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

          [     ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                        THE SECURITIES EXCHANGE ACT OF 1934
                  For the transition period from           to

                        COMMISSION FILE NUMBER: 001-13211

                     INFORMATION MANAGEMENT ASSOCIATES, INC.
             (Exact name of registrant as specified in its charter)

               Connecticut                               06-1289928
     (State or other jurisdiction of                  (I.R.S. Employer
      incorporation or organization)                 Identification No.)

                         One Corporate Drive, Suite 414
                                Shelton, CT 06484
              (Address and Zip Code of principal executive offices)

                                 (203) 925-6800
              (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,
          (Title of Class)                                   no par value
                                                             per share

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                         Yes   / X /               No   /   /

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

The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
registrant as of February 27, 1998:  $43,963,100

        Number of shares outstanding as of February 27, 1998:  9,400,570

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of  the  registrant's  proxy  statement  for  its  Annual  Meeting  of
Stockholders  presently scheduled for May 14, 1998 are incorporated by reference
into Part III of this report.

<PAGE>

                                TABLE OF CONTENTS

ITEM 1.  BUSINESS                                                1

ITEM 2.  PROPERTIES                                             13

ITEM 3.  LEGAL PROCEEDINGS                                      14

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
         HOLDERS                                                14

ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT                       14

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND
         RELATED STOCKHOLDER MATTERS                            17

ITEM 6.  SELECTED FINANCIAL DATA                                19

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS          21

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
         MARKET RISK                                            36, F-1

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA            36, F-1

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH
         ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE                               36, 37

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
         REGISTRANT                                             37

ITEM 11. EXECUTIVE COMPENSATION                                 37

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         AND MANAGEMENT                                         37

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS         37

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
         REPORTS ON FORM 8-K                                    37


<PAGE>

                                     PART I

ITEM 1.  BUSINESS

THE COMPANY

The  Company  develops,  markets  and  supports  customer  interaction  software
designed to increase the  productivity  and  revenue-generating  capabilities of
mid-size to large-scale  telephone call centers. The EDGE TeleBusiness  software
is a suite  of  applications  and  tools  that  enable  businesses  to  automate
telebusiness activities (telemarketing,  telesales, account management, customer
service  and  customer  support)  on  an  enterprise-wide   basis.  The  Company
complements its EDGE products by offering its clients  professional  consulting,
technical support and maintenance  services.  EDGE has been licensed to over 225
customers  in  a  range  of  industries,   including  teleservices  outsourcing,
telecommunications  and  financial  services.   Customers  include  AT&T  Corp.,
Belgacom,  S.A.,  Bose  Corporation,  ING Bank,  N.V.,  Lloyd's Bank Plc,  SITEL
Corporation,  Sprint PCS, United Parcel Service  General  Services Co. and Wells
Fargo Bank, N.A.

The  Company's  EDGE  products are designed to provide  superior  functionality,
flexibility,  integration,  scalability  and speed of deployment.  Based upon an
open systems software  architecture,  EDGE supports multiple hardware platforms,
operating environments, database management systems, network topologies, desktop
standards,  and legacy system and computer-telephony  middleware.  The Company's
products and services  enable call center agents to effectively  manage customer
relationships  through  the use of the  telephone,  e-mail,  the World Wide Web,
documents  and fax.  The  Company's  products  provide  call center  agents with
real-time data and guidance needed to manage increasingly  complex processes for
selling products and servicing customers.  For example, EDGE offers scripting to
support order- taking, cross-selling and up-selling, enables agents to track and
resolve  customer  service  problems and  facilitates the collection of valuable
customer  information that can be disseminated on an enterprise-wide  basis. The
Company's  professional  consulting,  technical support and maintenance services
include  application  development,  systems  integration,  systems and  database
design and construction and software  training.  The Company believes that these
services  significantly  differentiate  the  Company  from its  competitors  and
complement  its EDGE  products  to provide a total  solution  for  mid-size  and
large-scale call centers.

INDUSTRY BACKGROUND

Competitive  pressures have  intensified  across many  industries as a result of
increased  global  competition,  deregulation,  rapid  technological  change and
higher customer  expectations.  Businesses are expanding their use of telephony-
based customer interaction, from initial sales and marketing activities to post-
sales service and support,  as a key component of their  competitive  efforts to
increase  sales,  reduce costs,  enhance  customer  service,  distinguish  their
products  and services and receive and process  valuable  customer
<PAGE>
information. Effective customer interaction can increase revenue, build customer
loyalty and improve customer acquisition and retention while reducing costs.

In recent years,  telephony-based  customer  interaction  has become a strategic
business  weapon driven by decreased  telecommunications  costs  associated with
deregulation, the proliferation of toll-free 800 numbers and the introduction of
new computing  and  telecommunications  technologies,  all of which have enabled
businesses to develop an efficient and  interactive  communications  medium with
its existing and prospective customers.

High-volume,  telephony-based  customer  interaction  activities  are  conducted
through  call  centers that are  typically  designed  and equipped  with special
telecommunications  and computer hardware and software.  Common examples of call
centers  are the  customer  service or sales  centers for  outbound  and inbound
telemarketing, telesales, account management, customer service and support. Call
centers can range in size from tens to thousands of sales or service agents. The
Company  defines  small,  mid-size and  large-scale  call centers based upon the
number of agents  dedicated to  telephony-based  activities  in the call center.
Small call centers  typically have up to 50 agents,  while mid-size call centers
have from 50 to 250 agents and large-scale centers over 250 agents.

Initial  applications  of technology for call centers were primarily  telephony-
based and included such devices as high capacity telephone switches,  predictive
dialers, automatic call distributors and interactive voice response units. These
technologies  offered point solutions  addressing only certain functions of call
center  management  and  the  customer  interaction  process.  As  call  centers
progressed,  organizations  implemented  solutions  based on software  used with
legacy systems in an effort to improve the  effectiveness and efficiency of call
centers and customer  interaction  processes.  These  solutions  were  typically
internally developed and mainframe-based and as such, were generally inflexible,
expensive  to  maintain  and  difficult  to deploy  throughout  a  decentralized
organization.  Moreover,  these  systems did not fully  integrate  and  leverage
improvements in telephony  technology,  resulting in technology  infrastructures
that  could not  provide  comprehensive  customer  interaction  and call  center
management throughout the organization and across business processes.

Enterprises  are  seeking  to  exploit  emerging  technologies  to  improve  the
effectiveness  and  efficiency  of their  telebusiness  operations.  Distributed
client/server computing environments have become increasingly commonplace, built
upon a foundation of relational database platforms,  object-oriented  technology
and  wide  deployment  of  network  solutions.   Customer  interaction  software
solutions today must leverage  emerging  technology and offer the  functionality
necessary to support the broad spectrum of call center and customer  interaction
functions and integrate  these  functions with other  business  processes in the
organization.   Additionally,   businesses  are  seeking  customer   interaction
solutions which can be deployed and updated rapidly throughout the organization,
are scalable to meet the needs of growing businesses,  and seamlessly  integrate
and leverage telephony  technology.  Call center customer interaction  solutions
will also need to support
<PAGE>
and incorporate  emerging customer interaction channels and computing platforms,
such as the Internet and corporate-based intranets.

THE IMA SOLUTION

The EDGE suite of software  applications  and tools,  coupled with the Company's
comprehensive  service offerings,  represent a total solution designed to enable
businesses to increase their productivity and revenue-generating capabilities by
improving  the   effectiveness  of  their  interaction  with  customers  through
telephone call centers.

The IMA solution incorporates five design tenets: functionality, flexibility,
integration, scalability and speed of deployment.

Functionality.  Customer calls are often three to five minute events which, when
handled  effectively,  can have a  dramatic  impact on a  business's  ability to
acquire and retain customers.  The Company's products are designed to enable the
user to more  effectively  manage the telephone  conversation  with the customer
before, during and after the call by automating numerous call center activities,
providing real-time access to customer information,  and providing features such
as  intelligent  scripting,  contact  management,  time  management,  work  flow
management,  voice/data  management and other  conversation  management aids. In
addition,  EDGE provides  comprehensive call center reporting tools which enable
managers and  supervisors  to  efficiently  and  effectively  manage call center
agents and marketing campaigns.

Flexibility.  EDGE includes an integrated development environment that enables a
business to rapidly develop or change  applications  relating to specific sales,
marketing or service activities without disrupting live operations.  EDGE allows
a call center manager to tailor scripts, screen displays and workflow processes.
The  ability  to  change  applications  allows  clients  to  adapt  call  center
operations  quickly in response to changing  business  needs such as new product
sales or  marketing  campaigns,  special  customer  service  programs  or crisis
management events.

Integration. EDGE is designed to integrate seamlessly with other technologies to
improve call center  productivity.  With its component-based  open architecture,
EDGE can be  integrated  with a wide  variety of  computer  and  telephony-based
technologies and products,  including  telephony  devices (voice response units,
predictive  dialers,  automatic call  distributors  and private branch  exchange
technology),  relational  databases,  legacy systems,  other third-party desktop
applications and facsimile technology.

Scalability.   The  Company's  products  are  scalable  from  small  single-site
departmental networks to multi-site global implementations without significantly
increasing  the risk of system  degradation.  EDGE has been  deployed  in client
configurations consisting of more than 1,000 users handling over 1,000,000 calls
per month.

<PAGE>
Speed  of  Deployment.   The  EDGE  integrated  development  environment  allows
businesses  to rapidly  develop  and deploy  call  center  customer  interaction
software solutions on an  enterprise-wide  basis. The ability to swiftly develop
and deploy  applications  enables  the  Company's  clients to  implement  sales,
marketing  and service  programs  quickly in response to changes in the business
environment.

PRODUCTS AND SERVICES

The EDGE suite of products is based on a distributed,  multi-tier  client/server
open  architecture  which allows for the distinct  separation  of  presentation,
application  and  database  layers.   This  architecture   provides  the  system
performance and scalability  that is critical for mid-size and large-scale  call
centers  and  permits  hardware,   relational   database  and  operating  system
independence   to  preserve  and  leverage   existing   information   technology
investments.  EDGE  currently  supports  Windows  3.X,  Windows  95,  Windows NT
workstation  clients,  a wide variety of server  platforms,  including  Unix and
Windows NT, as well as database support for Microsoft SQL Server.

EDGE COMPONENT ARCHITECTURE

The EDGE Component Architecture is comprised of a Business Application Framework
based on an integrated  development  environment and is augmented by an external
technology  layer  designed to provide  seamless  integration  with  third-party
products.

BUSINESS APPLICATION FRAMEWORK

EDGE business applications are constructed by linking together component objects
in a building block approach to enable the user to perform functions required in
a  call  center  ranging  from  simple  individual  tasks  to  complex  business
processes.   EDGE  component  objects  include  Call  Center  Objects,  Customer
Interaction Software Objects and Industry Objects.

Call Center  Objects.  Call Center Objects perform  discrete  functions that are
used by a call center agent at many different points before,  during and after a
customer  conversation.  Call center managers and supervisors  also utilize Call
Center Objects to help manage call center operations and personnel. More than 75
ready-to-use  Call Center Objects are available with the EDGE product,  the most
common of which are:

 .    Intelligent    Scripting--Provides    dynamic   screen   presentation   and
     navigational  routing based on defined business rules,  historical customer
     data and other input derived from the customer conversation.

 .    Queue Management--Provides for administration, prioritization, security and
     processing  of  user  and  system  workflow   activities  such  as  calling
     campaigns, call backs, appointments, to-do's, incidents, personal schedules
     and tasks.

<PAGE>
 .    Telephony  Functions--Allows control of all telephone-related functions and
     interfaces  such as automatic call  distributors,  voice response units and
     predictive dialers through the application.

 .    Call List Processing--Provides importing, manipulation,  sorting, selecting
     and loading of calls into prioritized  lists, which can be managed by user,
     group, time of day and quota levels.

 .    Call Center Reporting--Provides  ongoing operational results for management
     analysis of call center  activity in a variety of categories,  including by
     agent, group, department, campaign, list and time period.

 .    Customer  Management--Allows  for  user-defined  searching,  selection  and
     modification  of customer  and company  information,  including  system and
     user-defined data.

Customer  Interaction  Software Objects.  Customer  Interaction Software Objects
contain a higher level of  functionality  than Call Center Objects and assist in
the  performance of more complex  customer  interaction  processes.  At present,
these objects are developed by the client or by the  Company's  client  services
organization  by  combining  Call  Center  Objects  to create  customer-specific
applications using the EDGE integrated development environment.  The Company has
developed  packaged  versions of commonly  used  Customer  Interaction  Software
Objects,  which it markets as the AdvantEDGE  Application  Suite. The AdvantEDGE
applications that the Company currently markets include:

 .    Account   Management--Supports   call  center   agents   during   free-form
     conversations  with  customers.   Critical  customer  information  such  as
     contacts,  corporate  hierarchy  and  profiles is combined  with  corporate
     information  such as product,  lead source and  objection  handling  and is
     displayed in a timely manner.

 .    Lead  Management--Provides  closed-loop  lead  tracking for users to manage
     leads and prospects through a sales qualification process by providing list
     import and  segmentation  facilities,  lead profiling and scoring,  results
     tracking and management reporting.

 .    Telesales--Provides  graphical,   interactive  telephone  sales  and  order
     capture  utilizing  intelligent  prompts  for  objection  handling,  cross-
     selling,  up-selling,  product  and  service  information,  campaign  based
     pricing and order and inventory file integration.

 .    Customer  Support/Case  Processing--Allows  a user  to  track  and  resolve
     customer  inquiries  or cases in single  call or multiple  step  resolution
     environments, providing closed looped case management with fast path entry,
     problem determination and resolution support,  predefined workflows by type
     and category, escalation with proactive alerts and on-line status reports.

<PAGE>
 .    Event and Seminar  Management--Allows a user to create, manage and maintain
     the  registration  of  attendees  of  an  event  or  seminar,  track  event
     information by occurrence, schedule, location and mileage proximity.

Industry  Objects.  Industry Objects are  applications  that combine Call Center
Objects and Customer Interaction Software Objects to perform complex,  typically
enterprise-wide   business  processes  according  to  the  requirements  of  the
particular industry in which the business operates. The Company has historically
utilized its consulting services and support  organization to provide individual
customers with Industry Objects,  but expects to package Industry Objects in the
future as discrete product offerings for the Company's targeted industries.

INTEGRATED DEVELOPMENT ENVIRONMENT

The EDGE  integrated  graphical  development  environment is used to tailor EDGE
applications to meet a client's specific needs. The primary components supported
within the integrated development environment include:

Client/Server  Development.  The Company's EDGE  TeleBusiness  Workstation (ETW)
provides  a  client/server   graphical   development   tool  for  accessing  and
integrating  business  application  framework objects and external  technologies
into end user applications.

Desktop  Integration.  The desktop  integration  component provides  integration
capabilities  between EDGE  applications and third-party  software  applications
running on the desktop.  The Company's  Graphical EDGE Operations  (GEO) product
allows EDGE to support Windows on the desktop.  The Company has developed and is
currently testing a product to support Internet browsers.

Workflow Management.  The workflow management component allows a user to develop
elaborate  workflow  routing  within  the  call  center  and  enables  creation,
prioritization,   processing  and  tracking  of  multiple  customer  interaction
activities  coordinated  on a "just in time" basis between the client,  its call
enter and its customer.  The workflow management  component integrates agent and
task scheduling with a variety of inbound and outbound customer touch points.

Legacy  System  Access.  The  legacy  system  access  component  is a  suite  of
development  tools  which  allows a user to  access  and  update  legacy  system
information.  Legacy system  information  or other data may be viewed or updated
from  the same  graphical  presentation  as local  call  center  operations  and
management data.

Telephony. The telephony component is a series of development tools which permit
a client to quickly  establish a telephony  interface  to a  particular  private
branch  exchange,  predictive  dialer or voice  response  unit,  providing,  for
example, the capability to capture automatic number identification/direct number
identification  services  and route the call and  relevant  data to a particular
agent, or to transfer voice/data from one agent to another.

Business  Rules.  The business rules component  utilizes an intuitive  graphical
user interface which allows rapid  integration of client business  processes and
practices into an  application.  This  component  enables a client to define the
critical processes and tasks for
<PAGE>
qualifying, selling and servicing the client's customers. These rules become the
basis of a client's customer interaction process. Business rules embody specific
procedures and policies for handling each customer event in a manner  consistent
with the best business practices established by each client.

EXTERNAL TECHNOLOGY LAYER

The EDGE external  technology  layer consists of components that are designed to
enable  clients to link to a variety of  external  technologies  on a  real-time
basis.

Desktop Links.  The EDGE client  component  links to other desktop  applications
through support of dynamic data exchange (DDE),  dynamic library links (DLL) and
object linking and embedding (OLE). The Company has developed support capability
for Microsoft's Active X.

Relational  Database.  EDGE  supports  Oracle,  Informix  and Sybase  relational
databases.  Existing corporate data stored in these relational  databases may be
accessed and updated  along with the setup and  definition  of new databases for
management of call center data. As part of its Windows NT support strategy,  the
Company has developed support capability for Microsoft SQL Server.

Legacy  Gateway.  EDGE supports a variety of legacy system links and data access
options,  including  3270  access,  HLLAPI,  LU 6.2,  IBM's MQ Series  messaging
middleware, UNIX InterProcess Communication (IPC) and TCP/IP Sockets.

Computer  Telephony  Integration.  EDGE  supports  a variety  of  commonly  used
telephony  technology,  including private branch exchanges,  predictive dialers,
voice response units and  telephony-middleware.  Functionality  provided through
these telephony links include  automatic  number  identification,  direct number
identification   services,   screen   notification,   voice/data   transfer  and
conference,   outbound  preview  dial,   automated  agent  logon/logoff,   agent
available/unavailable, call hold, retrieve, answer and disconnect and host-based
routing.

Internet  Technology.  The Company has developed  products that support the most
commonly  used  Internet  and  corporate-based   intranets  through  Microsoft's
Internet Explorer browser,  Netscape's  Navigator browser and Javascript as well
as integration to Microsoft's Active X.

