AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22,JUNE 10, 1998
REGISTRATION NO. 333- 49899
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

--------------

AMENDMENT NO.1NO. 3 TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

MICROSTRATEGY INCORPORATED

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 7372 51-0323571
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of(State or other Industrial Identification No.)
jurisdiction of Classification Code
incorporation or Classification CodeNumber)
organization) Number) --------------
8000 TOWERS CRESCENT DRIVE
VIENNA, VIRGINIA 22182
(703) 848-8600
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

--------------
MR. MICHAEL J. SAYLOR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MICROSTRATEGY INCORPORATED
8000 TOWERS CRESCENT DRIVE
VIENNA, VIRGINIA 22182
(703) 848-8600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

--------------
COPIES TO:
ALLEN L. MORGAN, ESQ. DAVID C. CHAPIN, ESQ.
JOHN D. WATSON, ESQ. ALISON T. BOMBERG, ESQ.
BRIAN L. SALIMAN, ESQ. WILLIAM M. SHIELDS, ESQ.
BRIAN L. SALIMAN, ESQ.
LATHAM & WATKINS ROPES & GRAY
1001 PENNSYLVANIA AVENUE, N.W., ONE INTERNATIONAL PLACE
SUITE 1300 WASHINGTON, D.C. 20004 BOSTON, MA 02110
(202) 637-2200 (617) 951-7000

--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
--------------

If any of the securities on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]

If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [_]

--------------

CALCULATION OF REGISTRATION FEE

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE REGISTRATION FEE(3)
- --------------------------------------------------------------------------------

Class A Common Stock,
par
value $0.001 per share.. 4,600,000 shares $10.00 $46,000,000 $13,570

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

(1) Includes 600,000 shares of Class A Common Stock issuable upon the exercise
of an option granted to the Underwriters solely to cover over-allotments,
if any.

(2)Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457.

(3)Of this amount, $10,620 has been previously paid.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED JUNE 10, 1998

PROSPECTUS
- ----------
4,000,000 SHARES
LOGO

CLASS A COMMON STOCK

-----------

Of the 4,000,000 shares of Class A Common Stock of MicroStrategy
Incorporated, a Delaware corporation ("MicroStrategy" or the "Company"),
offered hereby (the "Offering"), 3,840,000 shares are being sold by the Company
and 160,000 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). See "Principal and Selling Stockholders." The Company
will not receive any of the proceeds from the sale of shares by the Selling
Stockholders. Upon completion of the Offering, the Company's existing
stockholders immediately prior to the date of this Prospectus (the "Existing
Stockholders") will own 100% of the outstanding Class B Common Stock of the
Company, which represents approximately 88.5% of the economic interest in the
Company (approximately 87.0% if the Underwriters' over-allotment option is
exercised in full). The holders of substantially all of the outstanding shares
of Class B Common Stock are currently employees of the Company.

Holders of Class A Common Stock generally have rights identical to those of
holders of Class B Common Stock, except that holders of Class A Common Stock
are entitled to one vote per share while holders of Class B Common Stock are
entitled to ten votes per share on all matters submitted to a vote of
stockholders. Holders of Class A Common Stock and Class B Common Stock
generally vote together as a single class on all matters presented to the
stockholders for their vote or approval, except as may be required by Delaware
law. Class B Common Stock may be converted into Class A Common Stock at any
time on a one-for-one basis. Following the Offering, the shares of Class B
Common Stock will represent approximately 98.7% of the combined voting power of
the Company (approximately 98.5% if the Underwriters' over-allotment option is
exercised in full). See "Description of Capital Stock."

Prior to the Offering, there has been no public market for the Class A Common
Stock. It is currently estimated that the initial public offering price will be
between $8.00 and $10.00 per share. For factors to be considered in determining
the initial public offering price, see "Underwriting."

Application has been made to have the Class A Common Stock approved for
quotation on the Nasdaq National Market under the symbol "MSTR."

-----------

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE CLASS A COMMON STOCK.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------

Per Share....................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)........................ $ $ $ $

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $900,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 600,000 shares of Class A Common Stock at the initial
offering price per share, less the underwriting discount, solely to cover
over-allotments. If such option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
-----------

The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about , 1998, against payment therefor in immediately available
funds.

-----------

MERRILL LYNCH & CO.
HAMBRECHT & QUIST
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

-----------

The date of this Prospectus is , 1998.

MIRCROSTRATEGY'S PRODUCTS

Windows Off-the-Shelf Custom Applications World Wide Web Consumer Devices

Report Executive SpreadSheets Vertical-Statistics Data HTML Java Activexs Pager & Fax & E-mail &
Information Sys. Applications Mining Phone Printer Web

DSS Agent DSS Objects DSS Web DSS Broadcaster*

DSS Server
DSS Architect Query Engine DSS Administrator

RDBMS Optimized for VLDB

Oracle Sybase Informix DB2 Teradata Red Tandem SQL
Brick Server

DSS Agent is an object-based DSS application development environment as well as
a power user discovery tool. Users can create sophisticated metrics, reports,
alerts, and intelligent agents without programming. DSS Agent reports can also
be embedded into easy-to-navigate graphical executive information systems.
Spreadsheet users can build custom VBA applications integrating the best
features of both products and maintaining their familiar user interface.

DSS Objects allows serious application developers to integrate DSS Agent objects
into their own custom applications, substituting proprietary algorithms &
interfaces, yet leveraging MicroStrategy's Toolset for DSS. Data mining,
statistical analysis, and closed-loop vertical applications are all supported
via this interface.

DSS Web allows DSS Agent reports to be deployed to their clients over the web,
while taking advantage of the features of DSS Server, Architect, &
Administrator. Applications run unchanged, simultaneously in Client/Server & Web
mode. Users can drill-down, surf the database, and build new reports via Web
browsers. These applications can be customized using dynamic HTML, Java, and/or
ActiveX. Thus, developers get the benefits of an off-the shelf feature set,
along with flexibility to tailor their application to the needs of a particular
user group.

DSS Broadcaster, currently in beta testing, the industry's first information
broadcast server, designed to enable automated and personalized distribution of
business analysis-based messages via E-mail, Fax, Pager, and Mobile Phone. It is
designed to support, publish & subscribe via the Web, and enables the creation
of DSS solutions integrating both active and passive reporting components.

DSS Server provides 3 Tier DSS services to all of our interfaces, including load
balancing, triage, caching, scheduling, data mart management, and asynchronous
query execution.

DSS Architect allows Data Warehouse designers to map the RDBMS to an end-user
friendly, multi-dimensional view. It then automatically generates the metadata
necessary to maintain and optimize the DW tables.

DSS Administrator automatically monitors usage of all deployed DSS applications
at the lowest level of detail. It also supports centralized maintenance &
application management, providing the tuning, deployment, and administrative
capabilities necessary to implement decision support services on a broad scale.

The Query Engine contains the intelligence necessary to convert an end-user
question into the high-fidelity, high-performance relational & vector execution
plans. The Query Engine supports cubic, star, and relational query types,
allowing the full range of analysis against the world's largest transaction
level databases, many containing terabytes of detail and thousands of
attributes.

High Performance Drivers optimize Query Engine output for a given RDBMS and
database schema. These drivers translate our logical query plan into SQL syntax
that is optimized for the target database platform and reflect the DSS tuning
insight that we have developed through hundreds of man-years of experience
building and maintaining data warehouse applications for the largest companies
in the world.

* Currently in beta testing.

[LOGO OF MICROSTRATEGY APPEARS HERE]

MicroStrategy's Vision: Any Question, Any Time, Anywhere

IMAGINE: You made $3,750 in the stock market today. Twenty minutes after the
market closed, this information was broadcast from your broker to your Pager.

