---

---

UNITED STATES

SECURITIES AND EXCHANGE

COMMISSION

WASHINGTON, D.C. 20549

_________________

FORM 10-Q

[X]    QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT
OF 1934

For the Quarterly
Period Ended May 31, 2004

OR

[   ] 
   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
0-16006

COGNOS INCORPORATED(Exact Name Of
Registrant As Specified In Its Charter)

|CANADA                          | 98-0119485                       
|------------------------------- | ---------------------------------
|(State Or Other Jurisdiction Of | (IRS Employer Identification No.)
|Incorporation Or Organization) 

|3755 Riverside Drive, 
P.O. Box 9707, Station T, 
Ottawa, Ontario, Canada(Address Of Principal Executive
Offices) | K1G 4K9(Zip Code)
|----------------------------------------------------------------------------------------------------------------- | -----------------

(613) 738-1440(Registrants
Telephone Number, Including Area Code)

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 whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). YES X    NO

The number of shares outstanding of
the registrants only class of Common Stock as of June 15, 2004, was 90,291,925.

---

---

# COGNOS INCORPORATED

# INDEX

|PAGE                          
|------------------------------
|PART I - FINANCIAL
INFORMATION
|Item 1.                       
|                              
|                              
|                              
|                              
|Item 2.                       
|Item 3.                       
|Item 4.                       
|PART II -
OTHER INFORMATION   
|Item 1.                       
|Item 2.                       
|Item 4.                       
|Item 6.                       
|Signature                     

2

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PART I  FINANCIAL INFORMATION

|Item 1. |  | Consolidated
Financial Statements
|------- |  | ---------------------------------

COGNOS INCORPORATEDCONSOLIDATED STATEMENTS OF INCOME
(US$000s except share amounts, U.S. GAAP)
(Unaudited)

|                                         |  | Three months ended May 31,
|---------------------------------------- |  | --------------------------
|                                         |  | 2004                      
|                                        
|Revenue                                  |  |                           
|Product license                          |  | $   66,070                
|Product support                          |  | 74,787                    
|Services                                 |  | 32,762                    
|                                        
|Total revenue                            |  | 173,619                   
|                                        
|Cost of revenue                          | 
|Cost of product license                  |  | 621                       
|Cost of product support                  |  | 7,175                     
|Cost of services                         |  | 25,475                    
|                                        
|Total cost of revenue                    |  | 33,271                    
|                                        
|Gross margin                             |  | 140,348                   
|                                        
|Operating expenses                       | 
|Selling, general, and administrative     |  | 90,509                    
|Research and development                 |  | 24,325                    
|Amortization of intangible assets        |  | 1,372                     
|                                        
|Total operating expenses                 |  | 116,206                   
|                                        
|Operating income                         |  | 24,142                    
|Interest expense                         |  | (71                       
|Interest income                          |  | 1,404                     
|                                        
|Income before taxes                      |  | 25,475                    
|Income tax provision                     |  | 5,350                     
|                                        
|Net income                               |  | $   20,125                
|                                        
|Net income per share                     | 
|Basic                                    |  | $0.22                     
|                                        
|Diluted                                  |  | $0.22                     
|                                        
|Weighted average number of shares (000s) | 
|Basic                                    |  | 90,091                    
|                                        
|Diluted                                  |  | 92,692                    
|                                        

(See accompanying notes)

3

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COGNOS INCORPORATEDCONSOLIDATED BALANCE
SHEETS
(US$000s except share amounts, U.S. GAAP)

|                                                            |  | May 31,2004 |   | February 29,2004 |  
|----------------------------------------------------------- |  | ----------- | - | ---------------- | -
|                                                           
|Assets                                                      |  | (Unaudited  | ) | (Note 1)         |  
|Current assets                                              |  |             |   |                  |  
|Cash and cash equivalents                                   |  | $327,441    |   | $224,830         |  
|Short-term investments                                      |  | 88,921      |   | 163,411          |  
|Accounts receivable                                         |  | 106,431     |   | 152,859          |  
|Prepaid expenses and other current assets                   |  | 15,601      |   | 16,668           |  
|Deferred tax assets                                         |  | 2,032       |   | 2,445            |  
|                                                           
|                                                            |  | 540,426     |   | 560,213          |  
|Fixed assets                                                |  | 68,171      |   | 71,292           |  
|Intangible assets                                           |  | 22,341      |   | 23,643           |  
|Goodwill                                                    |  | 172,323     |   | 172,323          |  
|                                                           
|                                                            |  | $803,261    |   | $827,471         |  
|                                                           
|Liabilities                                                 | 
|Current liabilities                                         | 
|Accounts payable                                            |  | $  23,573   |   | $  30,698        |  
|Accrued charges                                             |  | 22,087      |   | 25,483           |  
|Salaries, commissions, and related items                    |  | 43,360      |   | 59,903           |  
|Income taxes payable                                        |  | 3,550       |   | 5,875            |  
|Deferred revenue                                            |  | 164,620     |   | 178,752          |  
|                                                           
|                                                            |  | 257,190     |   | 300,711          |  
|Deferred income taxes                                       |  | 18,514      |   | 18,098           |  
|                                                           
|                                                            |  | 275,704     |   | 318,809          |  
|                                                           
|Stockholders Equity                                        | 
|Capital stock                                               | 
|Common shares and additional paid-in capital                | 
|(May 31, 2004 - 90,238,463; February 29, 2004 - 89,902,895) |  | 216,146     |   | 206,499          |  
|Treasury shares                                             | 
|(May 31, 2004 - 40,375; February 29, 2004 - 43,500)         |  | (980        | ) | (1,065           | )
|Deferred stock-based compensation                           |  | (650        | ) | (730             | )
|Retained earnings                                           |  | 316,197     |   | 305,399          |  
|Accumulated other comprehensive loss                        |  | (3,156      | ) | (1,441           | )
|                                                           
|                                                            |  | 527,557     |   | 508,662          |  
|                                                           
|                                                            |  | $803,261    |   | $827,471         |  
|                                                           

(See accompanying notes)

4

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COGNOS INCORPORATEDCONSOLIDATED STATEMENTS OF CASH FLOWS
(US$000s, U.S. GAAP)
(Unaudited)

|                                                                  |  | Three months ended May 31,
|----------------------------------------------------------------- |  | --------------------------
|                                                                 
|                                                                  |  | 2004                      
|                                                                 
|Cash flows from operating activities                              | 
|Net income                                                        |  | $  20,125                 
|Non-cash items                                                    | 
|Depreciation and amortization                                     |  | 6,498                     
|Amortization of deferred stock-based compensation                 |  | 185                       
|Amortization of other deferred compensation                       |  | 7                         
|Deferred income taxes                                             |  | 1,016                     
|Loss on disposal of fixed assets                                  |  | 1                         
|                                                                 
|                                                                  |  | 27,832                    
|Change in non-cash working capital                                | 
|Decrease in accounts receivable                                   |  | 44,933                    
|Decrease (increase) in prepaid expenses and other current assets  |  | 870                       
|Decrease in accounts payable                                      |  | (6,967                    
|Decrease in accrued charges                                       |  | (3,195                    
|Decrease in salaries, commissions, and related items              |  | (15,743                   
|Decrease in income taxes payable                                  |  | (2,092                    
|Decrease in deferred revenue                                      |  | (12,549                   
|                                                                 
|Net cash provided by operating activities                         |  | 33,089                    
|                                                                 
|Cash flows from investing activities                              | 
|Maturity of short-term investments                                |  | 145,593                   
|Purchase of short-term investments                                |  | (71,395                   
|Additions to fixed assets                                         |  | (3,073                    
|Additions to intangible assets                                    |  | (69                       
|Business acquisitions                                             |  | --                        
|                                                                 
|Net cash provided by investing activities                         |  | 71,056                    
|                                                                 
|Cash flows from financing activities                              | 
|Issue of common shares                                            |  | 10,289                    
|Purchase of treasury shares                                       |  | --                        
|Repurchase of shares                                              |  | (9,989                    
|Decrease in long-term debt and long-term liabilities              |  | --                        
|                                                                 
|Net cash provided by financing activities                         |  | 300                       
|                                                                 
|Effect of exchange rate changes on cash                           |  | (1,834                    
|                                                                 
|Net increase in cash and cash equivalents                         |  | 102,611                   
|Cash and cash equivalents, beginning of period                    |  | 224,830                   
|                                                                 
|Cash and cash equivalents, end of period                          |  | 327,441                   
|Short-term investments, end of period                             |  | 88,921                    
|                                                                 
|Cash, cash equivalents, and short-term investments, end of period |  | $416,362                  
|                                                                 

(See accompanying notes)

5

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COGNOS INCORPORATED

CONDENSED NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in United States
dollars, unless otherwise stated)
(In accordance with
U.S. GAAP)

|1. |  | Basis
of Presentation
|-- |  | ---------------------

| | The
accompanying unaudited consolidated financial statements have been prepared by the
Corporation in United States (U.S.) dollars and in accordance with
generally accepted accounting principles (GAAP) in the U.S. with
respect to interim financial statements, applied on a consistent basis. The consolidated
balance sheet as at February 29, 2004 has been extracted from the audited consolidated
financial statements at that date. These consolidated financial statements do not include
all of the information and footnotes required for compliance with GAAP in the U.S. for
annual financial statements. These unaudited condensed notes to the consolidated
financial statements should be read in conjunction with the audited financial statements
and notes included in the Corporations Annual Report on Form 10-K for the fiscal
year ended February 29, 2004.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
preparation of these unaudited consolidated financial statements requires management to
make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and the accompanying notes. In the opinion of management, these
unaudited consolidated financial statements reflect all adjustments (which include only
normal, recurring adjustments) necessary to state fairly the results for the periods
presented. Actual results could differ from these estimates and the operating results for
the interim periods presented are not necessarily indicative of the results expected for
the full year.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
information is presented in U.S. dollars, unless otherwise stated. Consolidated financial
statements prepared in accordance with Canadian GAAP, in U.S. dollars, are made available
to all shareholders, and filed with various regulatory authorities.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | Revenue
Recognition
|-- |  | -------------------

| | The
Corporation recognizes revenue in accordance with Statement of Position (SOP)
97-2, Software Revenue Recognition, issued by the American Institute of Certified
Public Accountants.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Substantially
all of the Corporations product license revenue is earned from licenses of
off-the-shelf software requiring no customization. Revenue from these licenses is
recognized when all of the following criteria are met: persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collectibility is probable. If a license includes the right to return the product for
refund or credit, revenue is deferred, until the right of return lapses.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue
from product support contracts is recognized ratably over the life of the contract.
Incremental costs directly attributable to the acquisition of product support contracts,
and that would not have been incurred but for the acquisition of that contract, are
deferred and expensed in the period the related revenue is recognized. These costs
include commissions payable on sales of support contracts.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