CLIENT SERVICES

The Company believes that its client services are a significant  differentiating
factor in its target markets and are an important component of EDGE deployments.
The Company provides  consulting and maintenance and technical  support services
to its customers, including custom application development, systems integration,
systems design and construction, database design, installation, skills training,
custom  documentation,  client
<PAGE>
help desk and software  training.  The Company has developed a comprehensive and
standard  methodology to provide  continuity  through a project from the initial
sale to  implementation  of its  applications.  The  Company's  client  services
organization helps to develop and maintain  long-term customer  relationships by
applying  specialized  knowledge  of  industry  needs,  business  processes  and
technology to help design and provide the customer with a highly  functional and
flexible solution.  The Company's client service department works with strategic
consulting and systems  integration  companies to identify and provide  services
for large-scale service projects. The Company principally relies on distributors
and  remarketers  to provide  consulting  and  client  support  services  to its
international  customers.  As of December  31,  1997,  the  Company  employed 95
employees in its client services organization. Services and maintenance revenues
as a percentage of total revenues were 54.5%,  50.4% and 47.4% in 1995, 1996 and
1997, respectively. The Company provides the following services:

Consulting Services.  The Company provides a comprehensive range of professional
services for its customers  including project management,  business  consulting,
application  development,   implementation  and  integration  of  the  Company's
products with the customer's existing systems.  In addition,  the Company offers
training  programs  to meet the  specific  needs of its  customers.  The Company
maintains a large  consulting  services staff with  extensive  experience in the
implementation  and deployment of complex customer  interaction  solutions.  The
demand for the  Company's  consulting  services has  increased as the  Company's
product offerings have been accepted for large-scale  installations.  Consulting
services  fees are  determined on a time and expense basis and training fees are
generally charged on a per class or per student basis.

Maintenance  and  Technical  Support  Services.  The Company's  maintenance  and
technical  support  services staff  provides  clients with telephone and on-line
support of the Company's  products.  These support  services  include  access to
technical support via the Company's  telephone  help-desk,  customer support Web
site and e-mail. The Company offers several product support plans, including a 7
day/24  hour plan,  which are  generally  offered for an annual fee based upon a
percentage  of the license  fee. The Company also  provides its  customers  with
software upgrades,  account management  services,  technical  bulletins,  status
reports and ongoing  communication  regarding  new features  and products  under
development.

CUSTOMERS AND APPLICATIONS

As of December  31, 1997,  the EDGE suite of products had been  licensed to over
225 customers with more than 30,000 total users.  In 1997, no customer accounted
for 10% or more of the Company's  total revenue.  In 1996, United Parcel Service
General Services Co. accounted for 10% of the Company's total revenue.  In 1995,
Zurich  Insurance  Company accounted  for approximately  23.7% of  the Company's
total revenues.

<PAGE>
SALES AND MARKETING

The Company  markets its software and  services in the United  States  through a
direct sales  organization.  The Company's sales  representatives are focused by
industry expertise and geographical  location. To support its sales efforts, the
Company conducts marketing programs including advertising, telemarketing, direct
mail,  seminars,  public relations and trade shows. As of December 31, 1997, the
Company's sales and marketing  organization covering the United States consisted
of 61 employees.

The Company's direct sales force employs a consultative  sales process,  working
closely with  prospective  customers to understand and define their needs and to
determine how those needs are best addressed by the Company's  product offerings
as well as complementary  technology and services  offered by strategic  systems
integration   and   technology   companies.   In  addition  to  pursuing   sales
opportunities  with new  customers,  the Company works closely with its existing
customer base to gain knowledge of their industries,  and focuses on selling new
and  enhanced  products   specifically  tailored  to  such  existing  customers'
requirements,  as well as licensing  its products to  additional  users within a
customer.  Because customer interaction software applications are highly visible
within an  organization,  the Company's sales efforts are generally  directed to
the senior management of a customer.

The Company also works closely with strategic consulting and systems integration
companies such as Aspect Telecommunications  Corporation,  Ernst & Young LLP and
IBM to increase market awareness and acceptance of the Company's  products.  The
Company has worked  jointly with each of these  companies by providing  software
and services as part of a total customer  software and systems  project in which
the consulting or systems integration  company also provides services,  software
or hardware and may be responsible for the overall  coordination of the project.
These  relationships  have  led to the  Company's  introduction  into  strategic
accounts,  increased  account  penetration and reduced sales cycle length. A key
part  of  the  Company's   strategy  is  to  expand  and  enhance  its  existing
relationships  with  leading  consulting  and systems  integration  companies to
capture additional market share.

The Company  markets its software  internationally  in Europe,  the Pacific Rim,
Canada,   Mexico  and  Latin  America  through   remarketing  and   distribution
relationships which it supplements with a direct sales force in certain regions.
The  Company's   principal   remarketers   and   distributors   include   Aspect
Telecommunications  Corporation (worldwide),  Datapoint (U.K.) Limited (Europe),
TeleDynamics BV (Holland), NCR Corporation (France, Canada, Turkey and Southeast
Asia),  Kawasaki  Steel  Systems  R&D  Corporation  (Japan),  Locus  Corporation
(Korea),  TKM  Communications,  Inc.  (Canada),  Communicacoes,  Processamento e
Mecanismos de Automacao Ltda.  (Brazil),  Mitsucon  Commercial Ltda (Brazil) and
Sixtra Chile S.A.(Six Bell) (Chile).  As of December 31, 1997, the Company had a
direct sales force consisting of ten sales and marketing  professionals covering
Europe from its London, England office, and three sales professionals focused on
Mexico  and Latin  America.  The  Company  is  seeking  to expand  its  existing
international  distribution network including its indirect distribution channels
and  direct  sales  force in order to take  advantage  of  international  growth
opportunities.

<PAGE>
PRODUCT DEVELOPMENT

The Company believes that to maintain its competitive  advantage it must enhance
existing applications,  introduce new products and features into the market on a
regular basis to keep pace with technological  advances,  meet changing customer
requirements  and respond to  competitors'  products.  To meet these goals,  the
Company has invested in developing a comprehensive  product  development process
to define and  evaluate  rigorous  requirements  for product  functionality  and
quality. The Company's research and development  engineers work closely with its
marketing and support personnel and its customers to design enhancements and new
products  to  assure  that  product  evolution  reflects   developments  in  the
marketplace and trends in client requirements.

The Company intends to continue its product research and development  efforts in
order to meet the complex and changing requirements of mid-size and large- scale
call  centers.  The  Company is making  long-term  investments  to  enhance  the
componentization and object orientation of EDGE's underlying  architecture.  The
Company is utilizing  emerging  industry  standards such as Microsoft  COM/DCOM,
CORBA compliant object technology, Java language and supporting Java technology.
The Company  believes that these  investments will provide a number of important
benefits including the ability to migrate easily to new components in the future
in a "plug and play" mode, to shield business objects and customer  applications
from the underlying technology infrastructure,  and to seamlessly integrate with
other business applications that adhere to the same standards.

As of December 31, 1997, the Company's product development staff consisted of 56
employees.   In  addition,  the  Company  augments  its  internal  research  and
development  organization  with the services of an outside  consulting firm. The
Company's  total expenses for product  development  for the years ended December
31, 1995,  1996,  and 1997 were $6.8  million,  $6.4  million,  and $6.2 million
respectively,  and represented 28.6%, 24.3% and 16.9% of total revenues in these
periods,  respectively.  The  Company  expects  that it will  continue to commit
substantial resources to product development in the future.

COMPETITION

The market  for  telemarketing,  telesales  and  customer  service  software  is
intensely  competitive,  rapidly  evolving  and highly  sensitive to new product
introductions  or enhancements and marketing  efforts by industry  participants.
The Company  competes with a large number of  competitors  ranging from internal
information systems departments to packaged software  application  vendors.  The
Company  believes that as the United States and  international  software markets
continue  to grow,  a number of new vendors  will enter the market and  existing
competitors  and new  market  entrants  will  attempt  to  develop  applications
targeting additional markets.

Management  believes  that it competes in most of its markets  with the internal
information  systems  departments  of potential  customers who desire to develop
their own customer
<PAGE>
interaction  software  rather than acquire  software  from a
third-party vendor such as the Company.  The Company believes that the principal
software companies with which it competes are The Vantive  Corporation,  Clarify
Inc., Scopus Technology, Inc. and Siebel Systems, Inc. The Company also competes
on occasion with systems  integration  firms.  Among the  Company's  current and
potential competitors are also a number of large hardware and software companies
that may develop or acquire  products that compete with the Company's  products.
Competitors  have  established  and  may in  the  future  establish  cooperative
relationships  or alliances which may increase their ability to provide superior
software  solutions or  services.  In  addition,  consolidation  within the call
center  customer  interaction  software  industry  could  create new or stronger
competitors.  Increased  competition  resulting  from new entrants,  call center
customer interaction software industry consolidation,  cooperative relationships
or alliances could result in price reductions,  reduced operating income or loss
of market share,  any of which could  materially  adversely affect the Company's
business,  operating  results  or  financial  condition.  Many of the  Company's
current  and  potential   competitors  have  significantly   greater  financial,
technical,  marketing,  service,  support and other  resources,  generate higher
revenues  and have greater name  recognition  than the Company.  There can be no
assurance that the Company's  current or potential  competitors will not develop
products  comparable or superior to those  developed by it or adapt more quickly
than the  Company to new  technologies,  evolving  industry  trends or  changing
client requirements.  There can be no assurance that the Company will be able to
compete  effectively  against current or future  competitors or that competitive
pressures  faced by the Company would not  materially  and adversely  affect its
business, operating results or financial condition.

The Company  believes  that the  principal  competitive  factors in its industry
include  product  performance  and  functionality,  flexibility,  ease  of  use,
adherence to open  standards,  scalability,  ability to integrate  external data
sources,  speed of  deployment,  client  service,  customer  support  and price.
Although the Company believes that it currently  competes favorably with respect
to such factors,  there can be no assurance that it will be able to maintain its
competitive position against current and potential competitors, especially those
with  greater  financial,  technical,  marketing,  service,  support  and  other
resources than the Company,  or that  competitive  pressures will not materially
and adversely  affect the Company's  business,  operating  results and financial
condition.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

The Company relies  primarily on a combination of copyright and trademark  laws,
trade secrets,  nondisclosure  agreements and technical  measures to protect its
proprietary rights. The Company typically enters into confidentiality or license
agreements with its employees,  distributors, clients and potential clients, and
limits  access to and  distribution  of its  software,  documentation  and other
proprietary  information.  There can be no  assurance  that these  steps will be
adequate to deter misappropriation or independent third-party development of its
technology  or to prevent an  unauthorized  third party from  obtaining or using
information  that the Company regards as proprietary.  In addition,  the laws of
some foreign countries do not protect or enforce  proprietary rights to the same
<PAGE>
extent as do the laws of the United  States.  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.  There can be no  assurance  that the
Company's  means of protecting its  proprietary  rights will be adequate or that
the Company's  competitors will not  independently  develop similar  technology.
Although the Company  believes that its products and  technology do not infringe
on any  existing  proprietary  rights of  others,  the use of patents to protect
software has  increased,  and there can be no assurance  that third parties will
not assert  infringement  claims in the future  or, if  infringement  claims are
asserted,  that such claims will be resolved in the Company's favor. The Company
expects  that  software  product  developers  will  increasingly  be  subject to
infringement  claims as the number of products and  competitors in the Company's
industry segment grows and the  functionality of products in different  industry
segments   overlaps.   Any  such  claims,   with  or  without  merit,  could  be
time-consuming,  result in costly  litigation,  cause product shipment delays or
require the Company to enter into royalty or licensing agreements.  Such royalty
or licensing agreements, if required, may not be available on terms favorable to
the  Company  or at all,  which  could  have a  material  adverse  effect on the
Company's business,  operating results and financial condition. Any infringement
claims  resolved  against the Company could have a material  adverse effect upon
the Company's business,  operating results and financial condition. In addition,
litigation may be necessary in the future to protect the Company's trade secrets
or other intellectual property rights, or to determine the validity and scope of
the proprietary  rights of others.  Such litigation  could result in substantial
costs and diversion of resources and could have a material adverse effect on the
Company's business, operating results and financial condition.

The Company has entered into  agreements  with a small  number of its  customers
requiring  the  Company  to  place  its  source  code in  escrow.  These  escrow
agreements typically provide that customers have a limited,  non-exclusive right
to use such  code in the  event  that  there is a  bankruptcy  proceeding  by or
against  the  Company,  if the  Company  ceases to do business or if the Company
fails to meet its support obligations.  The escrow agreements,  and any that the
Company  may  enter  into  in  the  future,  may  increase  the  possibility  of
misappropriation  by  third  parties.  In  addition,   the  Company  utilizes  a
third-party  contractor for selected product development projects which may also
increase the possibility of misappropriation by third parties.

REGULATORY ENVIRONMENT

Certain uses of outbound call processing systems are regulated by federal, state
and foreign  law. The Federal  Telephone  Consumer  Protection  Act required the
Federal  Communications  Commission to create regulations protecting residential
telephone subscribers from unwanted telephone solicitations. Certain states have
enacted  similar laws  limiting  access to telephone  subscribers  who object to
receiving  solicitations.  Although  compliance  with  these  laws may limit the
potential  use  of  the  Company's  products,  the  Company's  products  can  be
programmed  to  operate  in  compliance  with  these  laws  through  the  use of
appropriate calling lists and calling campaign time parameters.  There can be no
<PAGE>
assurance,  however,  that  future  legislation  further  restricting  telephone
solicitation  practices,  if enacted,  would not materially adversely affect the
Company.

EMPLOYEES

As of December 31, 1997, the Company  employed 250  employees,  consisting of 56
employees in research and development,  71 employees in sales and marketing,  70
employees in consulting services, 25 employees in client support services and 28
employees in finance and administration.  Of these, 28 are located in Europe and
the  remainder  are located in the United  States.  None of these  employees  is
covered by any collective bargaining  agreements.  The Company believes that its
relationship with its employees is good.

ITEM 2.  PROPERTIES

The Company leases its corporate  headquarters  in Shelton,  Connecticut,  which
consists of approximately  25,000 square feet of office space. The lease for the
Shelton,  Connecticut  office has a term ending on March 31, 2004.  In addition,
the  Company  maintains  an  office  in  Irvine,  California  with a  lease  for
approximately  26,000  square  feet of office  space.  The lease for the Irvine,
California  office has a term  ending on  January  19,  2001.  In support of its
direct sales and service and support  operations,  the Company leases offices in
three  other  locations  in the United  States,  as well as an office in London,
England.  These  offices  comprise  between 1,200 and 6,000 square feet each and
have lease terms ending between February 28, 1999 and April 30, 2001.

ITEM 3.  LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation in the normal course of
business  relating to claims arising out of its  operations.  The Company is not
currently involved in any litigation which, in management's opinion,  would have
a material  adverse  effect on its  business,  operating  results  or  financial
condition.

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

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of 1997.

<PAGE>
ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT

Name                       Age                     Position
-------------------------  ---  -----------------------------------------------

Albert R. Subbloie, Jr.     37  President, Chief Executive Officer

Gary R. Martino             37  Chairman of the Board, Chief Financial
                                Officer,
                                Treasurer and Assistant Secretary

Andrei Poludnewycz          38  Executive Vice President-Technology, Secretary

Paul G. Frederick           38  Senior Vice President-Client Services

James E. Anderson           52  Vice President-International Operations

David G. Caldeira           41  Vice President-Products Division

Michael P. McGroarty        37  Vice President and General Counsel, Assistant
                                Secretary

Paul J. Schmidt             38  Vice President-Application Development

Kian Saneii                 33  Vice President-Worldwide Marketing

Eric Montgomery             43  Vice President-Sales

     Each officer serves at the discretion of the Board of Directors.  There are
no family relationships among any of the executive officers of the Company.

     Mr.  Subbloie has been the  President  and Chief  Executive  Officer of the
Company since its  incorporation in 1990. Prior to incorporation of the Company,
Mr. Subbloie was a founding  partner of the Company's  predecessor,  Information
Management Associates (the "Partnership") with Messrs.  Martino and Poludnewycz,
which  engaged  in the  business  of  consulting  and  development  of  computer
software.  From 1982 to 1984,  Mr.  Subbloie  was employed  with the  consulting
division  of Arthur  Andersen & Co., a  professional  accounting  firm  ("Arthur
Andersen"), and specialized in distribution and manufacturing consulting.

     Mr. Martino has been an officer of the Company since its incorporation in
1990 and has served as Treasurer, Chief Financial Officer and Assistant
Secretary.  Prior to incorporation of the Company, Mr. Martino was also a
founder of the Partnership with Messrs. Subbloie and Poludnewycz.  From 1982 to
1984, Mr. Martino was employed with the consulting division of Arthur Andersen
and specialized in financial application consulting.

<PAGE>
     Mr.  Poludnewycz has been an officer of the Company since its incorporation
in 1990 and has served as Secretary of the Company  since its  incorporation  in
1990. From 1992 to 1994, he served as Executive Vice President-Products Division
and  subsequently  served  as  Executive  Vice  President-Technology.  Prior  to
incorporation  of the Company,  Mr.  Poludnewycz  was a founding  partner of the
Partnership  with  Messrs.   Subbloie  and  Martino.  From  1982  to  1984,  Mr.
Poludnewycz  was employed with the  consulting  division of Arthur  Andersen and
specialized  in developing  computer  applications  for the  mid-range  hardware
platforms of IBM.

     Mr.  Frederick has served as Senior Vice  President-Client  Services of the
Company since 1995.  Prior to joining the Company,  he was employed from 1991 to
1995, most recently as associate partner, with a division of Andersen Consulting
LLP   ("Andersen   Consulting")   which   specialized  in  large  scale  systems
integration.  Mr. Frederick's primary  responsibilities with Andersen Consulting
included project and practice management.

     Mr. Anderson served as Vice  President-Business  Development of the Company
from  1994  to  1995  and  has  since  served  as  Vice  President-International
Operations.  From 1970 to 1994,  Mr.  Anderson was employed by IBM as a software
product  planning  manager,  a branch  sales  manager and the  Worldwide  Market
Development Manager for IBM's CallPath product.

     Mr. Caldeira has been employed with the Company in several capacities since
its incorporation 1990. He served as Vice  President-Sales from 1990 to 1992 and
as Vice  President-Business  Development from 1992 to 1994. He has served in his
present  position of Vice  President-Products  Division since 1994. Mr. Caldeira
joined the  Partnership  in 1989 as a Regional  Sales  Manager and was  formerly
employed as a Senior  Manager with the  consulting  division of Arthur  Andersen
where he specialized in systems for mid-size companies.

     Mr. McGroarty joined the Company in 1996 as Vice President and General
Counsel, and also serves as an Assistant Secretary.  From 1990 to 1996, Mr.
McGroarty was an attorney with the law firm of Fulbright & Jaworski L.L.P.

     Mr. Schmidt has served as an officer of the Company since its incorporation
in 1990. From 1990 to 1994, he served as Vice  President-Client  Services.  From
1995 to 1997 he served as Vice President-Applied  Technologies and since 1997 he
has served as Vice  President-Application  Development.  From 1985 to 1990,  Mr.
Schmidt was employed as a Vice President at the  Partnership  and specialized in
client services.  From 1982 to 1985, Mr. Schmidt worked for Andersen  Consulting
and specialized in financial, distribution and manufacturing consulting.