Someone is trying to complete an electronic funds transfer of $56,000 from your
domestic bank to a numbered Swiss account. Since this is unprecedented and
potentially fraudulent, a notification has been forwarded to your Two-way Pager,
along with a request for permission.

A detailed breakdown of every check either clearing or deposited to your account
will be sitting on your Fax machine at the end of the day.

Your Voicemail has 8 messages: one from your wife, five from workers, and two
from your credit card provider's computer. Concert tickets are about to go on
sale for your favorite musician, and its database has placed two seats on hold
for 48 hours. Do you want them? By the way, someone is gambling on your credit
line in Vegas...a digital sentinel thought that you might like to know.

At work, your Printer has a 25 page report detailing all significant customer
transactions in your territory year-to-date.

Every month, you receive a credit report from your bank via surface Mail. It
details the current financial status of every one of your customers & suppliers
and provides interesting business analytics by weighting their financial
statistics with transactions from your check log. Your average customer grew 24%
this year.

A performance summary for each saleperson reporting to you appears on your
Personal Digital Assistant, updated every four hours. Backup information is
available on demand.

Your customer sends inventory replenishment requests and purchase order codes
directly to your Mobile Phone, taking advantage of the digital messaging
capabilities of the new PCS units. In the event of a stock-out situation, you
will know within minutes. When things are running smoothly, your phone remains
silent.

Your Email inbox has your factory's weekly flash report, summarizing latest
production, demand, inventory forecast, and quality observations. This message
contains a URL link launching your Web Browser, allowing you to drill-down
through the data in order to isolate problems and identify opportunities.

At the end of each week, you launch a Windows Program that serves as your
analytical window into your business --- surfing the database, filtering out
anomalies, comparing performance across time periods and business units, and
plotting future strategy.

When budgeting time arrives, a Spreadsheet model is automatically populated with
last year's performance statistics. You tweak some growth & cost parameters and
back it goes to the CFO.

You are the modern cyber-warrior. Facts find you when it is mission-critical for
you to be informed - answers to any question, any time, anywhere. You have no
blind spots. Arthur C. Clarke once said "Any sufficiently advanced technology is
indistinguishable from magic." To a 1980's business person, brought forward to
your era, you would appear telepathic and omniscient.

In your world, information flows like water

[LOGO OF MICROSTRATEGY APPEARS HERE]

[GRAPHIC ART OF MICRO COMPUTER HARDWARE AND SOFTWARE APPEARS HERE]

Pager Two-Way Pager

Spreadsheet Pager Fax

Windows Program LAN Relational Telephone Voice Mail
Databases

Publishing
Insurance
Credit Cards
Retail
Government
Pharmaceutical
Telecommunications
Banking

Web Browser Internet Print Printer

Email Cellular Mail

Mobile Phone Personal Digital
Assistant

The applications described above represent Microstrategy's vision for future DSS
applications. Not all of these applications are currently commercially available
and some of these applications may not become commercially available in the
future.

Information Like Water(TM)

SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED MAY 22, 1998

PROSPECTUS

4,000,000 SHARES

LOGO

CLASS A COMMON STOCK

-----------

Of the 4,000,000 shares of Class A Common Stock of MicroStrategy
Incorporated, a Delaware corporation ("MicroStrategy" or the "Company"),
offered hereby (the "Offering"), 3,840,000 shares are being sold by the Company
and 160,000 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). See "Principal and Selling Stockholders." The Company
will not receive any of the proceeds from the sale of shares by the Selling
Stockholders. Upon completion of the Offering, the Company's existing
stockholders immediately prior to the date of this Prospectus (the "Existing
Stockholders") will own 100% of the outstanding Class B Common Stock of the
Company, which represents approximately 88.5% of the economic interest in the
Company (approximately 87.0% if the Underwriters' over-allotment option is
exercised in full). Each holder of Class B Common Stock is currently an
employee of the Company.

Application has been made to have the Class A Common Stock approved for
quotation on the Nasdaq National Market under the symbol "MSTR."

-----------

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE CLASS A COMMON STOCK.

-----------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------

Per Share....................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)........................ $ $ $ $

(2) Before deducting estimated expenses of $900,000 payable by the Company.

(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 600,000 shares of Class A Common Stock at the initial
offering price per share, less the underwriting discount, solely to cover
over-allotments. If such option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
-----------

-----------

MERRILL LYNCH & CO.
HAMBRECHT & QUIST

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

-----------

The date of this Prospectus is , 1998.

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR IN-
CORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTA-
TIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SO-
LICITATION OF AN OFFER TO BUY THE CLASS A COMMON STOCK IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICI-
TATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
----------------

TABLE OF CONTENTS

PAGE
----

Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Termination of S Corporation Election and S Corporation Distribution..... 18
Dilution................................................................. 19
Capitalization........................................................... 20
Selected Consolidated Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 3233
Management............................................................... 5455
Certain Transactions..................................................... 6062
Principal and Selling Stockholders....................................... 6264
Description of Capital Stock............................................. 6365
Shares Eligible for Future Sale.......................................... 6567
Underwriting............................................................. 6769
Legal Matters............................................................ 6870
Experts.................................................................. 6870
Additional Information................................................... 6870
Index to Consolidated Financial Statements............................... F-1
Glossary of Terms........................................................ G-1

----------------

THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PROSPEC-
TUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-
SPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.

"MicroStrategy," "Quick Strike," "EISToolkit" and "Strategy System" are
registered trademarks of the Company and "DSS Server," "DSS Agent," "DSS Web,"
"DSS Objects," "DSS Architect," "DSS Administrator," "DSS Executive," "DSS
Office," "DSS Broadcaster," "Query Tone," "Information Like Water," and
"QuickPilot" are trademarks of the Company. This Prospectus also contains
trademarks and registered trademarks of companies other than MicroStrategy
Incorporated.

The Company intends to distribute to its stockholders annual reports
containing audited financial statements and will make available copies of
quarterly reports containing unaudited interim financial information for the
first three quarters of each fiscal year of the Company.

----------------

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES AND THE IMPOSITION OF A PENALTY BID IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

- --------------------------------------------------------------------------------

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
Notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated herein, all information in this Prospectus assumes (i) no exercise of
the over-allotment option granted to the Underwriters and (ii) completion of a
series of transactions in which, prior to consummation of the Offering, the
Company's Existing Stockholders will, among other things, exchange all of their
shares of the Company's Class A Common Stock for an identical number of shares
of Class B Common Stock.

MicroStrategy is a leading worldwide provider of enterprise decision support
system ("DSS") software and related services. The Company's suite of products
("DSS Suite") enables both active and passive delivery of information from
large-scale databases, providing Global 2000 enterprise and other user
communities with timely answers to mission-critical questions. MicroStrategy's
decision support platform enables users to query and analyze the most detailed,
transaction-level databases, turning data into business intelligence. In
addition to supporting internal enterprise users, MicroStrategy's products
extend DSS beyond corporate boundaries to customers, partners and supply chain
constituencies through a broad range of pull and push technology such as the
Internet, e-mail, telephones, pagers and other wireless communications devices.

The growth of DSS applications has been driven by the demand for better
competitive business intelligence, improvements in the price/performance of
computers and increases in electronic data capture and storage. In addition,
the emergence of the Internet and other communications technologies has enabled
cost-effective access to and delivery of information to remote users throughout
the world. Potential users of such information also include those outside of
the organization such as suppliers, customers and consumers, which increasingly
enables companies to transform their organizational information from under-
utilized data to revenue-generating assets. Due to these factors, the overall
market for DSS is projected to grow substantially. According to Forrester
Research, the decision support component of the data warehouse market is
projected to grow from $1.1 billion in 1997 to $3.6 billion by 2001. In
addition, International Data Corporation ("IDC") projects that the market for
Internet-related DSS applications will grow from $43 million in 1996 to $2.3
billion by 2001.