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COGNOS INCORPORATED

CONDENSED NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in United States
dollars, unless otherwise stated)
(In accordance with
U.S. GAAP)

| | Services
revenue from education, consulting, and other services is recognized at the time such
services are rendered. Many of the Corporations sales include both software and
services. Where the service is (1) not essential to the functionality of any other
element of the transaction and (2) stated separately such that the total price of the
arrangement is expected to vary as a result of the inclusion or exclusion of the service,
the software element is accounted for separately from the service element. Where these
two criteria are not met, the entire arrangement is accounted for using the percentage of
completion method in accordance with SOP 81-1, Accounting for Performance of
Construction Type and Certain Production Type Contracts.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
contracts with multiple obligations (e.g., delivered and undelivered products, support
obligations, education, consulting, and other services), the Corporation allocates
revenue to each element of the contract based on vendor specific objective evidence (VSOE)
of the fair value of the element. VSOE of fair value is assigned using the residual
method as outlined in SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions. VSOE is the renewal rate for
product support elements of a contract and, for service elements, is the normal pricing
and discounting practices for those products when they are sold separately; the residual
is then assigned to the license element of the contract.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Stock-Based
Compensation
|-- |  | ------------------------

| | The
Corporation applies Accounting Principles Board Opinion 25, Accounting for Stock
Issued to Employees in accounting for its stock option, stock purchase, and
restricted share unit plans. Where the exercise price of stock options is equal to the
market price of the stock on the trading day preceding the date of grant, no compensation
cost has been recognized in the financial statements for its stock option and stock
purchase plans. However, for certain options assumed on the acquisition of Adaytum, Inc.,
under purchase accounting methodology, compensation cost has been recognized in the
financial statements. For restricted share units, the fair value of each unit is
calculated at the date of grant. Compensation cost relating to the restricted share unit
plan is recognized in the financial statements over the vesting period.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

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COGNOS INCORPORATED

CONDENSED NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in United States
dollars, unless otherwise stated)
(In accordance with
U.S. GAAP)

| | If
the fair values of the options granted had been recognized as compensation expense on a
straight-line basis over the vesting period of the grant, stock-based compensation costs
would have reduced net income, basic net income per share and diluted net income per
share as indicated in the table below (000s, except per share amounts):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                |  | Three months endedMay 31, |  
|----------------------------------------------- |  | ------------------------- | -
|                                               
|                                                |  | 2004                      |  
|                                               
|Net income:                                     | 
|As reported                                     |  | $ 20,125                  |  
|Add: Stock-based employee compensation          | 
|included above                                  |  | 185                       |  
|Less: Stock-based employee compensation using   | 
|fair value based method                         |  | (3,409                    | )
|                                               
|Pro forma                                       |  | $ 16,901                  |  
|                                               
|Basic net income per share:                     | 
|As reported                                     |  | $0.22                     |  
|Add: Stock-based employee compensation          | 
|included above                                  |  | --                        |  
|Less: Stock-based employee compensation using   | 
|fair value based method                         |  | (0.03                     | )
|                                               
|Pro forma                                       |  | $0.19                     |  
|                                               
|Diluted net income per share:                   | 
|As reported                                     |  | $0.22                     |  
|Add: Stock-based employee compensation included | 
|above                                           |  | --                        |  
|Less: Stock-based employee compensation using   | 
|fair value based method                         |  | (0.04                     | )
|                                               
|Pro forma                                       |  | $0.18                     |  
|                                               
|Weighted average number of shares:              | 
|Basic                                           |  | 90,091                    |  
|                                               
|Diluted                                         |  | 92,692                    |  
|                                               

8

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COGNOS INCORPORATED

CONDENSED NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in United States
dollars, unless otherwise stated)
(In accordance with
U.S. GAAP)

| | The
fair value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 |  | Three
months endedMay 31,
|-------------------------------- |  | -------------------------
|                                
|                                 |  | 2004                     
|                                
|Risk-free interest rates         |  | 3.6                      
|Expected volatility              |  | 52                       
|Dividend yield                   |  | 0                        
|Expected life of options (years) |  | 4.3                      

*
During the three months ended May 31, 2003, no options were granted.

|4. |  | Goodwill
|-- |  | --------

| | During
the three months ended May 31, 2004 and May 31, 2003, there were additions to goodwill of
nil and $108,000, respectively. The additions in the prior fiscal period related to
additional consideration paid to the former shareholders of Teijin Cognos Incorporated (TCI).
This additional consideration was based on the net revenue of TCI during each quarter as
per the terms of the original purchase agreement. The Corporation has designated the
beginning of its fiscal year as the date for the annual impairment test, and performed
the required test as of March 1, 2004. Based on this test, goodwill is not considered to
be impaired.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                  |  | Three months
ended May 31,
|----------------- |  | --------------------------
|                 
|                  |  | 2004                      
|                 
|                  |  | ($000s)                   
|Beginning balance |  | $172,323                  
|Additions         |  | --                        
|                 
|Closing balance   |  | $172,323                  
|                 

9

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COGNOS INCORPORATED

CONDENSED NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in United States
dollars, unless otherwise stated)
(In accordance with
U.S. GAAP)

|5. | Intangible
Assets
|-- | -----------------

|                          |  | As at May 31,2004 |   | As at February 29,2004  
|------------------------- |  | ----------------- | - | ------------------------
|                         
|                          |  | Cost              |   | Accumulated Amortization
|                         
|                          |  | ($000s)           |   | ($000s)                 
|                          |  |                   |   |                         
|Acquired technology       |  | $ 33,381          |   | $19,146                 
|                          |  |                   |   |                         
|Deferred compensation     |  | 8,945             |   | 8,945                   
|Contractual relationships |  | 7,800             |   | 1,353                   
|Trademarks and patents    |  | 3,690             |   | 2,031                   
|                          |  |                   |   |                         
|                          |  | 53,816            |   | $31,475                 
|                          |  |                   |   |                         
|                          |  | (31,475           | ) |                         
|                          |  |                   |   |                         
|Net book value            |  | $ 22,341          |   |                         
|                          |  |                   |   |                         

| | Amortization
of intangible assets was $1,372,000 and $2,105,000 in the quarters ended May 31, 2004 and
May 31, 2003, respectively. The estimated amortization expense related to intangible
assets is as follows ($000s):
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2005 (Q2 to Q4)     |  | $4,076 | 
|------------------- |  | ------ | 
|2006                |  | 5,385  | 
|2007                |  | 5,278  | 
|2008                |  | 4,628  | 
|2009                |  | 1,107  | 
|2010                |  | 1,027  | 
|2011 and thereafter |  | 840    | 

10

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COGNOS INCORPORATED

CONDENSED NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in United States
dollars, unless otherwise stated)
(In accordance with
U.S. GAAP)

|6. |  | Commitments
and Contingencies
|-- |  | -----------------------------

| | Customer
Indemnification
| | ------------------------

| | The
Corporation has entered into licensing agreements with customers that include limited
intellectual property indemnification clauses. These clauses are typical in the software
industry and require the Corporation to compensate the customer for certain liabilities
and damages incurred as a result of third party intellectual property claims arising from
these transactions. The Corporation has not made any significant indemnification payments
as a result of these clauses and, in accordance with Financial Accounting Standards Board
(FASB) Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees,Including Indirect Guarantees of Indebtedness of
Others, has not accrued any amounts in relation to these indemnification clauses.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Legal
Proceedings
| | -----------------

| | The
Corporation and its subsidiaries may, from time to time, be involved in legal
proceedings, claims, and litigation that arise in the ordinary course of business. In the
event that any such claims or litigation are resolved against Cognos, such outcomes or
resolutions could have a material adverse effect on the business, financial condition or
results of operations of the Corporation.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. |  | Income
Taxes
|-- |  | ------------

| | The
Corporation provides for income taxes in its quarterly unaudited financial statements
based on the estimated effective tax rate for the full fiscal year.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. |  | Stockholders Equity
|-- |  | --------------------

| | The
Corporation issued 635,000 common shares, valued at $10.3 million during the three months
ended May 31, 2004, and issued 866,000 shares valued at $12.5 million during the three
months ended May 31, 2003. The issuance of shares in both periods was pursuant to the
Corporations stock purchase plan and the exercise of stock options by employees and
officers. The Corporation repurchased 300,000 shares in the open market at a value of
$10.0 million during the three months ended May 31, 2004. During the three month period
ended May 31, 2003, the Corporation did not repurchase shares.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

---

COGNOS INCORPORATED

CONDENSED NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in United States
dollars, unless otherwise stated)
(In accordance with
U.S. GAAP)

| | Net
Income per Share
| | --------------------

| | The
reconciliation of the numerator and denominator for the calculation of basic and diluted
net income per share is as follows:(000s except per share amounts)
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                       |  | Three months ended May 31,
|------------------------------------------------------ |  | --------------------------
|                                                      
|                                                       |  | 2004                      
|                                                      
|Basic Net Income per Share                             | 
|Net income                                             |  | $20,125                   
|                                                      
|Weighted average number of shares outstanding          |  | 90,091                    
|                                                      
|Basic net income per share                             |  | $0.22                     
|                                                      
|Diluted Net Income per Share                           | 
|Net income                                             |  | $20,125                   
|                                                      
|Weighted average number of shares outstanding          |  | 90,091                    
|Dilutive effect of stock options                       |  | 2,601                     
|                                                      
|Adjusted weighted average number of shares outstanding |  | 92,692                    
|                                                      
|Diluted net income per share                           |  | $0.22                     
|                                                      

|9. |  | Comprehensive
Income
|-- |  | --------------------

| | Comprehensive
income includes net income and other comprehensive income (OCI). OCI
refers to changes in net assets from transactions and other events, and circumstances not
included in net income and other than transactions with stockholders. These changes are
recorded directly as a separate component of Stockholders Equity. The only other
comprehensive income item for the Corporation relates to foreign currency translation
adjustments pertaining to those subsidiaries not using the U.S. dollar as their
functional currency net of derivative gains or losses.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

---

COGNOS INCORPORATED

CONDENSED NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in United States
dollars, unless otherwise stated)
(In accordance with
U.S. GAAP)

The
components of comprehensive income were as follows ($000s):

|                                         |  | Three months ended May 31, |  
|---------------------------------------- |  | -------------------------- | -
|                                        
|                                         |  | 2004                       |  
|                                        
|Net income                               |  | $20,125                    |  
|Other comprehensive income (loss):       | 
|Foreign currency translation adjustments |  | (1,715                     | )
|                                        
|Comprehensive income                     |  | $18,410                    |  
|                                        

|10. |  | Segmented
Information
|--- |  | ---------------------

| | The
Corporation operates in one business segmentcomputer software solutions.
| | -----------------------------------------------------------------------------

|11. |  | Liabilities
in Connection with Acquisition
|--- |  | ------------------------------------------

| | The
Corporation undertook a restructuring plan in conjunction with the acquisition of Adaytum
in January 2003. In accordance with Emerging Issues Task Force No. 95-3, Recognition
of Liabilities in Connection with a Business Combination, the liability associated
with this restructuring is considered a liability assumed in the purchase price
allocation. The Corporation recorded restructuring costs of approximately $9.2 million in
relation to this restructuring plan. These restructuring costs primarily relate to
involuntary employee separations of approximately 90 employees of Adaytum, accruals for
vacating leased premises of Adaytum, and related write-downs of leasehold improvements as
well as asset write-downs of Adaytum. The employee separations impact all functional
groups and geographic regions of Adaytum. The remaining accrual is included on the
balance sheet as accrued charges and salaries, commissions, and related items. All
amounts excluding lease payments are expected to be paid in fiscal 2005. Outstanding
balances for lease payments will be paid over the lease term unless settled earlier. The
Corporation does not believe that any unresolved contingencies, purchase price allocation
issues, or additional liabilities exist that would result in a material adjustment to the
acquisition cost allocation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