<PAGE>
     Mr.  Saneii has  served as Vice  President-Worldwide  Marketing  since July
1997.  Prior to  joining  the  Company,  Mr.  Saneii  was  employed  by  FileNet
Corporation,  a business  process  automation  firm,  as Marketing  Manager from
February  1996 to July 1997.  From February  1995 to February  1996,  Mr. Saneii
served  as  President  of  Business  Process   Innovation,   a  consulting  firm
specializing in the application of imaging and workflow technologies.  From 1987
to 1994, Mr. Saneii was Vice President, Corporate Development at DIS Research, a
systems integration firm specializing in the application of imaging and workflow
technologies.

     Mr.  Montgomery  has served as Vice  President-Sales  since  December 1997.
Prior to joining the  Company,  Mr.  Montgomery  was employed for eight years by
Hyperion   Software,   a  provider  of   enterprise   software  and   analytical
applications, most recently as Senior Sales Director.


<PAGE>
                                     PART II

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

Price Range of Common Stock

     Since  July 30,  1997,  the  Common  Stock has been  traded  on the  NASDAQ
National Market under the symbol "IMAA." There was no established public trading
market for the Common Stock prior to the Company's  initial  public  offering on
July 30, 1997.

     The high and low closing  sales prices of the Company's  common  stock,  as
reported on the NASDAQ National Market for each quarter since the Company's July
30, 1997 initial public offering, are as follows:

                                                 Common Stock
                                                 ------------
          1997                                   High       Low
                                               ------    ------

     Fourth Quarter                            $14.75   $ 9.375
     Third Quarter (Since July 30, 1997)        13.50    10.25
     Second Quarter                               N/A       N/A
     First Quarter                                N/A       N/A

     The Company believes that there are  approximately 45 holders of record for
the Common Stock at March 1, 1998. The Company believes that there are in excess
of 300 beneficial holders of the Common Stock.

Dividend Policy

The Company has never  declared or paid any cash dividends on its capital stock.
The Company currently intends to retain earnings,  if any, to support its growth
strategy  and does not  anticipate  paying  cash  dividends  in the  foreseeable
future.  Payment of future  dividends,  if any, will be at the discretion of the
Company's  Board  of  Directors  after  taking  into  account  various  factors,
including the Company's  financial  condition,  operating  results,  current and
anticipated cash needs and plans for expansion.

Use of Proceeds

On July 30, 1997,  the  Company's  Registration  Statement on Form S-1 (File No.
333-22923)  became  effective.  The net proceeds  from the  offering  were $32.4
million. The Company disclosed the use of proceeds through September 30, 1997 on
the Company's  Form  10-Q for the  period ending  September 30, 1997.  Except as
noted below, no information has

<PAGE>
changed  with respect to the use of  proceeds.   The  following  are the  use of
offering proceeds from the  effective date (July 30, 1997)  through December 31,
1997:

     Repayment of indebtedness     $ 7,400,000
     Working capital                 3,700,000
     Temporary investments          21,000,000
     Acquisition of Equipment          300,000
                                   -----------

     Total                         $32,400,000
                                   ===========

The Company used  $250,000 of the net offering  proceeds to repay in full a note
payable to Wand/IMA  Investments,  L.P., a beneficial owner of more than the ten
percent of the issued and outstanding shares of common stock of the Company.

<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                           Year Ended December 31
                               1993      1994       1995       1996       1997
                                    (in thousands, except per share data)
Consolidated Statements of
 Operations:
<S>                          <C>       <C>        <C>        <C>        <C>
   Revenues:
      License fees:
      EDGE product line      $ 5,550    $ 4,703    $ 8,368   $ 12,180    $19,295
      Telemar product line     1,916      2,690      2,457        842         --
          Total license fees   7,466      7,393     10,825     13,022     19,295

   Services and
    maintenance:
      EDGE product line        2,209      7,872     10,342     11,643     17,377
      Telemar product line     3,276      3,087      2,642      1,612         --
          Total services       5,485     10,959     12,984     13,255     17,377
           and maintenance
             Total revenues   12,951     18,352     23,809     26,277     36,672

   Cost of revenues:
      License fees               165        462        700        709        304
      Services and             2,108      6,268      8,225      7,191      9,428
       maintenance
          Total cost of        2,273      6,730      8,925      7,900      9,732
           revenues
   Gross profit               10,678     11,622     14,884     18,377     26,940

   Operating expenses:
      Sales and marketing      3,694      5,857      6,844      8,055     12,580
      Product development      4,356      6,106      6,802      6,382      6,190
      General and              2,862      2,693      3,824      3,878      4,784
       administrative
      Write-off of             2,228         --         --         --         --
       acquired software
          Total operating     13,140     14,656     17,470     18,315     23,554
           expenses
   Operating income (loss)    (2,462)    (3,034)    (2,586)        62      3,386
   Other income (expense)       (381)      (917)    (1,100)    (1,079)        18
   Income (loss) before       (2,843)    (3,951)    (3,686)    (1,017)     3,404
    provision for income
    taxes
   Provision for income          112        132        100         30        231
    taxes
   Net income (loss)         $(2,955)   $(4,083)   $(3,786)  $ (1,047)   $ 3,173
   Net income (loss)
    per share
      Basic                  $  (.76)   $ (1.14)   $ (1.18)  $   (.44)   $   .43
                             =======    =======    =======   ========    =======
      Diluted                $  (.76)   $ (1.14)   $ (1.18)  $   (.44)   $   .38
                             =======    =======    =======   ========    =======
</TABLE>

<TABLE>
<CAPTION>
                                                  December 31
                                1993       1994       1995       1996       1997
                                                 (in thousands)
<S>                           <C>       <C>        <C>       <C>         <C>

Consolidated Balance Sheet
 Data:
   Cash and cash equivalents $ 1,395    $   446    $ 1,543   $  3,073    $ 4,816
   Working capital                63     (3,619)    (1,233)     1,210     34,213
    (deficit)
   Total assets                9,613     12,150     12,519     17,281     43,922
   Short-term debt             2,962      5,499      3,871      5,444        232
   Long-term debt              1,926      1,423      3,042      2,803        136
   Senior redeemable              --         --      4,751      9,431         --
    convertible preferred
    stock
   Redeemable common stock     1,058      1,517      2,480      2,865         --
    warrants
   Total shareholders'          (871)    (4,200)    (9,295)   (10,906)    37,030
    equity (deficit)
</TABLE>

<PAGE>
Results of Operations

     The following table sets forth the percentage of total revenues for certain
items in the Company's  consolidated  statement of operations data for the years
ended December 31, 1995, 1996 and 1997.

<TABLE>
<CAPTION>
                                                         Year Ended December 31
                                                          1995     1996     1997
<S>                                                     <C>       <C>      <C>

Consolidated Statement of Operations Data:
   Revenues:
     License fees:
              EDGE product line                           35.2%    46.4%   52.6%
              Telemar product line                        10.3      3.2      --
                   Total license fees                     45.5     49.6    52.6
     Services and maintenance:
              EDGE product line                           43.4     44.3    47.4
              Telemar product line                        11.1      6.1      --
                Total services and maintenance            54.5     50.4    47.4
                        Total revenues                   100.0    100.0   100.0
   Cost of revenues:
     License fees                                          2.9      2.7     0.8
     Services and maintenance                             34.5     27.4    25.7
                Total cost of revenues                    37.4     30.1    26.5
   Gross profit                                           62.6     69.9    73.5

   Operating expenses:
     Sales and marketing                                  28.7     30.7    34.3
     Product development                                  28.6     24.3    16.9
     General and administrative                           16.1     14.8    13.0
                Total operating expenses                  73.4     69.8    64.2
   Operating income (loss)                               (10.8)     0.1     9.3
   Other income (expense)                                 (4.6)    (4.1)     --
   Income (loss) before provision for income taxes       (15.4)    (4.0)    9.3
   Provision for income taxes                              0.4       --     0.6
   Net income (loss)                                    (15.8)%   (4.0)%    8.7%
</TABLE>

The following  table sets forth for each component of revenue,  the cost of such
revenue expressed as a percentage of such revenue for the periods indicated.

<TABLE>
<CAPTION>
                                    Year Ended December 31,
                                   --------------------------
                                     1995     1996     1997
                                   --------  -------  -------
<S>                                <C>       <C>      <C>

Cost of license fees                   6.5%     5.4%     1.6%
Cost of service and maintenance       63.3%    54.3%    54.3%

</TABLE>

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

The following  Management's  Discussion and Analysis of Financial  Condition and
Results  of  Operations  should  be read in  conjunction  with the  Consolidated
Financial Statements and the Notes thereto included elsewhere in this Form 10-K.
The following discussion contains  forward-looking  statements and the Company's
actual results could differ  materially from those anticipated in these forward-
looking  statements as a result of certain  factors,  including  those set forth
under "Factors That May Affect Future Results".

OVERVIEW

The  Company  develops,  markets  and  supports  customer  interaction  software
designed to increase the  productivity  and  revenue-generating  capabilities of
mid-size and large-scale telephone call centers.

The Company's revenue is derived from two sources: software license fees for the
use of the Company's  software  products,  and services and maintenance fees for
implementation,  consulting,  support  and  training  related  to the  Company's
software products.  For all periods presented herein, the Company has recognized
license fee revenues in  accordance  with  Statement of Position  91-1  entitled
"Software  Revenue  Recognition"  issued by the American  Institute of Certified
Public  Accountants.  License  fee  revenues  consist of revenues  from  initial
licenses for the Company's  software  products and license  upgrades to existing
customers  for  additional  users or  modules.  The Company  recognizes  initial
license  fee  revenues  upon  licensing  and  delivery of the  software,  if the
software is not subject to customer acceptance or post-delivery obligations.  If
the license is subject to customer acceptance or post-delivery obligations,  the
license fee revenues are deferred until customer  acceptance has occurred or the
post-delivery obligations have been met.

The  second  component  of the  Company's  revenues  derives  from  professional
services  associated  with the  implementation  and  deployment of the Company's
software  products  and  maintenance  fees for  ongoing  customer  support.  The
Company's  professional  consulting,  technical support and maintenance services
include  application  development,  systems  integration,  systems and  database
design and construction and software  training.  The Company  recognizes revenue
from professional  services as such services are performed.  Annual  maintenance
fees are charged as a percentage of the license fee, and are recognized  ratably
over the term of the maintenance agreement,  which is usually twelve months. The
maintenance  agreements  are  renewable  at the  discretion  of the customer and
subject to change annually.

The Company  markets its  products in the United  States  through a direct sales
organization.  The Company  markets its  products  outside the United  States in
Europe,  the Pacific Rim, Canada,  Mexico and Latin America through  remarketing
and distribution relationships which it supplements with a direct sales force in
certain regions.  The Company  established  sales and support  operations in the
United  Kingdom in 1990 to broaden its European
<PAGE>
distribution  capabilities.  In 1997, United States and  international  revenues
were approximately 73% and 27% of total revenues, respectively.

Although the Company has experienced  significant  growth in revenues during the
past three  years,  the Company  does not believe  prior  growth is  necessarily
indicative  of future  operating  results.  In  addition,  the  Company  expects
increased  competition and intends to continue to invest in its business.  There
can be no assurance that the Company will be profitable on a quarterly or annual
basis.  Future operating  results will depend on many factors,  including demand
for the  Company's  products,  the  level  of  product  competition,  competitor
pricing, the size and timing of significant orders,  changes in pricing policies
by the  Company  or its  competitors,  the  ability of the  Company to  develop,
introduce  and market new  products  on a timely  basis and changes in levels of
operating expenses.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Revenues

Total  revenues  increased  39.6% from $26.3 million in 1996 to $36.7 million in
1997.

License Fees. Total license fees increased 48.2% from $13.0 million, or 49.6% of
total  revenues in 1996 to $19.3  million,  or 52.6% of total  revenues in 1997.
EDGE license fees increased 58.4% from $12.2 million in 1996 to $19.3 million in
1997. The increase in EDGE license fees was primarily  attributable to increases
in both the number of license  transactions  and the average  price per customer
license,  which the Company  believes was primarily the result of greater market
awareness  and  acceptance  of the EDGE  products and expansion of the Company's
sales and marketing  organization.  Telemar license fees decreased from $842,000
in 1996 to $0 in 1997 due to the sale of the  Telemar  product  line to  Telemar
Software International LLC ("TSI") in September 1996.

Services and Maintenance. Services and maintenance revenues increased 31.1% from
$13.3 million,  or 50.4% of total revenues in 1996 to $17.4 million, or 47.4% of
total revenues in 1997. EDGE services and maintenance  revenues  increased 49.2%
from  $11.6  million  in 1996 to $17.4  million in 1997.  The  increase  in EDGE
services and maintenance revenues was primarily attributable to increased demand
for services  and  maintenance  and the  significant  increase in EDGE  software
licenses in 1997. Telemar services and maintenance  revenues decreased from $1.6
million  in 1996 to $0 in 1997 due to the sale of the  Telemar  product  line in
September 1996.

Cost of Revenues

Cost of revenues  increased  23.2% from $7.9  million in 1996 to $9.7 million in
1997.

<PAGE>
Cost of License  Fees.  Cost of license  fees is comprised of the costs of media
packaging,   documentation,   third  party  software  and  software   production
personnel.  Cost of license fees decreased 57.1% from $709,000, or 5.4% of total
license fees in 1996 to  $304,000,  or 1.6% of total  license fees in 1997.  The
higher  cost of  license  fees in 1996  was  attributable  to the  cost of other
vendors'  products  resold by the Company in connection with the Telemar product
line.

Cost of Services and Maintenance.  The cost of services and maintenance consists
of  salaries,   wages,   benefits  and  other  costs  related  to  installation,
implementation,  training,  and  maintenance  support of the Company's  software
products.  The cost of  services  and  maintenance  increased  31.1%  from  $7.2
million, or 54.3% of services and maintenance  revenues in 1996 to $9.4 million,
or 54.3% of services and  maintenance  revenues in 1997. The increase in cost of
services and  maintenance  was primarily  attributable  to additional  personnel
hired to meet customer needs for services.

Operating Expenses

Sales  and  Marketing.   Sales  and  marketing  expenses  consist  primarily  of
commissions,  salaries,  bonuses  and  other  related  expenses  for  sales  and
marketing personnel, as well as marketing, advertising and promotional expenses.
Sales and marketing  expenses  increased  56.2% from $8.1  million,  or 30.7% of
total  revenues in 1996 to $12.6  million,  or 34.3% of total  revenues in 1997.
This increase was primarily  attributable to the hiring of additional  sales and
marketing  personnel,  increased print  advertisements,  participation  in trade
shows, travel expenses and other sales and marketing expenses.

Product Development. Product development expenses consist primarily of salaries,
bonuses,  other related  personnel  expenses and consulting fees, as well as the
cost of  facilities  and  equipment.  Costs related to product  development  are
expensed as incurred.  Product  development  expenses  decreased  3.0% from $6.4
million,  or 24.3% of total revenues in 1996 to $6.2 million,  or 16.9% of total
revenues  in  1997.  However,  product  development  expenses  related  to  EDGE
increased  16.5%  from $5.3  million to $6.2  million.  The  reduction  in total
product development expenses was attributable to the sale of the Telemar product
line in September 1996, after which no Telemar product development expenses were
incurred.

General and  Administrative.  General and administrative  expenses represent the
costs of executive, finance and administrative support personnel, the portion of
occupancy expenses allocable to administration,  unallocated  corporate expenses
such as fees for legal and auditing services and bad debt expense. The Company's
general and administrative  expenses increased 23.4% from $3.9 million, or 14.8%
of total  revenues in 1996 to $4.8 million,  or 13.0% of total revenues in 1997.
This   increase  was  generally   attributable   to  increases  in  general  and
administrative  costs  associated  with higher  business  volume,  including the
hiring of  administrative  personnel,  the leasing of  additional  office space,
higher legal and accounting  expenses and an increase in the Company's  accounts
receivable reserve.

<PAGE>
Other Income

Interest  Expense.  Interest  expense consists of interest on debt and equipment
financing less interest earned on cash, short term investments, notes receivable
from officers and the promissory  note entered into in connection  with the sale
of Telemar.  Net interest  expense  decreased 93.0% from $1.2 million in 1996 to
$82,000 in 1997 primarily as a result of the completion of the Company's initial
public  offering of Common  Stock in August  1997,  the  repayment of all of the
Company's  outstanding  indebtedness  with the  proceeds of the offering and the
investment of the remaining  proceeds in interest bearing  securities.  Interest
income was $641,000 and interest expense was $723,000 in 1997.

Other

In connection with the sale of Telemar,  the Company  received a promissory note
from TSI in the principal  amount of $650,000  (the "TSI Note")  payable in five
equal annual  installments  commencing  October 1997 and which bears interest at
8.0% per annum. At the time of issuance,  the Company fully reserved for the TSI
Note because collectibility, based on the start-up nature of TSI operations, was
not  ascertainable  at the time of sale.  The Company will  recognize gain in an
amount equal to payments on the TSI Note as such payments, if any, are received.
The Company had other income of $100,000 in 1997 due to the receipt of a payment
of $100,000 on the  promissory  note  received  in  connection  with the sale of
Telemar,  compared with other income of $92,000 in 1996,  which was attributable
to a gain on the sale of Telemar assets.

Provision for Income Taxes.  Provision for income taxes  consists of foreign and
state income and withholding  taxes.  The increase in provision for income taxes
is primarily attributable to an increase in international  withholding taxes. At
December 31, 1997, the Company had  approximately  $8.6 million of U.S.  Federal
net operating loss  carryforwards of which  approximately  $3.4 million resulted
from the exercise of nonqualified stock options,  and approximately $2.5 million
of state net operating loss carryforwards, which can be used, subject to certain
limitations, to offset future taxable income. When realized, the tax benefits of
the portion of the net operating  losses  attributable  to the exercise of stock
options  will be  credited  directly to paid in  capital.  The U.S.  Federal net
operating  loss  carryforwards  expire through 2011 and the stated net operating
loss  carryforwards  expire through 2002. The Company's  initial public offering
resulted  in a change in  ownership,  as defined by Federal  income tax laws and
regulations. As a result of this change in ownership, the amount of U.S. Federal
net operating loss carryforwards which can be utilized to offset Federal taxable
income has an annual limitation of approximately $4,700,000.

<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Revenues

Total  revenues  increased  10.4% from $23.8 million in 1995 to $26.3 million in
1996.

License Fees. Total license fees increased 20.3% from $10.8 million, or 45.5% of
total revenues,  in 1995 to $13.0 million, or 49.6% of total revenues,  in 1996.
EDGE license fees increased  45.6% from $8.4 million in 1995 to $12.2 million in
1996.  The  increase  in EDGE  license  fees was  primarily  attributable  to an
increase in the average size of customer  licenses,  increased  market awareness
and acceptance of the EDGE products,  and increased  productivity resulting from
expansion of the Company's  sales and marketing  organization.  Telemar  license
fees decreased 65.7% from $2.5 million in 1995 to $842,000 in 1996. The decrease
in Telemar license fees was due to a decrease in demand for Telemar software and
the sale of the Telemar product line in September 1996.