MicroStrategy's DSS Suite, which includes DSS Server, DSS Web, DSS Agent, DSS
Architect and DSS Administrator, along with its newest product in Beta testing,
DSS Broadcaster, addresses the needs of the entire enterprise community, from
end-users to the managers of the information technology infrastructure. DSS
Suite provides the infrastructure and products used to implement three
categories of applications: (i) internal corporate information solutions; (ii)
business-to-business information solutions; and (iii) business-to-consumer
information solutions. The Company also offers a comprehensive set of
consulting, training and support services for its customers and partners.

MicroStrategy's objective is to become the world's leading provider of DSS
products. The Company believes that the future of DSS is "Query Tone." Query
Tone is universal knowledge enablement--the ability of any user, anywhere, to
ask any question, at any time. Just as dial tone makes telecommunications
services universally available, the Company believes that Query Tone will make
knowledge a ubiquitous utility. The Company intends to establish its DSS
platform as the standard enabling technology for Query Tone.

The Company has over 500 customers across such diverse industries as retail,
telecommunications, finance, insurance, healthcare, pharmaceuticals and
consumer packaged goods. MicroStrategy's customers use the Company's decision
support platform to perform mission-critical activities such as: customer
segmentation and profitability analysis; supply chain management; one-to-one
customer marketing; financial analysis; customer acquisition, retention, and
churn analysis; merchandising and inventory analysis; product category
management; and customer risk profiling. MicroStrategy customers include A.C.
Nielsen, Bank of America, CVS Pharmacy, General Motors, Hallmark, Kmart, MCI,
Merck/Medco, The SABRE Group, USAA and Xerox.

MicroStrategy has approximately 700 employees and markets its software and
services primarily through its direct sales force with offices located in major
cities throughout the U.S. and Europe. The Company is represented by
distributors in countries where it does not have a direct sales force and has
also entered into relationships with more than 80 system integration,
application development and platform partners, including Acxiom, Andersen
Consulting, IBM, Intrepid Systems, NCR, Oracle and Price Waterhouse.

MicroStrategy was founded in 1989 by its President, CEO and Chairman, Michael
J. Saylor. The Company is incorporated in Delaware, and its worldwide
headquarters are located at 8000 Towers Crescent Drive, Vienna, Virginia 22182.
The Company's telephone number is (703) 848-8600, and its website is
www.strategy.com. The information on the Company's website is not part of this
Prospectus.

- --------------------------------------------------------------------------------

THE OFFERING

Class A Common Stock
offered: 3,840,000 shares
By the Company.......... 3,840,000 shares
By the Selling
Stockholders............ 160,000 shares
Common Stock to be
outstanding after the
Offering:
Class A Common Stock.... 4,000,000 shares(1)
Class B Common Stock.... 30,735,514 shares(2)
----------
Total Common Stock... 34,735,514 shares(1)
==========

Proposed Nasdaq National
Market Symbol.............. "MSTR"

Use of Proceeds.............
For general corporate purposes, including working
capital, capital expenditures, repayment of bank
borrowings under the Company's business loan
facility (the "Business Loan") and other
indebtedness and possible acquisitions or
investments. See "Use of Proceeds."

Voting Rights............... Holders of Class A Common Stock generally have
rights identical to those of holders of Class B
Common Stock, except that holders of Class A
Common Stock are entitled to one vote per share
while holders of Class B Common Stock are
entitled to ten votes per share on all matters
submitted to a vote of stockholders. Holders of
Class A Common Stock and Class B Common Stock
generally vote together as a single class on all
matters presented to the stockholders for their
vote or approval, except as may be required by
Delaware law. Class B Common Stock may be
converted into Class A Common Stock at any time
on a one-for-one basis. Following the Offering,
the shares of Class B Common Stock will represent
approximately 98.7% of the combined voting power
of the Company (approximately 98.5% if the
Underwriters' over-allotment option is exercised
in full). See "Description of Capital Stock."
- --------
(1) Excludes 5,414,018 shares of Class A Common Stock issuable upon exercise of
employee and director stock options outstanding at March 31, 1998 with
exercise prices ranging from $0.50 to $6.00 per share and with a weighted
average exercise price of $1.99 per share. The Class A Common Stock and the
Class B Common Stock are referred to herein collectively as "Common Stock."
See "Management--Stock Option Plans" and Note 8 of "Notes to Consolidated
Financial Statements."
(2) In connection with the Offering, the Selling Stockholders will convert
160,000 shares of Class B Common Stock into an identical number of shares
of Class A Common Stock. The resulting 160,000 shares of Class A Common
Stock will be offered by the Selling Stockholders.

- --------------------------------------------------------------------------------

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- ----------------------------------
1993 1994 1995 1996 1997(1) 1997 1998(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------

CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues................ $ 4,102 $ 4,980 $ 9,777 $ 22,603 $ 53,557 $ 8,137 $ 19,895
Income (loss) from
operations............. 710 (3) 77 (2,290) 372 (941) 711
Net income (loss)....... 761 (61) 48 (2,375) 121 (1,003) 542
Basic net income (loss)
per share.............. $ 0.03 $ 0.00 $ 0.00 $ (0.08) $ 0.00 $ 0.00 $ 0.02
Shares used in computing
basic net income (loss)
per share.............. 24,640,000 27,988,000 28,896,622 29,493,873 29,493,873 29,493,873 30,895,514
Diluted net income
(loss) per share....... $ 0.03 $ 0.00 $ 0.00 $ (0.08) $ 0.00 $ 0.00 $ 0.02
Shares used in computing
diluted net income
(loss) per share....... 24,640,000 27,988,000 28,896,622 29,493,873 32,256,323 29,493,873 35,040,308

AS OF MARCH 31, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
------ ------------ --------------

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................. $2,304 $ 2,304 $24,628
Working capital (deficit).................. (5,824) (15,824) 12,896
Total assets............................... 30,592 30,592 52,916
Notes payable, long-term portion........... 2,636 2,636 115
Total stockholders' (deficit) equity....... 1,187 (8,813) 22,428

THREE MONTHS ENDED(4)
-------------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1996 1996 1996 1997 1997 1997 1997 1998
-------- ------------- ------------ --------- -------- ------------- ------------ ---------

CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues................ $5,553 $6,370 $6,594 $8,137 $11,875 $14,751 $18,794 $19,895
Income (loss) from
operations............. 242 (538) (1,989) (941) 199 498 616 711
Net income (loss)....... 218 (674) (1,897) (1,003) 122 486 516 542

- -------
(1) During each of the periods presented, the Company was an S corporation, and
accordingly, was not liable for corporate income taxes. See "Termination of
S Corporation Election and S Corporation Distribution." On a pro forma
basis, had the Company been a tax-paying entity, the Company would have
recorded an income tax provision of approximately $489,000 and a net loss
of approximately $368,000 for the year ended December 31, 1997, and would
have recorded an income tax provision of approximately $206,000 and net
income of $336,000 for the three months ended March 31, 1998. Pro forma
basic and diluted loss per share would have been $0.01 for the year ended
December 31, 1997 and pro forma basic and diluted income per share would
have been $0.01 for the three months ended March 31, 1998. See Note 1 to
"Notes to Consolidated Financial Statements" for basis of computing pro
forma basic and diluted net loss per share.
(2) Pro forma for the effect of a $10.0 million dividend (the "S Corporation
Dividend") to be paid to the Existing Stockholders in the form of short-
term notes (the "Dividend Notes") prior to the termination of the Company's
S corporation election, which is expected to occur shortly prior to
consummation of the Offering. See "Termination of S Corporation Election
and S Corporation Distribution" and "Dividend Policy."
(3) As adjusted to reflect the sale by the Company of 3,840,000 shares of Class
A Common Stock offered hereby at an assumed public offering price of $9.00
per share, after deducting the underwriting discount, the estimated
offering expenses payable by the Company and the repayment of bank
borrowings as of March 31, 1998.
(4) The operating results for any quarter are not necessarily indicative of
results for any future period. See "Risk Factors--Potential Fluctuations in
Quarterly Operating Results" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Financial
Results." During each of the quarters presented, the Company was an S
corporation and, accordingly, was not liable for corporate income taxes.
Net income (loss) for the quarters presented does not reflect any income
tax provision (benefit). See Note 1 above.