---

COGNOS INCORPORATED

CONDENSED NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in United States
dollars, unless otherwise stated)
(In accordance with
U.S. GAAP)

| | The
following table sets forth the activity in the Corporations restructuring accrual
for the three month period ended May 31, 2004: ($000s)
| | ---------------------------------------------------------------------------------------------------------------------------------------------

|                                |  | Employeeseparations | Otherrestructingaccruals | Totalaccrual
|------------------------------- |  | ------------------- | ------------------------ | ------------
|                               
|Balance as at February 29, 2004 |  | $ 945               |                          | $ 3,498     
|Cash payments during the first  | 
|quarter of fiscal 2005          |  | (563                | )                        | (183        
|                               
|Balance as at May 31, 2004      |  | $ 382               |                          | $ 3,315     
|                               

|12. |  | Comparative
Results
|--- |  | -------------------

| | Certain
of the prior periods figures have been reclassified in order to conform to the
presentation adopted during the current fiscal year. This change in presentation does not
affect previously reported assets, liabilities, or results of operations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. |  | New
Accounting Pronouncements
|--- |  | -----------------------------

| | In
January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46). FIN 46 expands upon existing guidance
that addresses when a company should include in its financial statements the assets,
liabilities, and activities of another company. A variable interest entity is any legal
structure used for business purposes that either (a) does not have equity investors or
has equity investors that lack characteristics of control; or (b) the equity investment
at risk does not provide sufficient financial resources for the entity to support its
activities. Under FIN 46, a variable interest entity must be consolidated by a company if
that company is expected to absorb a majority of the entitys expected losses or to
receive a majority of the entitys expected residual returns. The consolidation
requirements are currently applicable to variable interests created after January 31,
2003. For variable interest entities created before January 31, 2003, the consolidation
requirements are applicable for reporting periods ending after March 15, 2004. FIN 46
also requires certain disclosures about variable interest entities where those entities
are not required to be consolidated. The Corporation has determined that it has an
undercapitalized distributor that qualifies as a variable interest entity. The
Corporation adopted FIN 46 on May 31, 2004 for this variable interest entity which was
created prior to February 1, 2003. The adoption of FIN 46 did not have a material impact
on the Corporations financial condition or results of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

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Item 2.

# COGNOS INCORPORATED

# MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

(in United States
dollars, unless otherwise indicated, and in accordance with U.S. GAAP)

FORWARD-LOOKING
STATEMENTS/SAFE HARBOR

Managements Discussion and
Analysis of Financial Condition and Results of Operations (MD&A)
should be read in conjunction with the unaudited Consolidated Financial Statements and
Notes included in Item 1 of this Quarterly Report and can also be read in conjunction with
the audited Consolidated Financial Statements and Notes, and MD&A contained in our
Annual Report on Form 10-K for the fiscal year ended February 29, 2004 (fiscal
2004). MD&A contains forward-looking statements including statements
concerning future revenues and earnings; product demand and growth opportunities; business
outlook and business momentum; purchasing environment; new product
introductions/development and customer reaction and acceptance of such products, including
the Cognos ReportNet product; market positioning and conditions, business model and
technology strategies and execution; the growth, strategic importance and acceptance of
corporate performance management, business intelligence and solution standardization; and
market position. These forward-looking statements are neither promises nor guarantees, but
involve risks and uncertainties that may cause actual results to differ materially from
those in the forward-looking statements. Factors that may cause such differences include,
but are not limited to, our ability to maintain revenue growth or to anticipate a decline
in revenue from any of our products or services; our ability to develop and introduce new
products and enhancements that respond to customer requirements and rapid technological
change; new product introductions and enhancements by competitors; our ability to compete
in an intensely competitive market; our ability to select and implement appropriate
business models and strategies; fluctuations in our quarterly and annual operating results
from historical patterns; tax rate fluctuations; the impact of global economic conditions
on our business; unauthorized use of our intellectual property; claims by third parties
that our software infringes their intellectual property; the risks inherent in
international operations, such as currency exchange rate fluctuations; our ability to
identify, hire, train, motivate, and retain highly qualified management and other key
personnel; and our ability to identify, pursue, and complete acquisitions with desired
business results; as well as the risk factors discussed below and in other periodic
reports filed with the SEC. Readers should not place undue reliance on any such
forward-looking statements, which speak only as of the date they are made. We disclaim any
obligation to publicly update or revise any such statement to reflect any change in our
expectations or in events, conditions, or circumstances on which any such statements may
be based, or that may affect the likelihood that actual results will differ from those
contained in the forward-looking statements.

# ABOUT
COGNOS

Cognos is a global leader in business
intelligence (BI) and corporate performance management
(CPM) software solutions. Our solutions help improve business
performance by enabling effective decision-making at all levels of the organization
through the consistent reporting and analysis of data derived from various sources. Using
our software, management believes that customers gain valuable insights that can be used
to improve operational effectiveness, enhance customer satisfaction, reduce corporate
response times and, ultimately, increase revenues and profits. Our integrated software
solutions consist of our suite of BI components, analytical applications, and performance
management applications.

15

---

Our customers can also strategically
apply our software solutions across their extended enterprise to address their need for
CPM. By allowing timely analysis of data from disparate systems, CPM enables organizations
to measure execution against business strategy to ensure that the two are aligned at all
levels. Our integrated CPM solution enables customers to drive performance through
planning; monitor performance through scorecarding; and understand performance through BI.

Our revenue is derived primarily from
the licensing of our software and the provision of related services for BI solutions.
These related services include product support, education, and consulting. We generally
license software and provide services subject to terms and conditions consistent with
industry standards. For an annual fee, customers may contract with us for product support,
which includes product and documentation enhancements, as well as tele-support and
web-support.

# OVERVIEW OF THE
QUARTER

The first quarter of fiscal 2005 was
highlighted by solid revenue growth, improvements in operating margin and profitability,
and a strong balance sheet.

# Operating Performance

Revenue for the three month period
ended May 31, 2004 was $173.6 million, an increase of 15% from $150.6 million for the
corresponding period last year. License revenue increased 14% to $66.1 million, compared
with $57.8 million in the first quarter of fiscal 2004. The increase in revenue is
primarily attributable to the continued success of ReportNet® and Enterprise Planning.

Net income for the three month period
ended May 31, 2004 was $20.1 million or $0.22 per share compared to net income of $12.4
million or $0.14 per share for the same period last year. The improvement in operating
performance for the quarter can be attributed to the strength of our product portfolio as
evidenced by the increase in license revenue. Also contributing to this increase was
diligent expense management and a lower effective tax rate.

Our balance sheet continues to
strengthen, ending the quarter with $416.4 million in cash, cash equivalents, and
short-term investments, an increase of $28.1 million from February 29, 2004.

We signed eight (8) contracts in
excess of one million dollars during the quarter. In addition, the number of contracts
greater that $200,000 and $50,000 increased 57% and 28%, respectively compared to the
corresponding period last year. We believe this increase in the number of large contracts
is evidence of the continuing growth and deepening strategic importance of BI within our
customers businesses.

# Executive Appointment

Effective June 23, 2004, Mr. Ron
Zambonini retired as Chief Executive Officer (CEO) of the Corporation and was named
Chairman of the Board of Directors. Mr. Rob Ashe, who held the position of President and
Chief Operating Officer of Cognos, was appointed President and CEO and was elected to the
Cognos Board of Directors at the Annual and Special Meeting of Shareholders held on June
23, 2004.

16

---

# Economic and Market
Factors

We believe that the IT purchasing
environment has improved and that the market for BI products, in particular, remains
healthy. In our opinion, CPM is steadily becoming a leading priority for our customers and
for large enterprises worldwide as they look to standardize on one solution. We view this
as a significant opportunity for our product suite. Our market-leading BI and Enterprise
Planning software, which we believe are the foundation for CPM, allow us to enter the
market from several key entry points and can assist our customers in delivering end to end
decision making systems. Customers are getting a return on their investment in these
products and witnessing evidence of our CPM vision in action.

The breadth of our solution is
allowing us to develop long-term strategic relationships with our customers which, in
turn, increases value for our customers and enables us to generate additional software
licensing and ongoing maintenance renewals. The strength of these relationships is a
significant asset as approximately 69% of our license revenue came from existing customers
in the three month period ended May 31, 2004.

# Outlook for the balance
of the fiscal year

For the balance of fiscal 2005, we
expect continued growth in our revenue and earnings as we capitalize on our leadership
position in the emerging CPM market. We believe that the growth in order size that we are
experiencing is an indication that we are well positioned to capitalize on the trend
towards standardization in BI solutions.

We will continue to focus on creating
innovative new products. We have recently released Cognos Series 7 (version 3) and ReportNet (version 1.1) which extends
our Enterprise Business Intelligence Series. We have also recently released an enhanced
version of our Enterprise Planning Series. We expect to release in the upcoming year
a further upgrade to our Enterprise Business Intelligence Series that continues to
expand the deployment of our new platform.

# APPLICATION OF
CRITICAL
ACCOUNTING
POLICIES AND
ESTIMATES

Our discussion and analysis of our
financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, and expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates based on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances. The
estimates form the basis for making judgments about the carrying values of assets and
liabilities and reported revenues and expenses that may not be readily apparent from other
sources. Actual results may differ from these estimates under different assumptions,
conditions, and experience.

The following critical accounting
policies and significant estimates are used in the preparation of our consolidated
financial statements:

| |  |  | Revenue
Recognition
| | - |  | -------------------

| |  |  | Allowance
for Doubtful Accounts
| | - |  | -------------------------------

| |  |  | Accounting
for Income Taxes
| | - |  | ---------------------------

| |  |  | Goodwill
and Acquired Intangible Assets
| | - |  | ---------------------------------------

| |  |  | Impairment
of Goodwill and Long-lived Assets
| | - |  | --------------------------------------------

17

---

Revenue Recognition We
recognize revenue in accordance with Statement of Position (SOP) 97-2,
Software Revenue Recognition. Our product license revenue is earned from licenses
of off-the-shelf software not requiring significant production, modification or
customization. Revenue from these licenses is recognized when all of the following
criteria are met: (1) persuasive evidence of an arrangement exists (our standard business
practice is that persuasive evidence exists when we have a binding contract with a
customer), (2) delivery has occurred, (3) the fee is fixed or determinable, and (4)
collectibility is probable. If a license includes the right to return the product for
refund or credit, revenue is deferred, until the right of return lapses.

Product support includes the right to
receive support services and unspecified upgrades or enhancements. Unspecified upgrades
and enhancements are product support only if they are offered on a when-and-if-available
basis. Revenue from product support contracts is recognized ratably over the life of the
contract. Incremental costs directly attributable to the acquisition of product support
contracts, and that would not have been incurred but for the acquisition of that contract,
are deferred and expensed in the period the related revenue is recognized. These costs
include commissions payable on sales of support contracts.

Services revenue from education,
consulting, and other services is recognized at the time the services are rendered. Many
of our sales include both software and services. Where the service is (1) not essential to
the functionality of any other element of the transaction and (2) stated separately such
that the total price of the arrangement is expected to vary as a result of the inclusion
or exclusion of the service, the software element is accounted for separately from the
service element. Where these two criteria are not met, the entire arrangement is accounted
for using the percentage of completion method in accordance with SOP 81-1, Accounting
for Performance of Construction Type and Certain Production Type Contracts.

For those contracts with multiple
obligations, that is, delivered and undelivered products, support obligations, education,
consulting, and other services, we allocate revenue to each element of the contract based
on vendor specific objective evidence (VSOE) of the fair value of the element.
VSOE of fair value is assigned using the residual method as outlined in SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions. For product support elements of a contract, VSOE is the renewal rate.
VSOE for service elements is the normal pricing and discounting practices for those
products when they are sold separately; the residual is then assigned to the license
element of the contract.

Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. We regularly review our
accounts receivable and use judgment to assess the collectibility of specific accounts
and, based on this assessment, an allowance is maintained for 100% of all accounts deemed
to be uncollectible. For those receivables not specifically identified, an allowance is
maintained for a specific percentage of those receivables based on the aging of the
accounts, our historical collection experience, and current economic conditions. If the
financial condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.

Accounting for Income Taxes As an entity which operates globally, we calculate our income tax liabilities in each
of the jurisdictions in which we conduct business. Our tax rate is therefore affected by
the relative profitability of our operations in various geographic regions. We employ tax
planning strategies which, by their nature, involve complicated transactions. Those
transactions are subject to review or audit by taxation authorities and the ultimate tax
outcome bears a measure of uncertainty. We must therefore make estimates and judgments and
it may take a considerable period of time for the ultimate tax outcome to be known.
Although we believe our estimates are reasonable, the ultimate tax outcome could differ
from the amounts recorded in our financial statements. These differences could have a
material effect on our financial position and our net income.

18

---

We record a valuation allowance to
reduce our deferred tax assets to the amount that is more likely than not to be realized.
We have considered forecasted taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for a valuation allowance.

Our valuation allowance pertains
primarily to the net operating loss carryforwards resulting from the acquisition of
Adaytum during fiscal 2003. In the event we were to subsequently determine that we would
be able to realize deferred tax assets related to this acquisition in excess of the net
purchase price allocated to those deferred tax assets, we would record a credit to
goodwill.

If we were to determine that we would
be able to realize deferred tax assets unrelated to acquisitions in excess of the net
recorded amount, an adjustment to the deferred tax asset would increase income in the
period such determination was made. Should we determine that we would not be able to
realize all or part of our net deferred tax assets in the future, an adjustment to the
deferred tax asset would reduce income in the period such determination was made.

We provide for withholding taxes on
the undistributed earnings of our foreign subsidiaries. The ultimate tax liability related
to the undistributed earnings could differ from the liabilities recorded in our financial
statements. These differences could have a material effect on our income tax liabilities
and our net income.

Goodwill and Acquired Intangible
Assets We account for acquisitions of companies in accordance with Statement of
Financial Accounting Standards Board Statement (SFAS) No. 141,
Business Combinations. We allocate purchase price to tangible assets, intangible
assets, and liabilities based on fair values with the excess of purchase price amount
being allocated to goodwill.

Historically, our acquisitions have
resulted in the recognition of significant amounts of goodwill and acquired intangible
assets. In order to allocate a purchase price to these intangible assets and goodwill, we
make estimates and judgments based on assumptions about the future income producing
capabilities of these assets and related future expected cash flows. We also make
estimates about the useful lives of the acquired intangible assets. Should different
conditions prevail, we could incur write-downs of goodwill, write-downs of intangible
assets, or changes in the estimation of useful lives of those intangible assets.

In accordance with SFAS No. 142,
Goodwill and Other Intangible Assets (SFAS 142), goodwill is not
amortized, but is subject to annual impairment testing which is discussed in greater
detail below under Impairment of Long-lived Assets. Prior to our adoption of SFAS
142, we amortized goodwill over 5 years using the straight-line method.

Intangible assets include acquired
technology, contractual relationships, deferred compensation, and trademarks and patents.
Acquired technology is initially recorded at fair value based on the present value of the
estimated net future income-producing capabilities of the software products acquired.
Acquired technology is amortized over its estimated useful life on a straight-line basis.
Contractual relationships represent contractual and separable relationships that we have
with certain customers and partners that we acquired through acquisitions. These
contractual relationships were initially recorded at their fair value based on the present
value of expected future cash flows and are amortized over their estimated useful life.
Deferred compensation includes consideration associated with acquisitions. Deferred
compensation is recorded when its future payment is determinable and is payable contingent
upon the continued tenure of the principals of the acquired companies who have become our
employees. Under U.S. GAAP, these amounts are accounted for as compensation rather than as
a component of purchase price. Trademarks and patents are initially recorded at cost. Cost
includes legal fees and other expenses incurred in order to obtain these assets. They are
amortized over their estimated useful life on a straight-line basis.

19

---

We evaluate the remaining useful life
of our intangible assets being amortized each reporting period to determine whether events
or circumstances warrant a revision to the estimated remaining amortization period.

Impairment of Goodwill and
Long-lived Assets In accordance with SFAS 142, goodwill is subject to annual
impairment tests, or on a more frequent basis if events or conditions indicate that
goodwill may be impaired. Goodwill is tested for impairment at a level of reporting
referred to as a reporting unit. The Corporation as a whole is considered one reporting
unit. Quoted market prices in active markets are considered the best evidence of fair
value. Therefore, the first step of our annual test is to compare the fair value of our
shares on The Nasdaq Stock Market to the carrying value of our net assets. If we determine
that our carrying value exceeds our fair value, we conduct a second step to the goodwill
impairment test. The second step compares the implied fair value of the goodwill
(determined as the excess fair value over the fair value assigned to our other assets and
liabilities) to the carrying amount of goodwill. When the carrying amount of goodwill
exceeds the implied fair value of goodwill, an impairment loss is recognized.

We evaluate all of our long-lived
assets, including intangible assets other than goodwill and fixed assets, periodically for
impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal
of Long-lived Assets(SFAS 144). SFAS 144 requires that long-lived
assets be evaluated for impairment when events or changes in facts and circumstances
indicate that their carrying value may not be recoverable. If events or circumstances
indicate that the carrying value of an asset may not be recoverable, the amount of
impairment will be measured as the difference between the carrying value and the fair
value of the impaired asset. An impairment will be recorded as an operating expense in the
period of the impairment and as a reduction in the carrying value of that asset.

# NEW
ACCOUNTING
PRONOUNCEMENTS

In January 2003, the Financial
Accounting Standards Board (FASB) issued Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46). FIN 46
expands upon existing guidance that addresses when a company should include in its
financial statements the assets, liabilities, and activities of another company. A
variable interest entity is any legal structure used for business purposes that either (a)
does not have equity investors or has equity investors that lack characteristics of
control; or (b) the equity investment at risk does not provide sufficient financial
resources for the entity to support its activities. Under FIN 46, a variable interest
entity must be consolidated by a company if that company is expected to absorb a majority
of the entitys expected losses or to receive a majority of the entitys
expected residual returns. The consolidation requirements are currently applicable to
variable interests created after January 31, 2003. For variable interest entities created
before January 31, 2003, the consolidation requirements are applicable for reporting
periods ending after March 15, 2004. FIN 46 also requires certain disclosures about
variable interest entities where those entities are not required to be consolidated. The
Corporation has determined that it has an undercapitalized distributor that qualifies as a
variable interest entity. The Corporation adopted FIN 46 on May 31, 2004 for this variable
interest entity created prior to February 1, 2003. The adoption of FIN 46 did not have a
material impact on the Corporations financial condition or results of operations.

20

---

# SHAREHOLDER
PROPOSAL

In June 2003, the shareholders of
Cognos approved a proposal made by the Carpenters Union asking the Board of Cognos to
adopt a policy requiring Cognos to record the expense of all future stock options awarded
to senior executives in its annual income statement. At the time, the Board undertook to
study this issue and respond to Cognos shareholders before the next Shareholders
Meeting in June 2004.

The Board of Cognos has considered
this matter at length and has concluded that it agrees unequivocally with the principle
that all stock options, including those issued to non-executives, should be recorded as an
expense on the Corporations income statement. As with any other major accounting
policy, regulators first must develop uniform rules and guidance so that investors may
make informed comparisons between Cognos and its industry peers. Comprehensive standards
currently are in the advanced stages of formulation in the United States and uniform rules
for Canadian issuers have been issued. As we report under both U.S. and Canadian
accounting standards, changes to standards in both countries will apply to Cognos.

In October 2003, the Canadian
Institute of Chartered Accountants issued uniform rules relating to stock option expensing
requiring Cognos to comply not later than the start of the current fiscal year. However,
Cognos began expensing stock options in its Canadian GAAP financial statements in the
fourth quarter of fiscal 2004, retroactive to the beginning of the fiscal year.

In the United States, the FASB is
planning on implementing new rules in 2005. Our commitment to our shareholders is that
Cognos will expense stock options on its U.S. GAAP financial statements as soon as
practicable following FASB finalizing the appropriate standards. Should FASB introduce its
new rules, we expect that to occur on or before March 1, 2005.

We believe that expensing stock
options is the appropriate thing to do, but we also believe we have a responsibility to
implement stock option expensing only when uniform regulatory standards are in place so
that we can be compared with our industry peers on the same basis. See Note 3 of the
Condensed Notes to the Consolidated Financial Statements.

21

---

# RESULTS OF
OPERATIONS

|(000s, except per share amounts) |  | Three months endedMay 31, | Percentage ChangeThree months ended May 31,
|-------------------------------- |  | ------------------------- | -------------------------------------------
|                                
|                                 |  | 2004                      |                                            
|                                
|Revenue                          |  | $173,619                  |                                            
|Cost of revenue                  |  | 33,271                    |                                            
|                                 |  |                           |                                            
|Gross margin                     |  | 140,348                   |                                            
|Operating expenses               |  | 116,206                   |                                            
|                                 |  |                           |                                            
|Operating income                 |  | $  24,142                 |                                            
|                                
|Gross margin percentage          |  | 80.8                      | %                                          
|Operating margin percentage      |  | 13.9                      | %                                          
|                                
|Net income                       |  | $  20,125                 |                                            
|                                 |  |                           |                                            
|Basic net income per share       |  | $0.22                     |                                            
|                                 |  |                           |                                            
|Diluted net income per share     |  | $0.22                     |                                            
|                                 |  |                           |                                            

Revenue for the quarter ended May 31,
2004 was $173.6 million, a 15% increase from revenue of $150.6 million for the same
quarter last year. Pretax income for the quarter ended May 31, 2004 was $25.5 million,
compared to pretax income of $17.0 million in the same quarter last year. Net income for
the current quarter was $20.1 million, compared to net income of $12.4 million for the
same quarter last year. Diluted net income per share was $0.22 for the current quarter,
compared to diluted net income per share of $0.14 for the same quarter last year. Basic
net income per share was $0.22 and $0.14 for the quarters ended May 31, 2004 and May
31, 2003, respectively.

The improvement in our performance
for the three months ended May 31, 2004 as compared to the same period in the previous
year reflects the strength of our product portfolio as evidenced by the increase in
license revenue. Also contributing to this increase was diligent expense management and a
lower effective tax rate.

Gross margin for the quarter ended
May 31, 2004 was $140.3 million, an increase of 15% over gross margin of $121.7 million
for the same quarter last year. Gross margin percentage was 81% for both the quarters
ended May 31, 2004 and May 31, 2003. Total operating expenses for the quarter ended May
31, 2004 were $116.2 million, a 10% increase from operating expenses of $105.6 million for
the same quarter last year. The operating margin for the quarter ended May 31, 2004 was
14% as compared to 11% for the comparative quarter of the previous fiscal year.