Services and Maintenance.  Services and maintenance revenues increased 2.1% from
$13.0 million, or 54.5% of total revenues, in 1995 to $13.3 million, or 50.4% of
total revenues,  in 1996. EDGE services and maintenance revenues increased 12.6%
from  $10.3  million  in 1995 to $11.6  million in 1996.  The  increase  in EDGE
services and maintenance  revenue of $1.3 million was primarily  attributable to
the  significant  increase in EDGE software  licenses,  all of which  involved a
consulting services component,  offset in part by the substantial  completion of
several service  projects in 1995.  Telemar  services and  maintenance  revenues
decreased  39.0% from $2.6 million in 1995 to $1.6 million in 1996. The decrease
in Telemar  services and  maintenance  revenue was due to  decreased  demand for
Telemar software and the sale of the Telemar product line on September 1, 1996.

Cost of Revenues

Cost of revenues  decreased  11.5% from $8.9  million in 1995 to $7.9 million in
1996.

Cost of License Fees. Cost of license fees increased 1.3% from $700,000, or 6.5%
of total license  fees,  in 1995 to $709,000,  or 5.4% of total license fees, in
1996.

Cost of Services and Maintenance. The cost of services and maintenance decreased
12.6% from $8.2 million, or 63.3% of services and maintenance  revenues, in 1995
to $7.2 million,  or 54.3% of services and  maintenance  revenues,  in 1996. The
improvement in services and maintenance  margin was primarily due to a reduction
in the cost of subcontractors  used to supplement the Company's  internal client
services  organization  from $2.5 million in 1995 to $500,000 in 1996, offset in
part by an increase in personnel  costs of $1.1  million  from 1995 to 1996.  In
1995,  approximately  $650,000 of the $2.5  million of  subcontractor  costs was
attributable  to  third  party  subcontractor  fees  for  services  provided  in
connection with a customer  installation  pursuant to the terms of a fixed price

<PAGE>
services  contract  entered  into in  December  1993 for which no  corresponding
revenue was  realized.  Since 1993 the  Company  has not entered  into any large
fixed price contracts.

Operating Expenses

Sales and  Marketing.  Sales and marketing  expenses  increased  17.7% from $6.8
million, or 28.7% of total revenues,  in 1995 to $8.1 million, or 30.7% of total
revenues,  in 1996.  This increase was primarily  attributable  to the hiring of
additional sales and marketing personnel as well as increased print advertising,
participation  in trade shows,  travel  expenses  and other sales and  marketing
expenses.

Product  Development.  Product  development  expenses  decreased  6.2% from $6.8
million, or 28.6% of total revenues,  in 1995 to $6.4 million, or 24.3% of total
revenues,  in 1996.  The reduction of product  development  expenses in absolute
dollars was primarily  attributable  to the sale of the Telemar  product line on
September 1, 1996,  after which no Telemar  product  development  expenses  were
incurred.  The absolute dollar amount of product development expenses related to
EDGE increased  from $5.1 million in 1995 to $5.3 million in 1996,  although the
amount of such investment as a percentage of EDGE revenues declined slightly.

General and  Administrative.  The Company's general and administrative  expenses
increased from $3.8 million,  or 16.1% of revenues,  in 1995 to $3.9 million, or
14.8% of revenues,  in 1996. The relatively  consistent expense levels from 1995
to 1996 reflect primarily an increase in personnel costs offset by a decrease in
the provision for doubtful accounts.

Other Income (Expense)

Interest  Expense.  Interest  expense  increased  53.3% from $764,000 in 1995 to
$1,171,000 in 1996  primarily as a result of the accrual of interest on the Term
Note of $391,000 and interest  paid on monies  borrowed  from certain  executive
officers of $110,000 offset by a reduction in the principal amounts  outstanding
under capital leases and subordinated indebtedness.

Other Items.  The Company  incurred  expenses of $113,000 in 1995 in  connection
with losses relating to the disposal of certain office equipment and the sale of
an office  building  in  Trumbull,  Connecticut,  which  had been  leased by the
Company and with respect to which the Company had  guaranteed the repayment of a
mortgage  loan.  In 1996,  the Company  realized a gain of $92,000 in connection
with the sale of Telemar and certain  related assets and liabilities to TSI. The
Company  incurred a one-time  expense of $223,000 in 1995 in connection with its
early  termination  of an office lease in Fountain  Valley,  California  because
space available at the premises no longer met the Company's needs.

<PAGE>
Liquidity and Capital Resources

At December 31, 1997,  the Company had $4.8  million in cash,  $19.5  million in
short term investment and $14.8 million in accounts  receivable.  For the twelve
months ended  December  31,  1997,  the Company used net cash of $2.0 million in
operating  activities,  which was primarily  attributable  to net income of $3.2
million,  depreciation,  amortization and other non-cash charges of $1.4 million
and a decrease  in notes  receivable  from  officers  of  $548,000  offset by an
increase in accounts  receivable of $4.3  million,  an increase in other current
assets of $1.2 million and a decrease in accounts  payable and accrued  expenses
of $1.0 million.  The  fluctuations in operating assets and liabilities were due
primarily to the timing of operating activities, including the timing of orders,
collections of accounts receivable and the payment of accounts payable.

For the twelve months ended December 31, 1997, the Company's  primary  investing
activities consisted of net purchases of short-term investments of approximately
$19.5 million and $1.4 million of purchases of computer and office  equipment to
support the Company's expanding employee base.

In August 1997, the Company  completed its initial public  offering of 3,900,000
shares of its common stock,  of which  2,800,000  shares were issued and sold by
the Company and  1,100,000  shares  were sold by certain  selling  shareholders,
which  provided net proceeds to the Company,  after  underwriting  discounts and
expenses,  of $32.4 million.  The Company used $7.4 million to repay in full the
principal  indebtedness  under the Loan and Security Agreement dated October 26,
1995, as amended between the Company and People's Bank. In addition, the Company
used  $250,000  of the net  proceeds  of the  offering  to  repay in full a note
payable to Wand/IMA  Investments,  L.P. For the twelve months ended December 31,
1997, the Company made capital equipment lease repayments of $269,000.

The Company  anticipates  that the proceeds  from its initial  public  offering,
together with other existing sources of working  capital,  will be sufficient to
meet the Company's projected working capital and other cash requirements for the
foreseeable future. The Company's future operating and capital requirements will
depend on numerous  factors,  including  the  Company's  internal  research  and
development  programs,  the level of resources the Company  devotes to marketing
and sales activities,  advances in technology and the successful development and
introduction of new products.

Effect of Recent Accounting Pronouncements

     In 1997 the FASB issued  Statement of Financial  Accounting  Standards  No.
130, Reporting  Comprehensive Income (SFAS 130), which establishes standards for
reporting and display of  comprehensive  income and its components in a full set
of general purpose financial statements.  In 1997 the FASB also issued Statement
of Financial  Accounting  Standards No. 131,  Disclosures  About  Segments of an
Enterprise and Related  Information  (SFAS 131),  which requires a new model for
segment  reporting.  The  adoption of SFAS
<PAGE>
130 and SFAS 131 is required in 1998.  The adoption of these  standards will not
impact the Company's results from operations or financial position.

Impact of Inflation

     The Company does not believe that inflation has had a significant impact on
the Company's consolidated operations.

Year 2000 Compliance

     As the  year  2000  approaches,  a  critical  business  issue  has  emerged
regarding how existing  application  software programs and operating systems can
accommodate  this date  value.  In brief,  many  existing  application  software
products in the marketplace  were designed to only  accommodate a two-digit date
position  which  represents  the year  (e.g.,  '95 is stored on the  system  and
represents the year 1995). As a result,  the year 1999 (i.e.,  '99) could be the
maximum date value these systems will be able to accurately process.  Management
is in the process of working  with its  products  to assure  that the  Company's
products  are  year  2000  compliant.  The  Company  also is in the  process  of
analyzing  its own  systems and  requirements.  Based on  information  currently
available,   management   does  not  anticipate  that  the  Company  will  incur
significant  operating  expenses  or be  required  to invest  heavily in product
development or computer system  improvements  to be year 2000 compliant.  To the
extent the Company's systems are not fully year 2000 compliant,  there can be no
assurance that potential  systems  interruptions or the cost necessary to update
software  would not have a material  adverse  effect on the Company's  business,
financial condition, results of operations and business prospects.

Factors That May Affect Future Results

In addition to the other information in this Form 10-K, readers should carefully
consider  the  following  factors in  evaluating  the Company and its  business.
Statements  in  this  Form  10-K  which  express  "belief",   "anticipation"  or
"expectation",  as well as other  statements  which are not historical fact, and
statements as to product  compatibility,  design,  features,  functionality  and
performance  insofar  as  they  may  apply  prospectively,  are  forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and the  Company's  actual  results  could  differ  materially  from  those
expressed in these  forward-looking  statements as a result of numerous factors,
including those set forth below, and elsewhere in this Form 10-K.

History Of  Operating  Losses;  Uncertainty  Of Future  Operating  results.  The
Company  incurred  significant net operating  losses in each of 1992, 1993, 1994
and 1995 and had an  accumulated  deficit of $14.0  million as of  December  31,
1997. The Company's  operating  history makes the prediction of future operating
results difficult or impossible.  Accordingly, although the Company has recently
experienced revenue growth,  such growth should not be considered  indicative of
future revenue growth, if any, or of future operating  results.  There can be no
assurance that any of the Company's  business  strategies
<PAGE>
will be  successful  or that the  Company  will be able to  achieve  or  sustain
profitability on a quarterly or annual basis in the future.

Fluctuations In Quarterly Performance. The Company's quarterly operating results
have varied  significantly in the past and may vary  significantly in the future
depending  upon a number of  factors,  many of which are  beyond  the  Company's
control.  These factors  include,  among  others,  the ability of the Company to
develop,  introduce  and market new and  enhanced  versions of its products on a
timely basis; the demand for the Company's products; the lengthy sales cycle for
full  implementation of its products;  the size, timing and contractual terms of
significant orders; the timing and significance of product  enhancements and new
product  announcements  by  the  Company  or  its  competitors;  changes  in the
Company's  business  strategies;  budgeting  cycles of its potential  customers;
customer  order  deferrals in  anticipation  of  enhancements  or new  products;
changes  in the mix of  products  and  services  sold;  changes in the amount of
revenue  attributable to domestic and  international  sales;  changes in foreign
currency   exchange  rates;   the  level  of  product  and  price   competition;
cancellations or non-renewals of licenses or maintenance agreements; investments
to  develop  marketing  and  distribution  channels;  or changes in the level of
operating expenses.  The Company is dependent upon obtaining orders in any given
quarter for delivery in that quarter in order to achieve its  quarterly  revenue
objectives.  The timing of revenue  recognition can be affected by many factors,
including  the  timing  of  contract   execution  and  delivery,   post-delivery
obligations  and customer  acceptance.  A  significant  portion of the Company's
revenues in any quarter is typically derived from  non-recurring,  large license
fees received from a relatively small number of customers.  Although  particular
customers may vary from quarter to quarter,  the Company expects that sales to a
limited  number  of  customers  will  continue  to  account  for  a  significant
percentage of its revenue in any quarter for the foreseeable future.  Therefore,
the loss, deferral or cancellation of a contract,  or a failure of a customer to
honor its  contractual  obligations  (and for which the  Company's  reserves and
allowances may be inadequate),  could have a significant impact on the Company's
operating  results in a  particular  quarter.  Conversely,  to the  extent  that
significant sales occur earlier than expected,  operating results for subsequent
three months may be adversely affected. In addition,  the Company's business has
experienced and is expected to continue to experience seasonality, with stronger
demand during the three months ending in June and December than during the three
months ending in March and September,  and a substantial portion of orders being
received in the last month or weeks of any given quarter.

Due to the foregoing  factors,  quarterly revenues and operating results are not
predictable  with any  significant  degree of accuracy.  The  Company's  expense
levels are based in significant part on the Company's  expectations as to future
revenues  and are  therefore  relatively  fixed for the short  term.  If revenue
levels are below expectations,  the Company's business,  operating results,  and
financial  conditions  are  likely to be  materially  adversely  affected.  As a
result, the Company believes that period-to-period comparisons of its results of
operations  are not  necessarily  meaningful  and should  not be relied  upon as
indications  of future  performance.  There can be no assurance that the Company
will be able to achieve or sustain  profitability on a quarterly or annual basis
in the future.  Due
<PAGE>
to all of the foregoing  factors,  it is likely that in some future  quarter the
Company's total revenues or operating  results will be below the expectations of
public  market  analysts  and  investors.  In such  event,  or in the event that
adverse conditions prevail or are perceived to prevail generally or with respect
to the Company's business,  the price of the Company's common stock would likely
be materially adversely affected.

Product   Concentration.   Substantially  all  of  the  Company's  revenues  are
attributable  to the  licensing  of  EDGE  and  the  provision  of  professional
consulting,  technical  support and maintenance  services relating to EDGE. As a
result,  factors adversely  affecting the pricing of or demand for EDGE products
and  services,  such as  competition  or  technological  changes,  could  have a
material  adverse  effect  on the  Company's  business,  operating  results  and
financial condition.  The Company's future financial performance will depend, in
significant  part, on the continued  market  acceptance of its EDGE products and
the  successful  development,  introduction  and  client  acceptance  of new and
enhanced  versions of EDGE products.  There can be no assurance that the Company
will continue to be successful in developing and marketing EDGE.

Lengthy  Sales  And  Implementation  Cycles;  Post  Delivery  Obligations.   The
licensing and  implementation  of the Company's  products  generally  involves a
significant  commitment of resources by customers and often requires the Company
to provide a significant level of education to prospective  customers  regarding
the use of the Company's  products.  As a result, the Company's sales process is
often subject to delays associated with lengthy customer approval processes that
typically  accompany  significant  capital  expenditures.  For  these  and other
reasons,  the sales cycle associated with the license of the Company's  products
is often lengthy and may be subject to a number of significant delays over which
the  Company  has  little or no  control.  In  addition,  the time  required  to
implement the Company's  products can vary  significantly  with the needs of its
customers and generally extends for several months or, for larger,  more complex
implementations, multiple quarters.

Depending on the contract  terms and  conditions,  licensing fees are recognized
upon delivery of the product of no customer acceptance conditions or significant
post-delivery  obligations remain and collection of the resulting  receivable is
probable.  However,  if  post-delivery  obligations  exist, or if the product is
subject to customer  acceptance,  revenue will be deferred  until no significant
Company  obligations  exist  or  acceptance  has  occurred.  In the  past,  some
customers  have  failed  to honor  their  contractual  obligations  by  delaying
payments of a portion of license fees until  implementation  was complete and in
some cases have disputed the license and consulting  fees charged.  There can be
no  assurance  that the Company will not  experience  delays,  cancellations  or
disputes  regarding  payment in the future,  which could have a material adverse
effect on the Company's business,  operating results and financial condition and
cause its quarterly operating results to vary significantly in the future.

Dependence  On  Proprietary  Technology.  The  Company's  success and ability to
compete is dependent in part upon  proprietary  technology.  The Company  relies
primarily on a
<PAGE>
combination  of copyright  and  trademark  laws,  trade  secrets,  nondisclosure
agreements and technical measures to protect its proprietary rights. The Company
typically enters into  confidentiality or license agreements with its employees,
distributors,   clients  and  potential  clients,   and  limits  access  to  and
distribution of its software,  documentation and other proprietary  information.
There  can  be  no  assurance  that  these  steps  will  be  adequate  to  deter
misappropriation or independent  third-party development of its technology or to
prevent an unauthorized third party from obtaining or using information that the
Company regards as proprietary.  In addition, the laws of some foreign countries
do not protect or enforce  proprietary  rights to the same extent as do the laws
of the United States.  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  product exists,  software piracy can be expected to be a
persistent  problem.  There  can be no  assurance  that the  Company's  means of
protecting  its  proprietary  rights  will be  adequate  or that  the  Company's
competitors  will not  independently  develop similar  technology.  Although the
Company  believes  that its  products  and  technology  do not  infringe  on any
existing  proprietary  rights of others,  the use of patents to protect software
has increased,  and there can be no assurance that third parties will not assert
infringement claims in the future or, if infringement claims are asserted,  that
such claims will be resolved in the Company's  favor.  The Company  expects that
software product developers will increasingly be subject to infringement  claims
as the number of products and  competitors  in the  Company's  industry  segment
grows and the functionality of products in different industry segments overlaps.
Any such  claims,  with or without  merit,  could be  time-consuming,  result in
costly litigation, cause product shipment delays or require the Company to enter
into royalty or licensing agreements.  Such royalty or licensing agreements,  if
required,  may not be  available  on terms  favorable  to the Company or at all,
which could have a material adverse effect on the Company's business,  operating
results and financial  condition.  Any infringement  claims resolved against the
Company  could have a  material  adverse  effect  upon the  Company's  business,
operating  results and  financial  condition.  In  addition,  litigation  may be
necessary  in the  future  to  protect  the  Company's  trade  secrets  or other
intellectual  property  rights,  or to  determine  the validity and scope of the
proprietary rights of others.  Such litigation could result in substantial costs
and  diversion  of  resources  and could have a material  adverse  effect on the
Company's business, operating results and financial condition.

The Company has entered into  agreements  with a small  number of its  customers
requiring  the  Company  to  place  its  source  code in  escrow.  These  escrow
agreements typically provide that customers have a limited,  non-exclusive right
to use such  code in the  event  that  there is a  bankruptcy  proceeding  by or
against  the  Company,  if the  Company  ceases to do business or if the Company
fails to meet its support obligations.  The escrow agreements,  and any that the
Company  may  enter  into  in  the  future,  may  increase  the  possibility  of
misappropriation  by  third  parties.  In  addition,   the  Company  utilizes  a
third-party  contractor for selected product development projects which may also
increase the possibility of misappropriation by third parties.

<PAGE>
Dependence On Indirect Marketing And Distribution Channels; Potential Conflicts.
The Company  maintains  co-marketing  relationships  with consulting and systems
integration  companies  to expand the  visibility  of its products in the United
States and  internationally  and  distributes  its  products  outside the United
States through remarketers and distributors. Such co-marketers,  remarketers and
distributors  are not under the direct  control of the  Company  and install and
support  the  product  lines of a number  of  companies.  In  addition,  the co-
marketers,  remarketers and distributors are not subject to any minimum purchase
requirements  and can discontinue  marketing the Company's  products at any time
without cause. The consulting and systems integration companies may also sell or
co-market  potentially  competitive  products.  Accordingly,  the  Company  must
compete  for the  focus  and  sales  efforts  of  these  third  party  entities.
Additionally, selling through indirect channels may limit the company's contacts
with its  customers,  potentially  hindering its ability to accurately  forecast
sales  and  revenue,  evaluate  customer  satisfaction  and  recognize  emerging
customer requirements. There can be no assurance that co-marketers,  remarketers
and distributors will continue to distribute or recommend the Company's products
or do so successfully, or that the Company will succeed in increasing the use of
these indirect channels  profitably.  There can also be no assurance that one or
more of these  companies will not begin to market  products in competition  with
the  Company.  The  termination  of one or more of  these  relationships  or the
failure of the Company to establish  additional  relationships  could  adversely
affect the Company's business, operating results and financial condition.