- --------------------------------------------------------------------------------

RISK FACTORS

In addition to the other information in this Prospectus, prospective
investors should consider carefully the following risk factors in evaluating
the Company and its business before purchasing the Class A Common Stock
offered hereby. This Prospectus contains forward-looking statements that are
based largely on the Company's current expectations and that are subject to a
number of risks and uncertainties. The Company's actual results could differ
materially from the results discussed in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Prospectus.

LIMITED OPERATING HISTORY; UNCERTAINTY OF FUTURE OPERATING RESULTS
The Company did not begin shipping DSS Agent, the first product in the
Company's current product family, until 1994, and a number of the Company's
products were first introduced in 1995. Accordingly, the Company's prospects
must be considered in light of the risks and difficulties frequently
encountered by companies in the early stage of development, particularly
companies in new and rapidly evolving markets. The Company's limited operating
history makes the prediction of future operating results difficult, if not
impossible. In addition, the Company has experienced net losses and losses
from operations for the fiscal years ended December 31, 1996 and December 31,
1994, and was only marginally profitable for the fiscal years ended December
31, 1997 and December 31, 1995. While the Company has experienced significant
percentage growth in revenues in recent periods, prior percentage growth rates
should not be considered as necessarily indicative of future growth rates or
operating results.

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's operating results have in the past and are likely in the
future to vary significantly from quarter to quarter as a result of a number
of factors, including the size and timing of significant orders, the timing of
new product announcements, changes in pricing policies by the Company and its
competitors, market acceptance of decision support software generally and of
new and enhanced versions of the Company's products in particular, the length
of the Company's sales cycles, changes in operating expenses, personnel
changes, the Company's success in expanding its direct sales force and
indirect distribution channels, the pace and success of international
expansion, delays or deferrals of customer implementation and foreign currency
exchange rates. Fluctuations in quarterly operating results may in turn
produce fluctuations in annual revenues and operating results.

The Company's product revenues are not predictable with any significant
degree of certainty. Historically, the Company has typically recognized a
substantial portion of its revenues in the last month of a quarter, with these
revenues frequently concentrated in the last two weeks of a quarter. Even
minor delays in booking orders may have a significant adverse impact on
revenues for a particular quarter. To the extent that delays are incurred in
connection with orders of significant size, the impact will be correspondingly
greater. Moreover, the Company currently operates with virtually no order
backlog because its software products typically are shipped shortly after
orders are received. As a result, product license revenues in any quarter are
substantially dependent on orders booked and shipped in that quarter. Product
license revenues are also difficult to forecast because the market for the
Company's products is rapidly evolving, and sales cycles, which may last many
months, vary substantially from customer to customer. The sales cycle is
subject to a number of factors over which the Company has little or no
control, including customers' budgetary constraints, the timing of budget
cycles, concerns about the introduction of new products by the Company or its
competitors and potential downturns in general economic conditions, which may
be associated with reductions in demand for management information systems.
See "--Lengthy Sales and Implementation Cycles." Product support revenues
depend in substantial part on maintenance revenues from existing customers,
and to the extent that existing customers do not require ongoing maintenance,
revenues would be adversely affected. Seasonal factors may also impact revenue
trends as, for example, European sales may tend to be relatively lower during
the summer months than during other periods.

technical support, research and development and sales and marketing
organizations. Substantial resources are also expected to be devoted to the
expansion of indirect sales channels and international operations. The
Company's operating expenses are budgeted on anticipated revenue trends, and
achieving expense reductions (or even reductions in the rate of expense
growth) may not be possible in the short term, irrespective of whether actual
revenue growth is commensurate with the budgeted growth on which expense
levels are based. As a result, variations in the timing and amounts of revenue
could have a material adverse effect on the Company's quarterly operating
results.

Based upon all of the factors described above, the Company believes that its
quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its
operating results are not necessarily meaningful and that, in any event, such
comparisons should not be relied upon as indications of future performance.
Furthermore, it is possible that in some future quarters the Company's
operating results will fall below the expectations of the Company, market
analysts and investors. In such event, the price of the Class A Common Stock
would likely be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

LENGTHY SALES AND IMPLEMENTATION CYCLES

The licensing of the Company's software products is often an enterprise-wide
decision by prospective customers and generally involves a significant
commitment of capital and other resources. The period of time between initial
customer contact and an actual sales order may therefore span six months or
more as customers seek approval within their organizations for large capital
expenditures and implementation of mission-critical technology. During the
course of this sales cycle, the competitive environment in which the Company
operates may change significantly, due, for example, to the introduction of
new products by other industry participants. Customers' budgetary and
purchasing priorities may also change significantly during the course of the
sales cycle. These factors may in turn have a significant impact on the
duration or magnitude of a customer's planned purchasing program. In addition,
the time required to deploy the Company's products can vary significantly with
the needs of each customer and the complexity of the customer's data
warehousing requirements. The deployment process generally extends for several
months and may involve a pilot implementation of the Company's software
products. The complexity of customer requirements, typically involving
integration of databases, hardware and software provided by multiple vendors,
may also cause the Company on occasion to experience difficulty implementing
its products. There can be no assurance that the Company will not experience
delays in the implementation of orders in the future or that third-parties
will be able to successfully install the Company's products. Any delays in the
implementation of the Company's products could have a material adverse effect
on the Company's business, operating results and financial condition. See "--
Potential Fluctuations in Quarterly Operating Results," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Sales and Marketing" and "Professional Services and Customer
Support."

COMPETITION

The markets for decision support and Internet-based information services are
intensely competitive and subject to rapidly changing technology. The
Company's most direct competitors in these markets are providers of decision
support software, push products, browsers with webcasting functionality,
electronic and Internet commerce systems, vertical Internet information
systems, wireless communications products, on-line service providers ("OSPs")
and event-driven technology. Many of these competitors are offering (or may
soon offer) products and services that may compete with the Company's
information analysis and soon-to-be-released information broadcasting
products. The bases of competition in these markets include volume and type of
information accessed, timeliness of information delivery, degree of
personalization, range of information delivery media, quality of presentation,
price/performance sophistication of notification events and ease of
implementation.

The Company's competitors in the decision support market fall generally into
the following categories: (i) vendors of relational online analytical
processing ("ROLAP") software such as Information Advantage, Inc.

and Platinum Technologies Corporation; (ii) vendors of desktop on-line
analytical processing ("OLAP") software such as Business Objects S.A. and
Cognos Incorporated; and (iii) vendors of multidimensional OLAP software such
as Oracle Corporation, Arbor Software Corporation (which has entered into a
strategic relationship with International Business Machines ("IBM")), Seagate
Software, Inc. ("Seagate") and SAS Institute Incorporated ("SAS"). The Company
anticipates continued growth and competition in the decision support software
market and the entrance of new competitors into this market in the future.
Such new competitors may include Microsoft Corporation ("Microsoft"), which
has indicated that it may introduce certain products in 1998 that may overlap
to some extent with the functionality of the Company's products.

