<PAGE>

                                   UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C.  20549
                                          
                                     FORM 10-Q
                                          
(Mark One)
         [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES AND EXCHANGE ACT OF 1934

For Quarterly Period Ended December 31, 1997

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

                                          
                          Commission File Number: 0-28900
                                          

                              ROGUE WAVE SOFTWARE, INC.
                (Exact name of registrant as specified in its charter)

     Delaware                                                    93-1064214     
(State or other jurisdiction of                                (IRS Employer    
incorporation or organization)                               Identification No.)

  850 SW 35th Street, Corvallis, Oregon                                 97333   
(Address of principal executive offices)                              (Zip Code)

                                  (541) 754-3010
              (Registrant's telephone number, including area code)



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

Indicate the number of shares outstanding of each of the registrant's classes 
of common stock, as of the latest practicable date.

             Class                            Outstanding at December 31, 1997
Common Stock, $0.001 par value                            8,411,434

                                       1.

<PAGE>
                                       
                          ROGUE WAVE SOFTWARE, INC.
                                   FORM 10-Q

                                    INDEX


                                                                       Page No.
                                                                       --------
PART I - FINANCIAL INFORMATION

Item 1.   Consolidated Financial Statements:

               Condensed Consolidated Balance Sheets at
               September 30, 1997 and December 31, 1997. . . . . . . . . . . 3

               Consolidated Statements of Operations for the three 
               months ended December 31, 1996 and 1997 . . . . . . . . . . . 4

               Consolidated Statements of Cash Flows for the
               three months ended December 31, 1996 and 1997 . . . . . . . . 5

          Notes to Consolidated Financial Statements . . . . . . . . . . . . 6

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations. . . . . . . . . . . . . . . . 7

Item 3.   Quantitative and Qualitative Disclosures About Market Risk . . . .18

PART II - OTHER INFORMATION

Item 2.   Changes in Securities and Use of Proceeds. . . . . . . . . . . . .19
Item 6.   Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . .19

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

                                       2.

<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1. - CONSOLIDATED FINANCIAL STATEMENTS:
                                       
                            ROGUE WAVE SOFTWARE, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (in thousands)


<TABLE>
<CAPTION>
                                                            September 30,  December 31,
                                                               1997            1997    
                                                            ------------   ------------
                                                                           (Unaudited) 
                                  A S S E T S:                                         
<S>                                                             <C>            <C>     
Current assets:                                                                        
     Cash and cash equivalents                                  $  9,282       $  6,750
     Short-term investments                                       25,739         29,603
     Accounts receivable,net                                       6,259          6,058
     Prepaid and other current assets                              1,221            966
                                                            ------------   ------------
          Total current assets                                    42,501         43,377
                                                                                       
     Furniture, fixtures and equipment, net                        3,934          4,580
     Other assets, net                                             2,255          2,168
                                                            ------------   ------------
          Total assets                                          $ 48,690       $ 50,125
                                                            ------------   ------------
                                                            ------------   ------------
                                                                                       
                      LIABILITIES AND STOCKHOLDERS' EQUITY:                            
Current liabilities:                                                                   
     Accounts payable                                           $    714       $    936
     Accrued expenses                                              2,625          2,307
     Deferred revenue                                              5,393          5,599
     Current portion of long-term obligations                        202            184
                                                            ------------   ------------
          Total current liabilities                                8,934          9,026
                                                                                       
Long-term obligations, less current portion                          351            321
                                                            ------------   ------------
          Total liabilities                                        9,285          9,347
                                                            ------------   ------------
                                                                                       
Stockholders' equity:                                                                  
     Common stock                                                      8              8
     Additional paid-in capital                                   36,695         36,806
     Retained earnings                                             2,822          3,974
     Cumulative translation adjustment                              (120)           (10)
                                                            ------------   ------------
          Total stockholders' equity                              39,405         40,778
                                                            ------------   ------------
          Total liabilities and stockholders' equity            $ 48,690       $ 50,125
                                                            ------------   ------------
                                                            ------------   ------------
</TABLE>

                              See accompanying notes.

                                       3.

<PAGE>
                                       
                          ROGUE WAVE SOFTWARE, INC.
                   CONSOLIDATED STATEMENTS OF OPERATIONS
                          (IN THOUSANDS, UNAUDITED)

<TABLE>
<CAPTION>
                                                               Three months ended   
                                                                   December 31,     
                                                            ------------------------
                                                                1996        1997    
                                                            ------------ -----------
<S>                                                           <C>           <C>     
Revenue:                                                                            
     License revenue                                          $  4,485      $  5,971
     Service and maintenance revenue                             1,394         3,183
                                                            ------------ -----------
          Total revenue                                          5,879         9,154
                                                            ------------ -----------
Cost of revenue:                                                                    
     Cost of license revenue                                       342           408
     Cost of service and maintenance revenue                       502           901
                                                            ------------ -----------
          Total cost of revenue                                    844         1,309
                                                            ------------ -----------
          Gross profit                                           5,035         7,845
                                                            ------------ -----------
Operating expenses:                                                                 
     Product development                                         1,484         1,938
     Sales and marketing                                         2,477         3,911
     General and administrative                                    705           807
                                                            ------------ -----------
          Total operating expenses                               4,666         6,656
                                                            ------------ -----------
          Income from operations                                   369         1,189
Other income, net                                                  110           584
                                                            ------------ -----------
          Income before income taxes                               479         1,773
Income tax expense                                                 158           621
                                                            ------------ -----------
          Net income                                            $  321      $  1,152
                                                            ------------ -----------
                                                            ------------ -----------

Basic earnings per share                                       $  0.07       $  0.14
                                                            ------------ -----------
                                                            ------------ -----------
Diluted earnings per share                                     $  0.04       $  0.13
                                                            ------------ -----------
                                                            ------------ -----------

Shares used in basic per share calculation                       4,703         8,389
Shares used in diluted per share calculation                     7,395         9,210
</TABLE>
                                       
                           See accompanying notes.

                                       4.

