ACCOUNTING POLICIES

CONSOLIDATION

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

USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid instruments with an original maturity of
three months or less at the time of purchase to be cash equivalents. The
carrying amount reported in the balance sheet for cash and cash equivalents
approximates fair value.

CREDIT RISK

Concentration of credit risk with respect to trade receivables is limited due to
the Company's large number of customers and their broad dispersion across many
industries and geographic areas. No customer accounted for more than 10% of the
Company's total revenues in 1997, 1996 or 1995.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation or
amortization. For financial statement purposes, depreciation is computed using
the straight-line method over the estimated useful lives of the related assets
which range from two to seven years (see Note 11). Accelerated methods are used
for income tax reporting purposes over the estimated useful lives of the related
assets which range from three to seven years. Leasehold improvements are
amortized over the shorter of (i) the useful life of the improvement or (ii) the
term of the related lease.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities of the Company's foreign subsidiaries are translated at
the rate of exchange in effect at year-end and revenues and expenses are
translated at the weighted average exchange rates during the year. Translation
adjustments are reflected as a separate component of stockholders' equity.
Foreign currency transaction gains and losses are included in the accompanying
consolidated statements of operations and are not material for the years
presented.

REVENUE RECOGNITION

The Company licenses software to end users under license agreements. The Company
recognizes revenues in accordance with Statement of Position 91-1 entitled
"Software Revenue Recognition" ("SOP- 91"), issued by the American Institute of
Certified Public Accountants. SOP-91 requires that software license revenues be
recognized upon the receipt of a valid order and product shipment, provided no
significant remaining obligation to the customer exists. Maintenance
(post-contract support) revenues are recognized on a straight-line basis over
the term of the


                                      F-7
<PAGE>

maintenance agreement (generally one year). Maintenance revenues
not currently recognized are recorded as deferred revenues. Revenues for other
services and training are recognized upon performance of the service.

In October 1997, the AICPA issued SOP 97-2, SOFTWARE REVENUE RECOGNITION ("SOP
97-2"), which changes the requirements for revenue recognition effective for
transactions that the Company will enter into beginning January 1, 1998. The
Company believes the impact of the SOP 97-2 will not materially affect results
of operations or financial position.

STOCK BASED COMPENSATION

The Company grants stock options for a fixed number of shares to employees with
an exercise price generally equal to the fair value of the shares on the date of
the grant. As permitted by Statement of Financial Accounting Standards No. 123,
("FAS 123") ACCOUNTING AND DISCLOSURE OF STOCK BASED COMPENSATION, the Company
has elected to account for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, ("APB 25") ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and accordingly, recognizes no compensation expense for these stock
option grants. The Company has from time to time granted options to certain
employees at exercise prices less than the estimated fair value of the Common
Stock at the time of grant, and has recognized as compensation expense the
excess of the deemed value for accounting purposes of the Common Stock issuable
upon the exercise of such options over the exercise price of such options. The
compensation expense is amortized ratably over the period from the date of grant
through the earliest possible vesting date.

RESEARCH AND DEVELOPMENT

Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have been
immaterial. Purchased software is capitalized and amortized over three years.
Amortization charges are included in cost of licenses. Accumulated amortization
at December 31, 1997, 1996 and 1995 was $567, $249 and $108, respectively.

ADVERTISING EXPENSE

The cost of advertising is expensed as incurred. The Company incurred $1,517,
$1,174, and $1,047 in advertising costs during 1997, 1996 and 1995,
respectively.

PER SHARE AMOUNTS

In 1997, the Financial Accounting Standards Board issued Statement No. 128,
EARNINGS PER SHARE, ("FAS 128"). Statement 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. For periods prior to August 23, 1995, such computations have
been adjusted to reflect as outstanding, using the treasury stock method, all
common and common equivalent shares issued during the twelve month period
preceding August 23, 1995, the date of the Company's initial filing of its
Registration Statement on Form S-1 with the Securities and Exchange Commission,
as if they were outstanding for all periods presented (see Note 5). All earnings
per share amounts for all periods have been presented, and where appropriate,
restated to conform to the FAS 128 requirements.

