<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 1996

                                       or

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 [No Fee Required] For the Transition Period
        from          to


                         Commission File Number: 0-21601

                       INFINITY FINANCIAL TECHNOLOGY, INC.
             (Exact name of registrant as specified in its charter)

            DELAWARE                                            77-0227321
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                              Identification No.)

                                 640 CLYDE COURT
                      MOUNTAIN VIEW, CALIFORNIA 94043-2239
          (Address of principal executive offices, including zip code)

                                 (415) 940-6100
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, $.001
par value

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

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1997 was $158,082,717 based upon the last sale
price reported for such date on the Nasdaq National Market. For purposes of this
disclosure, shares of Common Stock held by persons who hold more than 5% of the
outstanding shares of Common Stock and shares held by officers and directors of
the registrant have been excluded because such persons may be deemed to be
affiliates. This determination is not necessarily conclusive.

As of February 28, 1997, there were 18,232,333 outstanding shares of the
Registrant's Common Stock, par value $0.001 per share.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Stockholders of
Infinity Financial Technology, Inc. tentatively scheduled to be held on May 21,
1997 are incorporated by reference in Part III of this Report on Form 10-K.
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                                TABLE OF CONTENTS

                                     PART I

    ITEM 1. BUSINESS .....................................................   3
               Introduction ..............................................   3
               Products and Technology ...................................   4
               Sales, Marketing and Support ..............................   6
               Product Development .......................................   7
               Competition ...............................................   8
               Intellectual Property .....................................   8
               Employees .................................................   9

    ITEM 2. PROPERTIES ...................................................   9

    ITEM 3. LEGAL PROCEEDINGS ............................................   9

    ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..........   9

                                   PART II
    ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS ......................................................   10

    ITEM 6. SELECTED FINANCIAL DATA ......................................   10

    ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS ........................................   11
               Results of Operations .....................................   11
               Revenues ..................................................   12
               Costs and Expenses ........................................   12
               Other Income, Net .........................................   14
               Provision For Income Taxes ................................   14
               Liquidity and Capital Resources ...........................   14
               Factors That May Affect Future Results of Operations ......   14

    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA ...................   21
              Index to Consolidated Financial Statements .................   21

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

                                   PART III

    ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ..........   36

    ITEM 11. EXECUTIVE COMPENSATION ......................................   37

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

    ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..............   37

                                   PART IV

    ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
             FORM 8-K ....................................................   37
             Exhibit Index ...............................................   38

SIGNATURES ...............................................................   39


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                                     PART I

ITEM  1. BUSINESS

INTRODUCTION

Infinity Financial Technology, Inc. ("Infinity" or the "Company") develops,
markets and supports object-oriented, client/server platform and solutions
software for financial trading and risk management. Founded in 1989, Infinity
currently has more than 45 customers around the world, consisting primarily of
large banks and other financial institutions with sophisticated trading
operations and risk management needs.

Infinity's primary product is the Infinity Platform, which provides customers
with a foundation to rapidly develop, deploy and modify trading and risk
management systems in response to the changing requirements of the marketplace.
The Infinity Platform allows financial institutions and corporations to build
applications to process, store, integrate and analyze their traded instrument
portfolios. Infinity also offers Infinity Derivatives, solutions software for
derivatives trading, which enables the customer to integrate "front-office"
trading activities such as pricing, deal capture and position-keeping with
"back-office" operations such as trade confirmations, payments processing and
general ledger accounting. Infinity introduced Infinity RiskView, which is
designed to facilitate customers' development of risk management systems, and
the NT version of Infinity Derivatives, in late 1996. These solutions are built
with the Infinity Platform and are designed to work together with the Infinity
Platform to automate a range of transaction processing and decision support
activities. The Infinity Platform is characterized by an open systems,
client/server architecture running on the UNIX and Windows NT operating systems
and on leading relational database management systems from Oracle Corporation
("Oracle") and Sybase, Inc. ("Sybase").

The demand for trading and risk management systems has grown significantly over
the past several years. Increases in trading volumes and the complexity of
financial instruments have led to a fundamental shift in how financial assets
are managed: a shift to value management, in which mark-to-market accounting and
value at risk methodologies are used to value traded instrument portfolios and
quantify their associated risks. At the same time, various regulators worldwide
are adopting more stringent reporting requirements. Often, within a single
institution, several different computer systems capture and process trading
portfolios. These systems frequently are located in multiple trading centers,
use different data sets and database technologies and run on a variety of
hardware platforms and operating systems. Integrating these data is a difficult
technological and operational undertaking. A number of high profile financial
crises - Orange County, California, Baring Brothers and Sumitomo Corporation -
have highlighted the importance of effective risk management systems, as well as
rigorous management and oversight of trading operations. These factors, among
others, are presenting significant challenges that need to be met in order to
process high volumes of complex financial instruments in a secure environment
and to achieve comprehensive, firmwide risk management.

In response to these challenges, financial institutions worldwide are investing
financial and other resources in the development and acquisition of trading and
risk management technology. The Tower Group, a market research and consulting
firm, estimates that worldwide internal and external expenditures on hardware,
software and services for risk management systems totaled more than $3.0 billion
in 1994 and are expected to grow to $4.3 billion by 2000. Traditionally,
financial institutions have licensed off-the-shelf solutions where they exist
and have internally developed those systems that are not readily available or
that require a unique understanding of the institution's needs. The Company
believes that its strategy and products uniquely position it to take advantage
of these trends.

The Company's objective is to establish itself worldwide as the leading provider
of trading and risk management platform and solutions software. In order to meet
this goal, Infinity's strategy is to establish the Infinity Platform as an
industry standard, expand the Company's product offerings, target initial sales
of new products to sophisticated customers, broaden its customer base
geographically and beyond the banking industry, develop and leverage strategic
business partners and integrate sophisticated financial engineering with
advanced information technology. The Company sells its products through a direct
sales force located in offices in New York, London, Paris, Tokyo and Sydney as
well as its headquarters in Mountain View, California. The Company also has
full-time support personnel in Frankfurt, Santiago and Toronto. Infinity has
focused on developing strategic third-party relationships with companies that
provide consulting, software development and implementation services. These
relationships enable the Company to leverage the technical expertise of its
strategic partners, access an additional sales and marketing channel and further
enhance its efforts to establish the Infinity Platform as an industry standard.


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The Company completed its initial public offering in October 1996 and was
reincorporated in the State of Delaware in July 1996 as the successor to a
California corporation established in 1989. The Company's headquarters is
located at 640 Clyde Court, Mountain View, California 94043-2239, and its
telephone number is (415) 940-6100.

PRODUCTS AND TECHNOLOGY

The Company's products currently include the Infinity Platform, comprising the
Infinity Data Model and the Infinity Fin++ Class Library, Infinity Derivatives,
and Infinity RiskView.

The Infinity Platform

The Infinity Platform is the foundation of the Infinity family of products and
enables users to model new financial products, evaluate market and credit risk,
ensure regulatory compliance, and integrate legacy systems. The Infinity
Platform includes the Infinity Data Model, a relational database schema which
models financial information and allows users to build and maintain a financial
data warehouse, and the Fin++ Class Library, a set of C++ classes which
encapsulate the definitions and behavior of financial instruments. The data
warehousing capabilities of the Infinity Data Model along with the reusable
financial software components provided in the Fin++ Class Library form a robust
infrastructure for developing trading and risk management systems.

Infinity Data Model

The Infinity Data Model is a technology foundation supporting the development of
data warehouses for firmwide risk management, as well as front- to back-office
trading systems. The product is a relational database schema which includes over
500 tables describing the securities, transactions, trades, cash flows,
portfolios and organization structures representing a firm's trading activities.
The product supports derivative products such as swaps, futures and options, as
well as more traditional traded products such as foreign exchange, money
markets, bonds and equities. In addition, it can be extended to incorporate new
financial instruments. The Infinity Data Model is used to build data warehouses
that can be accessed by multiple users within a financial institution, including
trading managers, risk managers and senior managers for a variety of
decision-support activities. Working in conjunction with relational database
management systems offered by Oracle and Sybase, the Infinity Data Model
integrates data from disparate trading systems into a centralized,
cross-instrument repository. By consolidating transaction data into a
consistent, easily accessible data warehouse, the Infinity Data Model preserves
a firm's investment in legacy systems and technologies.

The Infinity Data Model also supports the development of front- to back-office
trading systems by capturing the events associated with each trade throughout
its life cycle, from initial trade pricing through to general ledger postings.
It models and organizes customer information, including settlement instructions
and legal agreements, and it allows an institution to create a detailed model of
its organizational structure for processing and reporting purposes.

Infinity Fin++ Class Library

The Fin++ Class Library is an object-oriented C++ class library that provides
reusable software components for building trading and risk management
applications. The Library consists of over 350 classes that provide the basic
building blocks of a trading or risk management application that can be easily
assembled into a complex application. The library takes advantage of
object-oriented design techniques such as encapsulation, inheritance,
aggregation and polymorphism to provide an easy-to-use tool for in-house and
third-party developers. The Fin++ Class Library works in conjunction with the
Infinity Data Model to provide an infrastructure for automating trading
operations, from front to back office, and for managing firmwide risk.

The building blocks required for financial applications -- securities,
transactions, trades, cash flows, portfolios, and analytics -- are furnished
as Fin++ Class Library objects that are combined into applications. The Fin++
Class Library also provides a framework for incorporating new financial
instruments and proprietary or third-party analytical models.

The Fin++ Class Library includes a database layer that provides transparent,
intelligent, fast access to the Infinity Data Model, as well as distribution
classes that provide a simple mechanism for distributing objects across a
network through a publish and subscribe protocol. Fin++ CalcEngines, an add-on
library to the Fin++ Class Library, enables developers to build applications for
real-time pricing and position-keeping in an N-tier client/server architecture.

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Infinity Derivatives

Based on the Infinity Platform, Infinity Derivatives provides real-time trading
for derivatives and handles the entire life cycle of a trade. Trading desks can
quickly implement their front- to back-office functionality without sacrificing
the flexibility to add products, models and processes over time. Infinity
Derivatives offers many potential benefits to its users, including lower
per-trade processing costs, improved ability to respond to market conditions,
enhanced client service, better risk management and improved security. Infinity
Derivatives includes a suite of front office applications for pricing, hedging,
position-keeping, portfolio management, and risk reporting, as well as back
office applications for confirmations and advices, payments, rate resets, and
accounting. Infinity Derivatives handles a wide range of complex financial
products, including swaps, caps, floors and swaptions. It also supports hedging
activities using bonds, futures, foreign exchange and money market instruments.
While Infinity Derivatives incorporates a wide variety of industry standard
pricing models, its open, flexible architecture allows users to incorporate
proprietary and third-party analytical models. Infinity Derivatives also
provides derivatives risk management capabilities, including hedging at a trade
and portfolio level, sensitivity analysis and profit and loss reporting.

In the back-office environment, Infinity Derivatives automates the many steps
required for operations and financial control. Once a trade has been booked in
the system, Infinity Derivatives automatically generates confirmations, payments
and accounting entries, interfacing directly with the customer's general ledger
system. Throughout the life of a trade, Infinity Derivatives ensures streamlined
and secure trade processing. It provides a single database for all trade
information, thereby eliminating redundant data entry and costly
reconciliations. It offers a high level of security, with authorizations and
permissions based on trading book, currency, financial instrument type and
function. It provides an audit trail of transactions and operations, and it
enables trade and market data to be secured against unauthorized or accidental
changes.

Infinity RiskView

Infinity RiskView is based on the Infinity Platform and focuses on management of
firmwide trading risk. Together, Infinity RiskView and the Infinity Platform are
designed to provide a robust infrastructure for constructing firmwide market and
credit risk management systems associated with trading operations.

Infinity RiskView is designed to significantly reduce the cost and
implementation risk associated with data warehousing, which is rapidly emerging
as the preferred approach to a firmwide risk management solution. Infinity
RiskView is designed to address, in conjunction with the Infinity Platform, the
four major challenges of data warehousing: data mapping, data storage, data
access, and analysis and reporting. Infinity RiskView includes RiskView Objects,
a C++ class library for developing risk management applications, and RiskView
Mapper, a graphical application that facilitates transfer and aggregation of
data from existing trading and operations systems. Infinity RiskView is designed
to provide transaction or portfolio level risk analysis, including
mark-to-market, sensitivities, profit and loss reporting and cash flow
projections. For firmwide risk analysis, Infinity RiskView is designed to
provide analysis and reporting capabilities based on value at risk methodologies
and historical simulation. Infinity RiskView also is designed to provide a
framework for integrating proprietary and third-party analytics.

Technology

The Infinity Platform, Infinity Derivatives, and Infinity RiskView are
client/server software products which operate on the Sun Microsystems,
Hewlett-Packard and IBM versions of the UNIX operating system. In addition, the
Infinity Platform and Infinity Derivatives operate on the Windows NT operating
system. The Infinity Platform uses industry-standard relational database
management systems from Oracle and Sybase. Infinity uses the standard TCP/IP
protocol for its publish and subscribe and point-to-point communications
infrastructure. This infrastructure is utilized in the Company's N-tier
client/server architecture. The Company believes that the combination of these
open, standards-based technologies with the extensive financial engineering that
is at the core of the Infinity product family provides customers with
significant advantages relative to both proprietary third-party solutions and
comprehensive in-house systems development.


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SALES, MARKETING AND SUPPORT

The Company's sales and marketing efforts are directed at large banks and other
financial institutions through its worldwide direct sales force, complemented by
its network of third-party business partners. The Company provides product
support for customers through its field support offices and its
headquarters-based Client Services Group.