<PAGE>
                                       
                          ROGUE WAVE SOFTWARE, INC.
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                         (in thousands, unaudited)

<TABLE>
<CAPTION>
                                                               Three Months ended    
                                                                   December 31,      
                                                            ------------------------ 
                                                                1996        1997     
                                                            ------------ ----------- 
<S>                                                         <C>          <C>         
Cash flows from operating activities:                                                
     Net income                                                   $321        $1,152 

Adjustments to reconcile net income to net cash                                      
from operating activities:                                                           
     Depreciation and amortization                                 334           626 
     Changes in assets and liabilities:                                              
          Accounts receivable                                      929           201 
          Prepaid and other current assets                         323           255 
          Other assets                                             (23)          (61)
          Accounts payable and accrued expenses                    199           (96)
          Deferred revenue                                         686           206
                                                            ------------ ----------- 
             Net cash from operating activities                  2,769         2,283 
                                                            ------------ ----------- 
Cash flows from investing activities:                                                
     Purchase of furniture, fixtures, and equipment               (388)       (1,124)
     Purchase of short-term investments                             --        (3,864)
                                                            ------------ ----------- 
             Net cash from investing activities                   (388)       (4,988)
                                                            ------------ ----------- 
Cash flows from financing activities:                                                
     Payments on long-term obligations                             (54)          (48)
     Net proceeds from issuance of common stock, net            25,628            -- 
     Stock issuance costs                                           --           (23)
     Proceeds from exercise of stock options                        46           135 
                                                            ------------ ----------- 
             Net cash from financing activities                 25,620            64 
                                                            ------------ ----------- 
Effect of exchange rate on cash and cash equivalents                (2)          109 
                                                            ------------ ----------- 
             Net change in cash and cash equivalents            27,999        (2,532)
Cash and cash equivalents at beginning of period                 1,714         9,282 
                                                            ------------ ----------- 
Cash and cash equivalents at end of period                     $29,713        $6,750 
                                                            ------------ ----------- 
                                                            ------------ ----------- 

</TABLE>

                             See accompanying notes.

                                       5.

<PAGE>
                                       
                          ROGUE WAVE SOFTWARE, INC.
                                   NOTES TO
                     CONSOLIDATED FINANCIAL STATEMENTS
                                 (UNAUDITED)

1.   Basis of Presentation
     The accompanying financial statements have been prepared in conformity with
     generally accepted accounting principles.  However, certain information or
     footnote disclosures normally included in financial statements prepared in
     accordance with generally accepted accounting principles have been
     condensed, or omitted, pursuant to the rules and regulations of the
     Securities and Exchange Commission.  In the opinion of management, the
     statements include all adjustments necessary (which are of a normal and
     recurring nature) for the fair presentation of the results of the interim
     periods presented.  These financial statements should be read in
     conjunction with the Company's audited consolidated financial statements
     for the year ended September 30, 1997, as included in the Company's annual
     report on Form 10-K.

2.   Earnings per share
     In 1997 the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS
     No. 128 requires the replacement of previously reported primary and fully
     diluted earnings per share required by Accounting Principles Board Opinion
     No. 15 with basic earnings per share and diluted earnings per share.  The
     calculation of basic earnings per share excludes any dilutive effect of
     stock options, while diluted earnings per share includes the dilutive
     effect of stock options.  Per share amounts for the quarter ended December
     31, 1996 have been restated to conform to the requirements of SFAS No. 128.

3.   Acquisition
     During October 1997, the Company acquired 78% of the outstanding stock of
     HotData Inc. ("HotData") for $1.3 million in cash and can contribute up to
     a total of $2.0 million  through February 1999.  HotData, which began
     operations in 1997, is developing technology to collect and verify data
     across the Internet.  The acquisition is accounted for under the equity
     method and HotData is a majority-owned subsidiary with the financial
     results of such subsidiary consolidated with the Company's as of October 1,
     1997.  The Company will have the option to purchase the minority interest
     of the subsidiary during a specified time period in the future.
     Consolidated pro forma results of operations as if the acquisition had
     occurred at the beginning of fiscal year 1997 are not presented as the pro
     forma effect is not material.

4.   Subsequent Event
     On January 20, 1998, the Company signed a definitive agreement to acquire
     Stingray Software, Inc. ("Stingray").  The Company will acquire all of the
     outstanding shares of Stingray common stock in exchange for approximately
     1.68 million shares of Rogue Wave common stock. Stingray is a privately
     held company that develops and distributes development tools for Windows
     programmers. The acquisition, which will be accounted for as a pooling of
     interests, is subject to certain closing conditions and is expected to be
     consummated by February 28, 1998.

ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS

         EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE 
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS 
AND UNCERTAINTIES.  THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM 
THOSE DISCUSSED HEREIN.  FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH 
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION, 
AS WELL AS IN THE SECTION "RISK FACTORS" AND "BUSINESS" IN THE COMPANY'S 
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1997.

                                       6.

<PAGE>

READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING 
STATEMENTS WHICH REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF THE DATE HEREOF.  
THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY 
REVISION TO THESE FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT 
EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF 
UNANTICIPATED EVENTS.  

OVERVIEW

        Rogue Wave was founded in 1989 to provide reusable software parts for 
the development of object-oriented software applications.  The Company 
operated as a Subchapter S corporation until June 1994. 

        The Company has experienced significant revenue growth over the last 
several years.  During fiscal 1997, the Company's revenue grew primarily from 
the continued strong demand for C++ and Java-based software parts and tools 
and the establishment of a consulting group based in Boulder, Colorado.  In 
addition, the Company's international revenue increased from 19% of total 
revenue in fiscal 1996 to 23% of total revenue in fiscal 1997 due primarily 
to the expansion of the European sales channel by the acquisition of a Rogue 
Wave products distributor.

        To date, the Company's revenue has been derived from licenses of its 
software products and related maintenance, training and consulting services. 
License revenue is recognized upon execution of a license agreement and 
shipment of the product if no significant contractual obligations remain and 
collection of the resulting receivable is probable.  Allowances for credit 
risks and for estimated future returns are provided for upon shipment.  
Returns to date have not been material.  Service and maintenance revenue 
consists of fees that are charged separately from the product licenses.  
Maintenance revenue consists of fees for ongoing support and product updates 
and is recognized ratably over the term of the contract, which is typically 
12 months.  Service revenue consists of training and consulting services and 
is recognized upon completion of the related activity.  For all periods 
presented, the Company has recognized revenue in accordance with Statement of 
Position 91-1, SOFTWARE REVENUE RECOGNITION. See Note 1 of Notes to 
Consolidated Financial Statements. 

        The Company markets its products primarily through its direct sales 
force, and to a lesser extent through the Internet and an indirect channel 
consisting of OEMs, VARs, dealers and distributors.  The Company's direct 
sales force consists of an inside telesales group that focuses on smaller 
orders ($50,000 or less), and an outside sales force that focuses on larger 
site licenses. The Company makes all of its products available for sale and 
distribution over the Internet.  Revenue through this channel has not been 
significant to date, and there can be no assurance that the Company will be 
successful in marketing its products through this channel.