DIVIDENDS

The Company has not paid cash dividends on its Common Stock and presently
intends to reinvest retained earnings to support future expansion of the
business.

RECLASSIFICATIONS

Certain 1995 and 1996 amounts have been reclassified to conform to the 1997
presentation.


                                      F-8
<PAGE>

3. MARKETABLE SECURITIES

Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt and equity securities are classified as available-for-sale when the Company
does not have the positive intent and ability to hold to maturity.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported in shareholders' equity. The amortized
cost of debt securities in this category is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in investment income. Realized gains and losses and declines in value judged to
be other-than-temporary on available-for-sale securities are included in
investment income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in investment income.

The following is a summary of available-for-sale securities:

                                         AVAILABLE-FOR-SALE SECURITIES
-------------------------------------------------------------------------
                                               GROSS      GROSS ESTIMATED
                                          UNREALIZED UNREALIZED      FAIR
                                     COST      GAINS   (LOSSES)     VALUE
-------------------------------------------------------------------------
DECEMBER 31, 1997

U.S. Treasury securities           $1,824        $23       $  -    $1,847
U.S. corporate debt securities      1,396          -        (5)     1,391
Municipal securities                8,950          -          -     8,950
-------------------------------------------------------------------------
Total marketable securities       $12,170        $23       $(5)   $12,188
=========================================================================

DECEMBER 31, 1996

U.S. Treasury securities           $1,338        $22       $  -    $1,360
U.S. corporate debt securities        948          -        (3)       945
Municipal securities                5,802          2          -     5,804
-------------------------------------------------------------------------
Total marketable securities        $8,088        $24       $(3)    $8,109
=========================================================================

All available-for-sale debt securities have maturity dates ranging from three to
twelve months.

4. FIXED ASSETS

Fixed assets consist of the following:

                                                          DECEMBER 31,
                                                         1997     1996
--------------------------------------------------------------------------
Computer Equipment                                    $  2,775   $  2,133
Office furniture and equipment                           1,152      1,087
Software                                                 1,909      1,033
Other equipment                                            654        589
Leasehold improvements                                   1,765      1,565
--------------------------------------------------------------------------
      Total                                              8,255      6,407
Less: Accumulated depreciation and amortization         (3,950)    (2,646)
--------------------------------------------------------------------------
Property and equipment, net                           $  4,305   $  3,761
==========================================================================

                                     F-9
<PAGE>

5. STOCKHOLDERS' EQUITY

PREFERRED STOCK

During August 1995, the Company's Board of Directors authorized 2,000,000 shares
of undesignated Preferred Stock with a par value of $0.01 per share, with
stockholder rights and preferences to be determined at the Board's discretion.

COMMON STOCK

The holders of shares of Common Stock are entitled to one vote for each share
held with respect to all matters voted on by the stockholders of the Company.

TREASURY STOCK

In May 1996, the Company reacquired 77,625 shares of its Common Stock in
exchange for reduction of a note receivable from a stockholder at a total cost
of $279. This transaction was accounted for under the cost method. In June 1995,
the Company retired 600,000 shares of previously acquired treasury stock.












                                     F-10
<PAGE>

EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                              1997       1996       1995
                                                            ------------------------------
<S>                                                         <C>        <C>        <C>
Numerator:
   Net income (loss)                                        $  4,606   $ (3,062)  $  1,407
   Preferred stock dividends                                     -          -          (79)
   Accretion of preferred stock redemption requirement           -          -          (17)
                                                            ------------------------------
   Numerator for basic earnings (loss) per share - income
   available to common stockholders                            4,606     (3,062)     1,311

   Effect of dilutive cash securities:
      Preferred stock dividends                                  -          -           79
      Accretion of preferred stock redemption requirement        -          -           17
                                                            ------------------------------
                                                                 -          -           96

   Numerator for diluted earnings (loss) per share -
   income available to common stockholders after assumed
   conversion                                               $  4,606   $ (3,062)  $  1,407


Denominator
   Denominator for basic earnings (loss) per share
   weighted-average shares                                    12,125     11,335      8,595