Direct Sales

Infinity markets and sells its products through a worldwide direct sales force
located in New York, London, Paris, Tokyo, Sydney and its Mountain View,
California headquarters. The Company's combined sales and support organizations
totaled 87 people on December 31, 1996. Typically, the Company generates initial
leads through inquiries from prospective customers based on references from
existing customers and contacts made through seminars, conferences, trade shows,
and an ongoing public relations program. The sales process then generally
involves multiple presentations to information technology and business
professionals within the prospect institution as well as trial evaluations of
the Infinity software. In addition, Infinity derives a substantial number of
follow-on sales from existing customers who purchase licenses for additional
sites, users and products to augment their Infinity-based system. The Company
charges customers an annual maintenance fee based on a percentage of the then
current list price or contract value of the product licensed. The Company's
sales backlog is not significant, and the Company believes its backlog is not a
meaningful indicator of the Company's future performance.

Business Partner Program

Infinity has established the Business Partner Program to obtain additional sales
and marketing channels, to further promote the Infinity Platform as an industry
standard and to leverage the marketing organizations, geographical locations and
technical expertise of its partners. Infinity's Business Partner Program
supports three types of partners:

-        Licensed Infinity Developer: These developers are authorized to create
         and market products and/or services using the Infinity Platform. This
         program has fostered the development of third-party applications which
         are seamlessly integrated into the Infinity Platform and meet specific
         market requirements. Alier, Inc. and TrueRisk, Inc. are among the
         companies developing and marketing applications based on the Infinity
         Platform for real-time risk monitoring, Monte Carlo simulation, limits
         management, and data mapping. Infinity has recently begun to market
         third-party applications directly to new and existing customers.

-        Licensed Infinity Solution Provider: These companies are authorized to
         offer a range of services to Infinity clients, including consulting,
         planning, installation, implementation support, training, project
         management, systems integration, or custom software development. As
         licensed Infinity Platform users, these companies may develop and
         deploy tools, utilities, and applications used in providing these
         services to Infinity clients. Licensed Infinity Solution Providers
         include large global organizations such as IBM Corporation ("IBM") and
         Price Waterhouse LLP. Occasionally, a Licensed Infinity Solution
         Provider will act as a system integrator, licensing and then
         distributing Infinity products to specified customers while providing
         integration services to the customer.

-        Infinity Certified Engineering Partners ("ICEs"): ICEs provide custom
         application development and knowledge transfer on the Infinity Platform
         to Infinity's customers. Atechsys, Logica Informatik AG and Sharp
         Decisions, Inc. are among the ICE partners available for short- or
         long-term consulting engagements. Infinity provides certification,
         education and matching services for ICEs for a nominal annual fee. By
         building this third-party engineering capability, Infinity has been
         able to maintain its product focus while still meeting customer needs
         for specialized development and customization services.



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International Sales

International revenues outside of North America accounted for 63%, 53%, and 25%
of total revenues for the years ended December 31, 1996, 1995, and 1994,
respectively. The Company has sales personnel located in four financial centers
outside of North America including London, Paris, Tokyo and Sydney.

Support Services

Support services, covering technical support, implementation and installation,
are a key element of the Company's product offerings. Infinity customers can
access a global field support staff of professionals located in New York,
London, Tokyo, Paris, Frankfurt, Santiago, Sydney and Toronto. In addition,
Infinity maintains a Client Services Group at its headquarters in Mountain View,
California. The Client Services Group is responsible for supporting the needs of
customers and of the global field support staff and is a gathering point of
valuable customer feedback for the Infinity marketing and product development
teams. The group includes professionals devoted to training, telephone support,
technical publications, production and distribution.

PRODUCT DEVELOPMENT

The market for the Company's products is characterized by rapid technological
advances, evolving industry standards in computer hardware and software
technology, changes in customer requirements and frequent new product
introductions and enhancements. The Company's future success will depend upon
its ability to continue to enhance its current product line and to develop and
introduce new products that address technological developments, satisfy
increasingly sophisticated customer requirements and achieve market acceptance.
In particular, the failure of the Company to enhance its products to (i) timely
adapt to the rapidly developing computer hardware and software technology upon
which its products are based, (ii) incorporate new functionality reflecting
rapidly evolving types of derivative securities and other financial instruments
and risk management methodologies and (iii) incorporate new functionality to
facilitate customers' compliance with changing regulatory reporting requirements
could cause customers to delay their purchase of the Company's products, or
decide not to purchase such products. In September 1995, the Company introduced
its back-office modules for Infinity Derivatives, which have been implemented on
a limited basis by Infinity customers. The Company has also recently released
Infinity RiskView, designed to extend the Infinity Platform for certain risk
management functions, and a Windows NT version of its Infinity Derivatives
product. No assurance can be given that Infinity RiskView or the Windows NT
version of Infinity Derivatives will be accepted in the marketplace. The Company
has in the past experienced delays in the introduction of product enhancements
and new products, including a delay in introducing the back-office modules for
Infinity Derivatives. There can be no assurance that the Company will not
experience such delays in the future, or be successful in developing and
marketing, on a timely and cost-effective basis, product enhancements or new
products, and the failure to do so could have a material adverse effect on the
Company's business, financial condition and results of operations.

Infinity believes strong product development capabilities are essential to its
strategy of building a platform that can become an industry standard, to
maintaining the competitiveness of its current product suite, and to adding new
features and functionality to the Infinity Platform and other products. The
Company's product development team comprises professionals with expertise in
software development and professionals with expertise in derivatives or other
financial instruments or risk management methodologies. From its founding, the
Company has believed this assembly of diverse technical and financial expertise
contributes to the highly integrated functionality of its software products and
thereby provides the Company with a significant competitive advantage. To this
end, the Company continues to direct a significant portion of its revenues to
research and development. The percentage of the Company's total revenues
attributable to research and development expenses were 22%, 25% and 27%, in
fiscal years 1996, 1995 and 1994, respectively. The decreases from fiscal 1994
were due primarily to growth in the Company's total revenues. The Company
expects to incur higher research and development costs in the future, although
these expenses are expected to remain relatively constant as a percentage of
total revenues. There can be no assurance, however, that total revenues will
grow at the same rate as the anticipated research and development expenses.

The Company's current product development efforts are directed toward
maintaining and enhancing Infinity Derivatives, extending the Infinity Platform
and Infinity RiskView, as well as the development of other products covering
additional asset classes. Infinity has already delivered versions of the
Infinity Platform and Infinity Derivatives which operate on Windows NT. The
Windows NT operating system is increasingly popular with financial institutions,
and the Company believes providing a version of its product for this environment
is strategically important.



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COMPETITION

The market for transaction processing and risk management systems for financial
institutions is intensely competitive. It is characterized by rapidly changing
technological requirements as new instruments and new strategies are developed
and implemented, and a high degree of technological progress, as new software
and hardware technologies are applied to the challenge of trading and risk
management. The rapid pace of innovation and change in the market Infinity
serves necessitates an ongoing research and development effort to enhance the
features and functionality of the Infinity Platform and Infinity products.

Many of the Company's competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, greater name
recognition and a larger installed base of customers than the Company. The
Company's competitors are diverse and offer a variety of solutions directed at
the financial trading and risk management information system marketplace. These
competitors include companies offering and developing financial trading or risk
management software products that compete with products offered by the Company.
Certain of such competitors provide point-solutions for particular elements of
the financial trading marketplace, including, for example, the front-office
derivative trading market, which constitutes a significant portion of the
Company's business. Some point-solutions may provide greater off-the-shelf
functionality than the Company's customizable integrated system. To the extent
customers elect to pursue such point-solutions targeted at the front-office
derivatives market or other elements of the financial trading marketplace, as
opposed to the Company's integrated solutions, the Company's business, financial
condition and results of operations may be materially adversely affected. In
addition, potential customers may select a competitor's product where they
believe it is easier to integrate such product with a product previously
purchased from such competitor or where they prefer the user interface of such
product.

The Company may also face competition from other business application software
vendors who may broaden their product offering by internally developing or
acquiring financial trading and risk management software products. Certain of
the Company's competitors have been acquired by, or formed alliances with,
larger entities which may enable them to more quickly expand the reach of their
existing product line into new geographic markets where the Company has
significant market presence, as well as introduce new products into markets
where the Company currently competes. In addition to competition from such
third-party companies, the Company frequently faces substantial sales resistance
from the internal development groups of potential customers that have developed
or may develop systems that may substitute for those offered by the Company. In
particular, the Company has experienced significant difficulties in persuading
potential customers to purchase its products where their internal development
groups have already progressed significantly toward completion of systems which
the Company's products would augment or replace and where the underlying
technologies, such as the programming language, utilized by such groups differ
fundamentally from the Company's. The Company believes that the principal
competitive factors in the market for its products are the adaptability of the
products to new financial instruments, the ability of products to be integrated
into customers existing and emerging operations on a firmwide basis, cost, time
to implementation, robustness and support services. Based on these factors, the
Company believes its products compete favorably, although there can be no
assurance that the Company can maintain its competitive position against current
and potential competitors. In order to be successful in the future, the Company
must continue to respond promptly and effectively to the challenges of
technological change and competitors' innovations. There can be no assurance
that the Company will be able to compete successfully with existing or new
competitors or that competition will not have a material adverse effect on the
Company's business, financial condition and results of operations.

INTELLECTUAL PROPERTY

The Company's success is heavily dependent upon its proprietary technology. The
Company relies primarily on a combination of copyright, trade secret and
trademark laws, nondisclosure and other contractual provisions and technical
measures to protect its proprietary rights. The Company seeks to protect its
software, documentation and other written materials through trade secret and
copyright laws, which provide only limited protection. As part of its
confidentiality procedures, the Company generally enters into nondisclosure
agreements with its employees, consultants, distributors and corporate partners.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use the Company's products
or technology independently. In particular, the Company customarily provides its
existing and potential distribution partners with access to its product
architecture and other proprietary information underlying the Company's licensed
software, including source code. An unauthorized publication or proliferation of
the Company's source code could materially adversely affect the Company's
business, financial condition and results of operations. Policing unauthorized
use of the Company's products is difficult, and the Company is unable to
determine the extent to which unauthorized use of its software products exists.
In addition, effective protection of intellectual property rights may be
unavailable or limited in certain countries including countries in which the
Company currently sells its products, such as Japan, and countries the Company
may target to expand its sales efforts such as Brazil, Hong Kong, Mexico, South
Africa, and Thailand. Accordingly, there can be no assurance that the Company's
means of protecting its proprietary rights will be adequate or that the
Company's competitors will not independently develop similar technology.



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EMPLOYEES

At December 31, 1996, Infinity had 170 employees of whom 56 were primarily
engaged in research and development, 93 in sales, support and marketing, and 21
in finance and administration. None of the Company's employees is represented by
a collective bargaining agreement and the Company has never experienced any work
stoppage. The Company considers its relations with its employees to be good. The
Company also employs a number of temporary and contract employees, and at
December 31, 1996, the Company employed 6 temporary and contract employees.

The Company generally does not have long-term employment contracts with Mr.
Roger Lang, Mr. Michael Laven, its engineering staff or any other employees. The
Company believes that its future success will depend in part on its ability to
attract and retain highly-skilled engineering, managerial, sales and marketing
personnel. Competition for such personnel in the software industry is intense,
and there can be no assurance that the Company will be successful in attracting
and retaining such personnel. The Company has previously experienced substantial
difficulty in hiring sales and engineering personnel with expertise in
sophisticated financial instruments and may experience similar difficulty as it
attempts to hire other qualified staff who have the required experience. In
particular, the Company has experienced difficulty competing for such personnel
with large financial institutions with substantially greater financial
resources. Given the critical role of the Company's engineering staff in
executing the Company's product strategies, the loss of any significant part of
its engineering staff would have a material adverse effect on the Company.
Failure to attract and retain key personnel could have a material adverse effect
on the Company's business, financial condition and results of operations.

ITEM  2. PROPERTIES

The Company's primary offices are located in approximately 40,000 square feet of
space in Mountain View, California under a lease expiring in February 2001. The
Company also leases three sales and support offices in New York, London and
Tokyo totaling approximately 12,000 square feet. These three leases expire at
various dates ranging from November 1997 to March 2004. Additionally, the
Company has leased office suites in Sydney, Toronto and Paris with such leases
expiring on various dates in 1997. The aggregate monthly rental expense for
leased property in the United States is approximately $79,000 and
internationally is $31,000. The Company expects to be able to renew or replace
such leases at the end of their terms on a commercially reasonable basis.

The Company expects that it may require additional headquarter space as well as
additional sales and support locations during fiscal 1997. The Company believes
suitable space will be available as needed on commercially reasonable terms.

ITEM  3. LEGAL PROCEEDINGS

The Company is a party in various legal actions arising out of the normal course
of business, none of which is expected to have a material effect on the
Company's business, financial condition and results of operations.

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

There were no matters submitted to a vote of security holders during the fourth
quarter of fiscal 1996.

                                       9
<PAGE>   10
                                     PART II

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

The Company's Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol: INFN. As of March 24, 1997, there were
approximately 127 stockholders of record and approximately 700 beneficial
stockholders. Subsequent to Infinity's initial public offering on October 25,
1996, the high and low closing prices for Infinity's Common Stock in fiscal 1996
as reported by The Nasdaq Stock Market was $19.50 and $15.75, respectively.

The Company has not paid cash dividends on its Common Stock to date and does not
plan to pay cash dividends to its stockholders in the foreseeable future.