         International revenue accounted for approximately 19%, 23% and 30% 
of total revenue in fiscal 1996, fiscal 1997, and the quarter ended December 
31, 1997, respectively.  In February 1997, the Company expanded its European 
operations by acquiring Precision, a distributor of Rogue Wave software 
products in Germany, the United Kingdom, France and the Benelux countries. 
The Company anticipates further expansion in foreign countries and expects 
that international license and service and maintenance revenue will account 
for an increasing portion of its total revenue in the future.  The Company 
has committed and continues to commit significant management time and 
financial resources to developing direct and indirect international sales and 
support channels.  There can be no assurance, however, that the Company will 
be able to maintain or increase international market demand for its products. 
To date, other than revenue generated by the Company's European 
subsidiaries, the Company's international revenue has been denominated in 
United States dollars. The Company has entered into forward foreign exchange 
contracts to reduce the risk associated with currency fluctuations.  Although 
exposure to currency fluctuations to date has been insignificant, to the 
extent international revenue is denominated in local currencies, foreign 
currency translations may contribute to significant fluctuations in, and 
could have a material adverse effect upon, the Company's business, financial 
condition and results of operations.  See "Risk Factors-Risks Inherent in 
International Operations." 

              The Company has developed technology relating to the collection 
and verification of data across the Internet. The Company contributed such 
technology, and made a funding commitment of $1.3 million on October 1, 1997 
and can contribute up to a total of $2.0 million through February 1999, to a 
majority-owned subsidiary, HotData, for further development and possible 
commercialization of this technology. The Company will have the option to 
purchase the minority interest of the subsidiary during a specified time 
period in the future. Dan Whitaker, 

                                       7.

<PAGE>

the Company's former Executive Vice President, Marketing, resigned his office 
and his position on the Company's Board of Directors to devote full time to 
the management of HotData, but has agreed to serve as a consultant to the 
Company through July 1998. The Company expects that such subsidiary will be 
in the development stage through at least fiscal 1998. There can be no 
assurance that the technology developed by such subsidiary will be 
commercialized, and even if it is commercialized there can be no assurance 
that the technology will receive market acceptance due to the subsidiary's 
new and untested business model. The financial results of HotData have been 
consolidated with the Company's financial results. Accordingly, fluctuations 
in the operating results of HotData may have a material adverse effect on the 
Company's operating results. 

              In April 1997, the Company established a consulting group in 
Boulder, Colorado consisting of 15 employees. The addition of these employees 
has resulted in an increase in service and maintenance revenue and a 
corresponding increase in the cost of service and maintenance revenue. The 
gross margin associated with such consulting work has been and is expected to 
continue to be lower than the Company's historical gross margin on service 
and maintenance revenue. More recently, the Company announced its intention 
to move its administrative operations from its current location in Corvallis, 
Oregon to Boulder, Colorado during fiscal 1998. The Company expects to incur 
charges totaling approximately $1.5 million during fiscal 1998 in connection 
with this move. Such charges will have a material adverse effect on the 
operating results for the quarters in which they are incurred. Specifically, 
the Company anticipates that it will incur the substantial majority of such 
charges during the second quarter of fiscal 1998. Furthermore, the Company 
may incur additional charges associated with the move which, if incurred, may 
have a material adverse effect on the Company's operating results.

              On January 20, 1998, the Company signed a definitive agreement 
to acquire Stingray Software, Inc. ("Stingray").  The Company will acquire 
all of the outstanding shares of Stingray common stock in exchange for 
approximately 1.68 million shares of Rogue Wave common stock. Stingray is a 
privately held company that develops and distributes development tools for 
Windows programmers.  The merger will add several new product lines to Rogue 
Wave's current slate of object-oriented C++ and Java class libraries and 
builders. Stingray offers an extensive line of add-on libraries that extend 
and enhance the Microsoft Foundation Classes (MFC), providing additional, 
prebuilt functionality for creating sophisticated GUI controls, grids, 
diagrams and charts.  Stingray also offers ActiveX components, and several 
Java class libraries that will further strengthen Rogue Wave's offerings in 
the Java marketplace. The acquisition, which will be accounted for as a 
pooling of interests, is subject to certain closing conditions and is 
expected to be consummated by February 28, 1998.  The Company expects to 
incur pooling related charges totaling approximately $750,000 during the 
quarter ended March 31, 1998, which will have a material adverse effect on 
the operating results for such quarter.   The Company will incorporate the 
financial results of Stingray and will include the results in the quarter 
ended March 31, 1998 and will restate prior periods. 

                                       8.

<PAGE>

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                Percentage of total net revenues
                                                   --------------------------   
                                                       Three Months ended       
                                                           December 31,         
                                                   --------------------------   
                                                       1996          1997       
                                                   ------------   -----------   
<S>                                                <C>            <C>           
Revenue:                                                                        
                                                                                
   License revenue                                          76%           65%   
   Service and maintenance revenue                          24%           35%   
                                                           ----          ----   
       Total revenue                                       100%          100%   
                                                           ----          ----   
Cost of Revenue:                                                                
                                                                                
   Cost of license revenue                                   6%            4%   
   Cost of service and maintenance revenue                   8%           10%   
                                                           ----          ----   
       Total cost of revenue                                14%           14%   
                                                           ----          ----   
       Gross profit                                         86%           86%   
                                                           ----          ----   
Operating expenses:                                                             
   Product development                                      25%           21%   
   Sales and marketing                                      42%           43%   
   General and administrative                               13%            9%   
                                                           ----          ----   
       Total operating expenses                             80%           73%   
                                                           ----          ----   
       Income from operations                                6%           13%   
Other income, net                                            2%            6%   
                                                           ----          ----   
       Income before income taxes                            8%           19%   
Income tax expense                                           3%            7%   
                                                           ----          ----   
       Net income                                            5%           12%   
                                                           ----          ----   
</TABLE>

REVENUE
    Total revenue increased 56% to $9.2 million for the three months ended 
December 31, 1997 from $5.9 million for the three months ended December 31, 
1996. License revenue increased 33% to $6.0 million for the three months 
ended December 31, 1997 from $4.5 million for the three months ended December 
31, 1996.  License revenue increased primarily as a result of an increase in 
the number of licenses sold to existing and new customers, reflecting 
additional product offerings, an expanding market, increased market awareness 
and expansion of the Company's telesales and direct sales organization and 
international presence.

                                       9.

<PAGE>

    Service and maintenance revenue increased 128% to $3.2 million for the 
three months ended December 31, 1997 from $1.4 million for the three months 
ended December 31,1996. The increases in service and maintenance revenue were 
primarily attributable to increased sales volume of the Company's support and 
maintenance services associated with the growth of the Company's installed 
base and an increase in consulting revenue resulting from the establishment 
and growth of the Company's consulting business group.