22

---

We operate internationally and, as a
result, a substantial portion of our business is conducted in foreign currencies.
Accordingly, our results are affected by year-over-year changes in the value of the U.S.
dollar relative to the Canadian dollar, to various European currencies, and, to a lesser
extent, other foreign currencies. The following table breaks down the year-over-year
percentage change in revenue and expenses between change attributable to growth and change
attributable to fluctuations in the value of the U.S. dollar.

|                                       |  | Three Months Ended May 31,2004 over 2003
|-------------------------------------- |  | ----------------------------------------
|                                      
|                                       |  | Growth                                  
|                                      
|Revenue                                |  | 10                                      
|Cost of Revenue and Operating Expenses |  | 6                                       

The following table sets out, for the
periods indicated, the percentage that each income and expense item bears to revenue, and
the percentage change of each item as compared to the indicated prior period.

|                                     |  | Percentage of Revenue     | Percentage Change        
|------------------------------------ |  | ------------------------- | -------------------------
|                                    
|                                     |  | Three months endedMay 31, | Three months endedMay 31,
|                                     |  | 2004                      | 2003                     
|                                    
|Revenue                              |  | 100                       | .0%                      
|                                     |  |                          
|Cost of revenue                      |  | 19                        | .2                       
|                                     |  |                          
|Gross margin                         |  | 80                        | .8                       
|                                     |  |                          
|Operating expenses                   | 
|Selling, general, and administrative |  | 52                        | .1                       
|Research and development             |  | 14                        | .0                       
|Amortization of intangible assets    |  | 0                         | .8                       
|                                     |  |                          
|Total operating expenses             |  | 66                        | .9                       
|                                     |  |                          
|Operating income                     |  | 13                        | .9                       
|Interest expense                     |  | (0                        | .0)                      
|Interest income                      |  | 0                         | .8                       
|                                     |  |                          
|Income before taxes                  |  | 14                        | .7                       
|Income tax provision                 |  | 3                         | .1                       
|                                     |  |                          
|Net income                           |  | 11                        | .6%                      
|                                     |  |                          

23

# REVENUE

|($000s)         |  | Three months endedMay 31, | Percentage ChangeThree months ended May 31,
|--------------- |  | ------------------------- | -------------------------------------------
|               
|                |  | 2004                      | 2003                                       
|               
|Product License |  | $  66,070                 |                                            
|Product Support |  | 74,787                    |                                            
|Services        |  | 32,762                    |                                            
|                |  |                          
|Total Revenue   |  | $173,619                  |                                            
|                |  |                          

Our total revenue was $173.6 million
for the quarter ended May 31, 2004, an increase of $23.1 million or 15% compared to the
quarter ended May 31, 2003. Our total revenue was derived primarily from our suite of BI
products, principally Cognos ReportNet, Web versions of PowerPlay® and
Impromptu®, and the Cognos Enterprise Planning Series. Contributing to a lesser extent
were Cognos Metrics Manager, DecisionStream, Cognos Visualizer, NoticeCast®, and
Cognos Analytic Applications. During the quarter ended May 31, 2004, we released Cognos
ReportNet Version 1.1 which offers extended enterprise performance, new language support,
and enhanced Microsoft Office integration.

We believe that enterprise-wide
deployment of BI products is the trend in the industry as companies standardize on one BI
platform across their organizations. An emerging trend in the market for BI is the growing
demand for pre-packaged solutions that shorten time to implementation and results. Our
analytic applications (Cognos Planning, Cognos Finance, and Cognos Analytical
Applications) address this trend as they extend the value of investments in Enterprise
Resource Planning (ERP) and other operational systems.

We are seeing an increase in the
number of large contracts, and the strengthening of our relationships with some of the
worlds largest companies and our strategic partners. During the quarter, we signed
eight (8) contracts in excess of one million dollars. The number of contracts greater than
$200,000 has increased to 91 in the first quarter of fiscal 2005, up 57% from the same
period one year ago and the number of contracts greater than $50,000 has increased 28% to
569 over the same period. We believe that this growth in order size is another indication
that we remain well positioned to capitalize on the trend towards standardization on a
single BI platform.

While we are seeing signs of an
improving market as evidenced by the increased number of large transactions, these larger
transactions are also subject to longer buying cycles as these larger investments
typically require greater scrutiny by our customers.

The breadth of our solution is also
allowing us to develop long-term strategic relationships with our customers which, in
turn, increases value for our customers and enables us to generate additional software
licensing and ongoing maintenance renewals. The strength of these relationships is a
significant asset as approximately 69% of our license revenue came from existing customers
in the three month period ended May 31, 2004.

24

The overall change in total revenue
from our three revenue categories in the quarter ended May 31, 2004 from May 31, 2003
was as follows: a 14% increase in product license revenue, a 17% increase in product
support revenue, and a 14% increase in services revenue.

The following table sets out, for
each fiscal period indicated, the revenue attributable to each of our three main
geographic regions and the percentage change in the dollar amount in each region as
compared to the prior fiscal period.

|($000s)      |  | Three months endedMay 31, | Percentage ChangeThree months ended May 31,
|------------ |  | ------------------------- | -------------------------------------------
|            
|             |  | 2004                      | 2003                                       
|            
|The Americas |  | $104,831                  |                                            
|Europe       |  | 54,989                    |                                            
|Asia/Pacific |  | 13,799                    |                                            
|             |  |                          
|Total        |  | $173,619                  |                                            
|             |  |                          

This table sets out, for each fiscal
period indicated, the percentage of total revenue earned in each geographic region.

|            
|------------
|            
|            
|The Americas
|Europe      
|Asia/Pacific
|            
|Total       
|            

The growth rates of our revenue in
Europe, Asia/Pacific and, to a much lesser extent, in the Americas were affected by
foreign exchange rate fluctuations. The following table breaks down the year-over-year
percentage change in revenue for the quarter ending May 31, 2004 by geographic area
between change attributable to growth and change due to fluctuations in the value of the
U.S. dollar.

|             |  | Three Months Ended May 31,2004 over 2003
|------------ |  | ----------------------------------------
|            
|             |  | Growth                                  
|            
|The Americas |  | 15                                      
|Europe       |  | 7                                       
|Asia/Pacific |  | (8                                      
|Total        |  | 10                                      

25

Our growth rate in Europe for the
quarter primarily reflects strong growth in Northern Europe. Since Asia/Pacific is a
relatively small market for our products, our revenues in that region tend to be more
volatile from quarter to quarter. The results for Asia/Pacific for the first quarter of
fiscal 2005 are being compared to record results last year which included strong
contribution from a multi-million dollar OEM agreement. As indicated by the above table,
the weakening of the U.S. dollar in relation to various currencies in Europe and
Asia/Pacific positively impacted the growth rates in those regions for the quarter.
Changes in the valuation of the U.S. dollar relative to other currencies will continue to
impact our revenues in the future.

# Product License Revenue

|($000s)                     |  | Three months endedMay 31, | Percentage ChangeThree months ended May 31,
|--------------------------- |  | ------------------------- | -------------------------------------------
|                           
|                            |  | 2004                      | 2003                                       
|                           
|Product license revenue     |  | $66,070                   |                                            
|Percentage of total revenue |  | 38.1                      | %                                          

Product license revenue was $66.1
million in the quarter ended May 31, 2004, an increase of $8.3 million or 14% over the
corresponding period last year. The increase in product license revenue during the three
months ended May 31, 2004 as compared to the same period in the prior year reflects the
continued success of Cognos ReportNet and Enterprise Planning and the recent realignment
of our sales and operations teams which is helping us to better capitalize on selling
opportunities across product lines. Exchange rate fluctuations also had a positive impact
on license revenue during the quarter. Product license revenue accounted for 38% of total
revenue for both the three months ended May 31, 2004 and May 31, 2003.

We license our software through our
direct sales force and value-added resellers, system integrators, and OEMs. Total product
license revenue for the quarter from direct sales was $48.5 compared to $41.0 million in
the corresponding period last fiscal year. Direct sales accounted for approximately 73%
and 71% of our license revenue for the first quarter of fiscal 2005 and 2004,
respectively.

As enterprise-wide deployments become
more important to our customers, we believe that the direct sales channel is the most
effective method of penetrating the large enterprise market. However, in order to have
adequate market coverage for smaller and mid-size companies, we continue to expend
resources developing our indirect sales activities. We also continue to commit management
time and financial resources to developing direct and indirect international sales and
support channels.

26

# Product Support Revenue

|($000s)                     |  | Three months endedMay 31, | Percentage ChangeThree months ended May 31,
|--------------------------- |  | ------------------------- | -------------------------------------------
|                           
|                            |  | 2004                      | 2003                                       
|                           
|Product support revenue     |  | $74,787                   |                                            
|Percentage of total revenue |  | 43.1                      | %                                          

Product support revenue was $74.8
million in the quarter ended May 31, 2004, an increase of $10.7 million or 17% compared to
the corresponding period in the prior fiscal year. The increase in the dollar amount was
the result of the strong rate of renewal of support contracts and the expansion of our
customer base. Also contributing to the increase in product support revenue for the
quarter was the impact of exchange rate fluctuations.

Product support revenue accounted for
43% of our total revenue in both the quarters ended May 31, 2004 and May 31, 2003.

# Services Revenue

|($000s)                     |  | Three months endedMay 31, | Percentage ChangeThree months ended May 31,
|--------------------------- |  | ------------------------- | -------------------------------------------
|                           
|                            |  | 2004                      | 2003                                       
|                           
|Services revenue            |  | $32,762                   |                                            
|Percentage of total revenue |  | 18.9                      | %                                          

Services revenue (training,
consulting, and other revenue) was $32.8 million in the quarter ended May 31, 2004, an
increase of $4.1 million or 14% compared to the corresponding period in the prior fiscal
year. Services revenue accounted for 19% of our total revenue for both the three months
ended May 31, 2004 and May 31, 2003.

The increase was primarily
attributable to an increase in education revenue due to the demand for Cognos ReportNet
and Enterprise Planning training. Exchange rate fluctuations also had a favourable impact
on services revenue for the quarter.

27

# COST OF
REVENUE

# Cost of Product License

|($000s)                       |  | Three months endedMay 31, | Percentage ChangeThree months ended May 31,
|----------------------------- |  | ------------------------- | -------------------------------------------
|                             
|                              |  | 2004                      | 2003                                       
|                             
|Cost of product license       |  | $   621                   |                                            
|Percentage of license revenue |  | 0.9                       | %                                          

The cost of product license consists
primarily of royalties for technology licensed from third parties, as well as the costs of
materials and distribution related to licensed software.

The cost of product license revenue
was $0.6 million, a decrease of $0.5 million or 44% in the quarter ended May 31, 2004
compared to the corresponding period in the prior fiscal year. These costs represented 1%
of product license revenue for the quarter ended May 31, 2004, as compared to 2% of
product license revenue for the quarter ended May 31, 2003. The decrease in these costs
was the result of decreases in royalties as certain royalty agreements have ended and a
reduction in materials and distribution costs.

# Cost of Product Support

|($000s)                       |  | Three months endedMay 31, | Percentage ChangeThree months ended May 31,
|----------------------------- |  | ------------------------- | -------------------------------------------
|                             
|                              |  | 2004                      | 2003                                       
|                             
|Cost of product support       |  | $7,175                    |                                            
|Percentage of support revenue |  | 9.6                       | %                                          

The cost of product support includes
the costs associated with resolving customer inquiries and other tele-support and
web-support activities, royalties in respect of technological support received from third
parties, and the cost of materials delivered in connection with enhancement releases.

The cost of product support revenue
was $7.2 million, an increase of $0.3 million or 5% in the quarter ended May 31, 2004
compared to the corresponding period in the prior fiscal year. The cost of product support
represented 10% of total product support revenue for the quarter ended May 31, 2004 as
compared to 11% for the corresponding period in the prior fiscal year. The increase in the
cost of product support, in dollar terms, resulted primarily from the unfavorable effect
of foreign currency fluctuations relative to the U.S. dollar.