   Effect of dilutive securities:
      Employee stock options                                     734        -        1,778
                                                            ------------------------------

   Dilutive potential common shares                              734        -        1,778
      Denominator for dilutive earnings (loss)
      per share adjusted weighted-average shares and
      assumed conversions                                     12,859     11,335     10,373
                                                            ==============================

Basic earnings (loss) per share                             $   0.38   $  (0.27)  $   0.15
                                                            ==============================

Diluted earnings (loss) per share                           $   0.36   $  (0.27)  $   0.14
                                                            ==============================
</TABLE>

         Options to purchase 215,893 and 166,913 shares of common stock were
outstanding at December 31, 1997 and 1995, respectively, but were not
included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.

         Due to the Company's net loss in 1996, all of the Company's options
outstanding were not included in the computation of diluted earnings per
share because the effect would be antidilutive.


                                     F-11
<PAGE>

STOCK OPTIONS

STOCK OPTION PLAN
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123, requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

         In May 1997, the board of directors of the Company increased the
options reserved for issuance by 1,000,000 shares, bringing the total aggregate
reserved of 5,200,000 shares of Common Stock for issuance to employees,
consultants, directors and officers under the 1995 Stock Option/Stock Issuance
Plan (which includes the 1993 Stock Option Plan (the "Predecessor Plan")). The
exercise price of the stock options is determined by the Board of Directors.
Under the Predecessor Plan, the Company from time to time granted options to
certain employees at exercise prices less than the estimated fair value of the
Common Stock at the time of grant, and has recognized as compensation expense
the excess of the deemed value for accounting purposes of the Common Stock
issuable upon the exercise of such options over the exercise price of such
options. The compensation expense is amortized ratably over the period from the
date of grant through the earliest possible vesting date. All other options were
granted at the estimated fair value on the date of grant. All options expire 10
years after the date of grant and are exercisable to the extent vested. Vesting
is established by the Board of Directors and generally occurs at a rate of 20%
or 25% per year from the date of grant.

         On October 21, 1996, the Board of Directors authorized the repricing of
certain employee stock options outstanding as of that date to the then fair
market value. As a result of this authorization, 489,900 stock options were
repriced to $6.00 per share.

         Pro forma information regarding net income and earnings per share is
required by FAS 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using the
Black-Scholes Multiple option pricing model with the following assumptions for
1997, 1996 and 1995: risk-free interest rates ranging from 5.14% to 6.18%;
dividend yields of 0.0%; volatility factors of the expected market price of the
Company's Common Stock ranging from .75 to .50; and an expected life of the
option of one to two years after the vesting date.

         The Black-Scholes Multiple option valuation model was developed for use
in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.

         For the purpose of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:

                                            1997        1996        1995
------------------------------------------------------------------------
Pro forma net income (loss)             $  3,643    $ (5,198)   $    112
Pro forma net income (loss) per share:
Basic                                   $  0 .30    $  (0.46)   $   0.01

Diluted                                 $  0 .28    $  (0.46)   $   0.01


                                     F-12
<PAGE>

The number of options and exercise prices of those options granted by the
Company are as follows:

                                                      OPTIONS OUTSTANDING
-------------------------------------------------------------------------------
                                SHARES AVAILABLE               WEIGHTED AVERAGE
                                       FOR GRANT      SHARES     EXERCISE PRICE
-------------------------------------------------------------------------------
December 31, 1994                            -     1,527,860            $  0.70
      Additional shares authorized     2,632,740         -              $   -
      Granted                         (1,996,530)  1,996,530            $  5.57
      Exercised                              -      (316,332)           $  3.11
      Canceled                           106,450    (106,450)           $  3.48
-------------------------------------------------------------------------------
December 31, 1995                        742,660   3,101,608            $  3.50
      Granted                         (1,378,250)  1,378,250            $  7.22
      Exercised                              -      (515,545)           $  2.04
      Canceled                         1,070,976  (1,070,976)           $  8.09
-------------------------------------------------------------------------------
December 31, 1996                        435,386   2,893,337            $  3.83
      Additional shares authorized     1,000,000         -              $   -
      Granted                           (990,850)    990,850            $  7.36
      Exercised                              -      (796,108)           $  1.48
      Canceled                           903,954    (903,954)           $  4.73
-------------------------------------------------------------------------------
December 31, 1997                      1,348,490   2,184,125            $  5.92
===============================================================================