COST OF REVENUE

    Cost of license revenue increased 19% to $408,000 for the three months 
ended December 31, 1997 from $342,000 for the three months ended December 31, 
1996.  The increase in the cost of license revenue is primarily attributable 
to the increase in the number of licenses sold, offset by the cost savings 
associated with increased shipments of the Company's products on CD-ROM and 
online distribution.  Such cost savings contributed to a decrease in cost of 
license revenue as a percent of total revenue.

    Cost of service and maintenance revenue increased 79% to $901,000 for the 
three months ended December 31, 1997 from $502,000 for the three months ended 
December 31, 1996.  The increase was primarily the result of the 
establishment of a consulting business group in April 1997.

OPERATING EXPENSES

    Product development expenses increased 31% to $1.9 million for the three 
months ended December 31, 1997 from $1.5 million for the three months ended 
December 31, 1996.  The increase in product development expenses was 
primarily attributable to the hiring of additional product development 
personnel.  The decrease in product development expenses as a percent of 
revenue was primarily due to the faster growth in revenue relative to the 
growth in development expense.  The Company anticipates that it will continue 
to devote substantial resources to product development and that product 
development expenses will increase in absolute dollars through fiscal 1998 as 
the Company continues to increase its product development capacity, although 
the Company does not believe such expenses will increase as a percentage of 
total revenue.

    Sales and marketing expenses increased 58% to $3.9 million for the three 
months ended December 31, 1997 from $2.5 million for the three months ended 
December 31, 1996.  The increase was primarily due to continued investment in 
systems and personnel to expand the Company's sales channels and the addition 
of sales personnel through the acquisition of Precision during the second 
quarter of fiscal 1997. While the Company expects that sales and marketing 
expenses will continue to grow, the Company does not believe such expenses 
will increase as a percentage of total revenue.

    General and administrative expenses increased 14% to $807,000 for the 
three months ended December 31, 1997 from $705,000 for the three months ended 
December 31, 1996.  The increase in general and administrative expenses were 
primarily due to increased staffing, investment in infrastructure and 
associated expenses necessary to manage and support the Company's growing 
operations. The Company believes that during the near term its general and 
administrative expenses will continue to grow in absolute dollars as a result 
of additional anticipated expansion and the Company's scheduled move of its 
administrative operations to Boulder, Colorado.

OTHER INCOME, NET

    Other income increased during the three months ended December 31, 1997 
versus the three months ended December 31, 1996 as a result of higher 
interest income due to a higher investment portfolio generated by cash from 
the Company's public offerings of common stock and operations. 

                                       10.

<PAGE>

INCOME TAX EXPENSE

    The Company's effective tax rate for the three months ended December 31, 
1997 was 35%. The Company anticipates its fiscal 1998 effective tax rate will 
be approximately 35% percent; however, this rate could change based on a 
change in the percentage of total revenue derived from international sources. 

LIQUIDITY AND CAPITAL RESOURCES

    The increase in cash flows from operations was due primarily to the 
increase in net income, decrease in accounts receivable, and increases in 
accounts payable, accrued expenses and deferred revenues.  The Company's 
investing activities consist primarily of the purchase and sale of short-term 
investments and purchases of equipment.  Short-term investments primarily 
consist of commercial paper with original maturities of 180 days or less 
which are held as securities available for sale.  The Company believes that 
expected cash flow from operations combined with existing cash and cash 
equivalents and short-term investments will be sufficient to meet its cash 
requirements for the foreseeable future.  See "Risk Factors - Uncertainty of 
Future Operating Results; Fluctuations in Quarterly Operating Results," and 
"-Future Acquisitions."

FACTORS THAT MAY AFFECT FUTURE RESULTS

    IN EVALUATING THE COMPANY'S BUSINESS, PROSPECTIVE INVESTORS SHOULD 
CAREFULLY CONSIDER THE FOLLOWING FACTORS IN ADDITION TO THE OTHER INFORMATION 
PRESENTED IN THIS REPORT.

    UNCERTAINTY OF FUTURE OPERATING RESULTS; FLUCTUATIONS IN QUARTERLY 
OPERATING RESULTS.  Future operating results will depend upon many factors, 
including the demand for the Company's products and services, the level of 
product and price competition, the length of the Company's sales cycle, the 
size and timing of individual license transactions, the delay or deferral of 
customer implementations, the budget cycles of the Company's customers, the 
Company's success in expanding its direct sales force and indirect 
distribution channels, the timing of new product introductions and product 
enhancements, the mix of products and services licensed or sold, levels of 
international sales, activities of and acquisitions by competitors, changes 
in pricing policy by the Company and its competitors, publication of opinions 
about the Company, its products and object-oriented technology by industry 
analysts, the hiring of new employees, changes in foreign currency exchange 
rates, product lifecycles and the ability of the Company to develop and 
market new products and control costs. The Company generally ships orders as 
received and as a result typically has little or no backlog.  Quarterly 
revenue and operating results therefore depend on the volume and timing of 
orders received during the quarter, which are difficult to forecast.  In 
addition, the Company has historically earned a substantial portion of its 
revenue in the last weeks, or even days, of each quarter.  To the extent this 
trend continues, the failure to achieve such revenue during the last weeks of 
any given quarter will have a material adverse effect on the Company's 
business, financial condition and results of operations. Furthermore, due to 
all of the foregoing factors, it is possible that in some future quarter the 
Company's operating results may be below the expectations of public market 
analysts and investors.  In such event, the price of the Company's Common 
Stock would likely be materially and adversely affected. 

    Prior growth rates in the Company's revenue and net income should not be 
considered indicative of future operating results.  Service and maintenance 
revenue tends to fluctuate as consulting contracts, which may extend over 
several months, are undertaken, renewed, completed or terminated.  License 
fee revenue is difficult to forecast due to the fact that the Company's sales 
cycle, from initial evaluation to purchase, varies substantially from 
customer to customer.  As a result of these and other factors, revenue for 
any quarter is subject to significant variation, and the Company believes 
that period-to-period

                                       11.