28

# Cost of Services

|($000s)                       |  | Three months endedMay 31, | Percentage ChangeThree months ended May 31,
|----------------------------- |  | ------------------------- | -------------------------------------------
|                             
|                              |  | 2004                      | 2003                                       
|                             
|Cost of services              |  | $25,475                   |                                            
|Percentage of service revenue |  | 77.8                      | %                                          

The cost of services includes the
costs associated with delivering education, consulting, and other services in relation to
our products.

The cost of services was $25.5
million, an increase of $4.6 million or 22% in the quarter ended May 31, 2004 compared to
the corresponding period in the prior fiscal year.

The cost of services increased as a
percentage of services revenue representing 78% for the quarter ended May 31, 2004 as
compared to 73% for the corresponding period in the prior fiscal year. The increase in
cost of services is the result of increased staff related costs as well as increases in
the cost for services purchased externally. Exchange rate fluctuations also had an
unfavorable impact on cost of services for the three months ended May 31, 2004, as a
portion of the cost of these services are provided in currencies other than the U.S.
dollar.

# OPERATING
EXPENSES

# Selling, General, and
Administrative

|($000s)                              |  | Three months endedMay 31, | Percentage ChangeThree months ended May 31,
|------------------------------------ |  | ------------------------- | -------------------------------------------
|                                    
|                                     |  | 2004                      | 2003                                       
|                                    
|Selling, general, and administrative |  | $90,509                   |                                            
|Percentage of total revenue          |  | 52.1                      | %                                          

Selling, general, and administrative
expenses include staff related costs and travel and living expenditures for sales,
marketing, management, and administrative personnel. These expenses also include costs
associated with the sale and marketing of our products, professional services and other
administrative costs.

Selling, general, and administrative
expenses were $90.5 million, an increase of $10.3 million or 13% in the quarter ended May
31, 2004, compared to the corresponding period in the prior fiscal year. These costs
decreased as a percentage of revenue, representing 52% for the three months ended May 31,
2004 compared to 53% for the corresponding period in the prior fiscal year.

The increase in these expenses, in
dollar terms, was the result of increases in staff related costs partially due to higher
wage levels and commissions as compared to the same period in the prior fiscal year.
Contributing to the increase, but to a lesser extent, were increases in professional
services and staff development costs. Selling, general and administrative expenses were
also unfavorably impacted by the effect of foreign currency exchange rates, especially the
Canadian dollar relative to the U.S. dollar. The average number of employees within
selling, general, and administrative increased by 2% in the three months ended May 31,
2004 when compared to the corresponding period last year.

29

# Research and Development

|($000s)                     |  | Three months endedMay 31, | Percentage ChangeThree months ended May 31,
|--------------------------- |  | ------------------------- | -------------------------------------------
|                           
|                            |  | 2004                      | 2003                                       
|                           
|Research and development    |  | $24,325                   |                                            
|Percentage of total revenue |  | 14.0                      | %                                          

Research and development
(R&D) expenses are primarily staff related costs attributable to
the design and enhancement of existing products along with the creation of new products.

We increased our R&D expenses by
$1.0 million or 4% in the quarter ended May 31, 2004 to $24.3 million compared to the
corresponding period in the prior fiscal year. The increase for the quarter was
predominantly the result of increases in compensation costs, partially offset by a
decrease in services purchased externally. R&D costs were 14% of revenue for the
quarter ended May 31, 2004 as compared to 15% of revenue for the corresponding period in
the prior year. The average number of employees within R&D decreased 1% for the three
months ended May 31, 2004 when compared to the corresponding period of the prior year.

During the quarter ended May 31,
2004, we continued to invest significantly in R&D activities for our next generation
of BI solutions which are the foundation of our CPM vision. During the quarter ended May
31, 2004, we released Cognos ReportNet Version 1.1 which offers extended enterprise
performance, new language support and enhanced Microsoft Office integration compared to
the original release.

We have recently released Cognos
Series 7 (version 3) which extends our Enterprise Business Intelligence Series. We have
also recently released an enhanced version of our Enterprise Planning Series. We expect
to release in the upcoming year a further upgrade to our Enterprise Business Intelligence
Series that continues to expand the deployment of our new Platform.

We currently do not have any software
development costs capitalized on our balance sheet. Software development costs are
expensed as incurred unless they meet generally accepted accounting criteria for deferral
and amortization. Software development costs incurred prior to the establishment of
technological feasibility do not meet these criteria, and are expensed as incurred.
Capitalized costs are amortized over a period not exceeding 36 months. No costs were
deferred in the quarters ended May 31, 2004 and May 31, 2003. Costs were not deferred in
the period because either no projects met the criteria for deferral or, if met, the period
between achieving technological feasibility and the general availability of the product
was short, rendering the associated costs immaterial.

30

# Amortization of
Intangible Assets

|($000s)                           |  | Three months endedMay 31, | Percentage ChangeThree months ended May 31,
|--------------------------------- |  | ------------------------- | -------------------------------------------
|                                 
|                                  |  | 2004                      | 2003                                       
|                                 
|Amortization of intangible assets |  | $1,372                    |                                            

Amortization of intangible assets was
$1.4 million, a decrease of $0.7 million or 35% for the quarter ended May 31, 2004
compared to the corresponding period in the prior fiscal year. The decrease in this
expense in the three months ended May 31, 2004 was due to certain intangible assets being
fully amortized.

# Interest Income and
Expense

|($000s)             |  | Three months endedMay 31, | Percentage ChangeThree months ended May 31,
|------------------- |  | ------------------------- | -------------------------------------------
|                   
|                    |  | 2004                      | 2003                                       
|                   
|Net interest income |  | $1,333                    |                                            

Net interest income was $1.3 million,
an increase of $0.5 million or 53% in the quarter ended May 31, 2004 compared to the
corresponding period in the prior fiscal year. The increase was primarily attributable to
an increase in the average portfolio size as compared to the same period in the prior
fiscal year. This increase was partially offset by a decrease in average effective
interest rates as compared to the same period in the prior fiscal year.

31

# Income Tax Provision

|($000s)            |  | Three months endedMay 31, | Percentage ChangeThree months endedMay 31,
|------------------ |  | ------------------------- | ------------------------------------------
|                  
|                   |  | 2004                      | 2003                                      
|                  
|Tax expense        |  | $5,350                    |                                           
|Effective tax rate |  | 21.0                      | %                                         

As we operate globally, we calculate
our income tax provision in each of the jurisdictions in which we conduct business. Our
tax rate is therefore affected by the relative profitability of our operations in various
geographic regions. In the three months ended May 31, 2004, we recorded an income tax
provision of $5.3 million representing an effective income tax rate of 21%. Comparatively,
in the three months ended May 31, 2003, we recorded an income tax provision of $4.6
million representing an effective income tax rate of 27%. The effective tax rate decreased
as compared to the corresponding period last year but increased compared to the effective
tax rate of 16% for the full fiscal year 2004. This is due primarily to higher investment
tax credits (ITCs) in fiscal 2004 compared to fiscal 2005. The ITCs
result from changes in government administrative practices regarding the type of expenses
eligible for ITCs and, last year, we were able to claim an amount not only for fiscal 2004
but for prior years as well. In fiscal 2005, only current year ITCs can be claimed.

32

---

# LIQUIDITY AND
CAPITAL
RESOURCES

|($000s)                                            |  | As atMay 31,2004 | As atFebruary 29, 2004 | Percentage Change
|-------------------------------------------------- |  | ---------------- | ---------------------- | -----------------
|                                                  
|Cash and cash equivalents                          |  | $327,441         |                        | $224,830         
|Short-term investments                             |  | 88,921           |                        | 163,411          
|                                                   |  |                 
|Cash, cash equivalents, and short-term investments |  | $416,362         |                        | $388,241         
|Working capital                                    |  | 283,236          |                        | 259,502          

|($000s, except DSO)          |  | Three months endedMay 31, | Percentage ChangeThree months ended May 31,
|---------------------------- |  | ------------------------- | -------------------------------------------
|                            
|                             |  | 2004                      | 2003                                       
|                            
|Net cash provided by:        |  |                           |                                            
|Operating activities         |  | $33,089                   |                                            
|Investing activities         |  | 71,056                    |                                            
|Financing activities         |  | 300                       |                                            
|                            
|Days sales outstanding (DSO) |  | 55                        |                                            

# Cash, Cash Equivalents,
and Short-term Investments

As of May 31, 2004, we held $416.4
million in cash, cash equivalents, and short-term investments, an increase of $28.1
million from February 29, 2004. Cash and cash equivalents include investments which are
highly liquid and held to maturity. Cash equivalents typically include commercial paper
and term deposits, bankers acceptances and bearer deposit notes issued by major
North American banks. All cash equivalents have terms to maturity of ninety days or less.
Short-term investments are investments that are highly liquid and held to maturity with
terms to maturity greater than ninety days, but less than twelve months. Short-term
investments typically consist of commercial paper and corporate bonds.

# Working Capital

Working capital represents our
current assets less our current liabilities. As of May 31, 2004, working capital was
$283.2 million, an increase of $23.7 million from February 29, 2004. The increase can be
attributed to higher levels of cash and cash equivalents, and lower levels of accounts
payable, accruals, salaries, commissions, and related items, and deferred revenue.
Offsetting this increase were decreases in accounts receivable and short-term investments.

33

---

Days sales outstanding was 55 days at
May 31, 2004 as compared to 63 days as at May 31, 2003. We calculate our days sales
outstanding based on ending accounts receivable balances and quarterly revenue.

# Long-term Liabilities

As at February 29, 2004 and May 31,
2004, we had no long-term liabilities.

# Cash Provided by
Operating Activities

Cash provided by operating activities
(after changes in non-cash working capital items) for the three months ended May 31, 2004
was $33.1 million, an increase of $22.5 million compared to the comparative period last
year. The increase is attributable to higher net income for the quarter ended May 31, 2004
compared to the same quarter last year and strong accounts receivable collections.

# Cash Provided by
Investing Activities

Cash provided by investing activities
was $71.1 million for the three months ended May 31, 2004, an increase in investment of
$58.8 million compared to the comparative period in the prior fiscal year. During the
quarter ended May 31, 2004, we had a decrease in the net investment in short-term
investments from the comparative quarter in the prior fiscal year as many of the
Companys short-term investments matured during the quarter but had not been renewed
by quarters end. In the quarter ended May 31, 2004, the proceeds on the maturity of
our short-term investments were in excess of purchases of short-term investments by $74.2
million. In comparison, during the quarter ended May 31, 2003, our proceeds on the
maturity of short-term investments, net of investments, were $19.1 million.

Management groups cash and cash equivalents with short-term
investments when analyzing its total cash position. These balances may fluctuate from quarter to quarter depending
on the renewal terms of the investments.

# Cash Provided by Financing
Activities

Cash provided by financing activities
was $0.3 million for the three months ended May 31, 2004, a decrease in financing
activities of $9.9 million compared to the same period of the prior fiscal year. We issued
635,000 common shares, valued at $10.3 million, during the three months ended May 31,
2004, compared to the issue of 866,000 shares valued at $12.5 million during the
corresponding period in the prior fiscal year. The issuance of shares in both periods was
pursuant to our stock purchase plan and the exercise of stock options by employees and
officers.

We also paid $10.0 million during the
quarter to repurchase 300,000 shares on the open market. Comparatively, financing
activities for the corresponding period in the prior fiscal year did not include the
repurchase of shares in the open market. In October 2003, we adopted a program that
enables us to purchase up to 5% of the issued and outstanding common shares of the
Corporation between October 9, 2003 and October 8, 2004. Purchases can be made on the
Nasdaq Stock Market or the Toronto Stock Exchange at prevailing open market prices and
paid out of general corporate funds. This program does not commit us to make any share
repurchases. All repurchased shares are cancelled.