The Company believes factors such as quarter-to-quarter variances in financial
results, the announcement of new products or product enhancements by the Company
or its competitors, technological innovation by the Company or its competitors
and general market conditions specific to particular industries could cause the
market price of the Company's Common Stock to fluctuate substantially. In
particular, the stock prices for many companies in the technology and emerging
growth sectors have experienced wide fluctuations which have often been
unrelated to the operating performance of such companies. Such fluctuations may
adversely affect the market price of the Company's Common Stock.

ITEM  6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
(In thousands, except per share data)                    1996      1995        1994      1993       1992
-----------------------------------------------------------------------------------------------------------
<S>                                                    <C>        <C>        <C>        <C>        <C>
STATEMENT OF INCOME DATA:

Total revenues                                         $41,548    $24,738    $12,595    $ 5,783    $  2,597

Income from operations                                   8,499      5,676      2,124        980          43

Net income attributable to common stockholders           5,405      2,173(1)   1,641        717          46


Net income per share:

   Primary                                             $  0.28     $ 0.12(1) $  0.10    $  0.06    $   0.00

   Fully diluted                                       $  0.28     $ 0.12(1) $  0.09    $  0.05    $   0.00


Shares used in per share calculations:

   Primary                                              19,208     18,312     16,354     13,008      15,649

   Fully diluted                                        19,243     18,382     17,866     14,516      15,649



BALANCE SHEET DATA:

Cash and cash equivalents                              $36,952    $ 3,517    $ 3,235    $   800    $    751

Working capital                                         37,652      4,272      2,010        199          30

Total assets                                            60,304     12,848      8,885      3,027       1,719

Long-term portion of capital lease obligations             553        303        107          6          17

Total stockholders' equity (deficit)                   $40,425    $ 5,766    $ 3,114    $   600    $   (144)
</TABLE>

--------

(1) Reflects the redemption of the Series B Preferred Stock of $1,276,000. Net
income and net income per share before redemption was $3,449,000 and $0.19,
respectively.




                                       10
<PAGE>   11
<TABLE>
<CAPTION>
                                                                     Quarterly Summary (unaudited)
                                            ------------------------------------------------------------------------------------
                                            Dec. 31,   Sep. 30,   Jun. 30,   Mar. 31,   Dec. 31,   Sep. 30,   Jun. 30,  Mar. 31,
(In thousands, except per share data)         1996       1996       1996       1996       1995       1995       1995      1995
--------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
STATEMENT OF INCOME DATA:

Total revenues                              $12,984    $10,617    $ 9,743    $ 8,204    $ 6,959    $ 6,487    $ 6,153    $ 5,139
Income from operations                        2,425      2,013      1,994      2,067      1,462      1,274      1,797      1,143
Net income (loss) attributable to
    common stockholders                       1,628      1,294      1,251      1,232       (376)(1)    760      1,094        695

Net income per share (loss) attributable
   to common stockholders                   $  0.08    $  0.07    $  0.07    $  0.06     $(0.02)(1) $  0.04    $  0.06    $  0.04

Shares used in per share calculations        20,409     18,763     18,799     18,863     16,774      18,727     18,398     17,308
</TABLE>


(1) Reflects the redemption of the Series B Preferred Stock of $1,276,000. Net
income and net income per share before redemption was $900,000 and $0.05,
respectively.

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

The Company's operating performance each quarter is subject to various risks and
uncertainties as discussed herein and in the Company's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on October 25, 1996.
This report contains forward-looking statements within the meaning of the
Securities and Exchange Act of 1934 and it should be read in conjunction with
the section entitled "Factors That May Affect Future Operating Results"
discussed below.

RESULTS OF OPERATIONS

The following table sets forth certain items from Infinity's consolidated
statements of income as a percentage of total revenues for the periods
indicated:

<TABLE>
<CAPTION>
                                                                              Year ended December 31,
                                                                          --------------------------------
                                                                          1996          1995          1994
                                                                          ----          ----          ----
<S>                                                                      <C>           <C>           <C>
Revenues:
   License revenues ..................................................     78%           77%           72%

   Service revenues ..................................................     22            23            28
                                                                          ---           ---           ---

         Total revenues ..............................................    100           100           100

Costs and expenses:
   Cost of revenues ..................................................     13            12            21

   Sales and marketing ...............................................     37            31            26

   Research and development ..........................................     22            25            27

   General and administrative ........................................      8             9             9
                                                                          ---           ---           ---

         Total costs and expenses ....................................     80            77            83
                                                                          ---           ---           ---

Income from operations ...............................................     20            23            17

Other income, net ....................................................      1            --            --
                                                                          ---           ---           ---

Income before provision for income taxes .............................     21            23            17

Provision for income taxes ...........................................      8             9             4
                                                                          ---           ---           ---

         Net income ..................................................     13%          14%           13%
                                                                          ===           ===           ===
</TABLE>


                                       11
<PAGE>   12
REVENUES

Infinity's revenues are derived from two sources, license revenues and service
revenues, including software maintenance and support, training, consulting, and
co-development contracts. The Company's total revenues increased $16.8 million,
or 68%, to $41.5 million in fiscal 1996, compared with an increase of $12.1
million, or 96%, to $24.7 in fiscal 1995. The increases are attributable to
growth in new customer revenues as well as continued growth in license revenues
from existing accounts. In 1996, the Company more than doubled its active
account base, adding 26 new customers throughout the year. Growth in license
revenues from existing customers was also strong. Growth from both new and
existing customer licenses contributed to the increased maintenance revenues in
1996 and 1995. Increased demand for implementation consulting services and
training also contributed to the increase in service revenue in 1996. Throughout
1996, the Company substantially increased its direct sales force, which factor
also contributed to the increase in revenue for the year.

International revenues, which are defined by the Company as sales outside North
America, accounted for 63%, 53% and 25% of total revenues for the years ended
December 31, 1996, 1995 and 1994, respectively. The increases in international
revenues are primarily attributable to an increase in the Company's
international sales and marketing efforts. In fiscal years 1995 and 1996, the
majority of international revenues were earned in Europe and Japan. In 1996, the
Company's international revenues were derived largely from sales of the Infinity
Platform, the roll-out of Infinity applications by several global financial
institutions and sales of Infinity RiskView. A significant portion of the
Company's 1995 international revenues were attributable to new European
customers who began to respond to the requirements of the European Capital
Adequacy Directive in late 1994 through implementation of risk management
systems built using the Infinity Platform. The Company currently maintains
international sales offices in London, Paris, Sydney and Tokyo, and intends to
continue to expand its international operations. The Company expects that
international sales will continue to represent a substantial majority of its
total revenues for the foreseeable future.

The Company believes significant ongoing investment in several aspects of the
business will continue to be critical to its success. Consistent with the trend
in the year ended December 31, 1996, the Company plans to continue expanding its
sales and marketing infrastructure domestically and internationally, devote
substantial resources to research and development, and build the Company's
customer support and service organization. As a result of these factors, the
Company plans to continue to direct a significant percentage of its revenues
towards operating expenses necessary to keep the Company competitive and
responsive to its customers' needs.

License Revenues. The Company's license revenues increased $13.4 million, or
70%, to $32.4 million in fiscal 1996, compared with an increase of $10.0
million, or 111%, to $19.0 million in fiscal 1995. The percentage of the
Company's total revenues attributable to license revenues increased to 78% in
fiscal 1996, from 77% and 72%, in the comparable periods of 1995 and 1994,
respectively. During 1996, the Company added 26 new accounts, bringing to 48 the
number of financial institutions globally licensing Infinity's software
products. Continued strong demand from existing customers and the introduction
of new products in fiscal 1996 has fueled the revenue gains in that period.

Service Revenues. The Company's service revenues increased $3.4 million, or 60%,
to $9.1 million in fiscal 1996, compared with an increase of $2.1 million, or
60%, to $5.7 million in fiscal 1995. These increases are due primarily to
increased maintenance and support fees generated from higher license revenues.
The percentage of the Company's total revenues attributable to service revenues
decreased to 22% in fiscal 1996, from 23% and 28%, in the comparable periods of
1995 and 1994, respectively. The percentage decreases are due primarily to lower
consulting fees earned during 1996 as compared to 1995, and lower maintenance
and support fees earned as a percentage of license revenues in 1996 and 1995.
Maintenance and support fees have declined slightly as a percentage of license
revenues, primarily attributable to more favorable terms offered on a small
number of high value contracts. Additionally, licensees of source code to
specific Company products may elect not to receive upgrades, enhancements or
support for those designated products, thus lowering the effective rate of
maintenance charged on licensed products.

COSTS AND EXPENSES

Cost of Revenues. Cost of revenues consists primarily of personnel-related
costs, including facility and other overhead allocations incurred in providing
on-site and telephone support, consulting services and training to customers.
The Company's cost of revenues increased $2.4 million, or 83%, to $5.3 million
in fiscal 1996, compared with an increase of $0.3 million, or 10%, to $2.9
million in fiscal 1995. The percentage increase in fiscal 1996 was due primarily
to increased costs associated with an increase in the number of customer support
personnel and related overhead costs necessary to support a larger installed
customer base. The percentage of the Company's total revenues attributable to
cost of revenues increased to 13% in fiscal 1996 from 12% in the comparable
period of 1995, down from 21% in the comparable period of 1994. The decreases as
a percentage of total revenues relate to the completion of relatively low margin
co-development contracts in 1994, as well as high margin license revenues
comprising a larger portion of total revenues in each subsequent period.

                                       12
<PAGE>   13


The Company intends to commit substantial financial resources to expand its
support operations, both domestically and internationally. In addition, the
Company expects to increase its spending for consulting staff and infrastructure
in anticipation of growing demand for implementation consulting services from
its customer base. From time to time, the Company subcontracts with outside
service providers to complete consulting services contracted for by its
customers at rates which may yield lower overall margins, both in absolute
dollars and as a percentage of consulting revenues, than had the Company been
staffed to provide the services with internal personnel. The Company expects to
continue to contract for outside service personnel to allow for flexibility in
meeting anticipated fluctuations in demand for consulting services from its
customers. As a result of these factors, the Company expects its cost of
revenues to increase in the future, both in absolute dollars and possibly as a
percentage of total revenues.

Sales and Marketing. The Company's sales and marketing expenses increased $7.4
million, or 97%, to $15.1 million in fiscal 1996, compared with an increase of
$4.4 million, or 133%, to $7.7 million in fiscal 1995. The percentage of the
Company's total revenues attributable to sales and marketing expenses increased
to 37% in fiscal 1996, from 31% and 26%, in the comparable periods of 1995 and
1994, respectively. These increases were principally the result of additional
sales and marketing personnel, facilities expansion, higher sales commissions
and bonuses associated with increased total revenues and increased marketing
activities domestically and internationally. In 1996, the Company hired
additional sales management, including the addition of a Vice President of
Worldwide Field Operations, and strengthened its worldwide direct sales force
with the addition of 10 new sales personnel. The Company experienced higher
sales commissions and bonuses as a percentage of revenues in 1996 mainly as a
result of commission and bonus accelerators earned by sales personnel
overachieving their annual quota. The Company expects to continue to build its
direct sales force as it expands to new geographic markets and targets new
market segments for its products. The Company anticipates the need to
continually hire sales professionals in advance of revenue in order to
accommodate a typical six-month learning curve to sales productivity. As a
result of these factors, the Company expects to incur higher sales and marketing
expenses in the future in both absolute dollars and likely as a percentage of
total revenues as the Company expands its sales and marketing staff.

Research and Development. The Company's research and development expenses
increased $3.0 million, or 50%, to $9.1 million in fiscal 1996, compared with an
increase of $2.8 million, or 83%, to $6.1 million in fiscal 1995. These
increases were principally the result of hiring additional engineering personnel
and associated expenses. The percentage of the Company's total revenues
attributable to research and development expenses decreased to 22% in fiscal
1996, from 25% and 27%, in the comparable periods of 1995 and 1994,
respectively. The decreases from fiscal 1994 were due primarily to growth in the
Company's total revenues. The Company expects to incur higher research and
development costs in the future, although these expenses are expected to remain
relatively constant as a percentage of total revenues. There can be no
assurance, however, that total revenues will grow at the same rate as the
anticipated research and development expenses.

General and Administrative. The Company's general and administrative expenses
increased $1.1 million, or 47%, to $3.5 million in fiscal 1996, compared with an
increase of $1.2 million, or 100%, to $2.4 million in fiscal 1995. These
increases were primarily due to increased staffing and professional fees
necessary to manage and support the Company's growth and to provide the
infrastructure required for a public company. The percentage of the Company's
total revenues attributable to general and administrative expenses decreased to
8% in fiscal 1996, from 9% in both 1995 and 1994 fiscal years. General and
administrative expenses decreased as a percentage of total revenues due
primarily to growth in the Company's total revenues. The Company expects to
incur higher absolute dollar general and administrative expenses in the future,
although these expenses are expected to remain relatively constant as a
percentage of total revenues. There can be no assurance, however, that total
revenues will grow at the same rate as the anticipated general and
administrative expenses.

                                       13
<PAGE>   14
OTHER INCOME, NET

In fiscal 1996, other income, net was $218,000 as compared to $31,000 and
$15,000, in the comparable periods of 1995 and 1994, respectively. The changes
during the periods represent the varying levels of the Company's invested cash
balances from time to time and other factors including interest expense on
capital lease lines and losses on disposal of property and equipment. The large
increase in fiscal 1996 is due primarily to interest earned on the invested
proceeds from the Company's initial public offering in October 1996.