<PAGE>

comparisons of its results of operations are not necessarily meaningful and 
should not be relied upon as indicators of future performance.  Because the 
Company's operating expenses are based on anticipated revenue trends and 
because a high percentage of the Company's expenses are relatively fixed, a 
delay in the recognition of revenue from a limited number of transactions 
could cause significant variations in operating results from quarter to 
quarter and could result in significant losses. The Company has announced its 
intention to move its administrative operations from its current location in 
Corvallis, Oregon to Boulder, Colorado during fiscal 1998. In connection with 
this move, the Company expects to incur charges totaling approximately $1.5 
million during fiscal 1998. Such charges will have a material adverse effect 
on the operating results for the quarters in which they are incurred. 
Specifically, the Company anticipates that it will incur the substantial 
majority of such charges during the second quarter of fiscal 1998. 
Furthermore, the Company may incur additional charges associated with the 
move which, if incurred, may have a material adverse effect on the Company's 
operating results. In addition, the Company created a majority-owned 
subsidiary to develop technology relating to the collection and verification 
of data across the Internet. The Company expects such subsidiary will be in 
the development stage through at least fiscal 1998. There can be no assurance 
that the technology developed by such subsidiary will be commercialized, or 
even if it is commercialized there can be no assurance of market acceptance 
due to such subsidiary's new and untested business model. The financial 
results of such subsidiary will be consolidated with the Company's financial 
results. Accordingly, fluctuations in the operating results of such 
subsidiary may have a material adverse effect on the Company's operating 
results. Fluctuations in operating results may also result in volatility in 
the price of the Company's Common Stock.

    MANAGEMENT OF GROWTH.  The Company is experiencing a period of transition 
and aggressive product introductions that has placed, and may continue to 
place, a significant strain on its resources, including its personnel. 
Expansion of the Company's product lines, additional product development and 
product introductions, or acquisitions of other technologies or companies, 
when added to the day-to-day activities of the Company, will place a further 
strain on the Company's resources and personnel.  In particular, the Company 
has acquired a European distributor with offices and personnel in several 
European countries and established a consulting group in Boulder, Colorado to 
help expand its ability to provide consulting services.  In addition, the 
Company recently announced an agreement to acquire Stingray Software, Inc. 
which develops and distributes development tools from their facilities in 
Morrisville, North Carolina.  Such additions involve a number of risks, 
including risks related to the integration of new businesses or business 
units, the substantial management time devoted to such activities, the 
failure to achieve anticipated benefits, such as cost savings and increased 
revenue, and the difficulties of managing additional operations. The 
Company's acquisition of Inmark in October 1995 and the planned acquisition 
of Stingray will result in the Company's product development team being 
distributed in four separate sites across the country. Managing this 
distribution requires a significant amount of attention from management, 
particularly the Vice President, Development and the Chief Technology 
Officer, to ensure that the Company's development efforts are timely, 
consistent and well integrated.  In addition, the Company recently announced 
that it will move its administrative operations from Corvallis, Oregon to 
Boulder, Colorado. This move will result in the distribution of the Company's 
senior management team, which may make managing the Company's operations more 
difficult. In particular, managing this transition will require a significant 
amount of attention from management, particularly the Company's Chief 
Operating Officer and Chief Financial Officer, both of whom will relocate as 
part of the move. 

    Furthermore, the Company believes that its ability to achieve significant 
revenue growth in the future will depend in large part on its success in 
recruiting and training sufficient direct sales personnel and establishing 
and maintaining relationships with its outside sales representatives.  
Although the Company is currently investing, and plans to continue to invest, 
significant resources to expand its direct sales force and to develop 
distribution relationships with outside sales representatives, the Company 
has 

                                       12.

<PAGE>

at times experienced and continues to experience difficulty in recruiting 
qualified sales personnel and in establishing necessary sales representative 
relationships. The Company believes that the hiring and retaining of 
qualified individuals at all levels in the Company is essential to the 
Company's ability to manage growth successfully, and there can be no 
assurance that the Company will be successful in attracting and retaining the 
necessary personnel.  If Company management is unable to effectively manage 
growth, the Company's business, financial condition and results of operations 
will be materially and adversely affected.

    DEPENDENCE ON EMERGING MARKET FOR C++ AND JAVA.  The Company's product 
lines are designed for use in object-oriented software application 
development, specifically the C++ and Java programming languages, and 
substantially all of the Company's revenue has been attributable to sales of 
products and related maintenance and consulting services related to C++ 
programming and development. The Company believes that while the market for 
object-oriented technology in general, and C++ tools and programming 
applications in particular, is growing, the Company's growth depends upon 
broader market acceptance of object-oriented technology and the C++ 
programming language.  Even if broader market acceptance is achieved, the 
object-oriented market may continue to be characterized by multiple software 
environments, many of which are not supported by the Company's products,  and 
numerous competitors in the areas of tools, methodology and services.  
Furthermore, the C++ programming language is very complex.  Should the C++ 
programming language lose market acceptance or be replaced by another 
programming language, the Company's business, financial condition and results 
of operations would be materially and adversely affected. The Company's 
financial performance will depend in part upon continued growth in the 
object-oriented technology and C++ markets and the development of standards 
that the Company's products address.  There can be no assurance that the 
market will continue to grow or that the Company will be able to respond 
effectively to the evolving requirements of the market. 

    The number of software developers using the C++ programming language is 
relatively small compared to the number of developers using more traditional 
software development technology. The adoption of the C++ programming language 
by software programmers who have traditionally used other technology requires 
reorientation to significantly different programming methods, and there can 
be no assurance that the acceptance of the C++ programming language will 
expand beyond the early adopters of the technology.  Furthermore, there can 
be no assurance that potential corporate customers will be willing to make 
the investment required to retrain programmers to build software using C++ 
rather than structured or other object-oriented programming techniques.  Many 
of the Company's customers have purchased only small quantities of the 
Company's products and there can be no assurance that these or new customers 
will broadly implement C++ programming or purchase additional products. 

    In addition, the Company has several products for use in the Java market. 
The Company has spent and will continue to devote resources on the 
development of new and enhanced products that address the Java market. There 
can be no assurance that the Company will be successful in marketing its 
existing or future Java products or that the market for Java products will 
grow.  If the Java market fails to grow, or grows more slowly than the 
Company currently anticipates, the Company's business, financial condition 
and results of operations could be materially and adversely affected. 

    COMPETITION.  The market for the Company's products is intensely 
competitive, subject to rapid change and significantly affected by new 
product introductions and other market activities of industry participants.  
The Company's products are targeted at the emerging market for C++ software 
parts and programming tools and, to a lesser extent, at the emerging Java 
market.  The Company's competitors offer a variety of products and services 
to address these markets.  The Company believes that the principal 
competitive factors in this market are product quality, flexibility, 
performance, functionality and features, use of standards based technology, 
quality of support and service, company reputation and price.  While 

                                       13.