The  Company's  strategy of  marketing  its products  directly to end-users  and
indirectly  through  remarketers  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 manage its  distribution  channels in a manner to avoid
potential  conflicts,  there  can  be no  assurance  that  distribution  channel
conflicts will not materially  adversely affect its relationships  with existing
remarketers  and  distributors  or  adversely  affect its ability to attract new
remarketers and distributors.

Need To Expand  Marketing  And  Distribution  Channels.  The  Company  sells its
products both through its direct sales organization and through  remarketers and
distributors.  Part  of  the  Company's  strategy  is to  increase  its  use  of
remarketers and distributors to sell its products  internationally and to expand
its existing  co-marketing  relationships and establish new  relationships  with
other consulting and systems integration companies.  The Company is also seeking
to  expand  its  existing  international  direct  sales  force  in order to take
advantage  of  international  growth  opportunities.  The  Company's  ability to
achieve  revenue  growth in the future will depend on its success in  recruiting
and training  sufficient  direct sales  personnel and  attracting  and retaining
qualified remarketers and distributors. The Company has at times experienced and
continues to experience difficulty in recruiting qualified personnel,  and there
can be no  assurance  that the Company will be able to expand  successfully  its
direct sales force or other  remarketing and  distribution  channels or that any
such  expansion  will  result in an  increase  in  revenues.  Any failure by the
Company to
<PAGE>
expand its direct sales force or other  remarketing  and  distribution  channels
could materially and adversely affect the Company's business,  operating results
and financial condition.

Emerging Markets For Call Center Customer  Interaction  Software;  Dependence On
Increased  Use Of  Products By  Existing  Customers.  The market for call center
customer  interaction software is relatively new and is characterized by ongoing
technological    developments,    frequent   new   product   announcements   and
introductions,  evolving industry standards and changing customer  requirements.
The  Company's  future  financial  performance  will  depend  in  large  part on
continued  growth in the number of  organizations  adopting call center customer
interaction  software products on an enterprise-wide  basis and on the number of
applications  and software  components  developed for such use.  There can be no
assurance  that  the call  center  customer  interaction  software  market  will
continue to grow.  If this market  fails to grow,  or grows more slowly than the
Company currently  anticipates,  the Company's  business,  operating results and
financial condition could be materially and adversely affected.

In  addition,  certain of the  Company's  larger  customers  have  licensed  the
Company's  software on an  incremental  basis and there can be no assurance that
the Company's  customers  will expand their use of the Company's  software on an
enterprise-wide basis or license new or enhanced software products introduced by
the  Company.  The failure of the  Company's  software to perform  according  to
customer  expectations or otherwise to be deployed on an  enterprise-wide  basis
could have a material  adverse  effect on the ability of the Company to increase
revenues from existing customers.

Rapid Technological Change. The call center customer interaction software market
is characterized by rapid technological  change,  frequent  introductions of new
products,  changes in customer demands and evolving industry  standards,  any of
which can render existing products obsolete and unmarketable.  As a result,  the
Company's  position in its existing  markets or other  markets that it may enter
could diminish rapidly by product advancements. The life cycles of the Company's
products are  difficult to  estimate.  The  Company's  product  development  and
testing  efforts  are  expected  to  require,  from  time to  time,  substantial
investments  by the  Company  and  there can be no  assurance  that it will have
sufficient resources to make the necessary investments.  The Company's customers
have  adopted a wide  variety of hardware,  software,  database  and  networking
platforms,  and as a result, to gain broad market  acceptance,  the Company must
continue to support and maintain  its  products on a variety of such  platforms.
The  Company's  future  success  will  depend  on its  ability  to  address  the
increasingly  sophisticated  needs of its customers by  supporting  existing and
emerging hardware, software, database and networking platforms and by developing
and  introducing  enhancements  to its  existing  products and new products on a
timely basis that keep pace with technological  developments,  changing customer
requirements  and  evolving  industry  standards.  The success of the  Company's
products may also depend,  in part, on its ability to introduce  products  which
are compatible with the Internet, and on the broad acceptance of the Internet.

<PAGE>
Management of Growth.  The Company is currently  experiencing  a period of rapid
growth  that  could  place a  significant  strain  on its  management  and other
resources.  The Company  anticipates that continued growth, if any, will require
it to recruit,  hire,  train and retain a  substantial  number of new and highly
skilled  product  development,  managerial,  finance,  sales and  marketing  and
support  personnel.  Competition  for such  personnel is intense and the Company
expects that such  competition will continue for the foreseeable  future.  There
can be no assurance  that the Company will be  successful at hiring or retaining
such  personnel.  The  Company's  ability to compete  effectively  and to manage
future  growth,  if any, will depend on its ability to continue to implement and
improve  operational,  financial and management  information systems on a timely
basis and to expand,  train, motivate and manage its work force. There can be no
assurance that the Company's personnel, systems, procedures and controls will be
adequate to support the Company's  operations.  If the  Company's  management is
unable to manage growth  effectively,  the quality of the Company's products and
its  business,  operating  results and financial  condition  could be materially
adversely affected.

Competition.  The market  for  telemarketing,  telesales  and  customer  service
software is intensely competitive,  rapidly evolving and highly sensitive to new
product   introductions  or  enhancements  and  marketing  efforts  by  industry
participants.  The Company  competes with a large number of competitors  ranging
from internal  information systems departments to packaged software  application
vendors.  The  Company  believes  that as the United  States  and  international
software markets continue to grow, a number of new vendors will enter the market
and  existing  competitors  and new  market  entrants  will  attempt  to develop
applications targeting additional markets.  Competitors have established and may
in the  future  establish  cooperative  relationships  or  alliances  which  may
increase their ability to provide superior  software  solutions or services.  In
addition,  consolidation  within the call center customer  interaction  software
industry could create new or stronger competitors.

Increased  competition  resulting from new entrants,  consolidation  of the call
center customer  interaction  software  industry,  cooperative  relationships or
alliances could result in price reductions,  reduced operating income or loss of
market  share,  any of which could  materially  adversely  affect the  Company's
business,  operating  results  or  financial  condition.  Many of the  Company's
current  and  potential   competitors  have  significantly   greater  financial,
technical,  marketing,  service,  support and other  resources,  generate higher
revenues  and have greater name  recognition  than the Company.  There can be no
assurance that the Company's  current or potential  competitors will not develop
products  comparable or superior to those  developed by it or adapt more quickly
than the  Company to new  technologies,  evolving  industry  trends or  changing
client requirements.  There can be no assurance that the Company will be able to
compete  effectively  against current or future  competitors or that competitive
pressures  faced by the Company would not  materially  and adversely  affect its
business, operating results or financial condition.

Risks  Associated  With  International   Operations.   International  operations
accounted for  approximately  38%, 26% and 27% of total revenues for 1995,  1996
and 1997,  respectively.  The Company intends to expand its international  sales
activity,  which will
<PAGE>
require  significant  management  attention  and  financial  resources  and will
require  the  Company  to  establish  additional  foreign  operations  and  hire
additional personnel.  As of December 31, 1997 the Company employed 28 employees
who are based in Europe.  The Company has an office located in London,  England.
There can be no assurance  that the Company will be able to maintain or increase
international  market  demand for its products and, to the extent the Company is
unable to do so, its business, operating results or financial condition could be
materially adversely affected.  The Company's  international sales are currently
denominated in U.S.  dollars with respect to sales outside of the United Kingdom
and Europe, and generally in pounds sterling with respect to sales in the United
Kingdom  and  Europe.  An  increase  in the  value of the U.S.  dollar  or pound
sterling  relative to other  currencies  could make the Company's  products more
expensive and,  therefore,  potentially  less  competitive  in foreign  markets.
Currently,  the Company does not employ  currency  hedging  strategies to reduce
this risk. In addition, the Company's international business may be subject to a
variety  of  other  risks,  including  potentially  longer  payment  cycles  and
difficulties in collecting  international  accounts receivable,  difficulties in
enforcement  of  contractual   obligations  and  intellectual  property  rights,
potentially   adverse  tax   consequences,   increased  costs   associated  with
maintaining  international  market  efforts,  costs of  localizing  products for
foreign markets,  tariffs,  duties and other trade barriers,  adverse changes in
regulatory  requirements,  possible  recessionary  economies  outside the United
States and political and economic  instability.  There can be no assurance  that
such factors will not have a material  adverse  effect on the  Company's  future
international  sales and,  consequently,  on its business,  operating results or
financial condition.

Increased Use Of  Third-Party  Development  Tools.  The Company's  EDGE products
include  application  development  tools  which  are  used to build  and  modify
applications.  If third-party  application  development tools become more widely
used as a result of technological advances or customer requirements, the Company
could be required to make greater use of third-party tools in the future, and to
enter into license  arrangements with such third parties,  which could result in
higher royalty  payments,  a loss of product  differentiation  and delays.  Such
effects or the  inability of the Company to enter into  commercially  reasonable
licenses  could  have a  material  adverse  effect  on the  Company's  business,
operating results or financial condition.

In addition to the "Factors That May Affect Future Results" mentioned above, the
Company's business entails a variety of additional risks, which are set forth in
the "Risk  Factors"  section of the Company's  Form S-1  Registration  Statement
filed with the Securities and Exchange  Commission,  which became effective July
30, 1997 (Registration No. 333-22923).

<PAGE>
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          Not applicable.

 ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        -----
<S>                                                                                                     <C>
Report of Independent Public Accountants..............................................................   F-2

Consolidated Balance Sheets as of December 31, 1996 and 1997..........................................   F-3

Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997............   F-4

Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997............   F-5

Consolidated Statements of Shareholders' Equity (Deficit) for the Period from January 1, 1995
   through December 31, 1997..........................................................................   F-6

Notes to Consolidated Financial Statements............................................................   F-7
</TABLE>

                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Shareholders of Information Management Associates,
Inc.:

  We have audited the accompanying consolidated balance sheets of Information
Management Associates, Inc. (a Connecticut corporation) and subsidiary as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Information
Management Associates, Inc. and subsidiary as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.



                                  ARTHUR ANDERSEN LLP


Hartford, Connecticut
January 30, 1998



                                      F-2
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,        DECEMBER 31,
                                                                                   ------------------  ------------------
                                                                                          1996                1997
                                                                                   ------------------  ------------------
                                                                                    (in thousands, except share amounts)
<S>                                                                                <C>                 <C>
ASSETS
Current assets:
 Cash and cash equivalents.......................................................           $  3,073            $  4,816
 Short-term investments..........................................................                  -              19,455
 Accounts receivable, net of allowance for doubtful accounts of
  $482 in 1996 and $630 in 1997..................................................             10,473              14,815
 Other current assets............................................................                232               1,420
                                                                                            --------            --------
    Total current assets.........................................................             13,778              40,506
Equipment, net...................................................................              2,222               2,279
Notes receivable from officers and employees.....................................                572                  24
Other assets, net                                                                                709               1,113
                                                                                            --------            --------
                                                                                            $ 17,281            $ 43,922
                                                                                            ========            ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
 Bank line of credit.............................................................           $  4,860            $      -
 Current maturities of term note payable to bank.................................                 83                   -
 Current maturities of obligations under capital leases..........................                251                 232
 Current maturities of subordinated note payable to shareholder..................                250                   -
 Accounts payable................................................................              2,308               1,738
 Accrued sales tax payable.......................................................                823                 242
 Accrued compensation............................................................              1,166               1,597
 Other accrued liabilities.......................................................              1,122                 798
 Deferred revenues...............................................................              1,705               1,686
                                                                                            --------            --------
    Total current liabilities....................................................             12,568               6,293
                                                                                            --------            --------
Term note payable to bank, less current maturities included above................              2,417                   -
                                                                                            --------            --------
Obligations under capital leases, less current maturities included above.........                386                 136
                                                                                            --------            --------
Other long-term liabilities......................................................                520                 463
                                                                                            --------            --------
Commitments and Contingencies (Note 12)
Series A senior redeemable convertible preferred stock, $1,000 stated
 value; 4,500 shares authorized, issued and outstanding at December 31, 1996
  (liquidation value of  $5,169 at December 31, 1996)............................              5,145                   -
Series B senior redeemable convertible preferred stock, $1,000 stated
 value; 4,350 shares authorized, issued and outstanding at December 31, 1996
 (liquidation value of $4,408 at December 31, 1996)..............................              4,286                   -
                                                                                            --------            --------
    Total preferred stock........................................................              9,431                   -
                                                                                            --------            --------
Redeemable common stock warrants.................................................              2,865                   -
                                                                                            --------            --------
Shareholders' equity (deficit):
Common stock, no par value; 20,000,000 authorized shares, 4,293,379 and
 9,236,037 shares issued and outstanding at December 31, 1996 and 1997...........              5,795              51,102
Cumulative translation adjustment................................................                 (9)               (101)
Accumulated deficit..............................................................            (16,692)            (13,971)
                                                                                            --------            --------
    Total shareholders' equity (deficit)                                                     (10,906)             37,030
                                                                                            --------            --------
                                                                                            $ 17,281            $ 43,922
                                                                                            ========            ========
</TABLE>





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

                                      F-3
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                              -----------------------------------------------------
                                                                    1995               1996              1997
                                                              -----------------  -----------------  ---------------
<S>                                                           <C>                <C>                <C>
                                                               (in thousands, except share and per share amounts)
Revenues:
 License fees...............................................           $10,825            $13,022          $19,295
 Services and maintenance...................................            12,984             13,255           17,377
                                                                       -------            -------          -------
    Total revenues..........................................            23,809             26,277           36,672
                                                                       -------            -------          -------
Cost of revenues:
 Cost of license fees.......................................               700                709              304
 Cost of services and maintenance...........................             8,225              7,191            9,428
                                                                       -------            -------          -------
    Total cost of revenues..................................             8,925              7,900            9,732
                                                                       -------            -------          -------
Gross profit                                                            14,884             18,377           26,940
                                                                       -------            -------          -------
Operating expenses:
 Sales and marketing........................................             6,844              8,055           12,580
 Product development........................................             6,802              6,382            6,190
 General and administrative.................................             3,824              3,878            4,784
                                                                       -------            -------          -------
    Total operating expenses................................            17,470             18,315           23,554
                                                                       -------            -------          -------
Operating income (loss).....................................            (2,586)                62            3,386
                                                                       -------            -------          -------
Other income (expense):
 Interest expense...........................................              (794)            (1,219)            (723)
 Interest income............................................                30                 48              641
 Other......................................................              (336)                92              100
                                                                       -------            -------          -------
    Total other income (expense)............................            (1,100)            (1,079)              18
                                                                       -------            -------          -------
Income (loss) before provision for income taxes.............            (3,686)            (1,017)           3,404
Provision for income taxes..................................               100                 30              231
                                                                       -------            -------          -------
Net income (loss)...........................................            (3,786)            (1,047)           3,173
Accretion of preferred stock dividends......................              (275)              (452)            (452)
Increase in fair market value of redeemable common
 stock warrants.............................................              (965)              (385)               -
                                                                       -------            -------          -------
Net income (loss) available to common shareholders..........           $(5,026)           $(1,884)         $ 2,721
                                                                       =======            =======          =======
Net income (loss) per share:
 Basic......................................................            $(1.18)             $(.44)            $.43
                                                                       =======            =======          =======
 Diluted....................................................            $(1.18)             $(.44)            $.38
                                                                       =======            =======          =======
Weighted average shares used in computing net
 income (loss) per share:
 Basic......................................................             4,255              4,258            6,371
                                                                       =======            =======          =======
 Diluted....................................................             4,255              4,258            7,714
                                                                       =======            =======          =======
</TABLE>





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

                                      F-4
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                                         ------------------------------
                                                                           1995      1996       1997
                                                                         --------  --------  ----------
<S>                                                                      <C>       <C>       <C>
                                                                                (in thousands)
Cash Flows from Operating Activities:
 Net income (loss).....................................................  $(3,786)  $(1,047)  $   3,173
 Adjustments to reconcile net income (loss) to net cash
  used in operations:..................................................
 Depreciation and amortization.........................................      948     1,155       1,404
 Loss on disposal of property and equipment............................      113         -           -
 Gain on sale of product line..........................................        -       (92)          -
 Amortization of restricted stock awards...............................       10        10          10
 Changes in Operating Assets and Liabilities:
  Accounts receivable..................................................      399    (3,001)     (4,342)
  Other current assets.................................................     (236)      143      (1,188)
  Notes receivable from officers and employees.........................       76      (378)        548
  Other assets, net....................................................     (182)     (502)       (492)
  Accounts payable.....................................................     (288)     (480)       (570)
  Accrued sales tax payable............................................      145       603        (581)
  Accrued compensation.................................................      537       109         431
  Other accrued liabilities............................................      123       370        (324)
  Deferred revenues....................................................      (10)     (128)        (19)
  Other long-term liabilities..........................................      260       (52)        (57)
                                                                         -------   -------   ---------
    Net Cash Used In Operations........................................   (1,891)   (3,290)     (2,007)
                                                                         -------   -------   ---------
Cash Flows from Investing Activities:
 Acquisition of equipment..............................................     (951)   (1,001)     (1,419)
 Proceeds from sale of building........................................      677         -           -
 Proceeds from short-term investment maturities........................        -         -     352,106
 Purchases of short-term investments...................................        -         -    (371,515)
                                                                         -------   -------   ---------
    Net Cash Used In Investing Activities..............................     (274)   (1,001)    (20,828)
                                                                         -------   -------   ---------
Cash Flows from Financing Activities:
 Proceeds from sale of common stock, net of issuance costs $4,049......        -       231      32,350
 Proceeds from exercise of stock options...............................        -         -         151
 Proceeds from employee stock purchase plan............................        -         -          48
 Net proceeds from sale of preferred stock.............................    4,475     4,228           -
 (Repayment of) proceeds from bank term loan...........................    2,500         -      (2,500)
 Repayment of advances from shareholders...............................   (1,008)        -           -
 (Repayment of) net proceeds from bank line of credit..................   (1,000)    1,860      (4,860)
 Repayment of obligations under capital leases.........................   (1,376)     (539)       (269)
 Proceeds from sale leaseback..........................................        -       509           -
 Repayment of subordinated note payable to shareholder.................     (250)     (500)       (250)
                                                                         -------   -------   ---------
    Net Cash Provided By Financing Activities..........................    3,341     5,789      24,670
                                                                         -------   -------   ---------
Effect of Exchange Rate Changes........................................      (79)       32         (92)
                                                                         -------   -------   ---------
Net Increase in Cash and Cash Equivalents..............................    1,097     1,530       1,743
Cash and Cash Equivalents, beginning of period.........................      446     1,543       3,073
                                                                         -------   -------   ---------
Cash and Cash Equivalents, end of period...............................  $ 1,543   $ 3,073   $   4,816
                                                                         =======   =======   =========
Supplemental Disclosure of Cash Flow Information:
 Cash paid during the period for interest..............................  $   714   $   877   $     671
 Cash paid during the period for income taxes..........................        -        16          90