PROVISION FOR INCOME TAXES

The Company's provision for income taxes increased to $3.3 million in fiscal
1996 from $2.3 million and $498,000, in the comparable periods of 1995 and 1994,
respectively. The Company's effective tax rate in 1996 was 38% versus an
approximate 40% effective tax rate in 1995. The decrease in the effective tax
rate is primarily attributable to the benefits derived from the establishment of
a foreign sales corporation and the reinstatement of the research and
development tax credit in 1996.

LIQUIDITY AND CAPITAL RESOURCES

The Company has, to date, funded its operations primarily with cash generated
from operations and through sales of equity securities. Cash generated from
operating activities was $6.3 million, $2.0 million, and $2.9 million, during
the fiscal years ended December 31, 1996, 1995, and 1994, respectively. The
primary sources of cash from operating activities in fiscal 1996 consisted of
net income, increases in deferred revenue, accrued compensation, and other
accrued liabilities and long-term liabilities, offset by increases in
receivables and decreases in notes payable to former stockholder. The primary
sources of cash from operating activities in fiscal 1995 consisted of net income
and an increase in payable to former stockholder offset by an increase in
receivables and a decrease in deferred revenue. The primary sources of cash from
operating activities in fiscal 1994 consisted of net income and an increase in
deferred revenue offset by an increase in receivables.

The Company's investing activities used $1.5 million, $650,000, and $569,000 of
cash in fiscal years ended December 31, 1996, 1995, and 1994, respectively.
These amounts represent the Company's investment in property and equipment
necessary to support the growth of the Company's operations both domestically
and internationally. Capital additions to support increased headcount and the
movement to larger offices at the Company's Mountain View, California
headquarters contributed to the increase in fiscal 1996.

Approximately $28.8 million of cash was provided by financing activities in
fiscal 1996, compared with $1.0 million used in fiscal 1995, and $154,000
provided in fiscal 1994. The increase in fiscal 1996 is due to the generation of
$28.9 million of net proceeds from the issuance of common stock in the Company's
initial public offering.

As of December 31, 1996, the Company's principal sources of liquidity consisted
of $37.0 million in cash and cash equivalents. The Company believes that the
liquidity provided by existing cash and cash equivalents will be sufficient to
meet the Company's working capital and capital expenditure requirements for at
least the next twelve months based on current plans and trends.

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

The statements contained in this Form 10-K which are not purely historical are
forward-looking statements within the meaning of section 27A of the Securities
Act of 1933 and section 21E of the Securities Exchange Act of 1934, including
statements regarding the Company's beliefs, expectations, hopes, plans or
intentions regarding the future. Forward looking statements in this document
include statements under the heading "Product Development" regarding research
and development costs and statements under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations" regarding the
Company's plans or intentions to continue to expand its sales and marketing
infrastructure domestically and internationally, to devote substantial resources
to research and development, to build or expand its customer support and
services organization, to expand international operations, and statements under
such heading regarding Infinity's expectations regarding the composition of
revenues, cost of revenues, expansion of sales and marketing infrastructure,
continued building of its customer support and service organization, use of
revenues, research and development costs, general and administrative expenses,
liquidity and anticipated cash needs and availability, among others. All
forward-looking statements included in this document are made as of the date
hereof, based on information available to the Company as of the date hereof, and
Infinity assumes no obligation to update any forward looking statement or
statements. It is important to note that the Company's actual results could
differ materially from those in such forward looking statements. The following
important factors, among others, in some cases have affected, and in the future
could affect, the Company's actual operating results and could cause the
Company's actual consolidated operating results to differ materially from those
expressed in any forward-looking statement made by, or on behalf of, the
Company.



                                       14


<PAGE>   15
Significant Potential Fluctuations in Operating Results

Although the Company has experienced increased revenues and has been profitable
in each of its last six fiscal years, the Company does not believe prior growth
rates are sustainable or indicative of future operating results, and there can
be no assurance that the Company will be able to sustain revenue growth or
maintain profitability in the future. In addition, the Company intends to commit
substantial financial resources to expanding its business, including its sales
and support operations and product development infrastructure. As a result, the
Company does not expect to sustain the current level of operating margins in
future periods.

Individual licenses of the Company's products typically account for large dollar
amounts relative to quarterly revenues, so the timing of one license can cause
substantial shifts of revenue and profit between accounting periods. Because of
the large dollar commitment and the mission critical function that the Company's
products address, approval at senior levels within customer organizations is
frequently required for a purchase of the Company's products. The Company's
quarterly revenues are dependent upon a small number of new individual product
sales, and any downturn in a potential customer's business, or any loss or delay
of individual orders for any other reason, would have a significant impact on
the Company's revenues and profitability on a quarterly and annual basis. During
1996, the average contract size for new customers decreased as compared with
prior periods, while the aggregate number of contracts with new customers
increased. The Company has also experienced increased demand from customers for
certain features and functionality not offered in production versions of its
products, resulting in deferral of significant revenues until completion or
acceptance of certain customized portions of software required by any individual
license transaction as well as increased costs to deliver the required services.
The Company historically has operated with little backlog because its products
are generally shipped as orders are received. As a result, license revenues in
any quarter depend on the volume and timing of, and the Company's ability to
fill, orders received in that quarter. In addition, a relatively high percentage
of the Company's expenses is fixed in the short term because the Company's
expense levels are based, in part, on its expectations as to future revenues. As
a result, if revenues fall below expectations, operating margins will be
adversely affected. In addition, historically the Company has experienced
significant renewal rates of maintenance contracts; however, many customers have
licensed the source code of the Company's products and certain customers have
chosen to terminate the maintenance contracts with the Company due to their
ability to maintain the Company's products. Furthermore, the Company's service
revenues have been dependent upon a relatively small number of new and existing
customers in each quarter. Based on these and other factors, there can be no
assurance that previous renewal rates and prices charged by the Company for
maintenance, and corresponding revenues, will continue in the future. See
"Lengthy Sales Cycle."

The Company's revenues and operating results have fluctuated significantly in
the past, and are likely to continue to fluctuate significantly in the future,
on an annual and quarterly basis. Fluctuations in the Company's revenues and
results of operations may result from a number of factors, many of which are
beyond the Company's control, including (i) the relatively long sales cycle of
three months to over one year for the Company's software products, (ii) the
timing and size of the Company's individual license transactions, and, in
particular, the dependence of the Company's revenues in any quarter on the sale
of a limited number of large dollar licenses, (iii) the Company's typical
recognition of a significant portion of its quarterly revenues in the last
month, weeks or days of the quarter, (iv) the relatively high percentage of
total revenues derived from product revenues versus service revenues, (v) the
timing of the introduction of new products or product enhancements by the
Company and its competitors, (vi) the deferral of significant revenues until
completion or acceptance of certain customized portions of software required by
any individual license transaction, (vii) changes in customer budgets, (viii)
seasonality of technology purchases by customers, (ix) the mix of revenues
derived from the Company's direct sales force and various distribution and
marketing channels and between domestic and international customers, (x)
currency exchange rate fluctuations, (xi) changes in applicable government
regulations, (xii) the untimely loss of key sales personnel, (xiii) changes in
relationships with strategic partners and (xiv) general economic conditions,
particularly those which affect the Company's targeted customer base.

                                       15



<PAGE>   16
The Company's quarterly revenues are also subject to certain seasonal
fluctuations, particularly in the third quarter when reduced economic activity
outside North America during the summer months can negatively affect the
Company's licensing revenues. This and other seasonal factors, which the Company
believes are common to the software industry, could cause the Company's revenues
and profitability to fluctuate between quarters.

Due to the foregoing and other factors, the Company believes its quarterly and
annual revenues, expenses and operating results could vary significantly in the
future and that period-to-period comparisons should not be relied upon as
indications of future performance. Because of the above factors, it is possible
the Company's operating results will be below the expectations of stock market
analysts and investors in some future quarter, which would have a severe adverse
effect on the price of the Company's Common Stock.

Dependence on Evolving Market for Financial Trading and Risk Management
Software; No Assurance of Market Acceptance

To date, the Company has derived substantially all of its revenue from the sale
of software products for financial trading and risk management. The Company
expects revenues from such sales will account for substantially all of its
revenues for the foreseeable future. The market for financial trading and risk
management software is rapidly evolving, and the Company's operating results and
opportunity for growth in the future are highly dependent on acceptance of its
products in and the continued growth of this market. As is the case in new and
evolving industries, demand and market acceptance for recently introduced
products are subject to a high level of uncertainty and risk. A decline or
slow-down in growth in the market for, or market acceptance of, such products as
a result of increased competition, technological or regulatory change, a banking
and financial services industry downturn or other factors would have a material
adverse effect on the Company's business, financial condition and results of
operations. In particular, because the Company's customer base has historically
been limited to larger commercial banks and financial institutions, the Company
would be particularly vulnerable to a downturn in the banking and financial
services industries.

The Company currently markets and sells its products primarily to large banks
and other financial institutions, many of which rely on internally developed
software to fulfill their financial trading and risk management needs. Demand
for and acceptance of the Company's products by this customer base depends on a
number of factors, which include the products' functionality and performance
characteristics, the ability of these clients to achieve cost savings by using
third-party software, the time and cost required to internally develop software,
the willingness of these institutions to rely on third-party software to fulfill
mission critical financial trading and risk management needs and their
assessment of the Company's ability to support these products. Many of these
banks and financial institutions have made significant investments in time,
capital and human resources in developing and implementing these internal
systems and are highly dependent upon the continued use of internally developed
systems. The legacy nature of many of these internally developed systems
combined with the substantial financial costs to shift to third-party products
for these applications generally constitute the principal factors inhibiting
migration to third party products in financial trading and risk management, such
as those offered by the Company. No assurance can be made that these factors
will not inhibit growth in the market for third-party financial trading and risk
management software and, as a consequence, materially adversely affect the
Company's business, financial condition and results of operations.

The Company is attempting to develop the Infinity Platform as an industry
standard for financial trading and risk management. No assurance can be given
that this attempt to establish an industry standard will be successful, even if
a significant market for third-party financial trading and risk management
software continues to develop. If the Company is unsuccessful in establishing
the Infinity Platform as an industry standard, widespread acceptance of its
products and its ability to market additional application programs for financial
trading and risk management will be adversely affected, and, as a consequence,
the Company's future growth, business, financial condition and results of
operations will be materially adversely affected.

Lengthy Sales Cycle

Because of the mission critical functions performed by the Company's products,
the purchase of such products is a strategic decision which generally requires
approval at senior levels of customers' organizations. In addition, the purchase
of the Company's products involves a significant commitment of customers'
financial resources. For these and other reasons, the sales cycle associated
with the purchase of the Company's products is typically complex, lengthy and
subject to a number of significant risks, including changes in customers'
budgetary constraints and approval at senior levels of customers' organizations,
over which the Company has no control. The Company's sales cycle can range from
three months to over one year. Because of the lengthy sales cycle and the
dependence of the Company's quarterly revenues upon a small number of new
individual product sales for large dollar amounts, the loss or delay of a single
sale could have a material adverse effect on the Company's business, financial
condition and results of operations.


                                       16

<PAGE>   17

Rapid Technological Change and Dependence on New Products

The market for the Company's products is characterized by rapid technological
advances, evolving industry standards in computer hardware and software
technology, changes in customer requirements and frequent new product
introductions and enhancements. The Company's future success will depend upon
its ability to continue to enhance its current product line and to develop and
introduce new products which address technological developments, satisfy
increasingly sophisticated customer requirements and achieve market acceptance.
In particular, the failure of the Company to develop new products or enhance
existing products to (i) timely adapt to the rapidly developing computer
hardware and software technology upon which its products are based, (ii)
incorporate new functionality reflecting rapidly evolving types of derivative
securities and other financial instruments and risk management methodologies and
(iii) incorporate new functionality to facilitate customers' compliance with
changing applicable governmental regulations could cause customers to delay
their purchase of the Company's products, or to decide not to purchase such
products. In September 1995, the Company introduced its back-office modules for
Infinity Derivatives, which have been implemented on a limited basis to date by
Infinity's customers. In late 1996, the Company began shipping first production
versions  of Infinity RiskView and the Windows NT version of Infinity
Derivatives, both of which are in the early stages of implementation at a small
number of customer sites. The Company has in the past experienced delays in the
introduction of product enhancements and new products, including a delay in
introducing the back-office modules for Infinity Derivatives. There can be no
assurance that the Company will not experience such delays in the future, or be
successful in developing and marketing, on a timely and cost-effective basis,
product enhancements or new products, and the failure to do so could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risks of Product Defects; Product Liability."

Small Direct Sales Force and Reliance on IBM Corporation and Other Strategic
Relationships

The Company has a small direct sales force, which consisted of 19 persons at
December 31, 1996. Historically, most of the Company's sales have been derived
through its direct sales force, and the Company's business strategy depends on
significantly expanding this sales force. The Company has previously experienced
substantial difficulty in hiring sales personnel with expertise in sophisticated
financial instruments and is likely to experience similar difficulty as it
attempts to hire other qualified staff who have the required experience. There
can be no assurance that the Company will be able to recruit, train and retain
additional qualified sales personnel with the requisite experience and
knowledge, particularly those with experience in both finance and software
development. The failure to successfully expand the Company's sale force would
have a material adverse effect on the Company's business, financial condition
and results of operations.