Push product vendors such as PointCast Incorporated ("PointCast"), Marimba,
Inc. ("Marimba") and BackWeb Technologies Inc. ("BackWeb") offer technologies
that deliver information over the Internet to recipients via Web-browsers and
proprietary interfaces. Vendors of push products are focused generally on the
delivery of text-based information, such as news and sports, but often include
some level of numeric information such as stock price updates. Moreover,
Marimba has entered into technology partnerships that will extend the scope of
its offering to include the delivery of information and analysis from
relational data sources, which could provide the Company with increased
competition.

Web-browsers with channels or webcasting functionality, such as Microsoft
Internet Explorer and Netscape Navigator, provide an infrastructure for
automatically updating a set of information on a recipient's computer.
Although this infrastructure is used by the Company to enhance the
functionality of its DSS Web product line, webcasting and desktop channels
offer an alternative information delivery infrastructure to the Company's DSS
Broadcaster product line.

Products and turn-key solutions for electronic commerce, Internet commerce
and electronic business, such as those provided by IBM, Open Market Inc.,
USWEB Corp. ("U.S. Web"), Silicon Valley Internet Partners ("SVIP") and Sun
Microsystems ("Sun"), provide a set of functionality that could be used to
implement Internet-based information services. To the extent that these
information products sell information and analysis from relational databases
they will compete with the Company's products.

Vertical Internet information systems, including Microsoft Expedia,
Microsoft Investor, StockBoss, Microsoft CarPoint, Mercury Mail, TechWeb,
ESavers (US Airways, Inc.), C.O.O.L. (Continental Airlines, Inc.), and
Internet Travel Network, have developed custom applications and products for
the commercialization, analysis and delivery of specific information via the
Internet. These systems are generally tailored to a particular application and
built in a fashion that is difficult to leverage into other applications.
These systems represent competition, in that they provide similar
functionality to applications developed using the Company's products.

Wireless communications and messaging providers, such as AT&T Corp.
("AT&T"), Nextel Communications ("Nextel"), Sprint Corporation ("Sprint"), MCI
Communications Corporation ("MCI"), WorldCom, Inc. ("WorldCom"), Tridium Corp.
("Tridium"), PageNet, Inc. ("PageNet") and SkyTel Corp. ("SkyTel"), offer a
variety of alpha enabled mobile phones and pagers. It is possible that these
companies will implement custom-developed information services for consumers
of their mobile phones and pagers that will compete with applications using
the Company's products and services.

OSPs include companies such as America Online, Inc. ("America Online"),
Microsoft's Microsoft Network ("MSN"), Prodigy, Inc. ("Prodigy"), @ Home
Network ("@Home") and WebTV Networks, Inc. ("WebTV") (acquired by Microsoft)
that provide text-based content, such as news and sports, over the Internet
and on proprietary online services. The potential exists for these companies
to implement applications that overlap with the functionality provided by the
Company.

Providers of event notification systems include companies such as TIBCO
Finance Technology Inc. ("TIBCO"), which markets a product that monitors stock
tickers and notifies subscribers when preset thresholds are crossed; Clarify
Inc. ("Clarify"), which handles loan applications with a financial system
developed by SAP AG; BEA Systems, Inc. ("BEA Systems"), which provides
middleware; and Vitria Technology Inc. ("Vitria

Technology") which provides event-based workflow software. The systems for
event-driven notification provided by these companies at present and in the
future may result in technology that overlaps with that provided by the
Company.

The Company believes that it differentiates itself from other industry
participants by offering comprehensive support for all significant relational
database platforms. If a single vendor wins a substantial share of the
relational database market, the Company may find it more difficult to
differentiate its offerings from its competitors, which may materially
adversely affect the Company's business, operating results and financial
condition.

Many of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing or other resources, or
greater name recognition than the Company. In addition, many of the Company's
competitors have well established relationships with current and potential
customers and extensive knowledge of the data warehouse industry. As a result,
these 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 can
the Company. Increased competition may result in price reductions, reduced
gross margins and loss of market share. 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 adversely affect its business, operating results and financial
condition. See "Business--Competition."

Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to address the needs of the Company's
prospective customers. The Company's current or future indirect channel
partners may establish cooperative relationships with current or potential
competitors of the Company, thereby limiting the Company's ability to sell its
products through particular distribution channels. Accordingly, it is possible
that new competitors or alliances among current and new competitors may emerge
and rapidly gain significant market share. Such competition could have a
material adverse effect on the Company's margins and its ability to obtain
maintenance revenues for new and existing product licenses on favorable terms.

MANAGEMENT OF GROWTH

The Company is experiencing rapid expansion in all areas of its operations,
and the Company anticipates that this expansion will continue. The total
number of Company employees grew from 59 on January 1, 1995 to 676 on March
31, 1998, and further significant increases in the number of employees are
anticipated. The Company's growth has placed, and is expected to continue to
place, significant demands on its administrative, operational, financial, and
personnel resources. In particular, the Company expects that current and
planned expansion of international operations will lead to increased financial
and administrative demands, such as increased operational complexity
associated with expanded facilities, administrative burdens associated with
managing an increasing number of relationships with foreign partners, and
expanded treasury functions to manage foreign currency risks. The Company may
also be required to expand its support organization significantly to further
develop indirect distribution channels that penetrate different and broader
markets and to accommodate growth in the Company's installed customer base.
The failure of the Company to manage its expansion effectively could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business--Sales and Marketing" and
"Management."

NEED TO RECRUIT ADDITIONAL SKILLED PERSONNEL; DEPENDENCE ON KEY PERSONNEL

The Company's future success depends upon its continuing ability to attract,
train, assimilate and retain highly qualified personnel. Competition for such
personnel in the software industry is intense, and there can be no assurance
that the Company will be able to retain its key employees or that it can
attract, train, assimilate or retain other highly qualified personnel in the
future. The Company's success also depends in large part on the

continued service of its key management personnel, particularly Michael J.
Saylor, the Company's President and Chief Executive Officer, and Sanju K.
Bansal, the Company's Executive Vice President and Chief Operating Officer.
The loss of the services of one or more of these individuals or other key
personnel could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business--Employees" and
"Management."

DEPENDENCE ON NEW VERSIONS, NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE

The market for the Company's products is characterized by rapid
technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changing customer demands and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable. Emergence of new standards in related fields may also have an
adverse effect on existing products. This could be the case, for example, if
new Web protocols were to emerge that were incompatible with deployment of the
Company's DSS applications over the Web. Although the Company's DSS solutions
allow the core database component to reside on nearly all enterprise server
hardware and operating system combinations (Mainframe, AS/400, Unix, Windows
NT, Windows), the Company's application server component currently runs only
on the Windows NT operating system. Therefore, the Company's ability to
increase sales of its products may depend on the continued acceptance of the
Windows NT operating system. To the extent that potential customers use Unix
operating systems as their application server, the Company would be precluded
from addressing that segment of the DSS application market. The development of
a Unix product would require a substantial investment of resources by the
Company and there is no assurance that such a product could be introduced on a
timely or cost effective basis or at all.