Stock options outstanding at December 31, 1997 are summarized as follows:

<TABLE>
<CAPTION>
                            Outstanding      Weighted Average         Weighted             Number     Weighted
         Range of            Options at             Remaining          Average     Exercisable at      Average
  Exercise Prices     December 31, 1997      Contractual Life   Exercise Price       December 31,     Exercise
                                                      (years)                                1997        Price
------------------ --------------------- --------------------- ---------------- ------------------ ------------
<S>                <C>                   <C>                   <C>              <C>                <C>
    $0.200-$3.000               211,050                  6.33          $1.3532            117,194      $1.1871
    $3.600-$4.250               323,000                  7.35          $3.8576            177,950      $3.8064
    $5.375-$5.500               312,950                  9.22          $5.4149                375      $5.3750
    $6.000-$6.000               648,175                  8.80          $6.0000            276,736      $6.0000
    $6.500-$8.250               475,900                  9.57          $7.7760             18,959      $7.5124
    $8.375-$16.00               213,050                  9.33          $9.8758             31,525     $10.8243
------------------ --------------------- --------------------- ---------------- ------------------ ------------
    $0.200-$16.00             2,184,125                  8.63          $5.9154            622,739      $4.7573
================== ===================== ===================== ================ ================== ============
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN

The Company's Employee Stock Purchase Plan (the "Purchase Plan") is designed to
allow eligible employees of the Company and participating subsidiaries to
purchase shares of Common Stock, at semi-annual intervals, through payroll
deductions. In May 1997, the board of directors of the Company amended the
Purchase Plan to increase the total to 750,000 shares of Common Stock.

         The purchase price per share is 85% of the lower of (i) the fair market
value per share of Common Stock on the participant's entry date into the
offering period or (ii) the fair market value on the semi-annual purchase date.
The Purchase Plan imposes the following limitations upon a participant's right
to acquire Common Stock: (i) Purchase rights may not be granted to any
individual who owns stock (including stock purchasable under any outstanding
purchase rights) possessing five percent or more of the total combined voting
power or value of all


                                     F-13
<PAGE>

classes of stock or any of its affiliates (ii) no individual may purchase
more than 1,500 shares of Common Stock on any one purchase date under the
Purchase Plan, (iii) or purchase Common Stock at a rate in excess of $25
worth of Common Stock (valued as of the participant's entry date into the
offering period) for each calendar year (or portion thereof) his or her
purchase right remains outstanding.

6. INCOME TAXES

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

                                                DECEMBER 31,
                                            1997            1996
----------------------------------------------------------------
Deferred tax assets:
   Deferred compensation                  $    -          $  194
   Fixed assets                              444               -
   Intangibles                               469               -
   Reserves and other                      2,076           3,440
    R & D tax credit                         564               -
----------------------------------------------------------------
     Total deferred tax assets             3,553           3,634
Deferred tax liabilities:
   Cash to accrual adjustment                  -            (206)
   Fixed assets                                -             (76)
----------------------------------------------------------------
     Total deferred tax liabilities            -            (282)
----------------------------------------------------------------
Net deferred tax asset                    $3,553          $3,352
================================================================

Recorded as:
   Current deferred tax asset             $2,640          $2,706
   Noncurrent deferred tax asset             913             646
----------------------------------------------------------------
Net deferred tax asset                    $3,553          $3,352
================================================================





                                     F-14
<PAGE>

The components of the income tax provision (benefit) are as follows:

                                        DECEMBER 31, 1997
---------------------------------------------------------------
                                FEDERAL       STATE       TOTAL
---------------------------------------------------------------
Current expense                  $2,267        $691      $2,958
Deferred expense (benefit)           44        (245)       (201)
---------------------------------------------------------------
Income tax provision             $2,311        $446      $2,757
===============================================================