The Company has established strategic relationships with a number of
organizations that are complementary to its direct sales force and which it
believes are important to its worldwide sales, marketing and support activities
and the implementation of its products. The Company believes that its
relationships with such organizations provide an additional sales and marketing
channel and further promote the Infinity Platform to become an industry
standard. Due in part to the current small size of its direct sales force, the
Company believes such relationships are particularly important to its sales
efforts and efforts to establish an industry standard. In particular, the
Company has developed a non-exclusive strategic relationship with IBM. IBM acts
as a solution provider and occasionally as a system integrator/distributor, and
markets the Company's products on a worldwide basis as part of IBM information
management solutions, although IBM is under no contractual obligation to market
the Company's products. During the year ended December 31, 1996, revenues
facilitated by IBM accounted for 13% of license revenues and 10% of total
revenues. Any deterioration of the Company's relationship with IBM could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company also has relationships with key third-party
developers, including Axime Integration de Systemes and Diagram S.A., and
service providers, including Price Waterhouse LLP. Third-party developers
constitute a key component of Infinity's strategy in developing products and
applications for the Infinity Platform for specific markets Infinity does not
currently address. From time to time, key third party developers may elect to
discontinue their development of products and applications for the Infinity
Platform, posing a risk to Infinity's strategy.


                                       17

<PAGE>   18

In addition, Infinity has established the Infinity Certified Engineering program
which qualifies various software development firms to work as consultants with
Infinity customers in implementing and customizing the Infinity Platform and
other products. The failure by the Company to maintain its existing
relationships, or to establish new relationships in the future, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's customers and potential customers
frequently rely on these third-party service providers to extend and deploy, and
manage the implementation of Infinity's products. If the Company is unable to
adequately train a sufficient number of service providers or, if for any reason
such service providers do not have or choose not to devote the resources
necessary to facilitate implementation of the Company's products or if such
service providers adopt a product or technology other than Infinity's, the
Company's business, financial condition and results of operations could be
materially adversely affected.

Management of Growth

The Company's business has grown rapidly in recent years. This growth has
placed, and may continue to place, a significant strain on the Company's
management and operations. The Company's future operating results will depend on
its ability to continue to broaden the Company's senior management group, and
its ability to attract, hire and retain skilled employees. The Company's success
will also depend on the ability of its officers and key employees to continue to
implement and improve its operational and financial control systems and to
expand, train and manage its employee base. The Company's future operating
results will also depend on its ability to expand its sales and marketing
organizations, further implement a reseller and partner channel to penetrate
different and broader markets than those addressed by its existing direct sales
force and expand its support organization commensurate with growth in its
installed base. The Company's inability to effectively manage growth could have
a material adverse effect on the Company's business, financial condition and
results of operations.

Competition

The market for transaction processing and risk management systems for financial
institutions is intensely competitive. It is characterized by rapidly changing
technological requirements, as new instruments and new strategies are developed
and implemented, and a high degree of technological progress, as new software
and hardware technologies are applied to the challenge of trading and risk
management. The rapid pace of innovation and change in the market Infinity
serves necessitates an ongoing research and development effort to enhance the
features and functionality of the Infinity Platform and Infinity products.

Many of the Company's competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, greater name
recognition and a larger installed base of customers than the Company. The
Company's competitors are diverse and offer a variety of solutions directed at
the financial trading and risk management information system marketplace. These
competitors include companies offering and developing financial trading or risk
management software products that compete with products offered by the Company.
Certain of such competitors provide point solutions for particular elements of
the financial trading marketplace, including, for example, the front-office
derivative trading market, which constitutes a significant portion of the
Company's business. Certain of such point-solutions may provide greater
off-the-shelf functionality than the Company's customizable integrated system.
To the extent customers elect to pursue such point solutions targeted at the
front-office derivatives market or other elements of the financial trading
marketplace, as opposed to the Company's integrated solutions, the Company's
business, financial condition and results of operations may be materially
adversely affected. In addition, potential customers may select a competitor's
product where they believe it is easier to integrate with a product previously
purchased or where they prefer the user interface of the product. The Company
may also face competition from other business application software vendors who
may broaden their product offering by internally developing or acquiring
financial trading and risk management software products. Certain of the
Company's competitors have been acquired by, or formed alliances with, larger
entities which may enable them to more quickly expand the reach of their
existing product line into new geographic markets where the Company has
significant market presence, as well as introduce new products into markets
where the Company currently competes. In addition to competition from such
third-party companies, the Company frequently faces substantial sales resistance
from the internal development groups of potential customers that have developed
or may develop systems that may substitute for those offered by the Company. In
particular, the Company has experienced significant difficulties in persuading
potential customers to purchase its products where their internal development
groups have already progressed significantly toward completion of systems which
the Company's products would augment or replace and where the underlying
technologies, such as the programming language, utilized by such groups differ
fundamentally from the Company's.


                                       18

<PAGE>   19

In order to be successful in the future, the Company must respond promptly and
effectively to the challenges of technological change and competitors'
innovations. There can be no assurance that the Company will be able to compete
successfully with existing or new competitors or that competition will not have
a material adverse effect on the Company's business, financial condition and
results of operation.

Risks Associated with International Sales

For the years ended December 31, 1996, 1995 and 1994, the Company derived 63%,
53% and 25% of its total revenues, respectively, from sales outside North
America and anticipates that a majority of its revenues for the foreseeable
future will be derived from sources outside North America. The Company sells its
products through a direct sales force located in offices in New York, London,
Paris, Sydney and Tokyo as well as its headquarters in Mountain View,
California. The Company also has full-time support personnel in Frankfurt,
Santiago and Toronto. The Company intends to continue to expand its sales and
support operations outside North America and to enter additional international
markets, which will require significant management attention and financial
resources. International operations are generally subject to a number of risks,
including costs of customizing products for foreign countries, dependence on
local resellers, multiple, conflicting and changing government regulations
regarding financial transactions, longer payment cycles, import and export
restrictions, tariffs, difficulties in staffing and managing foreign operations,
greater difficulty or delay in accounts receivable collection, potentially
adverse tax consequences, the burdens of complying with a variety of foreign
laws, the impact of possible recessionary environments in economies outside
North America and political and economic instability. The Company's total
revenue is also substantially affected by seasonal fluctuations resulting from
lower sales that typically occur during the summer months in Europe and other
parts of the world.

Until 1996, the Company's international sales were generally denominated and
collected in U.S. dollars. During the year ended December 31, 1996 international
sales were denominated in both U.S. dollars and foreign currencies. The Company
believes that an increasing portion of the Company's cost of revenues and
operating expenses will be incurred in foreign currencies. Although it is
impossible to predict future exchange rate movements between the U.S. dollar and
other currencies, it can be anticipated that to the extent the U.S. dollar
strengthens or weakens against other currencies, a substantial portion of the
Company's revenues, cost of revenues and operating expenses will be
commensurately lower or higher than would be the case in a more stable foreign
currency environment. Although the Company from time to time undertakes foreign
exchange hedging transactions to cover a portion of its foreign currency
transaction exposure, the Company does not attempt to cover all potential
foreign currency exposure and therefore, the Company may be subject to
variations in operating results as a result of foreign exchange fluctuations.

In the past, the Company has benefited from increased international demand for
its risk management solutions resulting from the imposition of new capital
adequacy and regulatory reporting requirements. For example, a significant
portion of the Company's 1995 and first quarter 1996 international revenues were
attributable to new European customers who began to respond to the requirements
of the European Capital Adequacy Directive in late 1994 through implementation
of risk management systems built using the Infinity Platform. If regulatory
requirements remain unchanged or are eased, the demand for risk management
solutions will likely be reduced, which would materially adversely affect the
Company's business, financial condition and results of operations.




                                       19
<PAGE>   20
Dependence on Key Employees

The Company's success depends to a significant extent on the performance of a
number of senior management and sales and engineering personnel, including Roger
A. Lang, a founder of the Company and its Chief Executive Officer, and Michael
A. Laven, its President and Chief Operating Officer. The Company is currently
recruiting a Vice President of Products and Technology and has experienced
substantial difficulty in filling this position. The Vice President of Products
and Technology would oversee all product development and engineering activities
of the Company, including the development and adoption of programs and practices
to improve product quality and manage product life cycle, remote development and
reintegration of customer-developed software code. The absence of a qualified
person to fill the Vice President of Products and Technology is currently
adversely affecting the Company's product development efforts. The Company's
Vice President of Client Services commenced a one-year educational leave in
August 1996. The Vice President of Client Services oversees all customer service
and support activities of the Company. The Company would expect difficulty in
replacing its Vice President of Client Services if the current individual in
that position chooses not to return to the Company following completion of his
one-year educational leave. These vacancies, in particular the lack of a Vice
President of Products and Technology, continue to place a significant burden on
the other members of the Company's management team and could materially
adversely affect the Company's business, financial condition and results of
operations. Further, given the critical role of the Company's limited
engineering staff in executing the Company's product strategies, the loss of any
additional significant part of its engineering staff would also have a material
adverse effect on the Company. The Company generally does not have long-term
employment contracts with Mr. Lang, Mr. Laven, its engineering staff or any
other employees. The Company believes that its future success also will depend
in part on its ability to attract and retain highly-skilled engineering,
managerial, sales and marketing personnel. Competition for such personnel in the
software industry is intense, and there can be no assurance that the Company
will be successful in attracting and retaining such personnel. The Company has
previously experienced difficulty in hiring sales and engineering personnel with
expertise in sophisticated financial instruments and may experience similar
difficulty as it attempts to hire other qualified staff who have the required
experience levels. In particular, the Company has experienced difficulty
competing for such personnel with large financial institutions with
substantially greater financial resources. Failure to attract and retain key
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations.

Protection of Intellectual Property

The Company's success is heavily dependent upon its proprietary technology. The
Company relies primarily on a combination of copyright, trade secret and
trademark laws, nondisclosure and other contractual provisions and technical
measures to protect its proprietary rights. The Company seeks to protect its
software, documentation and other written materials through trade secret and
copyright laws, which provide only limited protection. As part of its
confidentiality procedures, the Company generally enters into nondisclosure
agreements with its employees, consultants, distributors and corporate partners.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use the Company's products
or technology independently. In particular, the Company customarily provides its
existing and potential distribution partners with access to its product
architecture and other proprietary information underlying the Company's licensed
software, including source code. An unauthorized publication or proliferation of
the Company's source code could materially adversely affect the Company's
business, financial condition and results of operations. Policing unauthorized
use of the Company's products is difficult, and the Company is unable to
determine the extent to which unauthorized use of its software products exists.
In addition, effective protection of intellectual property rights may be
unavailable or limited in certain countries in which the Company currently sells
products, such as Japan, and countries the Company may target to expand its
sales efforts such as Brazil, Hong Kong, Mexico, South Africa and Thailand.
Accordingly, there can be no assurance that the Company's means of protecting
its proprietary rights will be adequate or that the Company's competitors will
not independently develop similar technology.

Risks of Product Defects; Product Liability

As a result of their complexity, software products may contain undetected errors
or failures. Despite testing by the Company and use by current and potential
customers, when first introduced or as new versions are released, there can be
no assurance that errors will not be found in new products after commencement of
commercial shipments. The most recent release of Infinity Derivatives, which
included new features and functionality, contained a number of errors and
defects which the Company is correcting in the normal course of post-release
development support. Although the Company has not experienced material adverse
effects resulting from any such defects and errors to date, there can be no
assurance that defects and errors will not be found in new versions or
enhancements after commencement of commercial shipments, resulting in loss of
revenues, delay in market acceptance or damage to the Company's reputation,
which could have a material adverse effect upon the Company's business,
financial condition and results of operations.

                                       20
<PAGE>   21
The Company recently entered into distribution and marketing agreements with a
limited number of third-party partners to distribute or market certain products
developed by these third-parties to the Company's customers. While the Company
seeks to ensure that the third-party will be responsible for any claims against
the Company arising from their products, there may be increased exposure to
claims of copyright, trade secret and other intellectual property infringement
than with the Company's internally developed products because the development of
these third-party products have not been within the Company's control.
Third-party partners may not have the financial resources to adequately
indemnify the Company for any claims arising from use of its products,
regardless of contractual obligations to do so. The Company may be obligated to
its customers to support and maintain a third-party product in the event the
third-party fails to perform its obligations or ceases to do business. To the
extent failure on the part of third-party partners would entail a substantial
redirection of scarce internal development and support resources within the
Company, such failure could have a material adverse effect on the Company's
business condition and results of operation.

Any claim brought against the Company arising from the failure of third-party
products could have a material adverse effect on the Company's business,
financial condition and results of operations.


The Company's license agreements with its customers typically contain provisions
designed to limit the Company's exposure for potential claims based on errors or
malfunctions of its or third-party products. It is possible, however, that the
limitation of liability provisions contained in the Company's license agreements
may not be effective under the laws of certain jurisdictions. Although the
Company has not experienced any product liability claims to date, the sale and
support of the Company's products entails the risk of such claims. The Company
currently does not have insurance against product liability risks, and, if the
Company were to elect to obtain such insurance, there can be no assurance that
such insurance will be available to the Company on commercially reasonable terms
or at all. A product liability claim brought against the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

    Index to Consolidated Financial Statements

             Financial Statements:

                   Consolidated Balance Sheets............................ 22
                   Consolidated Statements of Income ..................... 23
                   Consolidated Statement of Stockholders' Equity ........ 24
                   Consolidated Statements of Cash Flows ................. 25
                   Notes to Consolidated Financial Statements ............ 26
                   Report of Ernst & Young LLP, Independent Auditors ..... 35

             Financial Statement Schedule:

                      Schedule II - Valuation and Qualifying Accounts ... S-1

    Schedules not listed have been omitted because the information required to
    be set forth therein is not applicable.