<PAGE>

price is less significant than other factors for corporate customers, price 
can be a significant factor for individual programmers.  Direct competitors 
in the C++ market include Microsoft (with its Microsoft Foundation Classes, 
"MFC"), IBM, ILOG and several privately held companies.  Microsoft is a 
particularly strong competitor due to its large installed base and the fact 
that it bundles its MFC library with its own and other C++ compilers. 
Microsoft may decide in the future to devote more resources to or broaden the 
functions of MFC in order to address and more effectively compete with the 
functionality of the Company's products. The Company faces direct competition 
in the Java market from Borland, JavaSoft (a business unit of Sun 
Microsystems), Microsoft, Sybase, Symantec and other companies for its 
current Java products and it expects to face significant competition in the 
future from such companies with respect to other Java products the Company 
may introduce.  Software applications can also be developed using software 
parts and programming tools in environments other than C++ or Java.  Indirect 
competitors with such offerings include Microsoft (with its ActiveX 
technology), Borland, Oracle, ParcPlace-Digitalk and Powersoft (a subsidiary 
of Sybase).  Many of these competitors have longer operating histories, 
significantly greater financial, technical, marketing and other resources, 
significantly greater name recognition and larger installed bases of 
customers than the Company.  In addition, several database vendors, such as 
Informix, Oracle and Sybase are increasingly developing robust software parts 
for inclusion with their database products and may begin to compete with the 
Company in the future.  These potential competitors have well-established 
relationships with current and potential customers and have the resources to 
enable them to more easily offer a single vendor solution.  Like the 
Company's current competitors, many of these companies have longer operating 
histories, significantly greater resources and name recognition and larger 
installed bases of customers than the Company.  As a result, these potential 
competitors may be able to respond more quickly to new or emerging 
technologies and changes in customer requirements, or to devote greater 
resources to the development, promotion and sale of their products than the 
Company. 

    The Company also faces competition from systems integrators and internal 
development efforts.  Many systems integrators possess industry specific 
expertise that may enable them to offer a single vendor solution more easily, 
and already have a reputation among potential customers for offering 
enterprise-wide solutions to software programming needs. There can be no 
assurance that these third parties, many of which have significantly greater 
resources than the Company, will not market competitive software products in 
the future.  It is also possible that new competitors or alliances among 
competitors will emerge and rapidly acquire significant market share.  The 
Company also expects that competition will increase as a result of software 
industry consolidation. Increased competition may result in price reductions, 
reduced gross margins and loss of market share, any of which could materially 
and adversely affect the Company's business, operating results and financial 
condition.  There can be no assurance that the Company will be able to 
compete successfully against current and future competitors or that 
competitive pressures faced by the Company will not materially and adversely 
affect its business, financial condition and results of operations. 

    LIMITED OPERATING HISTORY.  The Company was founded in September 1989 and 
first shipped products in November 1989.  Although the Company's total 
revenue has increased in each of the last thirteen quarters and the Company 
had net income in most of those quarters, the Company incurred a net loss in 
the quarter ended June 30, 1996.  The Company has devoted an increasing 
amount of resources to the its product development, sales and marketing and 
technical support organizations.  The Company expects to continue to devote 
substantial resources in these areas and as a result will need to recognize 
significant quarterly revenue to achieve and maintain profitability.  The 
Company's limited operating history makes the prediction of future operating 
results difficult or impossible.  Although the Company has experienced 
significant revenue growth in recent years, there can be no assurance that 
the Company will sustain such growth, if any, or that the Company will remain 
profitable on a quarterly basis or at all. 

                                       14.

<PAGE>

    RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS.  The market for 
software development tools is characterized by rapid technological advances, 
changes in customer requirements and frequent new product introductions and 
enhancements.  The Company must respond rapidly to developments related to 
hardware platforms, operating systems and applicable programming languages. 
Such developments will require the Company to continue to make substantial 
product development investments.  Any failure by the Company to anticipate or 
respond adequately to technological developments and customer requirements, 
or any significant delays in product development or introduction, could 
result in a loss of competitiveness or revenue. 

    The Company's future success will depend on its ability to continue to 
enhance its current product line and to continue to develop and introduce new 
products that keep pace with competitive product introductions and 
technological developments, satisfy diverse and evolving customer 
requirements and otherwise achieve market acceptance.  There can be no 
assurance that the Company will be successful in continuing to develop and 
market on a timely and cost-effective basis fully functional product 
enhancements or new products that respond to technological advances by 
others, or that its enhanced and new products will achieve market acceptance. 
In addition, the Company has in the past experienced delays in the 
development, introduction and marketing of new or enhanced products. Such 
delays were primarily associated with increasing product functionality and 
implementing new customer requirements. To date, such delays have not 
resulted in a material adverse effect on the Company's business, financial 
condition and results of operations. There can be no assurance that the 
Company will not experience similar delays in the future.  Any failure by the 
Company to anticipate or respond adequately to changes in technology and 
customer preferences, or any significant delays in product development or 
introduction, would have a material adverse effect on the Company's business, 
financial condition and results of operations.

    FUTURE ACQUISITIONS.  The Company frequently evaluates strategic 
opportunities available to it and may in the future pursue acquisitions of 
complementary technologies, products or businesses.  Future acquisitions of 
complementary technologies, products or businesses by the Company will result 
in the diversion of management's attention from the day-to-day operations of 
the Company's business and may include numerous other risks, including 
difficulties in the integration of the operations, products and personnel of 
the acquired companies.  Future acquisitions by the Company may also result 
in dilutive issuances of equity securities, the incurrence of debt and 
amortization expenses related to goodwill and other intangible assets.  
Failure of the Company to successfully manage future acquisitions may have a 
material adverse effect on the Company's business, financial condition and 
results of operations.

    RISKS OF EXPANDING INTERNATIONAL SALES AND MARKETING.  The Company opened 
its first international sales office in Germany in January 1996.  In February 
1997, the Company expanded its European operations by acquiring Precision. 
Precision is a distributor of the Company's software products in Germany, the 
United Kingdom, France and the Benelux countries. International revenue 
accounted for approximately 24% and 30% of the Company's total revenue in 
fiscal 1997 and the quarter ended December 31, 1997, respectively. As of 
December 31, 1997, the Company had 36 employees located outside of the United 
States.  The Company believes that in order to increase sales opportunities 
and profitability it will be required to expand its international operations. 
The Company has committed and continues to commit significant management 
time and financial resources to developing direct and indirect international 
sales and support channels.  There can be no assurance, however, that the 
Company will be able to maintain or increase international market demand for 
its products.  To the extent that the Company is unable to do so in a timely 
manner, the Company's international revenue would be limited, and the 
Company's business, financial condition and results of operations would be 
materially and adversely affected.

                                       15.