The Company believes that its future success will depend in large part on
its ability to continue to support a number of popular operating systems and
databases, and on its ability to maintain and improve its current product line
and to develop new products on a timely basis that achieve market acceptance,
maintain technological competitiveness and meet an expanding range of customer
requirements. As a result of the complexities inherent in DSS applications,
major new products and product enhancements can require long development and
testing periods. In addition, customers may delay their purchasing decisions
in anticipation of the general availability of new or enhanced versions of the
Company's products. Moreover, to date the Company has had only a limited
number of customers who have deployed its products in environments that
involve terabytes of data and thousands of active users, and widespread
deployment in these complex environments may create unexpected delays or other
difficulties. As a result, significant delays in the general availability of
such new releases or significant problems in the installation or
implementation of such new releases could have a material adverse effect on
the Company's business, operating results and financial condition. There can
be no assurance that the Company will be successful in developing and
marketing, on a timely and cost effective basis, product enhancements or new
products that respond to technological change, evolving industry standards or
customer requirements, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction or marketing
of these enhancements or that the Company's new products and product
enhancements will achieve market acceptance. See "Business--Research and
Product Development."

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES

The Company currently is not subject to direct regulation by any
governmental agency, other than laws and regulations generally applicable to
businesses. However, certain U.S. laws and laws of other countries restricting
the use of consumers' personal information may apply to the Company. Due to
the increasing popularity and use of the Internet and the dramatically
increased access to personal information enabled by technologies such as those
offered by the Company, it is possible that laws and regulations may be
adopted in the U.S. and abroad to limit access to personal information over
the Internet and other public data networks. In response to consumer
pressures, legislation applicable to the Company in areas such as privacy
protection has been proposed in the U.S. Congress and various state
legislatures, and it is possible that some such legislation may become law.
Moreover, the applicability to the Company of existing laws governing issues
such as personal privacy over the Internet or other public data networks is
uncertain. The majority of such laws were adopted before the

widespread use and commercialization of the Internet and other public data
networks and, as a result, do not contemplate or address the unique issues
presented by such media. Any new law or regulation or any expanded
governmental enforcement of existing regulations may limit the Company's
growth or increase the Company's legal exposure, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

DEPENDENCE ON GROWTH OF MARKET FOR DECISION SUPPORT SOFTWARE

All of the Company's revenues have been attributable to the sale of decision
support software and related maintenance, consulting and training services,
and such software and services are expected to account for the Company's
revenues for the foreseeable future. Although demand for decision support
software has grown in recent years, the market for decision support software
applications is still emerging. Further development of the market may be
impaired by, among other factors, resistance from consumer and privacy groups
to increased commercial collection and use of data regarding spending and
other personal behavior patterns. There can be no assurance that the market
will continue to grow or that, even if the market does grow, businesses will
adopt the Company's solutions. The Company has spent, and intends to continue
to spend, considerable resources educating potential customers about decision
support software generally and the Company's solutions in particular. However,
there can be no assurance that such expenditures will enable the Company's
products to achieve any additional degree of market acceptance and, if the
market fails to grow or grows more slowly than the Company currently
anticipates, the Company's business, operating results and financial condition
would be materially adversely affected.

CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER EFFECT OF DUAL CLASSES OF
COMMON STOCK

Holders of the Company's Class A Common Stock are entitled to one vote per
share and holders of the Company's Class B Common Stock are entitled to ten
votes per share. Upon completion of the Offering, the existing stockholders
immediately prior to termination of the Company's S corporation election (the
"Existing Stockholders") will own or control 30,735,514 shares of Class B
Common Stock representing 98.7% of the voting power of the Company. Michael J.
Saylor, the Company's Chairman, President and Chief Executive Officer, through
his sole ownership and control of Alcantara LLC, will control 22,574,662
shares of Class B Common Stock representing 72.5% of the voting power of the
Company. Accordingly, Mr. Saylor will be able to control the Company through
his ability to determine the outcome of elections of the Company's directors,
amend the Company's Certificate of Incorporation and Bylaws and take certain
other actions requiring the vote or consent of stockholders, including
mergers, going private transactions and other extraordinary transactions and
the terms thereof.

The Company's Certificate of Incorporation permits holders of Class B Common
Stock to transfer shares of Class B Common Stock, subject to approval of the
holders of a majority of the outstanding Class B Common Stock. See
"Description of Capital Stock." Mr. Saylor or a group of stockholders
possessing a majority of the outstanding Class B Common Stock could, without
seeking other approval, transfer voting control of the Company to a third
party. Transfer of voting control to such a transferee could have a material
adverse effect on the Company's business prospects and financial condition.
Mr. Saylor will also be able to prevent a change of control of the Company,
regardless of whether holders of Class A Common Stock might otherwise receive
a premium for their shares over the then-current market price.

RELIANCE ON CHANNEL PARTNERS

In addition to its direct sales force, the Company relies on channel
partners such as original equipment manufacturers ("OEMs") and value added
resellers ("VARs") for licensing and support of its products in the United
States and internationally. In particular, for the fiscal year ended December
31, 1997 and for the three months ended March 31, 1998, channel partners
accounted for, directly or indirectly, 27.5% and 23.2%, respectively, of the
Company's total revenues. The Company's channel partners generally offer
products of several different companies, including, in some cases, products
that compete with the Company's products. The

Company intends to expand its relationships with strategic partners and to
increase the proportion of the Company's customers licensed through these
indirect channels. The Company is currently investing, and intends to
increasingly invest in the future, significant resources to develop these
channels, which could adversely affect the Company's operating results if the
Company's efforts do not generate significant license revenues. There can be
no assurance that the Company will be able to attract strategic partners that
will be able to market the Company's products effectively and will be
qualified to provide timely and cost-effective customer support and service.
The Company's ability to achieve revenue growth in the future will depend in
part on its success in recruiting strategic partners and maintaining
successful relationships with those partners on a going-forward basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "Business--Sales and Marketing."

RISKS ASSOCIATED WITH INTELLECTUAL PROPERTY

The Company regards its software products as proprietary and relies
primarily on a combination of statutory and common law copyright, trademark
and trade secret laws, customer licensing agreements, employee and third-party
nondisclosure agreements and other methods to protect its proprietary rights.
These laws and contractual provisions provide only limited protection of the
Company's proprietary rights. The Company has no patents or patent
applications pending and has no registered trademarks (other than
MicroStrategy, QuickStrike, EISToolkit and Strategy System) or registered
copyrights (other than the EISToolkit 2.0 reference manual). Despite the
Company's efforts to protect its proprietary rights, it may be possible for a
third party to copy or otherwise obtain and use the Company's technology
without authorization or to develop similar technology independently.
Furthermore, the laws of certain countries in which the Company sells its
products do not protect the Company's software and intellectual property
rights to the same extent as do the laws of the United States. If unauthorized
copying or misuse of the Company's products were to occur to any substantial
degree, the Company's business, results of operations and financial condition
could be materially adversely affected. 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.

There can be no assurance in the future that a third party will not claim
that the Company's technology infringes its proprietary rights. As the number
of software products in the Company's target market increases and the
functionality of these products further overlap, the Company believes that
software developers may become increasingly subject to infringement claims.
Any such claims, whether with or without merit, can be time consuming and
expensive to defend. There can be no assurance that third parties will not
assert infringement claims against the Company in the future with respect to
its current or future products or that any such assertion will not require the
Company to enter into royalty arrangements or litigation that could be costly
to the Company. See "Business--Intellectual Property and Licenses."