                                       21
<PAGE>   22
                       INFINITY FINANCIAL TECHNOLOGY, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)


<TABLE>
<CAPTION>
                                     ASSETS
                                                                                              December 31,
                                                                                        1996                1995
                                                                                      --------             -------
<S>                                                                                   <C>                 <C>
Current assets:

   Cash and cash equivalents ..............................................            $36,952             $ 3,517

   Receivables, less allowance for doubtful accounts of $250 and
     $195 at December 31, 1996 and December 31, 1995, respectively ........             18,802               6,686

   Deferred tax asset .....................................................                887                 569

   Prepaid expenses and other current assets ..............................                337                 212
                                                                                       -------             -------
     Total current assets .................................................             56,978              10,984

Property and equipment, net ...............................................              2,896               1,449

Other assets ..............................................................                430                 415
                                                                                       -------             -------
     Total assets .........................................................            $60,304             $12,848
                                                                                       =======             =======


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable .......................................................            $ 1,739             $   218

   Accrued compensation ...................................................              3,959               1,533


   Payable to former stockholder ..........................................                 --               1,277

   Other accrued liabilities ..............................................              2,861                 665

   Deferred revenue .......................................................             10,399               2,806

   Current portion of capital lease obligations ...........................                368                 213
                                                                                       -------             -------
     Total current liabilities ............................................             19,326               6,712

Long-term portion of capital lease obligations ............................                553                 303

Other long-term liabilities ...............................................                 --                  67

Commitments:

Stockholders' equity:
   Preferred stock, $0.001 par value; 5,000,000 shares authorized; None
      outstanding at December 31, 1996 and 3,083,334 outstanding at
      December 31, 1995 ...................................................                 --               1,053

   Common stock, $0.001 par value; 50,000,000 shares authorized;
      18,157,936 and 12,486,200 shares issued and outstanding as of
      December 31, 1996 and 1995, respectively ............................             32,207               1,570

   Deferred stock compensation ............................................               (508)                 --

   Notes receivable from stockholders .....................................               (826)             (1,025)

   Cumulative translation adjustment ......................................                (21)                 --

   Retained earnings ......................................................              9,573               4,168
                                                                                       -------             -------
     Total stockholders' equity ...........................................             40,425               5,766
                                                                                       -------             -------
     Total liabilities and stockholders' equity ...........................            $60,304             $12,848
                                                                                       =======             =======
</TABLE>



          See accompanying notes to consolidated financial statements.



                                       22
<PAGE>   23
                       INFINITY FINANCIAL TECHNOLOGY, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                      (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                     ----------------------------------------------
                                                                      1996                1995               1994
                                                                     -------            -------             -------
<S>                                                                  <C>                <C>                 <C>

Revenues:
   License revenues .......................................          $32,417            $19,033             $ 9,021

   Service revenues .......................................            9,131              5,705               3,574
                                                                     -------            -------             -------
     Total revenues .......................................           41,548             24,738              12,595

Costs and expenses:
   Cost of revenues .......................................            5,321              2,915               2,660

   Sales and marketing ....................................           15,128              7,693               3,296

   Research and development ...............................            9,137              6,098               3,340

   General and administrative .............................            3,463              2,356               1,175
                                                                     -------            -------             -------
     Total costs and expenses .............................           33,049             19,062              10,471
                                                                     -------            -------             -------
Income from operations ....................................            8,499              5,676               2,124

Other income, net .........................................              218                 31                  15
                                                                     -------            -------             -------
Income before provision for income taxes ..................            8,717              5,707               2,139

Provision for income taxes ................................            3,312              2,258                 498
                                                                     -------            -------             -------
Net income ................................................            5,405              3,449               1,641

Series B preferred stock redemption .......................               --             (1,276)                 --
                                                                     -------            -------             -------
Net income attributable to common stockholders ............          $ 5,405            $ 2,173             $ 1,641
                                                                     =======            =======             =======
Net income per share attributable to common stockholders:
     Primary ..............................................          $  0.28            $  0.12             $  0.10
                                                                     =======            =======             =======
     Fully diluted ........................................          $  0.28            $  0.12             $  0.09
                                                                     =======            =======             =======
Shares used in per share calculations:
     Primary ..............................................           19,208             18,312              16,354
                                                                     =======            =======             =======
     Fully diluted ........................................           19,243             18,382              17,866
                                                                     =======            =======             =======
</TABLE>



          See accompanying notes to consolidated financial statements.



                                       23
<PAGE>   24
                       INFINITY FINANCIAL TECHNOLOGY, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                        (In thousands, except share data)

<TABLE>
<CAPTION>                                                                         Notes
                                          Convertible             Deferred     Receivable     Cumulative                 Total
                                           Preferred    Common      Stock         From       Translation   Retained   Stockholders'
                                            Stock        Stock   Compensation  Stockholders   Adjustment   Earnings      Equity
                                          -----------------------------------------------------------------------------------------
<S>                                        <C>        <C>        <C>           <C>            <C>          <C>        <C>
Balances at December 31, 1993               $  201     $    76     $  --        $   (31)        $ --        $  354       $ 600

   Issuance of 679,164 shares of common
     stock under option plans                               32                                                              32

   Repurchase of 290,000 shares of
     common stock                                          (12)                                                            (12)

   Issuance of 2,083,334 shares of
    Series C preferred stock, net of
     issuance costs of $904                    853                                                                        853

   Net income                                                                                                1,641       1,641
                                          -------------------------------------------------------------------------------------
Balances at December 31, 1994                1,054          96        --            (31)          --         1,995       3,114

   Issuance of 2,494,558 shares of
     common stock under option plans                     1,028                     (803)                                   225

   Issuance of 240,000 shares of  common
     stock                                                 360                     (200)                                   160

   Compensation recorded for accelerated
     vesting of options                                     86                                                              86

   Repurchase of 1,400,000 shares of
    Series B preferred stock                    (1)                                                         (1,276)     (1,277)

   Repayment of stockholder note                                                      9                                      9

   Net income                                                                                                3,449       3,449
                                          -------------------------------------------------------------------------------------
Balances at December 31, 1995                1,053       1,570        --         (1,025)          --         4,168       5,766

   Issuance of 578,878 shares of common
    stock under option plans                               229                      (60)                                   169

   Issuance of 9,524 of common stock
     pursuant to purchase agreement                        100                                                             100

   Issuance of 2,000,000 shares of
     common stock in initial public
     offering,  net of issuance costs
     of $3,370                                          28,630                                                          28,630

  Conversion of preferred stock into
     common stock                           (1,053)      1,053                                                              --

   Deferred stock compensation                             625      (625)                                                   --

   Amortization of deferred stock
     compensation                                                    117                                                   117

   Repayment of stockholder notes                                                   259                                    259

   Cumulative translation adjustment                                                             (21)                      (21)

   Net income                                                                                                5,405       5,405
                                          -------------------------------------------------------------------------------------
Balances at December 31, 1996             $     --     $32,207     $(508)         $(826)        $(21)       $9,573    $ 40,425
                                          =====================================================================================
</TABLE>


          See accompanying notes to consolidated financial statements.


                                     24
<PAGE>   25
                       INFINITY FINANCIAL TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)



<TABLE>
<CAPTION>
                                                                                        Year Ended December 31,
                                                                               ---------------------------------------
                                                                                 1996            1995           1994
                                                                               --------        --------        -------
<S>                                                                           <C>              <C>            <C>
Cash flows from operating activities:

   Net income ..........................................................       $  5,405        $ 3,449        $ 1,641


   Adjustments to reconcile net income to net cash provided by (used in)
       operating activities:

     Depreciation, amortization and other ..............................          1,106            847            417

   Changes in assets and liabilities:

     Receivables .......................................................        (12,116)        (2,599)        (2,809)

     Deferred tax asset ................................................           (318)          (397)            (1)

     Prepaid expenses and other current assets .........................           (140)          (332)          (189)

     Accounts payable ..................................................          1,521            118            (16)

     Accrued compensation ..............................................          2,426            627            634

     Payable to former stockholder .....................................         (1,277)         1,277             --

     Other accrued liabilities and long-term liabilities ...............          2,108           (114)           595

     Deferred revenue ..................................................          7,593           (897)         2,578
                                                                               --------        -------        -------

       Net cash provided by (used in) operating activities .............          6,308          1,979          2,850
                                                                               --------        -------        -------

Cash flows used in investing activities:

   Capital expenditures ................................................         (1,736)          (650)          (569)

Cash flows provided by (used in) financing activities:

   Payments of notes payable ...........................................             --             --           (635)

   Payments of notes receivable from stockholders ......................            259              9             --

   Principal payments of capital lease obligations .....................           (295)          (164)           (84)

   Proceeds from issuance of common stock ..............................         28,899            385             32

   Repurchase of preferred stock .......................................             --         (1,277)           (12)

   Net proceeds from issuance of preferred stock .......................             --             --            853
                                                                               --------        -------        -------

       Net cash provided by (used in) financing activities .............         28,863         (1,047)           154
                                                                               --------        -------        -------

Net increase (decrease)  in cash and cash equivalents ..................         33,435            282          2,435

Cash and cash equivalents at beginning of period .......................          3,517          3,235            800
                                                                               --------        -------        -------

Cash and cash equivalents at end of period .............................       $ 36,952        $ 3,517        $ 3,235
                                                                               ========        =======        =======

SUPPLEMENTAL INFORMATION:

   Cash paid during the period:

     Income taxes paid .................................................       $  2,825        $ 2,793        $   223
                                                                               ========        =======        =======

     Interest paid .....................................................       $     69        $    79        $    48
                                                                               ========        =======        =======

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

   Equipment acquired under capital lease ..............................       $    700        $   464        $   272
                                                                               ========        =======        =======

   Issuance of common stock in exchange for notes receivable ...........       $     60        $ 1,003        $    --
                                                                               ========        =======        =======

   Conversion of preferred stock to common stock .......................       $  1,053        $    --        $    --
                                                                               ========        =======        =======
</TABLE>



          See accompanying notes to consolidated financial statements.


                                       25
<PAGE>   26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Infinity Financial Technology, Inc. ("Infinity" or the "Company") develops,
markets and supports object-oriented, client/server software solutions for
financial trading and risk management. The Company provides a comprehensive
range of customer support services, including maintenance, training, and
consulting. Infinity's principal markets for its products and services are
primarily in North America, Western Europe and Asia/Pacific. The Company was
incorporated in California in 1989 and was reincorporated in Delaware in 1996.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Intercompany balances and transactions are
eliminated in consolidation. Certain amounts from prior years have been
reclassified to conform to current year presentation.

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

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Foreign Currency Translation

In 1996, the Company established subsidiaries in the United Kingdom and Japan.
The functional currency of the United Kingdom subsidiary is the U.S. dollar and
the functional currency of the Japan subsidiary is the local currency. Gains and
losses on the translation into U.S. dollars of amounts denominated in foreign
currencies are included in net income for those operations whose functional
currency is the U.S. dollar and as a separate component of stockholders' equity
for those operations whose functional currency is the local currency. Assets and
liabilities denominated in foreign currencies are translated using exchange
rates at the end of the period, and revenues and costs are translated using
average exchange rates for the period.

In order to reduce the effect of foreign currency fluctuations on its results of
operations, the Company hedges its exposure on certain intercompany and customer
receivables which are denominated in foreign currencies through the use of
forward exchange contracts. The forward exchange contracts do not subject
Infinity to significant market risk from exchange rate movements because the
contracts offset foreign currency balances and transactions being hedged. The
Company does not use financial instruments for trading or speculative purposes.
Realized and unrealized gains and losses on forward exchange contracts and the
underlying transactions being hedged are included in interest and other income,
net. There were no forward exchange contracts outstanding as of December 31,
1996 and 1995.

Concentration of Credit Risk and Significant Customers

The Company's total revenues consist primarily of license and service revenues
from financial institutions in the United States, Canada, Japan, Australia,
Germany, France and the United Kingdom. The Company sells primarily to large
institutions, and therefore does not obtain collateral against its outstanding
receivables. Infinity maintains reserves for potential credit losses and
historically such losses have been immaterial. During 1996, two customers
accounted for 11% and 10% of total revenues. During 1995, one customer accounted
for 14% of total revenues, and during 1994, three customers accounted for 18%,
15% and 10% of total revenues.


                                       26
<PAGE>   27
Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. The Company maintains deposits with
various banks and invests its excess cash in money market funds which bear
minimal risk. Cash equivalents consist of money market instruments at
December 31, 1996 and 1995.

Property and Equipment

Property and equipment are recorded at cost and depreciated on a straight-line
basis over estimated useful lives, generally three to five years. Leasehold
improvements are amortized over the lesser of the term of the lease or the
estimated useful life of the asset. Assets under capital lease obligations are
amortized over the shorter of the term of the lease or their useful lives on a
straight-line basis, and such amortization is included with depreciation.

Revenue Recognition

The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position 91-1 ("SOP 91-1"), "Software
Revenue Recognition." License revenues less deferrals for warranty are
recognized upon shipment only if no significant vendor obligations remain and
collection of the resulting receivable is deemed probable. License warranty
revenues are recognized ratably over the warranty period, generally 30 to 90
days. When the Company receives payment on licenses prior to shipment and
fulfillment of significant vendor obligations, such payments are recorded as
deferred revenue. Service revenues consist primarily of maintenance and support,
training, consulting and co-development projects. Service revenues from customer
maintenance fees for ongoing customer support and product updates are recognized
ratably over the maintenance term, which is typically 12 months. Service
revenues from customer training and consulting services are recognized as the
service is performed. License and service revenues from agreements with multiple
elements containing significant vendor obligations as well as service revenues
from co-development contracts are recognized upon achievement of contractual
milestones or on a percentage-of-completion basis.