Supplemental Disclosure of Noncash Activities:
 Accretion of Series A preferred stock in lieu of dividends............      275       394         244
 Accretion of Series B preferred stock in lieu of dividends............        -        58         208
 Increase in fair market value of redeemable common
  stock warrants.......................................................      965       385           -
 Equipment acquired pursuant to capital lease obligation...............      113         -           -
</TABLE>

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

                                      F-5
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)


<TABLE>
<CAPTION>

                                                          COMMON STOCK        CUMULATIVE
                                                       -------------------   TRANSLATION     ACCUMULATED
                                                        SHARES     AMOUNT     ADJUSTMENT       DEFICIT      TOTAL
                                                       ---------  --------  -------------  -------------  ---------
                                                                  (in thousands, except share amounts)
<S>                                                    <C>        <C>       <C>            <C>            <C>
Balance, January 1, 1995.............................  4,255,197   $ 5,544         $  38       $ (9,782)  $ (4,200)

 Amortization of restricted stock awards.............          -        10             -              -         10
 Change in fair market value of redeemable
  common stock warrants..............................          -         -             -           (965)      (965)
 Accretion of Series A preferred stock dividends.....          -         -             -           (275)      (275)
 Equity adjustment from foreign currency translation.          -         -           (79)             -        (79)
 Net loss............................................          -         -             -         (3,786)    (3,786)
                                                       ---------   -------         -----       --------   --------
Balance, December 31, 1995...........................  4,255,197     5,554           (41)       (14,808)    (9,295)

 Sale of common stock................................     32,400       231             -              -        231
 Exercise of common stock options....................      5,782         -             -              -          -
 Amortization of restricted stock awards.............          -        10             -              -         10
 Change in fair market value of redeemable
  common stock warrants..............................          -         -             -           (385)      (385)
 Accretion of Series A preferred stock dividends.....          -         -             -           (394)      (394)
 Accretion of Series B preferred stock dividends.....          -         -             -            (58)       (58)
 Equity adjustment from foreign currency translation.          -         -            32              -         32
 Net loss............................................          -         -             -         (1,047)    (1,047)
                                                       ---------   -------         -----       --------   --------
Balance, December 31, 1996...........................  4,293,379     5,795            (9)       (16,692)   (10,906)

 Sale of common stock, net of issuance costs of        2,800,000    32,350             -              -     32,350
  $4,049.............................................
 Exercise of common stock options....................    187,957       151             -              -        151
 Employee stock purchase plan........................      5,841        48             -              -         48
 Amortization of restricted stock awards.............          -        10             -              -         10
 Conversion of redeemable common stock warrants......    416,699     2,865             -              -      2,865
 Conversion of Series A preferred stock..............    920,433     5,389             -              -      5,389
 Conversion of Series B preferred stock..............    611,728     4,494             -              -      4,494
 Accretion of Series A preferred stock dividends.....          -         -             -           (244)      (244)
 Accretion of Series B preferred stock dividends.....          -         -             -           (208)      (208)
 Equity adjustment from foreign currency translation.          -         -           (92)             -        (92)
 Net income..........................................          -         -             -          3,173      3,173
                                                       ---------   -------         -----       --------   --------
Balance, December 31, 1997...........................  9,236,037   $51,102         $(101)      $(13,971)  $ 37,030
                                                       =========   =======         =====       ========   ========
</TABLE>





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

                                      F-6
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  NATURE OF OPERATIONS

     Information Management Associates, Inc. and subsidiary (the Company) are
primarily engaged in the development, marketing and support of software that
automates customer interaction including telemarketing, telesales, contact
management, sales, marketing and customer service functions of business
organizations in a variety of industries.  The Company markets its software
products in North and South America as well as Western Europe, Asia, Australia
and New Zealand.

     In July 1997, the Company completed its initial public offering of its
common stock which provided proceeds of $32.4 million, net of related
underwriting discounts and expenses (see Note 9).

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of consolidation.  The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned foreign
subsidiary, Information Management Associates Limited, which is located in the
United Kingdom.  All material intercompany balances and transactions have been
eliminated in consolidation.

     Foreign currency transactions.  The functional currency of the Company's
subsidiary is the local currency.  Accordingly, the Company applies the current
rate method to translate the subsidiary's financial statements into U.S.
dollars.  Translation adjustments are included as a separate component of
shareholders' equity (deficit) in the accompanying consolidated financial
statements.

     Cash and cash equivalents.  The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.  As of December 31, 1996 and 1997, the Company's cash and cash
equivalents are deposited with primarily two financial institutions.

     Short-term investments. The Company accounts for investments in accordance
with Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. This statement requires that
securities be classified as "held to maturity," "available for sale" or
"trading", and the securities in each classification be accounted for at either
amortized cost or fair market value, depending upon their classification.
Included in the accompanying 1997 balance sheet are short-term corporate bonds
that have original maturities of less than six months, and which are recorded at
amortized cost plus accrued interest which approximates fair value.

     Equipment.  Equipment is recorded at cost and is depreciated or amortized,
using the straight-line method, over their estimated useful lives of three to
ten years.

     At December 31, 1996 and 1997, property and equipment, net, consisted of
the following (in thousands):

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                                ---------------------------
                                                                    1996           1997
                                                                -------------  ------------
<S>                                                             <C>            <C>
Equipment.....................................................         $2,606        $4,036
Furniture and fixtures........................................          1,499         1,676
Leasehold improvements........................................            451           595
Equipment under capital lease.................................            931           854
                                                                       ------        ------
                                                                        5,487         7,161
Less--Accumulated depreciation and amortization...............          3,265         4,882
                                                                       ------        ------
                                                                       $2,222        $2,279
                                                                       ======        ======
</TABLE>


   Expenditures for repairs and maintenance are charged against income as
incurred while renewals and betterments are capitalized.

                                      F-7
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

     Software development costs.  The Company expenses research and development
costs as incurred.  The Company has evaluated the establishment of technological
feasibility of its products in accordance with Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of Computer Software To Be Sold,
Leased or Otherwise Marketed.  The Company defines technological feasibility as
the completion of a working model.  The Company sells products in a market that
is subject to rapid technological change, new product development and changing
customer needs.  The Company has concluded that technological feasibility is not
established until the development stage of the product is nearly complete.  The
time period during which costs could be capitalized from the point of reaching
technological feasibility until the time of general product release is very
short and, consequently, the amounts that could be capitalized are not material
to the Company's financial position or results of operations.  Therefore, the
Company has charged all such costs to research and development in the period
incurred.

     Revenue recognition.   The Company generates revenues from licensing the
rights to use its software products directly to end users and indirectly through
sublicense fees from resellers. The Company also generates revenues from sales
of software maintenance contracts, and from consulting and training services
performed for customers who license its products.

     Revenues from software license agreements are recognized upon the delivery
of the software to the customer if there are no significant post-delivery
obligations and collection is probable. Service revenues consist of professional
consulting, implementation and training services performed on a time-and-
materials basis under separate service arrangements related to the
implementation of the Company's software products. Revenues from consulting and
training services are recognized as services are performed. The Company enters
into transactions which include both license and service elements. As such
service elements do not include more than minor alteration of the software, the
license fees are recognized upon delivery and the service revenues are
recognized when performed.

     Software maintenance fees are recognized ratably over the term of the
maintenance period. If software maintenance fees are provided for in the license
fee or at a discount in a license agreement, a portion of the license fee equal
to the fair market value of these amounts is allocated to software maintenance
revenue based on the value established by independent sales of such maintenance
services to customers.

     Cost of license revenues consists primarily of the cost of media on which
the product is delivered and third party software products which are resold by
the Company. Cost of service and maintenance revenues consists primarily of
salaries, benefits, subcontracted consulting costs and allocated overhead costs
related to consulting personnel and the customer support group.

     Deferred revenues primarily relate to post-contract customer support which
has been paid by customers prior to the performance of the services.

     Earnings Per Share. The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128) and the
Securities and Exchange Commission Staff Accounting Bulletin 98 (SAB 98),
effective December 31, 1997. SFAS 128 established new standards for computing
and presenting earnings per share. Under SFAS 128, earnings per share is
computed both under the basic and dilutive methods. Basic earnings per share is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding; dilutive earnings per share is
computed by giving effect to all dilutive potential common share equivalents
that were outstanding during the period. Dilutive common share equivalents
include stock options, warrants and convertible preferred stock. SAB 98
eliminates the requirement to include in earnings per share the dilutive effect
of certain stock options granted during the twelve months preceding an initial
public offering, calculated using the treasury stock method and the initial
public offering price. Had SAB 98 not been adopted, the pro forma basic and
diluted earnings per share for the years ended December 31, 1996 and 1995 would
have been $(1.10) and $(.41) per share, respectively, and the pro forma basic
and diluted earnings per share for the year ended December 31, 1997 would have
been $.41 and $.37 per share, respectively.

                                      F-8
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

    Previously issued earnings per share have been restated to reflect the
provisions of SFAS 128 and the Securities and Exchange Commission Staff
Accounting Bulletin 98.

    The calculation of basic and diluted earnings per share is as follows (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                       1995                1996               1997
                                                                ------------------  ------------------  -----------------
Basic earnings per share:
-------------------------
<S>                                                             <C>                 <C>                 <C>
 Net income (loss) applicable to common shareholders..........            $(5,026)            $(1,884)            $2,721
                                                                          =======             =======             ======
 Weighted average shares outstanding..........................              4,255               4,258              6,371
                                                                          =======             =======             ======
 Basic earnings per share.....................................            $ (1.18)            $  (.44)            $  .43
                                                                          =======             =======             ======

Diluted earnings per shares:
----------------------------
 Net income (loss)............................................            $(3,786)            $(1,047)            $3,173
 Accretion of Series A preferred stock dividends..............                  -                (394)                 -
 Accretion of Series B preferred stock dividends..............               (275)                (58)              (208)
 Increase in fair market value of redeemable common
   stock warrants.............................................               (965)               (385)                 -
                                                                          -------             -------             ------
                                                                          $(5,026)            $(1,884)            $2,965
                                                                          =======             =======             ======


 Weighted average shares outstanding..........................              4,255               4,258              6,371
 Weighted average shares resulting from exercise of options,
   calculated in accordance with the treasury stock method....                  -                   -                397
 Weighted average shares resulting from conversion of
   redeemable common stock warrants...........................                  -                   -                409
 Weighted average shares resulting from conversion of
 Series A preferred stock.....................................                  -                   -                537
                                                                          -------             -------             ------
                                                                            4,255               4,258              7,714
                                                                          =======             =======             ======
 Diluted earnings per share...................................            $ (1.18)            $  (.44)            $  .38
                                                                          =======             =======             ======
</TABLE>


   The 1995 and 1996 calculations of diluted earnings per share do not include
the exercise of stock options (see Note 9), the conversion of Series A and
Series B preferred stock (see Note 7) or the conversion of the redeemable common
stock warrants (see Note 8), as the effect on diluted earnings per share would
have been antidilutive.  The 1997 calculation of diluted earnings per share does
not include the conversion of the Series B preferred stock as the effect on
diluted earnings per share would have been antidilutive.

   Income taxes.  The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. This statement requires the Company to recognize deferred tax liabilities
and assets for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and the tax basis of
the assets and liabilities and the net operating loss carryforwards available
for tax reporting purposes, using applicable tax rates for the years in which
the differences are expected to reverse.

                                      F-9
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

    Long-lived assets.  Effective January 1, 1996, the Company adopted Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of (SFAS 121).  This
statement requires a company to review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The adoption of this standard did not have a material
impact on the Company's results of operations or financial position.

    Concentration of credit risk.  Financial instruments which potentially
subject the Company to concentration of credit risk consists principally of cash
and trade receivables. As of December 31, 1996, one customer accounted for 10%
of accounts receivable.  No one customer accounted for greater than 10% of
accounts receivable as of December 31, 1997.

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

    Reclassifications.  Certain reclassifications have been made to the 1995 and
1996 consolidated financial statements in order for them to be presented in
conformity with the 1997 consolidated financial statements.

    Recently issued accounting standards.  In 1997 the FASB issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130), which establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
In 1997 the FASB also issued Statement of Financial Accounting Standards No.
131, Disclosures About Segments of an Enterprise and Related Information (SFAS
131), which requires a new model for segment reporting.  The adoption of SFAS
130 and SFAS 131 is required in 1998.  The adoption of these standards will not
impact the Company's results from operations or financial position.

    In October 1997, the AICPA issued Statement of Position 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 does not believe that the adoption of
SOP 97-2 will have a material impact on its financial position or results of
operations.


(3) RESTRUCTURING OF OPERATIONS

    Effective September 1, 1996, the Company sold its assets related to the
Telemar product line to a third party buyer, Telemar Software International, LLC
(TSI) (see Note 17).  TSI also assumed certain liabilities of the Company
related to the Telemar product line. As a result of the sale, the Company was
relieved of liabilities in excess of assets sold and, accordingly, recognized a
net gain of approximately $92,000 in 1996.  Concurrent with the sale, certain
employees who were dedicated to the Telemar product line were terminated by the
Company and rehired by TSI.

    In connection with the sale, TSI also gave the Company a promissory note in
the principal amount of $650,000, payable in five equal annual installments of
$130,000 and bearing annual interest at 8.0%.  The Company fully reserved for
the note receivable at the date of sale because collectibility, based on the
start up nature of TSI operations, was not ascertainable.  The note is secured
by substantially all of the assets of TSI.  In 1997, the Company received a
$100,000 payment from TSI which, upon receipt, was recorded as other income in
the accompanying 1997 financial statements.

                                      F-10
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(4) BANK INDEBTEDNESS

    In February 1997, the Company entered into an amended Loan and Security
Agreement (the Credit Agreement) with a bank. The Credit Agreement consisted of
a $6,000,000 line of credit and a $2,500,000 Term Note Payable (the Term Note).
The Credit Agreement was further amended on March 17, 1997 (the March 1997
Amendment) to extend the maturity date of the line of credit to February 1,
1998. Upon the closing of the initial public offering (see Note 9), the Company
repaid the outstanding principal balance plus accrued interest on the Line of
Credit and Term Note.  At December 31, 1997, there were no outstanding
borrowings under the Line of Credit.

    Borrowings under the Line of Credit bear interest at prime (8.5% at December
31, 1997) plus 1.0% and are limited to 75% of qualified accounts receivable, as
defined.

    The Term Note was originally payable in equal monthly installments of
$41,667 commencing November 1, 1997. In addition to an 11.0% per annum interest
which was payable on a current basis, the Company was required to accrue
additional interest based upon a formula which approximated 9.0% (the Additional
Interest). The Company was accruing for the Additional Interest, and at December
31, 1996, approximately $233,000 was included in accrued liabilities in the
accompanying consolidated 1996 balance sheet. The Additional Interest was also
repaid upon the closing of the initial public offering.


(5) OBLIGATIONS UNDER CAPITAL LEASES

    The Company leases certain equipment under capital leases which expire at
varying dates through 2000.

    The following is a schedule of future minimum lease payments for capital
leases as of December 31, 1997 and thereafter, (in thousands):

<TABLE>
<S>                                                                        <C>
   1998.....................................................................         $273
   1999.....................................................................           85
   2000.....................................................................           48
                                                                                     ----
                                                                                      406
   Less--Amount representing interest.......................................           38
                                                                                     ----
   Present value of future minimum lease payments...........................          368
   Less--Current maturities.................................................          232
                                                                                     ----
                                                                                     $136
                                                                                     ====
</TABLE>

   In February 1996, the Company sold certain equipment and simultaneously
leased back the equipment under a Master Lease Agreement (the Lease Agreement).
The Lease Agreement was accounted for as a financing lease and accordingly the
proceeds from the sale were reflected as a debt obligation which is being
amortized over the term of the lease. In connection with the Lease Agreement,
the Company issued to the lessor warrants to purchase 6,750 shares of common
stock at a price of $4.89 per share which was based upon the sale price of the
Company's securities in the last transaction prior to the time the financing
arrangement was negotiated. In accordance with the terms and conditions of the
capital lease, the Company has a repurchase option whereby the equipment can be
repurchased at fair market value, as defined. As the equipment was sold at its
net book value there was no gain or loss as a result of the Lease Agreement.


(6) SUBORDINATED NOTE PAYABLE TO SHAREHOLDER

   The Subordinated Note Payable to Shareholder (the Shareholder Note) was
payable in four annual, equal installments of $250,000, commencing in December
1994 and bore interest at 12.0% per annum. The installments of $250,000 due in
December 1994 and 1995 were paid in 1995 and 1996, respectively. As of December
31, 1996 and 1997, the balance of the Shareholder's Note was $250,000 and $0,
respectively. The outstanding principal balance of the Shareholder Note was
repaid with proceeds from the initial public offering (see Note 9).

                                      F-11
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(7) REDEEMABLE CONVERTIBLE PREFERRED STOCK

    In March 1995, the Company issued the Series A preferred, with a stated
value of $1,000, to certain common shareholders for proceeds of approximately
$4,475,000, net of issuance costs of approximately $25,000. In November 1996,
the Company issued the Series B preferred, with a stated value of $1,000, to
certain common shareholders for proceeds of approximately $4,228,000, net of
issuance costs of approximately $122,000. In connection with the initial public
offering the Series A and Series B Preferred Stock, plus accrued dividends, were
converted into shares of common stock (see Note 9).

    Dividends.   The Series A preferred and Series B preferred accrued dividends
at a rate of 8% per annum.  As of December 31, 1996, the carrying value of the
Series A and Series B preferred included $669,000 and $58,000, respectively, of
accrued but unpaid dividends.

    Conversion.   Holders of the Series A preferred and Series B preferred were
entitled to convert such shares into common stock at a rate of $4.89 and $7.11
per share, respectively, with such conversion rate subject to adjustment, as
defined (see above).


(8) REDEEMABLE COMMON STOCK WARRANTS

    During 1990 and 1991, the Company issued redeemable warrants to purchase
433,372 shares of common stock, with exercise prices ranging from $.40 per share
to $1.33 per share.  In connection with the initial public offering the
redeemable common stock warrants were converted into 416,699 shares of common
stock (see Note 9).

    The Company accounted for the initial value of the warrants based on their
fair market values at the time the warrants were originally issued. Subsequent
increases in the fair market value of the warrants, as determined by sales of
the Company's common stock, resulted in adjustments to the carrying value of the
warrants through direct charges to accumulated deficit. As of December 31, 1996,
the redeemable common stock warrants were reflected in the accompanying
consolidated financial statements based on the estimated fair market value of
$7.11 per share.