INTERNATIONAL OPERATIONS

International sales accounted for 20.9%, 26.6%, 11.1%, and 11.3% of the
Company's total revenue for the three months ended March 31, 1998 and for the
fiscal years ended December 31, 1997, 1996 and 1995, respectively. The Company
intends to continue to expand its international operations and enter
additional international markets. Such expansion will require significant
management attention and financial resources and could adversely affect the
Company's business, operating results or financial condition. In order to
expand international sales successfully in 1998 and subsequent periods, the
Company must establish additional foreign operations, hire additional
personnel and recruit additional international resellers and distributors.
There can be no assurance that the Company will be able to do so in a timely
manner, which may limit the Company's growth in international sales. In
addition, there can be no assurance that the Company will be able to maintain
or increase international market demand for the Company's products. In
addition to the foreign currency risks described below, other risks inherent
in the Company's international business activities generally include
unexpected changes in regulatory requirements, tariffs and other trade
barriers, costs of localizing products for foreign

countries, lack of acceptance of localized products in foreign countries,
longer accounts receivable payment cycles, difficulties in managing
international operations, potentially adverse tax consequences including
restrictions on the repatriation of earnings, weaker intellectual property
protection and the burden of complying with a wide variety of foreign laws.
Such factors may have a material adverse effect on the Company's future
international sales and, consequently, the Company's results of operations.
See "Currency Fluctuations," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Sales and
Marketing."

CURRENCY FLUCTUATIONS

The Company's international revenues and expenses are denominated in foreign
currencies (principally the British Pound Sterling and the German Deutsche
Mark). The functional currency of the Company's foreign subsidiaries is each
subsidiary's local currency. Fluctuations in exchange rates between the U.S.
Dollar and such currencies may have a material adverse effect on the Company's
business, results of operations and financial condition, particularly its
operating margins, although foreign currency translation gains and losses have
been immaterial to date. The impact of future exchange rate fluctuations on
the Company's results of operations cannot be accurately predicted. To date,
the Company has not sought to hedge the risks associated with fluctuations in
exchange rates but may undertake such transactions in the future. There can be
no assurance that any hedging techniques implemented by the Company in the
future would be successful or that the Company's business, results of
operations and financial condition will not be materially adversely affected
by exchange rate fluctuations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

RISK OF SOFTWARE DEFECTS; POTENTIAL PRODUCT LIABILITY FOR SOFTWARE DEFECTS

Software products as internally complex as those offered by the Company may
contain errors or defects, especially when first introduced or when new
versions are released. Despite extensive product testing, the Company has in
the past discovered software errors in certain of its new products after their
introduction. 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, which could have a material adverse effect upon the Company's
business, operating results and financial condition. See "Business--Products."

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 domestic or international jurisdictions. Although
the Company has not experienced product liability claims to date, the license
and support of products by the Company may entail the risk of such claims. A
successful product liability claim brought against the Company could have a
material adverse effect on the Company's business, operating results and
financial condition.

BENEFITS TO EXISTING STOCKHOLDERS

The Existing Stockholders will realize substantial benefits in connection
with the Offering. For example, prior to the termination of the Company's S
corporation status, which is expected to occur shortly prior to consummation
of the Offering, the Company expects to pay the $10.0 million S Corporation
Dividend in the form of the Dividend Notes to the Existing Stockholders.
Moreover, the Company will use a portion of the net proceeds of the Offering
to repay all indebtedness outstanding under the Business Loan.Loan (which, as of
June 1, 1998, was approximately $13.6 million). Upon consummation of the
Offering, a personal guarantee of certain amounts due under the Business Loan
given by the Company's President and Chief Executive Officer, Michael J.
Saylor, will terminate. See "Certain Transactions." The Selling Stockholders
will receive proceeds of $1,339,200 (net of estimated underwriting discount)
from the sale of 160,000 shares of Common Stock. The Existing Stockholders,
who paid substantially less for their stock on a per share basis than the
assumed public

14
offering price per share, may, followingwill have unrealized gains of approximately $277
million (assuming an initial public offering price of $9.00 per share).
Following expiration of a 180-day lock-up period, the Existing Stockholders
may also have the benefit of an active trading market for the Company's shares
that did not exist prior to consummation of the Offering. See "Dilution" and
"Shares Eligible for Future Sale."

YEAR 2000 ISSUES; POTENTIAL IMPACT ON CUSTOMERS

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. The Company has designed its products to be capable
of handling four digit dates, and therefore the Company believes that the
direct impact of the Year 2000 problem on the Company's products will not be
significant. Year 2000 issues, however, may significantly affect the
purchasing patterns of customers and potential customers. Many companies are
expending significant resources to correct or patch their current software
systems for Year 2000 compliance. These expenditures may result in reduced
funds available to purchase software products such as those offered by the
Company, which could result in a material adverse effect on the Company's
business, operating results and financial condition.

NO PRIOR PUBLIC MARKET

Prior to the Offering, there has been no public market for the Class A
Common Stock. Accordingly, there can be no assurance that an active trading
market will develop or be sustained upon completion of the Offering or that
the market price of the Class A Common Stock will not decline below the
initial public offering price. The initial public offering price of the Class
A Common Stock will be determined by negotiations between the Company and the
representatives of the Underwriters and may not be indicative of the prices
that will prevail in the public market. See "Underwriting."

The trading prices of the Class A Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in the Company's
operating results, developments or disputes concerning intellectual property
rights, technological innovations or new products, governmental regulatory
action, general conditions in the software industry, increased price
competition, changes in earnings estimates by analysts or other events or
factors, many of which are beyond the Company's control. In addition, the
stock market has experienced extreme price and volume fluctuations, which have
particularly affected the market prices of many computer software companies
and which have often been unrelated to the operating performance of such
companies.

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of Class A Common Stock could adversely affect the market price
of the Class A Common Stock. Several of the Company's principal stockholders
hold a significant portion of the outstanding Class B Common Stock, and a
decision by one or more of these stockholders to convert such shares into
Class A Common Stock (which conversion may take place at any time) and sell
their shares could adversely affect the market price of the Class A Common
Stock. The 4,000,000 shares of Class A Common Stock offered hereby (plus any
shares issued upon exercise of the Underwriters' over-allotment option) will
be freely tradeable without restriction in the public market as of the date of
this Prospectus, except for shares purchased by "affiliates" of the Company.
See "Shares Eligible For Future Sale." The holders of all the shares of Class
B Common Stock that will be outstanding upon the completion of the Offering
(which may be converted into Class A Common Stock at any time) have agreed to
enter into agreements with the Underwriters (the "Lock-up Agreements") which
will provide that, until the expiration of 180 days after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose
of any shares of Class A Common Stock (other than the shares of Class A Common
Stock offered by the Selling Stockholders) or securities of the Company which
are substantially similar to the shares of Class A Common Stock or which are
convertible into or exchangeable for, or represent the right

15
to receive, shares of Class A Common Stock without the prior written consent
of the representatives of the Underwriters. Upon the expiration of the Lock-up
Agreements, a substantial majority of the shares covered by the Lock-up
Agreements will be eligible for sale pursuant to Rule 144.

upon the exercise of stock options either outstanding or available for grant
pursuant to the Company's 1996 Stock Plan ("1996 Stock Plan"), 1997 Stock
Option Plan for French Employees ("French Plan") and, 1997 Director Option Plan
("Director OptionDirector") and the 1998 Employee Stock Purchase Plan" (the "Purchase Plan")
and together with the 1996 Stock Plan, the French Plan and the FrenchPurchase Plan,
the "Company Stock Plans"), respectively. Such registration statement is
expected to become effective immediately upon filing; however, consistent with
the terms of the Company Stock Plans, holders of options will be unable to
sell any shares of Class A Common Stock received upon the exercise of options
granted thereunder until the expiration of 180 days after the date of this
Prospectus.Prospectus, and no shares will be acquired under the Purchase Plan prior to
February 1, 1999. Options granted under the 1997 Director Option Plan do not
generally begin to vest until October 1998. Following effectiveness, shares
covered by the Registration Statement on Form S-8 will be eligible for sale in
the public markets, subject to Rule 144 limitations applicable to affiliates
as well as to the limitations on sale and vesting described above. See
"Management--Stock Option Plans."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of the Class A Common Stock offered hereby will incur immediate
and substantial dilution in pro forma net tangible book value per share. To
the extent options to purchase the Company's Class A Common Stock are
exercised, there will be further dilution. See "Dilution."