                                        DECEMBER 31, 1996
---------------------------------------------------------------
                                FEDERAL       STATE       TOTAL
---------------------------------------------------------------
Current expense                  $1,664        $122      $1,786
Deferred (benefit)               (2,042)       (562)     (2,604)
---------------------------------------------------------------
Income tax benefit                $(378)      $(440)      $(818)
===============================================================

                                        DECEMBER 31, 1995
---------------------------------------------------------------
                                FEDERAL       STATE       TOTAL
---------------------------------------------------------------
Current expense                  $1,328        $286      $1,614
Deferred (benefit)                 (612)       (136)       (748)
---------------------------------------------------------------
Income tax provision               $716        $150        $866
===============================================================


         The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to income before taxes. The
sources and tax effects of the differences are as follows:

                                                              DECEMBER 31,
                                                        1997      1996     1995
-------------------------------------------------------------------------------
Income (loss) before income taxes                     $7,363   $(3,880)  $2,273
===============================================================================

Statutory federal income tax (benefit) at 34%         $2,503   $(1,319)    $773
State income taxes (benefit) net of federal benefit      294      (290)      99
R&D tax credit                                          (367)     (229)       -
Non-deductible expenses                                  287       974        -
Other                                                     40        46       (6)
-------------------------------------------------------------------------------

Total                                                 $2,757     $(818)    $866
===============================================================================

Effective tax (benefit) rate                            37.4%    (21.0)%   38.0%
===============================================================================

7. RELATED PARTY TRANSACTIONS

During 1997 and 1996, the Company loaned $52, and $142 respectively, to several
employees, including $45 and $142 respectively, to several officers. The notes
are non-interest bearing and are due on demand.

         On September 30, 1996, the Company entered into a promissory note and
pledge agreement with an officer of the Company in the amount of $250. The note
is non-interest bearing and is due 90 days after separation from the Company.


                                     F-15
<PAGE>

         The Company receives consulting services from related parties. The
Company incurred $22, $116 and $178 for these services in 1997, 1996 and 1995,
respectively.

         In June 1995, a former officer of the Company exercised an option to
purchase 150,000 shares of Common Stock in exchange for a non-interest bearing
note in the amount of $540. In May 1996, the Company repurchased 77,625 of these
shares and reduced the note by $279. The remaining amount of $261 was repaid in
1996.

         In December 1995, an officer of the Company exercised an option to
purchase 7,000 shares of Common Stock in exchange for a note in the amount of
$25. The note is non-interest bearing and is due upon demand.

8. COMMITMENTS

The Company leases office space and equipment under various non-cancelable
operating leases which expire on various dates through December 31, 2005.
Scheduled minimum future lease payments at December 31, 1997 aggregate $11,170
and are payable as follows:

1998               $2,460
1999                1,676
2000                1,239
2001                1,164
2002                1,158
Thereafter          3,473

         Rent and lease expense was approximately $2,466, $2,156 and $579 for
the years ended December 31, 1997, 1996 and 1995, respectively. At December 31,
1997 and 1995, the Company had standby letters of credit for $438 and $426
respectively. The letters of credit were issued by the Company through a bank,
as required by its operating lease agreement.

9. LITIGATION

The Company is subject to lawsuits and other claims arising in the ordinary
course of its operations. In the opinion of management, based on consultation
with legal counsel, the effect of such matters will not have a material adverse
effect on the Company's business, financial condition or results of operations.

10. ACQUISITION OF IN-PROCESS RESEARCH & DEVELOPMENT

On September 30, 1996, the Company acquired the source code for TESTBytes, an
automatic test data generation tool, from a privately-held software company. The
Company has accounted for the transaction as a purchase. The total cost of the
transaction, including acquisition costs, was approximately $1,600. Subsequent
to an independent valuation, the Company recorded a charge of $995 for the
acquisition of in-process research and development, and acquisition costs in the
third quarter of 1996. The remaining amounts are included in other assets and
purchased software, and are being amortized over two to three years.