34

---

# Contracts and Commitments

We have an unsecured credit facility
which is provided to us at no cost. The credit facility permits us to borrow funds or
issue letters of credit or guarantee up to Cdn$12.5 million (U.S.$9.2 million), subject to
certain covenants. As of May 31, 2004 and 2003, there were no direct borrowings under this
facility.

We do not enter into off-balance
sheet financing as a matter of practice except for the use of operating leases for office
space, computer equipment, and vehicles. In accordance with GAAP, neither the lease
liability nor the underlying asset is carried on the balance sheet, as the terms of the
leases do not meet the thresholds for capitalization.

In connection with the acquisition of
Adaytum, we undertook a restructuring plan in conjunction with the business combination.
The restructuring primarily relates to involuntary employee separations of approximately
90 employees of Adaytum, accruals for vacating leased premises of Adaytum and related
write-downs of leasehold improvements as well as asset write-downs of Adaytum. During the
quarter ended May 31, 2004, the total cash payments made in relation to the accrual were
$0.7 million, and cash payments remaining at May 31, 2004 were $3.7 million. The remaining
accrual is included in the balance sheet as accrued charges and salaries, commissions, and
related items. All amounts excluding lease payments are expected to be paid during fiscal
2005. Outstanding balances for the lease payments will be paid over the lease term unless
settled earlier.

Our contractual obligations have not
changed materially from those included in our Annual Report on Form 10-K for the year
ended February 29, 2004.

We have never declared or paid any
cash dividends on our common shares. Our current policy is to retain our earnings to
finance expansion and to develop, license, and acquire new software products, and to
otherwise reinvest in Cognos.

Given our historical profitability
and our ability to manage expenses, we believe that our current resources are adequate to
meet our requirements for working capital and capital expenditures through the foreseeable
future.

Inflation has not had a significant
impact on our results of operations.

# CERTAIN
FACTORS
THAT
MAY
AFFECT
FUTURE
RESULTS

This report contains forward-looking
statements, including statements regarding the future success of our business and
technology strategies, and future market opportunities. These statements are neither
promises nor guarantees, but involve known and unknown risks and uncertainties that may
cause our actual results, levels of activity, performance, or achievements to be
materially different from any future results, levels of activity, performance, or
achievements expressed in or implied by these forward-looking statements. These risks
include risks related to our revenue growth, operating results, industry, products, and
litigation, as well as the other factors discussed below and elsewhere in this report.
Readers should not place undue reliance on any such forward-looking statements, which
speak only as of the date they were made. We disclaim any obligation to publicly update or
revise any such statements to reflect any change in our expectations or in events,
conditions, or circumstances on which any such statements may be based, or that may affect
the likelihood that actual results will differ from those set forth in the forward-looking
statements.

35

---

We face intense
competition and we may not compete successfully.

We face substantial competition
throughout the world, primarily from software companies located in the United States,
Europe, and Canada. We expect our competitors to continue to improve the performance of
their current products and to introduce new products or new technologies. The BI market
may continue to consolidate by merger or acquisition. As well, competition may increase by
the entry or expansion of other software vendors into this market. These competitors may
have substantially greater financial and other resources with which to pursue research and
development, manufacturing, marketing, and distribution of their products. New product
announcements or introductions by our competitors could cause a decline in sales, a
reduction in the sales price, or a loss of market acceptance of our existing products. To
the extent that we are unable to effectively compete against our current and future
competitors, our ability to sell products could be harmed and our market share reduced.
Any erosion of our competitive position could have a material adverse effect on our
business, results of operations, and financial condition.

If we do not respond
effectively to rapid technological change, our products may become obsolete.

The markets for our products are
characterized by: rapid and significant technological change; frequent new product
introductions and enhancements; changing customer demands; and evolving industry
standards. We cannot provide assurance that our products and services will remain
competitive in light of future technological change or that we will be able to respond to
market demands and developments or new industry standards. If we are unable to identify a
shift in market demand or industry standards quickly enough, we may not be able to develop
products to meet those new demands or standards, or bring them to market in a timely way.
In addition, failure to respond successfully to technological change may render our
products and services obsolete and thus harm our ability to attract and retain customers.

We may not be able to
retain or hire key personnel essential to our business.

We believe that our success depends
on senior management and other key employees to develop, market, and support our products
and manage our business. The loss of their services could have a material adverse effect
on our business. Our success is also highly dependent on our continuing ability to hire
and retain highly qualified personnel. The failure to attract and retain key personnel
would adversely affect our future growth and profitability.

Our total revenue and
operating results may fluctuate.

We rely predominantly on revenue from
a single line of business, our BI products. Although we have experienced revenue growth
from these products in the past, we cannot provide assurance that revenue from these
products will continue to grow, or grow at previous rates or rates projected by
management. Anticipated revenue may be reduced by any one, or a combination of, unforeseen
market, economic, or competitive factors that are discussed in this section. We have
experienced and in the future may experience a shortfall in revenue or earnings or
otherwise fail to meet public market expectations, which could materially and adversely
affect our business and the market price of our common stock.

36

---

Our quarterly and annual
operating results may vary between periods.

Historically, our quarterly operating
results have varied from quarter to quarter, and we anticipate this pattern to continue.
We typically realize a larger percentage of our annual revenue and earnings in the fourth
quarter of each fiscal year, and lower revenue and earnings in the first quarter of the
following fiscal year. As well, in each quarter we typically close a larger percentage of
sales transactions near the end of that quarter. As a result, it is difficult to
anticipate the revenue and earnings that we will realize in any particular quarter until
near the end of the quarter. Some of the causes of this difficulty are explained in
subsequent risk factors  in particular those entitled Our sales forecasts
may not match actual revenues in a particular period, The length of
time required to complete a sales cycle may be lengthy and unpredictable and
Our expenses may not match anticipated revenues.

Our sales forecasts may
not match actual revenues in a particular period.

The basis of our business budgeting
and planning process is the estimation of revenues that we expect to achieve in a
particular quarter and is based on a common industry practice known as the
pipeline system. Under this system, information relating to sales prospects,
the anticipated date when a sale will be completed and the potential dollar amount of the
sale are tracked and analyzed to provide a pipeline of future business. These
pipeline estimates are not necessarily reliable predictors of revenues in a particular
quarter because of, among other things, the events identified in these risk factors, as
well as the subjective nature of the estimates themselves. In particular, a slowdown in
technology spending or a deterioration in economic conditions is likely to result in the
delay or cancellation of prospective orders in our pipeline. A variation from the expected
conversion rate of the pipeline could adversely affect our budget or planning and could
consequently materially affect our operating results.

The length of time
required to complete a sales cycle may be lengthy and unpredictable.

As our business evolves toward larger
transactions at the enterprise level, the presence or absence of one or more of these
large transactions in a particular period may have a material upwards or downwards effect
on the revenue estimates in that period. These significant transactions require a
considerable effort on the part of customers to assess alternative products and require
additional levels of management approvals before being concluded. These factors combine to
lengthen the typical sales cycle and increase the risk that the customers purchasing
decision may be postponed or delayed from one period to another subsequent or later period
or that the customer will alter its purchasing requirements. These factors, along with any
other foreseen or unforeseen event, could result in lower than anticipated revenue for a
particular period or in the reduction of estimated revenue in future periods.

Our expenses may not
match anticipated revenues.

We base our operating expenses on
anticipated revenue trends. Since a high percentage of these expenses are relatively
fixed, a delay in recognizing revenue from license transactions could cause significant
variations in operating results from quarter to quarter and could result in operating
losses. If these expenses precede, or are not subsequently followed by, increased
revenues, our business, financial condition, or results of operations could be materially
and adversely affected.

37

---

Economic conditions could
adversely affect our revenue growth and ability to forecast revenue.

The revenue growth and profitability
of our business depends on the overall demand for BI products and services. Because our
sales are primarily to major corporate customers in the high technology,
telecommunications, financial services (including insurance), pharmaceutical, utilities,
and consumer packaged goods industries, our business depends on the overall
economic conditions and the economic and business conditions within these industries. The
progressive weakening of the global economy, the weakening of the information technology
industry, and the weakening of the business conditions within the industries listed above
may cause a decrease in our software license revenues. A decrease in demand for computer
software caused, in part, by a continued weakening of the economy, domestically or
internationally, may result in a decrease in revenues and growth rates.

Hostilities or terrorist
attacks could harm our business.

Terrorist acts or the threat of
future outbreak or continued escalation of hostilities involving the United States or
other countries could adversely affect the growth rate of our software license revenue and
have an adverse effect on our business, financial condition, or results of operations. In
addition, any escalation in these events or similar future events may disrupt our
operations or those of our customers, distributors, and suppliers, which could adversely
affect our business, financial condition, or results of operations.

We operate
internationally and face risks attendant to those operations, in particular currency risk.

We earn a significant portion of our
total revenues from international sales generated through our foreign direct and indirect
operations. These sales operations face risks arising from local political, legal and
economic factors such as the general economic conditions in each country or region,
varying regulatory requirements, compliance with international and local trade, labor and
other laws, and reduced intellectual property protections in certain jurisdictions. As
well, we may also face difficulties in managing these operations, collecting receivables
in a timely fashion, and repatriating earnings. Any of these factors, either individually
or in combination, could materially impact our international operations and adversely
affect our business as a whole. Also, a substantial portion of both our revenues and
expenditures are generated in currencies other than U.S. dollars, such as the Canadian
dollar and the euro. These fluctuations in the exchange rate between the U.S. dollar and
other currencies, such as the Canadian dollar and the euro, may have a material adverse
effect on our business, financial condition, and operating results. Please see further
discussion on foreign currency risk included in the Quantitative and Qualitative
Disclosure on Market Risk in Item 3 of this Form 10-Q.

Making and integrating
acquisitions could impair our operating results.

We have acquired and, if appropriate,
will continue to seek to acquire additional products or businesses that we believe are
complementary to ours. Acquisitions involve a number of other risks, including: diversion
of managements attention; disruption of our ongoing business; difficulties in
integrating and retaining all or part of the acquired business and its personnel; and
assumption of disclosed and undisclosed liabilities. The individual or combined effect of
these risks could have a material adverse effect on our business. As well, in paying for
an acquisition we may deplete our cash resources or dilute our shareholder base by issuing
additional shares. Furthermore, there is the risk that our valuation assumptions and or
models for an acquired product or business may be erroneous or inappropriate due to
foreseen or unforeseen circumstances and thereby cause us to overvalue an acquisition
target.

38

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If we introduce a new
product, revenue from existing products may be eroded.

We may develop technology or a
product that constitutes a marked advance over both our own products and those of our
competitors. If we introduce such a product, we may experience a decline in revenues of
our existing products that is not fully matched by the new products revenue. In
addition, we may lose existing customers who choose a competitors product rather
than migrate to our new product. This could result in a temporary or permanent revenue
shortfall and materially affect our business.

We may have exposure to
greater than anticipated tax liabilities.

We are subject to income taxes and
non-income taxes in a variety of jurisdictions and our tax structure is subject to review
by both domestic and foreign taxation authorities. The determination of our worldwide
provision for income taxes and other tax liabilities requires significant judgment.
Although we believe our estimates are reasonable, the ultimate tax outcome may differ from
the amounts recorded in our financial statements and may materially affect our financial
results in the period or periods for which such determination is made.

Our intellectual property
may be misappropriated or we may have to defend ourselves against other parties
claims.