(9) SHAREHOLDERS' EQUITY

    Common stock.  In connection with its initial public offering (see below),
the Company amended its Certificate of Incorporation to increase the number of
authorized shares of common stock from 5,000,000 to 20,000,000 and to give
effect to a 2.25-for-1 split of the Company's common stock.  The accompanying
financial statements have been restated to reflect this stock split and change
in authorized shares.

    In July 1997, the Company completed its initial public offering (IPO) of
3,900,000 shares of its common stock, of which 2,800,000 shares were issued and
sold by the Company and 1,100,000 shares were issued and sold by certain selling
shareholders.  As a result of this offering, the Company recorded proceeds of
$32.4 million, net of related underwriting discounts and offering expenses of
$4.1 million.  In connection with the offering, the Company's Series A and
Series B preferred stock were converted into 1,532,161 shares of common stock
(see Note 7), 416,699 shares of common stock were issued in connection with the
exercise of the redeemable common stock warrants (see Note 8) and 154,934 stock
options were exercised.

    The Company sold 32,400 shares of common stock in December 1996 at a per
share price of $7.11 for aggregate proceeds of approximately $231,000.

                                      F-12
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(9) SHAREHOLDERS' EQUITY--(CONTINUED)

    Restricted stock awards. During 1990, the Company granted 160,875 shares of
common stock to certain key employees in consideration of future services to be
performed. The awards require the recipients to be employed or engaged as a
consultant by the Company for seven years in order to retain ownership of the
stock. The related compensation was recognized ratably over the 7-year vesting
period. During each of 1995, 1996 and 1997, $10,000 of compensation expense was
recognized in connection with these restricted stock awards.

    Stock option plans.   The Company has stock option plans which provide for
the issuance of both incentive and nonqualified stock options. In March 1996,
the Company adopted both the 1996 Employee and Consultant Stock Option Plan,
which provides for the issuance of up to 900,000 shares of common share for both
incentive and nonqualified stock options, and the 1996 Non-Employee Directors'
Stock Option Plan, which provides for the issuance of up to 135,000 shares of
common stock (collectively, The 1996 Plans). Under the provisions of The 1996
Plans, the exercise price of each option shall not be less than 100% of the fair
market value of a share of common stock at the time of grant, as defined, and
the options may vest immediately or over time. The 1996 Plans shall be adjusted
for future changes in the capitalization of the Company or as designated by the
Board of Directors.

    Previous to The 1996 Plans, the Company had established a stock option plan
which provided for the issuance of up to 900,000 shares of common stock for both
incentive and nonqualified stock options. Under the provisions of this plan, the
exercise price of each option was not to be less than 100% of the fair market
value of a share of common stock, as defined, and the options could vest
immediately or over time.

    The Company has adopted the provisions of Statement of Financial Accounting
Standards, Accounting for Stock-Based Compensation (SFAS No. 123).  SFAS 123
requires the measurement of the fair value of stock options or warrants to be
included in the statement of income or disclosed in the notes to financial
statements. The Company has determined that it will continue to account for
stock-based compensation for employees under Accounting Principles Board Opinion
No. 25 and elect the disclosure-only alternative under SFAS 123. The Company has
computed the pro forma disclosures required under SFAS 123 for options granted
in 1995, 1996 and 1997 using the Black-Scholes option pricing model prescribed
by SFAS 123. The weighted average assumptions used are as follows:

<TABLE>
<CAPTION>
                                                          1995            1996                1997
                                                       -----------  -----------------  ------------------
<S>                                                    <C>          <C>                <C>
Risk free interest rate..............................        5.77%        6.15%-6.94%         5.77%-6.30%
Expected dividend yield..............................         None               None                None
Expected lives.......................................      8 years            8 years             5 years
Expected volatility..................................          72%                72%                 56%
</TABLE>

   Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant dates of awards under these plans
consistent with the method of SFAS 123, the Company's net income (loss) and net
income (loss) per share would have been as follows:

<TABLE>
<CAPTION>
                                                                      1995          1996         1997
                                                                  ------------  -------------  ---------
<S>                                                               <C>           <C>            <C>
Net income (loss):
 As reported....................................................      $(3,786)       $(1,047)     $3,173
 Pro forma......................................................      $(3,806)       $(2,563)     $2,215
Basic net income (loss) per common share:
 As reported....................................................      $ (1.18)       $  (.44)     $  .43
 Pro forma......................................................      $ (1.19)       $  (.80)     $  .28
Diluted net income (loss) per common share:
 As reported....................................................      $ (1.18)       $  (.44)     $  .38
 Pro forma......................................................      $ (1.19)       $  (.80)     $  .23
</TABLE>

                                      F-13
<PAGE>
              INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(9) SHAREHOLDERS' EQUITY--(CONTINUED)

    A summary of the status of the Company's two stock option plans at December
31, 1995, 1996 and 1997 and changes during the years then ended is presented in
the table and narrative below (shares in thousands):

<TABLE>
<CAPTION>
                                                1995                        1996                         1997
                                      -------------------------  ---------------------------  ---------------------------
                                                     WEIGHTED                     WEIGHTED                     WEIGHTED
                                                     AVERAGE                      AVERAGE                      AVERAGE
                                                     EXERCISE                     EXERCISE                     EXERCISE
                                                   ------------                 ------------                 ------------
                                        SHARES        PRICE         SHARES         PRICE         SHARES         PRICE
                                      -----------  ------------  -------------  ------------  -------------  ------------
<S>                                   <C>          <C>           <C>            <C>           <C>            <C>
Outstanding, beginning of year......     771,754          $2.48       894,606          $2.97     1,336,349          $4.62
Granted.............................     144,751           5.57       502,875           7.51       409,626           9.56
Exercised...........................           -              -        (5,782)           .04      (187,957)          1.13
Expired.............................     (21,899)          3.08       (55,350)          4.61       (48,470)          9.81
                                         -------                    ---------                    ---------
Outstanding, end of year............     894,606           2.97     1,336,349           4.62     1,509,548           6.23
                                         =======                    =========                    =========
Exercisable, end of year............     632,572           2.18       854,282           3.42       896,335           4.74
                                         =======                    =========                    =========
Weighted average fair value
 of options granted.................                      $4.40                        $5.80                        $6.27
                                                          =====                        =====                        =====
</TABLE>

   The following table presents weighted average price and life information for
significant option groups outstanding at December 31, 1997:

<TABLE>
<CAPTION>
                                                   WEIGHTED AVERAGE              WEIGHTED
      RANGE OF                NUMBER            REMAINING CONTRACTUAL             AVERAGE                NUMBER
   EXERCISE PRICES          OUTSTANDING              LIFE (YEARS)             EXERCISE PRICE           EXERCISABLE
---------------------  ---------------------    ---------------------     -----------------------  -------------------
<S>                    <C>                    <C>                         <C>                      <C>
        $.04                          91,906              3.8                       $  .04               91,906
     $2.25-$2.94                      68,474              4.9                       $ 2.58               68,474
     $4.00-$4.89                     444,917              6.6                       $ 4.14              394,760
     $6.22-$7.11                     482,951              8.6                       $ 6.97              280,451
        $8.00                        243,000              8.5                       $ 8.00               60,744
    $10.50-$11.75                    117,800              9.8                       $11.43                    -
       $13.00                         60,500              9.6                       $13.00                    -
                                   ---------                                                            -------
                                   1,509,548                                                            896,335
                                   =========                                                            =======
</TABLE>

   Stock purchase plan.  On March 1, 1997, the Board of Directors approved the
adoption of an employee stock purchase plan designed to allow eligible employees
of the Company to purchase shares of common stock.  The Board of Directors has
reserved 450,000 shares of Common Stock to be available under this plan.  The
stock purchase plan allows eligible employees the right to purchase common stock
on a quarterly basis at the lower of 85% of the market price at the beginning or
end of each offering period.  During 1997 employees purchased 5,841 shares of
common stock for an aggregate purchase price of approximately $48,000.

(10) INCOME TAXES

     The provision for income taxes for the years ended December 31, 1995, 1996
and 1997 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                             ---------------------------------
                                                1995        1996       1997
                                             -----------  ---------  ---------
<S>                                          <C>          <C>        <C>
Current:
 Foreign...................................        $  75      $   -      $ 199
 Federal...................................            -          -          -
 State.....................................           25         30         32
                                                   -----      -----      -----
                                                   $ 100      $  30      $ 231
                                                   =====      =====      =====
</TABLE>

                                      F-14
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(10) INCOME TAXES--(CONTINUED)

     Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial reporting and income
tax purposes. Gross deferred tax assets of $3,944,000 and $2,653,000, and a
valuation allowance of $3,944,000 and $2,653,000 are included in the deferred
tax balance as of December 31, 1996 and 1997, respectively. A valuation
allowance has been recorded for the deferred tax assets as a result of
uncertainties regarding the realization of the asset.

   The approximate tax effects of temporary differences which give rise to
deferred tax assets and liabilities is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                      ----------------------------------------------
                                                          1995            1996            1997
                                                      -------------  --------------  ---------------
<S>                                                   <C>            <C>             <C>
Current:
Allowance for doubtful accounts.....................       $   153         $   178          $   243
Accrued vacation and payroll........................            14              57               65
Loss on sale of property held for sale..............            40               -                -
Other...............................................           174             216               76
Valuation allowance.................................          (381)           (451)            (384)
                                                           -------         -------          -------
                                                           $     0         $     0          $     0
                                                           =======         =======          =======

                                                                           DECEMBER 31,
                                                           -------------------------------------------
                                                             1995             1996              1997
                                                           --------         --------          --------
Non-current:
Acquired software...................................       $    188         $      -          $      -
Depreciation........................................             (9)              51                71
Deferred compensation...............................             20               23                 -
Rental obligations..................................            167              154               145
Other...............................................             39                -                 -
Tax effect of net operating losses, excluding
 amounts related to stock option exercises..........          3,373            3,265             2,053
Valuation allowance.................................         (3,778)          (3,493)           (2,269)
                                                           --------         --------          --------
                                                           $      0         $      0          $      0
                                                           ========         ========          ========
</TABLE>


   The exercise of non-qualified stock options gives rise to compensation which
is included in the taxable income of the applicable employees and deducted by
the Company for federal and state income tax purposes.  As a result of the
exercise of nonqualified stock options during 1997, the Company has related net
operating loss carryforwards of $3,350,000 which can be used to offset future
taxable income, if any.  When realized, the related tax benefits of these net
operating loss carryforwards will be credited directly to paid in capital.

   The Company's effective tax rate differs from the statutory federal income
tax rate as shown in the following schedule:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                           --------------------------------------
                                                               1995         1996         1997
                                                           ------------  -----------  -----------
<S>                                                        <C>           <C>          <C>
Income tax at statutory rate.............................          (34)%        (34)%         34%
Other....................................................           (3)          (3)           1
Net operating loss not benefited.........................           37           37            -
Utilization of net operating loss carryforwards..........            -            -          (35)
                                                                  ----         ----         ----
                                                                     0%           0%           0%
                                                                  ====         ====         ====
</TABLE>


                                      F-15
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(10) INCOME TAXES--(CONTINUED)

     At December 31, 1997, the Company had approximately $8,600,000 of U.S.
Federal net operating loss carryforwards, of which approximately $3,350,000
resulted from the exercise of nonqualified stock options (see above), and
approximately $2,500,000 of state net operating loss carryforwards which can be
used, subject to certain limitations, to offset future taxable income, if any.
These U.S. Federal net operating loss carryforwards expire through 2011 and the
state net operating loss carryforwards expire through 2002.

    In addition, the Company has United Kingdom net operating loss carryforwards
of approximately $1,360,000 which can be utilized to offset future taxable
income and which have no expiration.

    The Company's initial public offering (see Note 9) resulted in a change in
ownership, as defined by Federal income tax laws and regulations.  As a result
of this change in ownership, the amount of U.S. Federal net operating loss
carryforwards which can be utilized to offset Federal taxable income has an
annual limitation of approximately $4,700,000.


(11) RELATED PARTY TRANSACTIONS

     Notes receivable from officers and employees at December 31, 1996 and 1997
consists of net advances to shareholders of $572,000 and $24,000, respectively.
Amounts totaling $572,000 were repaid to the Company in connection with the
initial public offering (see Note 9).

     Prior to 1997, the Company had entered into agreements with a principal
shareholder and its general partner which provided the Company financial
advisory services. The agreement called for an annual advisory fee to be paid to
this shareholder. In addition, an annual advisory fee was to be paid to an
affiliate of the shareholder until the earlier to occur of January 2, 1998, the
date of an initial public offering of common stock with gross proceeds to the
Company of at least $10.0 million (see Note 9), or the sale by the Company of
substantially all of its stock or assets. Included in the accompanying
consolidated statements of operations are financial advisory fees of $50,000,
$40,000 and $15,000 in 1995, 1996 and 1997, respectively.  In addition, the
Company paid $100,000 to an affiliate of this shareholder in November 1996 in
connection with the issuance of Series B preferred stock (see Note 7).


(12) COMMITMENTS AND CONTINGENCIES

     Leases.  The Company has entered into an agreement to lease its corporate
headquarters.  This lease commenced April 1, 1994, and has a term of 10 years.
Total aggregate lease payments of approximately $2,176,000 are being amortized
on a straight-line basis over the term of the operating lease, beginning in
April 1994. Accordingly, approximately $38,000 and $28,000 of deferred rent
expense was recorded during 1996 and 1997, respectively, related to this lease
and is included in other accrued liabilities and other long-term liabilities in
the accompanying consolidated balance sheets.

     During 1995, the Company entered into an agreement to lease office space in
Irvine, California, which is used as a sales, service and product development
facility. The lease commenced January 5, 1995, and has a term of 6 years. Under
the terms of the lease, the Company is committed to pay aggregate lease payments
of approximately $2,961,000. In connection with entering into this lease, the
Company terminated the lease for its previous California facility. As a result
of the termination of such lease, the Company incurred a $223,000 lease
termination cost which is reflected as other expense in the accompanying 1995
consolidated statement of operations. The termination charge, which is being
paid in monthly installments of approximately $5,000 through October 31, 1998,
is included in other accrued expenses and other long-term liabilities in the
accompanying consolidated balance sheets.

     The Company leases other property and equipment under a number of operating
leases extending for varying periods of time.

                                      F-16
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(12) COMMITMENTS AND CONTINGENCIES--(CONTINUED)

   Operating lease rental expense approximated $1,054,000, $858,000 and
$1,255,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
Minimum future rental commitments under all operating leases for each of the
succeeding five years subsequent to December 31, 1997, and thereafter, are as
follows (in thousands):

<TABLE>
<CAPTION>
            YEAR ENDING
           DECEMBER 31,                AMOUNT
-----------------------------------  -----------
<S>                                  <C>
1998...............................       $1,226
1999...............................        1,263
2000...............................        1,074
2001...............................          542
2002...............................          520
Thereafter.........................          622
                                          ------
                                          $5,247
                                          ======
</TABLE>

     Litigation.  The Company is a party to litigation arising in the normal
course of business.  In the opinion of management, no claims are expected to
have a material adverse effect on the Company's operations or financial
position.


(13) EMPLOYEE BENEFIT PLAN

     The Company has a voluntary 401(k) plan. All full-time employees who have
completed six months of service are eligible to participate in the plan. The
plan provides for matching contributions and an annual profit sharing
contribution made at the discretion of the Company's Board of Directors.  During
1995, 1996 and 1997, $12,000, $33,000 and $57,000, respectively, of matching
contributions were made to the plan by the Company.


(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying value of certain of the Company's financial instruments
including cash and cash equivalents, short-term investments, accounts
receivable, accounts payable and other accrued liabilities approximate fair
value due to their short maturities. Based on borrowing rates currently
available to the Company for loans with similar terms, the carrying value of its
capital lease obligations also approximates fair value.


(15) GEOGRAPHIC INFORMATION AND INDUSTRY SEGMENTS

     The Company operates in two major geographic areas and a single industry
segment. The United States charges the European segment a 50% royalty on license
fees recognized, which approximates the royalty fee charged to unaffiliated
resellers. In addition, certain direct costs incurred by the United States
segment, primarily related to research and development and customer support
costs, are charged to the European segment. The elimination in the identifiable
assets is for intercompany receivables.

                                      F-17
<PAGE>

             INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(15) GEOGRAPHIC INFORMATION AND INDUSTRY SEGMENTS--(CONTINUED)

     The following tables summarize the Company's activities by geographic area
for 1995, 1996 and 1997 (in thousands).

<TABLE>
<CAPTION>
                                           UNITED
                                           STATES          EUROPE         ELIMINATION         CONSOLIDATED
                                        -------------  --------------  ------------------  ------------------
<S>                                     <C>            <C>             <C>                 <C>
Year Ended December 31, 1997
 Revenues.............................       $32,345          $6,086             $(1,759)            $36,672
                                             =======          ======             =======             =======
 Income (loss) from operations........       $ 4,239          $ (853)            $     -             $ 3,386
                                             =======          ======             =======             =======
 Identifiable assets..................       $44,774          $3,620             $(4,472)            $43,922
                                             =======          ======             =======             =======
Year Ended December 31, 1996
 Revenues.............................       $22,762          $4,680             $(1,165)            $26,277
                                             =======          ======             =======             =======
 Income (loss) from operations........       $   802          $ (740)            $     -             $    62
                                             =======          ======             =======             =======
 Identifiable assets..................       $17,483          $2,648             $(2,850)            $17,281
                                             =======          ======             =======             =======
Year Ended December 31, 1995
 Revenues.............................       $20,093          $4,332             $  (616)            $23,809
                                             =======          ======             =======             =======
 Income (loss) from operations........       $(2,520)         $  (66)            $     -             $(2,586)
                                             =======          ======             =======             =======
 Identifiable assets..................       $11,929          $2,710             $(2,120)            $12,519
                                             =======          ======             =======             =======
</TABLE>


   The following table summarizes the Company's revenues by major worldwide
regions (in thousands):

<TABLE>
<CAPTION>
                                   FOR THE YEAR ENDED DECEMBER 31,
                                  ----------------------------------
                                     1995        1996        1997
                                  ----------  ----------  ----------
<S>                               <C>         <C>         <C>
United States...................     $14,792     $19,483     $26,887
Canada..........................       1,018         546         833
Mexico and Latin America........         256         277       1,903
Europe..........................       6,390       4,798       5,552
Pacific Rim.....................       1,353       1,173       1,497
                                     -------     -------     -------
                                     $23,809     $26,277     $36,672
                                     =======     =======     =======
</TABLE>

(16)  SIGNIFICANT CUSTOMERS

   For the years ended December 31, 1995, 1996 and 1997, approximately 24%, 8%
and 10% respectively, of the Company's revenues resulted from sales to a single
customer.