11. SPECIAL CHARGES

RESTRUCTURING

The Company implemented a strategic restructuring plan and recorded a
restructuring charge of $2,203 in the fourth quarter of 1996. The focus of the
Company's restructuring plan was to streamline its operations by reducing
operating expenses through workforce reductions, consolidating and reorganizing
certain operations and writing off certain fixed assets and other assets whose
value had diminished. The restructuring included the closing and moving of
several offices and the termination of approximately 25 employees across all
departments and around the world.


                                     F-16
<PAGE>

All 25 employees were terminated during the fourth quarter of 1996. Of the
total severance costs, $247 and $770 remained accrued at December 31, 1997
and 1996, respectively.

CHANGE IN ESTIMATE AND OTHER NONRECURRING EXPENSES

During the fourth quarter of 1996, the Company completed a review of its
depreciation policy for computer equipment. The Company determined that, as a
result of the change in its purchasing patterns, the competitive nature of
its products, and the continued improvements in technology, the actual lives
of computer equipment were shorter than the useful lives for depreciation
purposes. Therefore, the Company changed the depreciable lives from five
years to two years. The amount required to adjust asset values of computer
equipment resulting from this change in accounting estimate was $845.

         The remaining $1,132 of nonrecurring expenses are the result of
write-downs to net realizable value of certain assets whose value had
diminished as a result of activities in the fourth quarter of 1996 and the
write-off of excess lease costs at the Company's corporate headquarters.

12. GEOGRAPHIC INFORMATION

Domestic and export sales, as a percentage of total revenues were as follows:

                           DECEMBER 31,
                   1997       1996        1995
-------------------------------------------------
United States      71.6%      74.2%       74.6%
Europe             15.5       13.2        11.3
Other              12.9       12.6        14.1

         Revenue and assets from foreign operations were immaterial in 1997,
1996 and 1995.

13. BENEFIT PLAN

The Company maintains a 401(k) defined contribution retirement savings plan (the
"Plan") to provide retirement benefits for substantially all of its employees.
Each participant in the Plan may elect to contribute up to 20% of their annual
compensation to the Plan, subject to statutory limits. The Company, at its
discretion, may make annual contributions to the Plan. The Company has made no
contributions to the plan through December 31, 1997.

14.SUBSEQUENT EVENT

On March 14, 1998, the Company and PLATINUM TECHNOLOGY, INC. ("PLATINUM")
announced the execution of a definitive merger agreement (the "Merger
Agreement") pursuant to which PLATINUM will acquire the Company. Under the terms
of the Merger Agreement, the Company will become a wholly-owned subsidiary of
PLATINUM and PLATINUM will exchange 0.5769 of a share of PLATINUM common stock
for each share of the Company's common stock. PLATINUM will also assume the
Company's stock options which will convert into options to purchase PLATINUM
common stock at the same exchange ratio. It is expected that the acquisition -
anticipated to be completed in mid-1998 - will qualify as a tax-free
reorganization and be accounted for as a pooling of interests. This acquisition
is subject to the filing of a registration statement with the Securities and
Exchange Commission, the approval of the stockholders of the Company and
customary legal and regulatory conditions.


                                     F-17
<PAGE>

SCHEDULE II

VALUATION AND QUALIFIYING ACCOUNTS
LOGIC WORKS, INC.

<TABLE>
<CAPTION>
                                                               Balance at      Charged to                      Balance at
                                                               beginning       costs and                         end of
                                                                 period         expense        Deductions(1)     period
                                                               -----------------------------------------------------------
<S>                                                            <C>             <C>              <C>            <C>
YEAR ENDED DECEMBER 31, 1995
Allowance for uncollectible accounts and sales return          $   129,304     $ 1,283,547      $   135,113    $ 1,277,738

YEAR ENDED DECEMBER 31, 1996
Allowance for uncollectible accounts and sales return          $ 1,277,738     $   873,471      $   203,380    $ 1,947,829

YEAR ENDED DECEMBER 31, 1997
Allowance for uncollectible accounts and sales return          $ 1,947,829     $ 2,582,421      $ 2,213,489    $ 2,316,761


(1) Uncollectible accounts written off, net of recoveries

</TABLE>