Cost of Revenues

Cost of revenues, which primarily relate to costs of service revenues, include
materials, sub-license royalties, a portion of development costs associated with
joint product development agreements, a portion of technical support costs, and
sub-contractor costs associated with purchased services. Costs of license
revenues were immaterial for all periods presented.

Research and Development

Research and development expenditures are charged to operations as incurred.
Statement of Financial Accounting Standard No. 86 "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have been
insignificant.

Net Income Per Share

Net income per share is computed using the weighted average number of common
shares outstanding and common equivalent shares arising from the assumed
exercise of stock options using the treasury stock method and the conversion of
Series A and Series C convertible preferred stock on the as-converted method.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares issued during the period commencing 12
months prior to the initial filing of the initial public offering at prices
below the assumed public offering price have been included in the calculation as
if they were outstanding for all periods presented prior to the initial public
offering (using the treasury stock method). Fully diluted net income per share
is computed using the weighted average common and common equivalent shares
outstanding plus other dilutive shares outstanding which are not common
equivalent shares. Other dilutive shares which are not common equivalent shares
include Series B convertible preferred stock during the period such shares were
outstanding.



                                       27
<PAGE>   28
In November 1995, the Company redeemed the Series B preferred stock for
$1,277,000. The redemption decreased the income applicable to common
stockholders in the calculation of net income per share in 1995. In October
1996, all outstanding Series A and Series C preferred stock was converted to
common stock and adjusted for a two-for-one stock split effective upon the
Company's initial public offering.

Stock-Based Compensation

The Company grants stock options to purchase a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option and employee stock purchase
plans in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees." In accordance with the provisions of the opinion, the Company has
generally not recognized compensation expense in connection with such plans. In
accordance with Statement of Financial Accounting Standard No. 123 "Accounting
for Stock-Based Compensation" (SFAS No. 123), the Company has disclosed the
estimated fair value of stock options in Note 6.

Other Fair Value Disclosures

At December 31, 1996 and 1995, the carrying value of notes receivable from
stockholders approximates their fair value. The fair values of notes receivable
from stockholders are estimated using discounted cash flow analyses, based on
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality.

3.  PROPERTY AND EQUIPMENT

Property and equipment as of December 31 are as follows (in thousands):


<TABLE>
<CAPTION>
                                                 1996          1995
                                                ---------------------
<S>                                             <C>            <C>
Furniture and office equipment                  $ 1,570        $  699
Computer equipment                                2,980         1,672
                                                ---------------------
                                                  4,550         2,371
Accumulated depreciation and amortization        (1,654)         (922)
                                                ---------------------
Property and equipment, net                     $ 2,896        $1,449
                                                =====================
</TABLE>

4.  LEASE OBLIGATIONS AND OTHER COMMITMENTS

Assets acquired under non-cancelable capital leases consist of computer and
office equipment with an aggregate cost basis of approximately $1,260,000 and
$749,000 at December 31, 1996 and 1995, respectively, and accumulated
amortization of approximately $364,000 and $257,000 at December 31, 1996 and
1995, respectively. Amortization expense of assets acquired under non-cancelable
capital leases is included in depreciation expense of the Company's owned
assets.

The Company leases office space under operating leases which expire beginning in
March 1997 through March 2004. Under one lease, the Company has a two-year
renewal option. The Company also rents certain property and equipment under
operating leases. Rent expense for all operating leases for the years ended
December 31, 1996, 1995 and 1994 was approximately $1,729,000, $1,207,000 and
$705,000, respectively, and is calculated on a straight-line basis.


                                       28
<PAGE>   29
Minimum future lease payments under all operating and capital lease obligations
as of December 31, 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                   Operating Lease        Capital Lease
                                                     Obligations           Obligations
                                                   ------------------------------------
<S>                                                <C>                     <C>
Year ending December 31,
   1997                                               $1,429                   $  466
   1998                                                1,082                      373
   1999                                                1,049                      238
   2000                                                1,070                       --
   2001 and thereafter                                   437                       --
                                                      -------------------------------
Total minimum lease payments                          $5,067                    1,077
                                                      ======
Less amount representing interest                                                (156)
                                                                               ------
Present value of net minimum lease payments                                       921
Less current portion                                                             (368)
                                                                               ------
Long-term portion                                                              $  553
                                                                               ======
</TABLE>


5.  STOCKHOLDERS' EQUITY

Preferred Stock

Conversion of all outstanding preferred stock into common stock occurred at the
Company's initial public offering of the Company's common stock in October 1996.

On January 31, 1994, the Company completed an offering of Series C preferred
stock for gross proceeds of $1,757,000. As a condition to the stock purchase,
the investors required the Company to terminate certain continuing covenants
including certain cash payments due upon subsequent rounds of financing imposed
on the Company in the 1992 settlement and buy-out of a former common
stockholder. As a result, the Company paid $876,000 to the former common
stockholder as consideration for his agreement to terminate these contractual
covenants and restrictions and for his approval of the Series C preferred stock
financing. These costs have been accounted for as issuance costs associated with
the sale of the Series C preferred stock.

In November 1995, the Company exercised its right to repurchase all of the
outstanding Series B preferred shares for $1,277,000. The excess of the
repurchase cost over the stated value of the shares at the time of issuance to
the stockholder has been recorded as a reduction of retained earnings in the
statement of stockholders' equity.

Common Stock

The Company issues shares of common stock which are subject to the Company's
right to repurchase at the original issuance price upon the occurrence of
certain events as defined in the agreements. This right expires ratably over 48
months. At December 31, 1996 and 1995, 513,091 and 824,792 shares were subject
to repurchase, respectively.

In 1995, the Company issued 200,000 shares under a stock purchase agreement. In
connection with this agreement, the Company received a secured promissory note
for $200,000. The note bears interest at 6.04% and is due and payable in March
1997.

At December 31, 1996 and 1995, the total number of shares of common stock
reserved for future issuance under all option plans and conversion of Series A
and C convertible preferred stock was 4,487,726 and 7,135,776, respectively. In
addition, at December 31, 1996, a total of 300,000 shares of common stock are
reserved for future issuance under the 1996 Employee Stock Purchase Plan.




                                       29
<PAGE>   30
Stock Options

The Company's 1989 Stock Option Plan (the "1989 Plan") authorizes the board of
directors to grant incentive stock options or non-qualified stock options for up
to 2,695,644 common shares to employees, consultants, officers and directors of
the Company. The 1989 Plan is administered by the board of directors with the
terms and conditions of options being generally left to the discretion of the
board of directors.

Under the 1989 Plan, options may be granted at a price not less than fair value
at the date of grant as determined by the board of directors or committee
thereof, except for options granted to a person owning greater than 10% of the
total combined voting power of all classes of stock of the Company, for which
the exercise price of the options must not be less than 110% of the fair value
at the time of grant as determined by the board of directors or committee
thereof. Options generally become exercisable over a period of four years with
1/4 of the options vesting on the first anniversary of the option grant, and the
remainder vesting ratably over the following 36 months. Options are exercisable
for a term of five years after the date of grant.

The Company's 1993 Stock Incentive Plan (the "1993 Plan") authorizes the board
of directors to grant incentive stock options or non-qualified stock options for
up to 6,104,356 common shares to employees, consultants, officers and directors
of the Company. The terms of the 1993 Plan are generally similar to the 1989
Plan, except that options are exercisable for a term of ten years after the date
of grant.

In July 1996, the Company's board of directors adopted the 1996 Stock Incentive
Plan (the "1996 Plan") which authorizes the board of directors to grant
incentive stock options or non-qualified stock options for up to 800,000 common
shares to employees, consultants, officers and directors of the Company. In
addition, the board of directors also approved an increase of 250,000 in the
number of shares authorized for issuance under the 1993 Plan. The terms of the
1996 Plan are generally the same as the 1993 Plan.

In the event of termination of employment or consulting services, the employee
or consultant shall have the right to exercise any unexercised vested options
within 30 or 90 days of the date of termination.

Under all three plans, employees may exercise options in exchange for a secured
promissory note. In 1996, the Company issued a note for $60,000 bearing interest
at 6.58% and due and payable beginning in June 1997 through June 2000. In 1995,
the Company issued two notes for $750,000 and $52,500 bearing interest at 6.04%
and 5.88%, respectively, which are due and payable beginning in September 1996
through September 2000. As of December 31, 1996, $236,250 of principal had been
repaid on these notes.

The Company has recorded deferred compensation expense of $625,000 to reflect
the difference between the grant price and the deemed fair value of certain of
the Company's common stock options granted in 1995 and 1996. This amount is
being amortized over a 48-month period consistent with the vesting period of the
individual options. Compensation expense recognized in the year ended December
31, 1996 totaled $117,000.

In July 1996, the Company's board of directors adopted the 1996 Employee Stock
Purchase Plan (the "Purchase Plan") which authorizes the issuance of 300,000
shares of common stock to its full-time employees, nearly all of whom are
eligible to participate. Under the terms of the Purchase Plan, shares may be
purchased at 85% of the lessor of the fair market value of the common stock on
the grant or purchase date. Employees can choose to have up to 10% of their
annual earnings (including base earnings, bonuses and commissions) withheld to
purchase the Company's common stock, subject to a maximum of 500 shares during
any six-month purchase period. Approximately 80% percent of eligible employees
are participating in the plan which began on October 25, 1996. No shares were
purchased under the Purchase Plan in 1996.

6. STOCK BASED COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock issued to Employees" (APB No. 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123 requires use of options valuation models that were not developed for use
in valuing employee stock options. Under APB No. 25, because the exercise price
of the Company's employee stock option equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.



                                       30
<PAGE>   31
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of the Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for the
year ended December 31:

<TABLE>
<CAPTION>
                                                  1996        1995
                                                  ----        ----
             <S>                                 <C>          <C>
             Risk-free interest rate %            6.00        6.21
             Dividend yield %                        0           0
             Volatility of market price %(1)        51           0
             Expected option life, years          2.77        2.70
</TABLE>

     (1) Since the Company was not public during 1995, the minimum-value method
     was used for 1995 whereby volatility is assumed to be 0%. Options granted
     in 1996 during the period in which the Company was not public were also
     valued using the minimum value method. There was only one grant in 1996
     that was issued subsequent to the Company's initial public offering, and
     that grant was valued using the indicated volatility assumption.

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

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Had the compensation
cost for the Company's stock option plans been determined consistent with SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below for the year ended December 31 (in
thousands, except earnings per share data):

<TABLE>
<CAPTION>
                                                      1996    1995
                                                      ----    ----
            <S>                                     <C>      <C>
             Net income:
                      As reported                   $5,405   $2,173
                      Pro forma                      5,218    2,135
             Primary earnings per share:
                      As reported                   $ 0.28   $ 0.12
                      Pro forma                       0.27     0.12
             Fully diluted earnings per share:
                      As reported                   $ 0.28   $ 0.12
                      Pro forma                       0.27     0.12
</TABLE>

Because SFAS No. 123 is applicable only to options granted subsequent to 1994,
its proforma effect will not be fully reflected until 2000.


                                       31

<PAGE>   32
A summary of the Company's stock option activity, and related information for
the year ended December 31 follows:


<TABLE>
<CAPTION>
                                                1996                         1995                        1994
                                     ------------------------------------------------------------------------------------
                                                      Weighted                   Weighted                    Weighted
                                        Options        Average      Options       Average       Options      Average
                                        (000's)    Exercise Price   (000's)    Exercise Price   (000's)    Exercise Price
                                     ------------------------------------------------------------------------------------
<S>                                  <C>           <C>             <C>          <C>            <C>          <C>
Outstanding - beginning of year          2,941         $0.49         3,831         $0.11        3,126         $0.06
Granted                                  1,591          5.56         2,021          1.07        1,832          0.16
Exercised                                 (579)         0.39        (2,495)         0.42         (679)         0.05
Canceled                                  (335)         1.33          (416)         0.22         (448)         0.07
                                     -----------------------------------------------------------------------------------
Outstanding - end of year                3,618         $2.66         2,941         $0.49        3,831         $0.11
                                     ===================================================================================

Exercisable at end of year               1,156         $0.71           741         $0.15        1,219         $0.07

Weighted average fair value of
options granted during the year         $ 0.91                      $ 0.16                       N/A
</TABLE>


The following table summarizes information about options outstanding at December
31, 1996:

<TABLE>
<CAPTION>
                                        Options Outstanding                       Options Exercisable
                           --------------------------------------------------------------------------------
                                             Weighted
                                              Average
                               Number        Remaining        Weighted          Number          Weighted
            Range of        Outstanding     Contractual       Average         Exercisable        Average
        Exercise Prices       (000's)          Life        Exercise Price       (000's)      Exercise Price
        ---------------------------------------------------------------------------------------------------
        <S>                 <C>             <C>            <C>               <C>             <C>
        $ 0.04 to  0.15         889            5.5             $0.10             611               $0.09
          0.18 to  1.50       1,159            7.4              0.78             404                0.64
          2.00 to  3.50         731            8.9              3.38             136                3.29
          4.00 to  6.00         474            9.3              4.51               0                0.00
         10.50 to 18.75         365            9.2             10.98               5               10.50
        ------------------------------------------------------------------------------------------------
        $ 0.04 to 18.75       3,618            7.7             $2.66           1,156               $0.71
        ================================================================================================
</TABLE>


7. INCOME TAXES

The provision for income taxes consist of the following (in thousands):


<TABLE>
<CAPTION>
                                                       Year ended December 31,
                                         1996                   1995                  1994
                                       ---------------------------------------------------
            <S>                        <C>                    <C>                 <C>
            Current:
               Federal                 $2,712                 $1,786                  $112
               State                      488                    515                    72
               Foreign                    430                    354                   330
                                       ---------------------------------------------------
                                        3,630                  2,655                   514
            Deferred (prepaid):
               Federal                   (282)                  (328)                  (31)
               State                      (36)                   (69)                   15
                                       ---------------------------------------------------
                                       $3,312                 $2,258                  $498
                                       ===================================================
</TABLE>

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


                                       32
<PAGE>   33

<TABLE>
<CAPTION>
                                         Year ended December 31,
                                     1996          1995         1994
                                    ---------------------------------
         <S>                        <C>           <C>          <C>
         Expected tax at 34%        $2,964        $1,940        $ 727

         State income tax,
           net of federal benefit      329           294           57
         Research and development
           credit                      (81)          (47)         (58)
         Reduction in valuation
           allowance                    --            --         (225)
         FSC benefit                   (88)         (106)          --
         Other                         188           177           (3)
                                    ---------------------------------
                                    $3,312        $2,258        $ 498
                                    =================================
</TABLE>

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

<TABLE>
<CAPTION>
                                            Year ended December 31,
                                                1996       1995
                                                ---------------
                 <S>                            <C>        <C>
                 Reserves and accruals          $827       $324
                 Other - net                      60        245
                                                ---------------
                 Total deferred tax asset       $887       $569
                                                ===============
</TABLE>

Management has concluded that a valuation allowance is not required based on its
assessment that current and future levels of taxable income will be sufficient
to realize the tax benefit.