                                      F-18
<PAGE>

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

          Not applicable.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information  required by Item 401 of Regulation S-K with respect to the
executive  officers of the Company is included in Item 4A of this Form 10-K. The
information  required by Item 401 of Regulation S-K with respect to directors of
the  Company  and  information  required  by  Item  405  of  Regulation  S-K  is
incorporated  by reference to the  Company's  definitive  proxy  statement  (the
"Definitive  Proxy  Statement")  which  will be filed  with the  Securities  and
Exchange  Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this Form 10-K.

ITEM 11.  EXECUTIVE COMPENSATION

     The  information  required by Item 402 of Regulation S-K is incorporated by
reference to the Definitive Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required by Item 403 of Regulation S-K is incorporated by
reference to the Definitive Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by Item 404 of Regulation S-K is incorporated by
reference to the Definitive Proxy Statement.

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

     (a)  1.  FINANCIAL STATEMENTS

              See Item 8 of this Report

          2.  FINANCIAL STATEMENT SCHEDULES

<PAGE>

             REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE


We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Information Management Associates, Inc.
included in this Form 10-K and have issued our report thereon dated January 30,
1998.  Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The schedule listed in the index of
financial statements is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange Commissions
rules and is not part of the basic financial statements.  This schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole



                                  ARTHUR ANDERSEN LLP


Hartford, Connecticut
January 30, 1998


<PAGE>

                                  SCHEDULE II

                    INFORMATION MANAGEMENT ASSOCIATES, INC.

                       VALUATION AND QUALIFYING ACCOUNTS


<TABLE>
<CAPTION>
                                                 BALANCE AT
                                                  BEGINNING       CHARGED TO COST                          BALANCE AT
                                                  OF PERIOD        AND EXPENSES         DEDUCTIONS        END OF PERIOD
                                               ---------------  -------------------  -----------------  -----------------
Allowance for Doubtful Accounts
<S>                                            <C>              <C>                  <C>                <C>
 January 1, 1995-December 31, 1995...........         $469,980           $  996,701       $(1,041,353)           $425,328
 January 1, 1996-December 31, 1996...........         $425,328           $  390,224       $  (333,578)           $481,974
 January 1, 1997-December 31, 1997...........         $481,974           $1,138,614       $  (990,511)           $630,077
</TABLE>




<PAGE>
          3.  EXHIBITS (*denotes filed herewith)(**denotes a management contract
     or compensating plan or arrangement)

              3.1   Amended and Restated  Certificate  of  Incorporation  of the
                    Registrant.  (Incorporated  by reference to the  Registrants
                    Report  on Form 10-Q for the  quarter  ended  September  30,
                    1997, Exhibit 3.1).

              3.2   Amended   and   Restated    By-Laws   of   the   Registrant.
                    (Incorporated  by  reference to the  Registrant's  Report on
                    Form 10-Q for the quarter ended September 30, 1997,  Exhibit
                    3.2).

              4.1   Specimen Certificate for shares of Common Stock, no par
                    value, of the Registrant. (Incorporated by reference to the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 4.1).

              10.1  Amended and Restated  1991 Stock Option Plan.  (Incorporated
                    by reference to the Registrant's  Registration  Statement on
                    Form S-1, File Number 333-22923, Exhibit 10.1).**

              10.2  Original  Form  of  Non-Qualified   Stock  Option  Agreement
                    (Amended and Restated 1991 Stock Option Plan). (Incorporated
                    by reference to the Registrant's  Registration  Statement on
                    Form S-1, File Number 333-22923, Exhibit 10.2).**

              10.3  Amended  Form  of   Non-Qualified   Stock  Option  Agreement
                    (Amended and Restated 1991 Stock Option Plan). (Incorporated
                    by reference to the Registrant's  Registration  Statement on
                    Form S-1, File Number 333-22923, Exhibit 10.3).**

              10.4  1996   Employee   and   Consultant    Stock   Option   Plan.
                    (Incorporated by reference to the Registrant's  Registration
                    Statement  on  Form  S-1,  File  Number  333-22923,  Exhibit
                    10.4).**

              10.5  Form of Non-Qualified  Stock Option Agreement (1996 Employee
                    and  Consultant   Stock  Option  Plan).   (Incorporated   by
                    reference to the Registrant's Registration Statement on Form
                    S-1, File Number 333-22923, Exhibit 10.5).**

<PAGE>
              10.6  1996 Non-Employee Directors Stock Option Plan. (Incorporated
                    by reference to the Registrant's  Registration  Statement on
                    Form S-1, File Number 333-22923, Exhibit 10.6).**

              10.7  Form of  Non-Qualified  Stock  Option  Agreement  (1996 Non-
                    Employee  Directors  Stock Option  Plan).  (Incorporated  by
                    reference to the Registrant's Registration Statement on Form
                    S-1, File Number 333-22923, Exhibit 10.7).**

              10.8  Employee Stock Purchase Plan.  (Incorporated by reference to
                    the  Registrant's  Registration  Statement on Form S-1, File
                    Number 333-22923, Exhibit 10.8).**

              10.9  Note and Warrant Purchase  Agreement between the Company and
                    Wand/IMA   Investments,   L.P.,  dated  December  21,  1990.
                    (Incorporated by reference to the Registrant's  Registration
                    Statement on Form S-1, File Number 333-22923, Exhibit 10.9).

              10.10 Amendment  to Note and Warrant  Purchase  Agreement  between
                    the Company and Wand/IMA  Investments,  L.P., dated March 1,
                    1993.   (Incorporated   by  reference  to  the  Registrant's
                    Registration  Statement on Form S-1, File Number  333-22923,
                    Exhibit 10.10).

              10.11 Amendment  No. 2 to Note and Warrant  Agreement  between the
                    Company and Wand/IMA Investments,  L.P., dated June 1, 1994.
                    (Incorporated by reference to the Registrant's  Registration
                    Statement  on  Form  S-1,  File  Number  333-22923,  Exhibit
                    10.11).

              10.12 Common  Stock  Purchase  Warrant No. W-3 issued to Thomas F.
                    Hill, dated December 21, 1990. (Incorporated by reference to
                    the  Registrant's  Registration  Statement on Form S-1, File
                    Number 333-22923, Exhibit 10.12).

              10.13 Amendment  No. 1 to Common Stock  Purchase  Warrant No. W-3,
                    dated  June  1,  1994.  (Incorporated  by  reference  to the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.13).

              10.14 Amendment  No. 2 to Common Stock  Purchase  Warrant No. W-3,
                    dated November 16, 1994.  (Incorporated  by reference to the
<PAGE>
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.14).

              10.15 Amendment  No. 3 to Common Stock  Purchase  Warrant No. W-3,
                    dated September 20, 1996.  (Incorporated by reference to the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.15).

              10.16 Stock  Purchase  Agreement  between the Company and Wand/IMA
                    Investments, L.P., dated September 4, 1991. (Incorporated by
                    reference to the Registrant's Registration Statement on Form
                    S-1, File Number 333-22923, Exhibit 10.16).

              10.17 Amendment No. 1 to Stock Purchase  Agreement dated September
                    4, 1991 between the Company and Wand/IMA Investments,  L.P.,
                    dated  June  1,  1994.  (Incorporated  by  reference  to the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.17).

              10.18 Stock  Purchase  Agreement  between the Company and Wand/IMA
                    Investments,  L.P., dated October 29, 1991. (Incorporated by
                    reference to the Registrant's Registration Statement on Form
                    S-1, File Number 333-22923, Exhibit 10.18).

              10.19 Amendment No. 1 to Stock  Purchase  Agreement  dated October
                    29, 1991 between the Company and Wand/IMA Investments, L.P.,
                    dated  June  1,  1994.  (Incorporated  by  reference  to the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.19).

              10.20 Exchange  and  Note   Modification   Agreement  between  the
                    Company and Wand/IMA  Investments,  L.P.,  dated October 29,
                    1991.   (Incorporated   by  reference  to  the  Registrant's
                    Registration  Statement on Form S-1, File Number  333-22923,
                    Exhibit 10.20).

              10.21 Common  Stock  Purchase  Warrant  No. W-4 issued to Wand/IMA
                    Investments,  L.P., dated October 29, 1991. (Incorporated by
                    reference to the Registrant's Registration Statement on Form
                    S-1, File Number 333-22923, Exhibit 10.22).

<PAGE>
              10.22 Amendment  No. 1 to Common Stock  Purchase  Warrant No. W-4,
                    dated  June  1,  1994.  (Incorporated  by  reference  to the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.23).

              10.23 Amendment  No. 2 to Common Stock  Purchase  Warrant No. W-4,
                    dated November 16, 1994.  (Incorporated  by reference to the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.24).

              10.24 Amendment  No. 3 to Common Stock  Purchase  Warrant No. W-4,
                    dated September 20, 1996.  (Incorporated by reference to the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.25).

              10.25 Common  Stock  Purchase  Warrant  No.  W-5  issued  to  Wand
                    Partners  Inc.,  dated  October 29, 1991.  (Incorporated  by
                    reference to the Registrant's Registration Statement on Form
                    S-1, File Number 333-22923, Exhibit 10.26).

              10.26 Amendment  No. 1 to Common Stock  Purchase  Warrant No. W-5,
                    dated  June  1,  1994.  (Incorporated  by  reference  to the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.27).

              10.27 Amendment  No. 2 to Common Stock  Purchase  Warrant No. W-5,
                    dated November 16, 1994.  (Incorporated  by reference to the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.28).

              10.28 Amendment  No. 3 to Common Stock  Purchase  Warrant No. W-5,
                    dated September 20, 1996.  (Incorporated by reference to the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.29).

              10.29 Stock  Purchase  Agreement  between  the Company and certain
                    Purchasers, dated March 26, 1993. (Incorporated by reference
                    to the Registrant's Registration Statement on Form S-1, File
                    Number 333-22923, Exhibit 10.30).

              10.30 Stock  Purchase  Agreement  between  the  Company,   certain
                    Selling Shareholders and Mercury Asset Management plc, dated
                    June 1, 1994. (Incorporated by reference to the Registrant's
                    Registration  Statement on Form S-1, File Number  333-22923,
                    Exhibit 10.31).

<PAGE>
              10.31 Stock  Purchase  Agreement  between  the  Company,   certain
                    Selling  Shareholders  and D. Callard,  B.  Schnitzer and M.
                    Appelbaum as Purchasers,  dated June 1, 1994.  (Incorporated
                    by reference to the Registrant's  Registration  Statement on
                    Form S-1, File Number 333-22923, Exhibit 10.32).

              10.32 Stock Purchase  Agreement  between the Company,  V. Nesi and
                    G.  Collins,  dated  November  14,  1994.  (Incorporated  by
                    reference to the Registrant's Registration Statement on Form
                    S-1, File Number 333-22923, Exhibit 10.33).

              10.33 Stock  Purchase  Agreement  between the Company and Wand/IMA
                    Investments,   L.P.,   dated  as  of  November   16,   1994.
                    (Incorporated by reference to the Registrant's  Registration
                    Statement  on  Form  S-1,  File  Number  333-22923,  Exhibit
                    10.34).

              10.34 Stock  Purchase   Agreement  among  the  Company,   Wand/IMA
                    Investments, L.P. and Wand/IMA Investments II L.P., dated as
                    of  March  31,  1995.  (Incorporated  by  reference  to  the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.35).

              10.35 Stock  Purchase   Agreement  among  the  Company,   Wand/IMA
                    Investments II L.P. and Wand/IMA Investments L.P. III, dated
                    October  31,  1996.   (Incorporated   by  reference  to  the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.36).

              10.36 Stock Purchase  Agreement among the Company,  V. Nesi and G.
                    Collins, dated December 18, 1996. (Incorporated by reference
                    to the Registrant's Registration Statement on Form S-1, File
                    Number 333-22923, Exhibit 10.37).

              10.37 Asset  Purchase  Agreement  between  the Company and Telemar
                    Software  International  LLC,  dated  as of July  31,  1996.
                    (Incorporated by reference to the Registrant's  Registration
                    Statement  on  Form  S-1,  File  Number  333-22923,  Exhibit
                    10.46).

              10.38 Sublease   between  the   Company   and   Telemar   Software
                    International,   LLC,   dated  as  of   September  1,  1996.
                    (Incorporated by reference to the Registrant's  Registration
<PAGE>
                    Statement  on  Form  S-1,  File  Number  333-22923,  Exhibit
                    10.47).

              10.39 8%   Promissory   Note  due  2002  from   Telemar   Software
                    International,  LLC to the Company, dated as of September 1,
                    1996.   (Incorporated   by  reference  to  the  Registrant's
                    Registration  Statement on Form S-1, File Number  333-22923,
                    Exhibit 10.48).

              10.40 Security  Agreement between the Company and Telemar Software
                    International,  LLC, dated September 16, 1996. (Incorporated
                    by reference to the Registrant's  Registration  Statement on
                    Form S-1, File Number 333-22923, Exhibit 10.49).

              10.41 Lease  Agreement  between the Company and Robert D.  Scinto,
                    dated as of October 6, 1993.  (Incorporated  by reference to
                    the  Registrant's  Registration  Statement on Form S-1, File
                    Number 333-22923, Exhibit 10.57).

              10.42 First Amendment to Lease  Agreement  between the Company and
                    Robert D. Scinto,  dated January 30, 1996.  (Incorporated by
                    reference to the Registrant's Registration Statement on Form
                    S-1, File Number 333-22923, Exhibit 10.58).

              10.43 Full Service  Office Lease between the Company and Lakeshore
                    Towers Limited  Partnership  Phase I and the Company,  dated
                    November  4,  1994.   (Incorporated   by  reference  to  the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.59).

              10.44 Amendment to Lease between the Company and Lakeshore  Towers
                    Limited   Partners,   Phase  I,   dated   July   15,   1996.
                    (Incorporated by reference to the Registrant's  Registration
                    Statement  on  Form  S-1,  File  Number  333-22923,  Exhibit
                    10.60).

              10.45 Letter  Agreement among the Company,  Wand/IMA  Investments,
                    L.P.  and certain  Shareholders,  dated  December  21, 1990.
                    (Incorporated by reference to the Registrant's  Registration
                    Statement  on  Form  S-1,  File  Number  333-22923,  Exhibit
                    10.62).

<PAGE>
              10.46 Amendment to Letter  Agreement  among the Company,  Wand/IMA
                    Investments,  L.P. and certain  Shareholders,  dated October
                    29, 1991.  (Incorporated  by  reference to the  Registrant's
                    Registration  Statement on Form S-1, File Number  333-22923,
                    Exhibit 10.63).

              10.47 Second  Amendment  to Letter  Agreement  among the  Company,
                    Wand/IMA Investments,  L.P. and certain Shareholders,  dated
                    June 1, 1994. (Incorporated by reference to the Registrant's
                    Registration  Statement on Form S-1, File Number  333-22923,
                    Exhibit 10.64).

              10.48 Letter   Agreement   among  the   Company,   Mercury   Asset
                    Management plc and certain Shareholders, dated as of June 1,
                    1994.   (Incorporated   by  reference  to  the  Registrant's
                    Registration  Statement on Form S-1, File Number  333-22923,
                    Exhibit 10.65).

              10.49 Consulting Service Agreement between the Company and Clifton
                    Myers   Enterprises,    Inc.,   dated   January   1,   1996.
                    (Incorporated by reference to the Registrant's  Registration
                    Statement  on  Form  S-1,  File  Number  333-22923,  Exhibit
                    10.68).

              10.50 Equipment  Lease  Agreement  between  the  Company  and  Tal
                    Financial Corporation, dated February 1, 1996. (Incorporated
                    by reference to the Registrant's  Registration  Statement on
                    Form S-1, File Number 333-22923, Exhibit 10.69).

              10.51 Amendment  No. 4 to Common Stock  Purchase  Warrant No. W-3,
                    dated April 29,  1997.  (Incorporated  by  reference  to the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.70).

              10.52 Amendment  No. 4 to Common Stock  Purchase  Warrant No. W-4,
                    dated April 29,  1997.  (Incorporated  by  reference  to the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.71).

              10.53 Amendment  No. 4 to Common Stock  Purchase  Warrant No. W-5,
                    dated April 29,  1997.  (Incorporated  by  reference  to the
                    Registrant's Registration Statement on Form S-1, File Number
                    333-22923, Exhibit 10.72).

<PAGE>
              10.54 Waiver  and  Consent  Agreement,  dated  November  1,  1996.
                    (Incorporated by reference to the Registrant's  Registration
                    Statement  on  Form  S-1,  File  Number  333-22923,  Exhibit
                    10.74).

              10.55 Letter  Agreement  regarding  conversion of Preferred  Stock
                    and Warrants, dated July 1, 1997. (Incorporated by reference
                    to the Registrant's Registration Statement on Form S-1, File
                    Number 333-22923, Exhibit 10.75).

              21.1  Subsidiaries of the Registrant.  (Incorporated  by reference
                    to the Registrant's Registration Statement on Form S-1, File
                    Number 333-22923, Exhibit 21.1).

             *23.1  Consent of Arthur Andersen LLP.

             *27.1  Financial Data Schedule.

          (b)  Reports on Form 8-K
               -------------------

               No reports on Form 8-K were  filed by the  Registrant  during the
               fourth quarter of the fiscal year covered by this report.

<PAGE>

                                   SIGNATURES

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

                                 INFORMATION MANAGEMENT ASSOCIATES, INC.


                             By:       /s/  Albert R. Subbloie, Jr.
                                 ------------------------------------------
                                 Albert R. Subbloie, Jr.
                                 President and Chief Executive Officer

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

     SIGNATURE                                TITLE                    DATE


     /s/  Albert R. Subbloie, Jr.        President, Chief         March 26, 1998
     ------------------------------
     ALBERT R. SUBBLOIE, JR.             Executive Officer
                                         and Director
                                         (Principal
                                         Executive Officer)


     /s/  Gary R. Martino                Chairman of the          March 26, 1998
     ------------------------------
     GARY R. MARTINO                     Board of
                                         Directors, Chief
                                         Financial Officer,
                                         Treasurer and
                                         Director
                                         (Principal
                                         Financial and
                                         Accounting Officer)

     /s/  Paul J. Schmidt                Director                 March 26, 1998
     --------------------------------
     PAUL J. SCHMIDT


                                         Director                 March 26, 1998
     --------------------------------
     THOMAS F. HILL


     /s/   Andrei Poludnewycz            Director                 March 26, 1998
     ------------------------------
     ANDREI POLUDNEWYCZ


     /s/  Donald P. Miller               Director                 March 26, 1998
     ---------------------------------
     DONALD P. MILLER


     /s/  David J. Callard               Director                 March 26, 1998
     ----------------------------------
     DAVID J. CALLARD


<PAGE>
                                  EXHIBIT INDEX


     Exhibit 23.1        Consent of Arthur Andersen LLP
     Exhibit 27.1        Financial Data Schedule