We rely on various intellectual
property protections, including contractual provisions, patents, copyright, trademark, and
trade secret laws, to preserve our intellectual property rights. Despite our precautions,
third parties may misappropriate our intellectual property causing us to lose potential
revenue and competitive advantage. As well, we may ourselves from time to time become
subject to claims by third parties that our technology infringes their intellectual
property rights. In either case, we may incur expenditures to police, protect, and defend
our interests and may become involved in litigation that could divert the attention of our
management. Responding to such claims could result in substantial expense and result in
damages, royalties, or injunctive relief, or require us to enter into licensing agreements
on unfavorable terms, or redesign or stop selling affected products which could materially
disrupt the conduct of our business.

We may face liability
claims arising as a result of our software products or services failure to perform
as intended.

The sale, servicing, and support of
our products entails the risk of product liability, performance or warranty claims, which
may be substantial in light of the use of our products in business-critical applications.
A successful product liability claim could seriously disrupt our business and adversely
affect our financial results. Software products are complex and may contain errors or
defects, particularly when first introduced, or when new versions or enhancements are
released, or when configured to individual customer computing systems. We currently have
in place procedures and staff to exercise quality control over our products and respond to
defects and errors found in current versions, new versions, or enhancements of our
products. However, defects and errors in our products could inhibit or prevent customer
deployment and cause us to lose customers or require us to pay penalties or damages.

39

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Our share price may
fluctuate.

The market price of our common shares
may be volatile and could be subject to wide fluctuations due to a number of factors,
including: actual or anticipated fluctuations in our results of operations; changes in
estimates of our future results of operations by us or securities analysts; announcements
of technological innovations or new products by us or our competitors; general industry
changes in the BI tools or related markets; or other events or factors.

New Accounting
Pronouncements may require us to change the way in which we account for our operational
or business activities.

The FASB and other bodies that have
jurisdiction over the form and content of our accounts are constantly discussing proposals
designed to ensure that companies best display relevant and transparent information
relating to their respective businesses. The effect of the pronouncements of FASB and
other bodies may have the effect of requiring us to account for revenues and/or expenses
in a different manner than at present. In particular, if the FASB or any other
standard-setting or regulatory body requires us to expense the fair value of stock
options, we would likely report increased expenses in our income statement and a reduction
of our net income and earnings per share. The impact of applying a fair value method of
accounting for stock options is disclosed in Note 3 of the Condensed Notes to the
Consolidated Financial Statements.

40

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|Item 3. |  | Quantitative and Qualitative Disclosure about Market Risk
|------- |  | ---------------------------------------------------------

Market risk represents the risk of
loss that may impact our financial position due to adverse changes in financial market
prices and rates. Our market risk exposure is primarily a result of fluctuations in
interest rates and foreign currency exchange rates. We do not hold or issue financial
instruments for trading purposes.

# Interest Rate Risk

Our exposure to market rate risk for
changes in interest rates relates primarily to our investment portfolio. The investment of
cash is regulated by our investment policy of which the primary objective is security of
principal. Among other selection criteria, the investment policy states that the term to
maturity of investments cannot exceed two years in length. We do not use derivative
financial instruments in our investment portfolio.

Interest income on our cash, cash
equivalents, and short-term investments is subject to interest rate fluctuations, but we
believe that the impact of these fluctuations does not have a material effect on our
financial position due to the short-term nature of these financial instruments. We have no
long-term debt. Our interest income and interest expense are most sensitive to the general
level of interest rates in Canada and the United States. Sensitivity analysis is used to
measure our interest rate risk. For the quarter ending May 31, 2004, a 100 basis-point
adverse change in interest rates would not have had a material effect on our consolidated
financial position, earnings, or cash flows.

# Foreign Currency Risk

We operate internationally;
accordingly, a substantial portion of our financial instruments are held in currencies
other than the United States dollar. Our policy with respect to foreign currency exposure
as it relates to financial instruments, is to manage financial exposure to certain foreign
exchange fluctuations with the objective of neutralizing some of the impact of foreign
currency exchange movements. Sensitivity analysis is used to measure our foreign currency
exchange rate risk. As of May 31, 2004, a 10% adverse change in foreign exchange rates
versus the U.S. dollar would have decreased our reported cash, cash equivalents, and short-term
investments by approximately two to four percent.

Also, as we conduct a substantial
portion of our business in foreign currencies other than the U.S. dollar, our results are
affected, and may be affected in the future, by exchange rate fluctuations of the United
States dollar relative to the Canadian dollar, to various European currencies, and, to a
lesser extent, other foreign currencies. Revenues and expenses generated in foreign
currencies are translated at exchange rates during the month in which the transaction
occurs. We cannot predict the effect foreign exchange fluctuations will have on our
results going forward; however, if significant foreign exchange losses are experienced,
they could have a material adverse effect on our business, results of operations, and
financial condition.

41

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|Item  4. |  | Controls and Procedures
|-------- |  | -----------------------

|a) |  | Evaluation
of disclosure controls and procedures.
|-- |  | -------------------------------------------------

Under the supervision and with the
participation of our management, including the Chief Executive Officer and Chief Financial
Officer, we have evaluated the disclosure controls and procedures as of a date within 90
days before the filing date of this quarterly report. Based on this evaluation, the Chief
Executive Officer and Chief Financial Officer conclude that the disclosure controls and
procedures (as defined in Rule 13a-14(c) of the Securities Exchange Act of 1934)
effectively ensure that information required to be disclosed in our filings and
submissions under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in the Securities and Exchange Commissions rules and
forms.

|b) |  | Changes
in internal controls
|-- |  | ----------------------------

There have been no significant
changes in our internal controls or in other factors that could significantly affect these
controls subsequent to the evaluation of the internal controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.

42

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PART II  OTHER
INFORMATION

|Item 1. |  | Legal Proceedings
|------- |  | -----------------

Cognos is not a party to any legal
proceedings that, if resolved or determined adversely to Cognos, would have a material
adverse effect on Cognos business, financial condition, and results of operation.
Cognos, however, may become subject to claims and litigation in the ordinary course of
business. In the event that any such claims or litigation are resolved against Cognos,
such outcomes or resolutions could have a material adverse effect on Cognos
business, financial condition, or results of operations.

|Item 2. |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
|------- |  | --------------------------------------------------------------------------------

PURCHASES OF EQUITY SECURITIES

|Period         | Total Number of Shares Purchased | Average PricePaid per Share | Total Number of Shares Purchasedas Part ofPubliclyAnnouncedPlans | ApproximateDollarValue ofShares thatMay Yet BePurchasedUnderthe Plans
|-------------- | -------------------------------- | --------------------------- | ---------------------------------------------------------------- | ---------------------------------------------------------------------
|March 1 to     |                                  |                             |                                                                  |                                                                      
|March 31, 2004 |                                  | Nil                         |                                                                  | Nil                                                                  
|              
|April 1 to     |                                  |                             |                                                                  |                                                                      
|April 30, 2004 |                                  | 70,000                      |                                                                  | $33.52                                                               
|              
|May 1 to       |                                  |                             |                                                                  |                                                                      
|May 31, 2004   |                                  | 230,000                     |                                                                  | $33.23                                                               
|               |                                  |                            
|Total          |                                  | 300,000                     |                                                                  | $33.29                                                               
|               |                                  |                            

On October 7, 2003, Cognos Inc.
announced that it had adopted a stock repurchase program that will enable the Company to
purchase up to 4,468,639 common shares (not more than 5% of the common shares outstanding
on that date) up to a maximum of $50,000,000 between October 9, 2003 and October 8, 2004.

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

|a) |  | The Corporation held its Annual and Special Meeting
of Shareholders on June 23, 2004.
|-- |  | -------------------------------------------------------------------------------------

|b) |  | At the Annual and Special Meeting, shareholders elected the persons listed below
               as directors of the Corporation and approved the appointment of Ernst &
               Young LLP as the Corporations auditors for the fiscal year ending February
               28, 2005. Shareholders also approved an amendment to the Cognos Incorporated
               2003-2008 Stock Option Plan to increase the shares of common stock reserved for
               awards thereunder by 1.8 million shares, and approved an amendment to the
               Corporations Articles of Incorporation to eliminate the preferred class of
               shares. The voting results of the meeting are presented in the following table:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Voting Results
Annual and Special Meeting of Shareholders
June 23, 2004

|                                                                                                                                        
|----------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                        
|                                                                                                                                        
|Election of Directors                                                                                                                   
|                                                                                                                                        
|Robert G. Ashe                                                                                                                          
|                                                                                                                                        
|John E. Caldwell                                                                                                                        
|                                                                                                                                        
|Paul D. Damp                                                                                                                            
|                                                                                                                                        
|Pierre Y. Ducros                                                                                                                        
|                                                                                                                                        
|Robert W. Korthals                                                                                                                      
|                                                                                                                                        
|John Rando                                                                                                                              
|                                                                                                                                        
|William Russell                                                                                                                         
|                                                                                                                                        
|James M. Tory                                                                                                                           
|                                                                                                                                        
|Renato Zambonini                                                                                                                        
|                                                                                                                                        
|Appointment of Auditors                                                                                                                 
|                                                                                                                                        
|Amendment to the 2003-2008 Stock Option Plan to increase the shares of common stock reserved for awards thereunder by 1.8 million shares
|                                                                                                                                        
|Amendment to Articles of Incorporation                                                                                                  
|                                                                                                                                        

44

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|Item 6. |  | Exhibits and Reports on Form 8-K
|------- |  | --------------------------------

|a) |  | Exhibits
|-- |  | --------
|   |  | 3.1(i)  
|   |  | 3.1(ii) 
|   |  | 3.2     
|   |  | 31.1    
|   |  | 31.2    
|   |  | 32      
|   |  | 99.1    
|   |  | 99.2    

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

The Corporation filed a Form 8-K on
March 25, 2004 pursuant to Item 12, Disclosure of Results of Operations and Financial
Condition.This Form 8-K related to the release of the Corporations results for
the quarter and fiscal year ended February 29, 2004. Also on March 25, 2004, the
Corporation filed a Form 8-K pursuant to Item 5, Other Events. This Form 8-K
related to the announcement by the Corporation that its Chief Executive Officer would be
retiring.

45

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SIGNATURE

Pursuant to the requirements 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.

|             |  | COGNOS INCORPORATED                              
|------------ |  | -------------------------------------------------
|             |  | (Registrant)                                     
|             |  |                                                  
|             |  |                                                  
|July 5, 2004 |  | /s/ Tom Manley                                   
|             |  |                                                  
|Date         |  | Tom Manley                                       
|             |  | Senior Vice President, Finance &                 
|             |  | Administration and Chief Financial Officer       
|             |  | (Principal Financial Officer and Chief Accounting
|             |  | Officer)                                         

46

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EXHIBIT INDEX

|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                                                        |  | PAGE  | 
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- | 
|3.1         |  | Amendments to Articles of Incorporation dated June 24, 2004                                                                                                                                        |  | 48    | 
|           
|31.1        |  | Certification of Chief Executive Officer
Pursuant to Rule 13a  14(a) and 15d  14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 |  | 50    | 
|           
|31.2        |  | Certification of Chief Financial Officer
Pursuant to Rule 13a  14(a) and 15d  14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |  | 51    | 
|           
|32          |  | Certification of Chief Executive Officer
and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002                      |  | 52    | 
|           
|99.1        |  | Selected Consolidated Financial Statements and Notes in U.S. Dollars and in
accordance with Canadian Generally Accepted Accounting Principles                                                      |  | 53-63 | 
|           
|99.2        |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations - Canadian Supplement                                                                                        |  | 64-66 | 

47