8. FOREIGN OPERATIONS

The Company markets and sells its products and services in a single industry
segment. Net sales, operating income and identifiable assets consist of the
following (in thousands):

<TABLE>
<CAPTION>
                                         Year ended December 31,
                                    1996          1995            1994
                                   -----------------------------------
<S>                                <C>           <C>            <C>
       Net Sales:
          United States -
            domestic              $10,038        $8,748         $ 6,489
          United States -
            export                 27,247         5,990           6,106
          Japan                     4,263            --              --
                                  -------------------------------------
              Total net sales     $41,548        $4,738         $12,595
                                  =====================================

       Operating Income:
          United States           $ 8,260        $5,676         $ 2,124
          Japan                       239            --              --
                                  -------------------------------------
              Total operating
                income            $ 8,499        $5,676         $ 2,124
                                  =====================================

       Identifiable Assets:
          United States           $59,149        $2,848         $ 8,885
          Japan                     1,155            --              --
                                  -------------------------------------
              Total identifiable
                assets            $60,304        $2,848         $ 8,885
                                  =====================================
</TABLE>

In 1996, the Company established subsidiaries in the United Kingdom and Japan.
There were no significant foreign operations during fiscal 1996 other than
Japan. During the fiscal years ended December 31, 1995 and 1994, the Company had
no significant foreign operations.



                                       33
<PAGE>   34
Operating profit is total revenues less total operating expenses. In computing
operating profit, none of the following items have been added or deleted:
interest expense, interest income, foreign currency translation gain or loss, or
income taxes. Identifiable assets are those assets of the Company which are
identified with the operations of the corresponding geographic area.



                                       34
<PAGE>   35
                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


The Board of Directors and Stockholders
Infinity Financial Technology, Inc.

We have audited the accompanying consolidated balance sheets of Infinity
Financial Technology, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Infinity Financial Technology, Inc. at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.



Palo Alto, California                             /s/ ERNST & YOUNG LLP
January 21, 1997


                                       35
<PAGE>   36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

Not applicable.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information regarding directors of the Company required by this Item is
incorporated by reference to the Proxy Statement for the Company's Annual
Meeting of Stockholders, tentatively scheduled to be held on May 21, 1997, under
the heading "Election of Directors."

The following table sets forth the executive officers of the Company and their
respective ages as of March 1, 1997:

<TABLE>
<CAPTION>
       NAME             AGE                        POSITION
<S>                    <C>           <C>
Roger A. Lang            37          Chief Executive Officer
Michael A. Laven         48          President and Chief Operating Officer
Till M. Guldimann        47          Executive Vice President
Terry H. Carlitz         45          Chief Financial Officer and Vice President, Finance
Tejbir S. Sidhu          31          Vice President, Client Services
Ron Lang                 45          Vice President, Marketing
</TABLE>

Mr. Roger A. Lang has been Chief Executive Officer and a Director of the Company
since he co-founded the Company in June 1989. From May 1996 to February 1997,he
served as President of the Company. Prior to founding the Company, Mr. Lang was
Vice President, Global Client Services at C*ATS Software Inc., a provider of
software products for the financial services industry, from September 1986 until
June 1989. Mr. Lang holds a B.A. and an M.A. from Stanford University.

Mr. Laven was named President and Chief Operating Officer in March 1997, having
previously served as Vice President, Worldwide Field Operations. Prior to
joining the Company in May 1996, he was employed by Scopus Technology, Inc., a
customer information management software company, where he served as Vice
President, International since June 1995. From April 1994 to May 1995, he was
Chief Executive Officer of CoroNet Systems, a network management company. From
May 1990 to March 1994, Mr. Laven held various positions at Ask Computer, a
relational database management systems and applications company, most recently
serving as Executive Vice President, Worldwide Operations. Mr. Laven holds a
B.A. from Wesleyan College, an M.A. from the School of International Training
and an M.Ed. from Harvard University.

Mr. Guldimann has been Executive Vice President and a Director of the Company
since he joined the Company in September 1995. From June 1974 to June 1995, Mr.
Guldimann was employed by J.P. Morgan, where he served as Head of Global
Research from March 1990 to June 1995 and as Chairman of J.P. Morgan's Market
Risk Committee from February 1991 to October 1992. Mr. Guldimann holds an M.S.
from the Swiss Federal Institute of Technology and an M.B.A. from Harvard
University.

Ms. Carlitz has been Chief Financial Officer and Vice President, Finance since
she joined the Company in February 1995. From September 1987 to February 1995,
she was employed by Apple Computer, Inc. where she held the positions of
Director, Strategic Investments and Business Development, Director and European
Controller and Director, Corporate Planning and Analysis. Ms. Carlitz holds a
B.S. from San Jose State University and an M.B.A. from Stanford University.

Mr. Sidhu co-founded the Company in June 1989 and is currently Vice President,
Client Services. Prior to founding Infinity, Mr. Sidhu was with Everex Systems,
a manufacturer of PC based workstations and peripherals from July 1988 until
May 1989. Mr. Sidhu commenced a one year educational leave in August 1996.
Mr. Sidhu holds a B.A. from the University of Pennsylvania.



                                       36
<PAGE>   37
Mr. Ron Lang has been Vice President, Marketing since he joined the Company in
February 1997. From February 1996 to January 1997, Mr. Lang was employed by
Matisse Software, Inc., a multimedia database company, where he held the
position of Vice President of Marketing and Chief Operating Officer. From August
1993 to January 1996, Mr. Lang was President and co-founder of Catalyst
Solutions, a software engineering consulting firm. From March 1992 to July 1993,
Mr. Lang was Director of Marketing at Rational Software, Inc., a software
engineering products company. Mr. Lang holds a B.S. from the University of
California at Berkeley.

All officers serve at the discretion of the Board of Directors of the Company.
There are no family relationships between executive officers or directors of the
Company.

ITEM 11. EXECUTIVE COMPENSATION

The information regarding directors of the Company required by this Item is
incorporated by reference to the Proxy Statement for the Company's Annual
Meeting of Stockholders, tentatively scheduled to be held on May 21, 1997, under
the heading "Executive Compensation and Other Information."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information regarding directors of the Company required by this Item is
incorporated by reference to the Proxy Statement for the Company's Annual
Meeting of Stockholders, tentatively scheduled to be held on May 21, 1997, under
the heading "Security Ownership of Certain Beneficial Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information regarding directors of the Company required by this Item is
incorporated by reference to the Proxy Statement for the Company's Annual
Meeting of Stockholders, tentatively scheduled to be held on May 21, 1997, under
the heading "Certain Transactions."


                                    PART IV


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

         (a)      1. Financial Statement Schedules. The following financial
                  statement schedule is filed as part of this Report on Form
                  10-K on Page S-1.

                  2. Exhibits. The exhibits listed by the accompanying index to
                  exhibits are filed or incorporated by reference as part of
                  this Report on Form 10-K:




                                       37
<PAGE>   38
                                 EXHIBIT INDEX

Exhibit
Number                               Exhibit Title

 3.1*             Amended and Restated Certificate of Incorporation of the
                  Registrant, as currently in effect.

 3.2*             Registrant's Amended and Restated Bylaws, as currently in
                  effect.

 3.3*             Registrant's Agreement and Plan of Reorganization.

 4.1              Reference is made to Exhibits 3.1 and 3.2.

10.1*             Investors' Rights Agreement, dated January 1994.

10.2*             Form of Indemnification Agreement between the Registrant and
                  each of its executive officers and directors.

10.3*#            Employment Agreement between the Registrant and Mr. Guldimann
                  dated as of September 1, 1995.

10.4*#            Employment Agreement between the Registrant and Mr. Hospers
                  dated as of October 24, 1995.

10.5*#            Letter Agreement between the Registrant and Mr. Laven dated as
                  of May 1996.

10.8*#            Form of Promissory Notes entered into between the Registrant
                  and each of Ms. Carlitz, Mr. Guldimann, Mr. Paul and Mr.
                  Sandhu.

10.11*            Lease Agreement between the Registrant and the Arrillaga
                  Family Trust and the Richard T. Peery Separate Property Trust,
                  dated November 8, 1995.

10.13*#           Registrant's 1989 Stock Option Plan, including forms of
                  agreements thereunder.

10.14*#           Registrant's 1993 Stock Incentive Plan, including forms of
                  agreements thereunder.

10.15*#           Registrant's 1996 Stock Incentive Plan, including forms of
                  agreements thereunder.

10.16*#           Registrant's 1996 Employee Stock Purchase Plan, including
                  forms of agreements thereunder.

10.17*            Series C Preferred Stock Purchase Agreement between the
                  Company and the investors listed therein dated as of January
                  31, 1994.

11.1              Statement regarding calculation of net income per share.

21.1*             Registrant's Significant Subsidiaries.

23.1              Consent of Ernst & Young LLP, Independent Auditors.

24.1              Powers of Attorney. Reference is made to Page 39.

27.1              Financial Data Schedule.
--------
   *  Incorporated by reference to the identically numbered exhibit
      to the Company's Registration Statement on Form S-1
      (Commission File No. 333-8647) which became effective October 24, 1996.

   # Management contracts, or Company compensatory plans or
     arrangements.

(b)               No reports on Form 8-K were filed during fiscal 1996.


                                       38
<PAGE>   39
                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Mountain View, State of California on the 28th day of March, 1997.




                                        INFINITY FINANCIAL TECHNOLOGY, INC.


                                        /s/ TERRY H. CARLITZ
                                        ------------------------------------
                                        Terry H. Carlitz
                                        Chief Financial Officer and
                                        Vice President, Finance

         KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Roger A. Lang and Terry H. Carlitz, and
each of them, acting individually, as his or her attorney-in-fact, each with
full power of substitution and re-substitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Report on Form 10-K, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and things requisite and
necessary to be done in connection therewith and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

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

<TABLE>
<CAPTION>
              SIGNATURE                                      TITLE                                      DATE
              ---------                                      -----                                      ----
<S>                                          <C>                                                  <C>
/s/ ROGER A. LANG                            Chief Executive Officer and                          March 28, 1997
------------------------------------         Director (Principal Executive Officer)
(Roger A. Lang)


/s/ TERRY H. CARLITZ                         Chief Financial Officer and Vice President,          March 28, 1997
------------------------------------         Finance (Principal Financial and Accounting
(Terry H. Carlitz)                           Officer)



/s/ CHARLES H. MARSTON                       Director                                             March 28, 1997
------------------------------------
(Charles H. Marston)


/s/ TILL M. GULDIMANN                        Director                                             March 28, 1997
------------------------------------
(Till M. Guldimann)


/s/ JOHN C. LEWIS                            Director                                             March 28, 1997
------------------------------------
(John C. Lewis)


/s/ DOUGLAS M. LEONE                         Director                                             March 28, 1997
------------------------------------
(Douglas M. Leone)


/s/ JAMES A. DORRIAN                         Director                                             March 28, 1997
------------------------------------
(James A. Dorrian)
</TABLE>


                                       39
<PAGE>   40
                       INFINITY FINANCIAL TECHNOLOGY, INC.

                 Schedule II - Valuation and Qualifying Accounts


<TABLE>
<CAPTION>

                                               Year ended December 31,
                                           1996            1995       1994
                                       ------------------------------------
<S>                                    <C>              <C>            <C>
Allowance for Doubtful Accounts:
   Balance, beginning of year          $ 195,000              --         --
   Additions, charged to expense         317,000        $195,000         --
   Deductions                           (262,000)             --         --
                                       ------------------------------------
   Balance, end of year                $ 250,000        $195,000         --
                                       ====================================
</TABLE>


































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