<PAGE>

     RISKS INHERENT IN INTERNATIONAL OPERATIONS.  International operations 
are subject to inherent risks, including the impact of possible recessionary 
environments in economies outside the United States, costs of localizing 
products for foreign markets, longer receivables collection periods and 
greater difficulty in accounts receivable collection, unexpected changes in 
regulatory requirements, difficulties and costs of staffing and managing 
foreign operations, reduced protection for intellectual property rights in 
some countries, potentially adverse tax consequences, and political and 
economic instability.  There can be no assurance that the Company will be 
able to sustain or increase international revenue from licenses or from 
maintenance and service, or that the foregoing factors will not have a 
material adverse effect on the Company's future international revenue and, 
consequently, on the Company's business, financial condition and results of 
operations. The Company's direct international revenue is generally 
denominated in local currencies.  As a result of recent fluctuations in 
international exchange rates, the Company's Board of Directors has authorized 
the Company to enter into forward exchange contracts to minimize the risks 
associated with such fluctuations.  Although exposure to currency 
fluctuations to date has not been material, there can be no assurance that 
fluctuations in currency exchange rates in the future will not have a 
material adverse impact on international revenue and thus the Company's 
business, financial condition and results of operations. 

    DEPENDENCE UPON KEY PERSONNEL.  The Company's future performance depends 
in significant part upon the continued service of its key technical, sales 
and senior management personnel, none of whom is bound by an employment 
agreement. The Company believes that the technological and creative skills of 
its personnel are essential to establishing and maintaining a leadership 
position, particularly in light of the fact that its intellectual property, 
once sold to the public market, is easily replicated.  The loss of the 
services of one or more of the Company's executive officers or key technical 
personnel would have a material adverse effect on the Company's business, 
financial condition and results of operations.  In particular, the services 
of Thomas Keffer and Michael Scally, the Company's President and Chief 
Executive Officer, and Chief Operating Officer, respectively, would be 
difficult to replace.  The Company has key person life insurance policies in 
the amount of $1.0 million on each of Dr. Keffer and Mr. Scally. The 
Company's future success also depends on its continuing ability to attract 
and retain highly-qualified technical, sales and managerial personnel.  In 
the past, the Company has experienced some difficulty in attracting key 
personnel.  Competition for such personnel is intense, and there can be no 
assurance that the Company can retain its key technical, sales and managerial 
employees or that it can attract, assimilate or retain other highly qualified 
technical, sales and managerial personnel in the future.

    VARIABILITY OF SALES CYCLES.  The Company distributes its products 
through two different direct sales channels, a telesales force and a field 
sales force, each of which is subject to a variable sales cycle.  Products 
sold by the Company's telesales force may be sold after a single phone call 
or may require several weeks of education and negotiation before a sale is 
made.  As such, the sales cycle associated with telesales typically ranges 
from a few days to two months.  On the other hand, the purchase of products 
from the Company's field sales force is often an enterprise-wide decision and 
may require the sales person to provide a significant level of education to 
prospective customers regarding the use and benefits of the Company's 
products.  For these and other reasons, the sales cycle associated with the 
sale of the Company's products through its field sales force typically ranges 
from two to six months and is subject to a number of significant delays over 
which the Company has little or no control.  Due to the foregoing factors, 
quarterly revenue and operating results can be variable and are difficult to 
forecast, and the Company believes that period-to-period comparisons of 
quarterly revenue are not necessarily meaningful and should not be relied 
upon as an indicator of future revenue. 

    PROPRIETARY RIGHTS, RISKS OF INFRINGEMENT AND SOURCE CODE RELEASE.  The 
Company relies primarily on a combination of copyright, trademark and trade 
secret laws, confidentiality procedures and contractual provisions to protect 
its proprietary rights.  The Company also believes that factors such as the 
technological and creative skills of its personnel, new product developments, 
frequent product 

                                       16.

<PAGE>

enhancements, name recognition and reliable product maintenance are essential 
to establishing and maintaining a technological leadership position.  The 
Company seeks to protect its software, documentation and other written 
materials under trade secret and copyright laws, which afford only limited 
protection. The Company currently has one patent application pending in the 
United States.  There can be no assurance that the Company's pending patent 
application, whether or not being currently challenged by applicable 
governmental patent examiners, will be issued with the scope of the claims 
sought by the Company, if at all.  Furthermore, there can be no assurance 
that others will not develop technologies that are similar or superior to the 
Company's technology or design around the Company's pending patent.  Despite 
the Company's efforts to protect its proprietary rights, unauthorized parties 
may attempt to copy aspects of the Company's products or to obtain and use 
information that the Company regards as proprietary.  The nature of many of 
the Company's products requires the release of the source code to all 
customers. As such, policing unauthorized use of the Company's products is 
difficult, and while the Company is unable to determine the extent to which 
piracy of its software products exists, software piracy can be expected to be 
a persistent problem.  In addition, the laws of some foreign countries do not 
protect the Company's proprietary rights as fully as do the laws of the 
United States. There can be no assurance that the Company's means of 
protecting its proprietary rights in the United States or abroad will be 
adequate or that competition will not independently develop similar 
technology. 

    The Company is not aware that it is infringing any proprietary rights of 
third parties.  There can be no assurance, however, that third parties will 
not claim infringement by the Company of their intellectual property rights.  
The Company expects that software product developers will increasingly be 
subject to infringement claims as the number of products and competitors in 
the Company's industry segment grows and the functionality of products in 
different industry segments overlaps.  Any such claims, with or without 
merit, could be time consuming to defend, result in costly litigation, divert 
management's attention and resources, cause product shipment delays or 
require the Company to enter into royalty or licensing agreements.  Such 
royalty or licensing agreements, if required, may not be available on terms 
acceptable to the Company, if at all. In the event of a successful claim of 
product infringement against the Company and failure or inability of the 
Company to license the infringed or similar technology, the Company's 
business, financial condition and results of operations would be materially 
and adversely affected. 

    UNCERTAINTY OF THE EFFECTS OF THE YEAR 2000 ON COMPUTER PROGRAMS AND 
SYSTEMS. Many currently installed computer systems and software programs were 
designed to use only a two digit date field. These date code fields will need 
to accept four digit entries to distinguish 21st century dates from 20th 
century dates.  Until the date fields are updated, the systems and programs 
could fail or give erroneous results when referencing dates following 
December 31, 1999. Such failure or errors could occur prior to the actual 
change in century.  The Company relies on computer applications to manage and 
monitor its accounting, sales, development and administrative functions.  In 
addition, the Company's customers, suppliers and service providers 
(particularly financial institutions) are reliant upon computer applications, 
some of which may contain software that may fail as a result of the upcoming 
change in century, with respect to functions that materially affect their 
interactions with the Company.  While the Company does not believe its 
computer systems or applications currently in use will be adversely affected 
by the upcoming change in century, the Company has not made an assessment as 
to whether any of its customers, suppliers or service providers will be so 
affected.  Failure of the Company's software or that of its customers, 
suppliers or service providers could have a material adverse impact on the 
Company's business, financial condition and result of operations.

    PRODUCT LIABILITY.  The Company's license agreements with its customers 
typically contain provisions designed to limit the Company's exposure to 
potential product liability claims.  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 

                                       17.

<PAGE>

product liability claims to date, the sale and support of products by the 
Company may entail the risk of such claims, and there can be no assurance 
that the Company will not be subject to such claims in the future.  A 
successful product liability claim brought against the Company could have a 
material adverse effect upon the Company's business, financial condition and 
results of operations. 

    RISK OF PRODUCT DEFECTS.  Software products as complex as those offered 
by the Company frequently contain errors or failures, especially when first 
introduced or when new versions are released.  Also, new products or 
enhancements may contain undetected errors, or "bugs," or performance 
problems that, despite testing, are discovered only after a product has been 
installed and used by customers.  There can be no assurance that such errors 
or performance problems will not be discovered in the future, causing delays 
in product introduction and shipments or requiring design modifications that 
could materially and adversely affect the Company's competitive position and 
operating results.  The Company's products are typically intended for use in 
applications that may be critical to a customer's business.  As a result, the 
Company expects that its customers and potential customers have a greater 
sensitivity to product defects than the market for software products 
generally. Although the Company has not experienced material adverse effects 
resulting from any such errors to date, there can be no assurance that, 
despite testing by the Company and by current and potential customers, errors 
will not be found in new products or releases after commencement of 
commercial shipments, resulting in loss of revenue or delay in market 
acceptance, diversion of development resources, the payment of monetary 
damages, damage to the Company's reputation, or increased service and 
warranty costs, any of which could have a material adverse effect upon the 
Company's business, financial condition and results of operations. 

ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Company enters into foreign exchange forward contracts to hedge 
certain operational and balance sheet exposures from changes in foreign 
currency exchange rates.  Such exposures result from the portion of the 
Company's operations, assets, and liabilities that are denominated in 
currencies other than the U.S. dollar.  These transactions are entered into 
to hedge purchases, sales, and other normal recurring transactions and 
accordingly are not speculative in nature.  The Company does not hold or 
issue financial instruments for trading purposes nor does it hold or issue 
leveraged derivative financial instruments.  Market value gains and losses on 
such contracts that result from fluctuations in foreign exchange rates are 
recognized as offsets to the exchange gains or losses on the hedged 
transactions.  By their nature, these transactions generally offset.  The net 
gain or loss on such foreign currency contracts and underlying transactions 
was not material during the quarter ended December 31, 1997, however there 
can be no assurance that fluctuations in currency exchange rates in the 
future will not have a material adverse impact on international revenue and 
thus the Company's business, financial condition and results of operations. 
The Company had outstanding short-term forward exchange contracts to exchange 
German marks for U.S. dollars in the amount of $1.1 million at December 31, 
1997.

                                       18.

<PAGE>

PART II  -  OTHER INFORMATION

ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS

    The effective date of the Company's first registration statement, filed 
on Form SB-2 filed under the Securities Act of 1993 (No. 333-13517), was 
November 21, 1996 (the "Registration Statement").  The class of securities 
registered was Common Stock.  The offering commenced on November 21, 1996 and 
all securities were sold in the offering.  The managing underwriters for the 
offering were Hambrecht & Quist LLC and Wessels, Arnold & Henderson, L.L.C.

    Pursuant to the Registration Statement, the Company sold 2,367,640 shares 
of its Common Stock for its own account, for an aggregate offering price of 
$28,411,680, and 449,860 shares of its Common Stock for the account of 
certain selling stockholders, for an aggregate offering price of $5,398,320.  
The Company incurred expenses of approximately $2,838,818, of which 
$1,988,818 represented underwriting discounts and commissions and $850,000 
represented estimated other expenses.  All such expenses were direct or 
indirect payments to others. The net offering proceeds to the issuer after 
total expenses was $25,572,863.

    The Company has used $1,500,000 of the net proceeds from the offering in 
the acquisition of other businesses, $1,300,000 for the purchase of stock of 
a majority owned subsidiary, $1,000,000 of the net proceeds from the offering 
for repayment of indebtedness and $9,688,000 of the net proceeds for working 
capital.  All remaining net proceeds have been invested in commercial paper.  
The use of proceeds from the offering does not represent a material change in 
the use of proceeds described in the prospectus.

Item 6.   -    EXHIBITS AND REPORTS ON FORM 8-K

     (a)       Exhibits:

          2.1(1)   Agreement and Plan of Reorganization between Registrant, 
                   Inmark Development Corporation and RW Acquisition, Inc., 
                   dated as of September 19, 1995.
          2.2(1)   Agreement and Plan of Merger between the Registrant and 
                   Rogue Wave Software, Inc., an Oregon corporation.
          3.1(2)   Amended and Restated Certificate of Incorporation of Rogue 
                   Wave Software, Inc., a Delaware corporation.
          3.2(1)   Bylaws of Rogue Wave Software, Inc., a Delaware 
                   corporation.
          4.1(1)   Reference is made to Exhibits 3.1 and 3.2.
          4.2(1)   Specimen Stock Certificate.
          4.3(1)   Amended and Restated Investors' Rights Agreement between 
                   the Registrant and certain investors, dated November 10, 
                   1995, as amended June 27, 1996.
         10.1(1)   Registrant's 1996 Equity Incentive Plan.
         10.2(1)   Registrant's Employee Stock Purchase Plan.
         10.3(1)   Form of Indemnity Agreement to be entered into between the 
                   Registrant and its officers and directors.
         10.4(1)   Lease Agreement between Registrant and the State of 
                   Oregon, dated May 1, 1996.
         10.5(1)   Lease Agreement between the Registrant and the Landmark, 
                   dated April 22, 1996.
         10.6(1)   Loan and Security Agreement between the Registrant and 
                   Silicon Valley Bank, dated October 16, 1996.

                                       19.

<PAGE>

         10.7(1)   Collateral Assignment, Patent Mortgage and Security 
                   Agreement between the Registrant and Silicon Valley Bank, 
                   dated October 16, 1996.

         27.1      Financial Data Schedule.

         (1)  Filed as an Exhibit to the Registrant's Registration Statement 
         on Form SB-2, as amended (No. 333 -13517)

         (2)  Filed as an Exhibit to the Registrant's quarterly report on 
         Form 10-Q for the quarter ended December 31, 1996.     

ITEMS 1, 3, 4,  AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.

                                       20.

<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.


                                       ROGUE WAVE SOFTWARE, INC.
                                       (Registrant)




Date: February 13, 1998                /S/ ROBERT M. HOLBURN, JR.
                                       ---------------------------------------
                                       ROBERT M. HOLBURN, JR.
                                       CHIEF FINANCIAL OFFICER

                                       1.