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of Class A
Common Stock offered hereby are estimated to be approximately $31,240,000
($36,262,800 if the Underwriters' over-allotment option is exercised in full)
based on an assumed initial public offering price of $9.00 per share and after
deducting the estimated underwriting discount and offering expenses payable by
the Company.

The principal purposes of the Offering are to increase the Company's equity
capital, to create a public market for the Class A Common Stock, to enhance
the Company's visibility and credibility with present and prospective
customers and employees and to facilitate future access to public equity
markets.

The Company currently intends to use the net proceeds of the Offering for
general corporate purposes, including working capital, increased sales and
marketing expenditures, capital expenditures, repayment of bank borrowings
outstanding under the Company's Business Loan (which as of June 1, 1998 were
approximately $13.6 million) and, to the extent that other sources are
insufficient for this purpose, repayment of the $10.0 million in principal
amount of the Dividend Notes. For information regarding the terms of the
indebtedness expected to be repaid, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources." Furthermore, the Company may acquire or invest in other
businesses, products, technologies or securities, and a portion of the net
proceeds may be used for these purposes. The Company has no plans, commitments
or agreements with respect to any material acquisitions or investments as of
the date of this Prospectus, and there can be no assurance that any such
acquisitions or investments will be made. Accordingly, the Company's
management will retain broad discretion as to the allocation of a substantial
portion of the net proceeds from the Offering. Pending such uses, the Company
plans to invest the net proceeds in interest-
bearing,interest-bearing, investment-grade
securities.

The Company will not receive any of the proceeds from the sale of Class A
Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders."

DIVIDEND POLICY

The Company expects to declare and pay the S Corporation Dividend to the
Existing Stockholders in the form of the Dividend Notes prior to the
termination of the Company's S corporation election, which is expected to
occur shortly prior to consummation of the Offering. The Business Loan
includes certain covenants restrictingthat restrict and will restrict the Company's
ability toto: (i) incur additional indebtedness (including the Dividend Notes) or to;
and (ii) make any advances to third parties (which includes dividends) outside
the normal course of business. The Company has obtained a waiver under the
Business Loan to allow it to declare the S Corporation Dividend and issue the
Dividend Notes, subject to consummation of the Offering. The Dividend Notes
may be prepaid without penalty at any time at the option of the Company. See
"Termination of S Corporation Election and S Corporation Distribution" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

The Company anticipates that following completion of the Offering, future
earnings, if any, will be retained for the development of its business, and
the Company does not anticipate paying any cash dividends on the Common Stock
in the foreseeable future.

TERMINATION OF S CORPORATION ELECTION
AND S CORPORATION DISTRIBUTION

Effective January 1, 1992, the Company elected to be treated as an S
corporation for federal and state income tax purposes. As a result, the
Company currently pays no federal or state income tax, and all of the earnings
of the Company are subject to federal and state income taxation directly at
the stockholder level. The Company's S corporation status will terminate prior
to consummation of the Offering, at which time the Company will become subject
to corporate income taxation under Subchapter C of the Internal Revenue Code
(the "Code") of 1986, as amended. See Note 6 of "Notes to Consolidated
Financial Statements" for information regarding pro forma federal income tax
provisions as if the Company had been a C corporation under the Code during
the relevant periods.

The Company has entered into a tax indemnification agreement (the "Tax
Indemnification Agreement") with the Existing Stockholders. The Tax
Indemnification Agreement provides for, among other things, the
indemnification of the Company by such stockholders for any federal and state
income taxes (including interest and penalties) incurred by the Company if for
any reason the Company is deemed to be treated as a C corporation during any
period for which it reported its taxable income as an S corporation. The tax
indemnification obligation of the Existing Stockholders is limited to the
lesser of (i) the amount of any reduction in their tax liability as a result
of any such determination or (ii) the aggregate amount received in
distributions from the Company from January 1, 1990 until the S corporation
termination date. The Tax Indemnification Agreement also provides for the
cross-indemnification by the Company of each Existing Stockholder for any
losses or liabilities with respect to certain additional taxes (including
interest and penalties) resulting from the Company's operations during the
period in which it was an S corporation. Purchasers of Class A Common Stock in
the Offering who are not Existing Stockholders will not be parties to the Tax
Indemnification Agreement.

The Company expects to declare and pay the S Corporation Dividend to the
Existing Stockholders in the form of the Dividend Notes, prior to termination
of the Company's S corporation election, which is expected to occur shortly
prior to consummation of the Offering. The Dividend Notes (i) have a term of
one year; (ii) bear interest at the applicable federal rate for debt
obligations having a maturity of one year, which was 5.29% as of March 31,
1998; and (iii) are payable in four equal quarterly installments. The Dividend
Notes may be prepaid without penalty at any time at the option of the Company.
See "Dividend Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

DILUTION

The pro forma net tangible book (deficit) value of the Company at March 31,
1998, as adjusted to reflect the payment of the S Corporation Dividend to the
Existing Shareholders in the form of the Dividend Notes, was ($11.6) million,
or ($0.37) per share of Common Stock. Pro forma net tangible book value per
share represents the amount of total tangible assets of the Company reduced by
the amount of its total liabilities divided by the total number of shares of
Common Stock outstanding. After giving effect to the sale by the Company of
3,840,000 shares of Class A Common Stock in the Offering at an assumed initial
public offering price of $9.00 per share, and after deducting the underwriting
discount and estimated offering expenses payable by the Company, the pro forma
net tangible book value of the Company at March 31, 1998 would have been $24.7
million, or $0.71 per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $1.08 per share to the
Company's existing stockholders and an immediate dilution in pro forma net
tangible book value of $8.29 per share to new investors purchasing shares of
Class A Common Stock in the Offering. The following table illustrates this per
share dilution in pro forma net tangible book value to new investors:

Initial public offering price per share....................... $9.00
NetPro forma net tangible book (deficit) value per share of
Class A Common Stock before the Offering...........................Offering................... $(0.37)
Increase per share attributable to new investors............ $ 1.08
Pro forma net tangible book (deficit) value per share after
the Offering................................................. $0.71
-----
Dilution per share to new investors........................... $8.29
=====

The following table sets forth, as of March 31, 1998, the differences in the
number of shares of Class B Common Stock purchased from the Company, the
consideration paid to the Company and the average price per share paid by the
Existing Stockholders and by the new investors purchasing shares of Class A
Common Stock in the Offering (assuming no exercise of the Underwriters' over-
allotment option and without giving effect to the underwriting discount and
estimated offering expenses):

SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------

Existing stockholders... 30,895,514 89% $ 1,262,291 4% $0.04
New investors........... 3,840,000 11 34,560,000 96 9.00
---------- --- ----------- ---
Total................... 34,735,514 100% $35,822,291 100%
========== === =========== ===

The preceding table assumes no exercise of any stock options outstanding at
March 31, 1998. At March 31, 1998, there were director and employee stock
options outstanding to purchase a total of 5,414,018 shares of Class A Common
Stock with a weighted average exercise price of $1.99 per share. To the extent
that such options are exercised, there will be further dilution to new
investors. See "Management--Stock Option Plans" and Note 8 of "Notes to
Consolidated Financial Statements."

CAPITALIZATION

The following table sets forth the capitalization of the Company as of March
31, 1998 (i) on an actual basis and (ii) as adjusted to reflect (a) the
conversion of all issued and outstanding shares of common stock into shares of
Class A Common Stock and the subsequent exchange by the Existing Stockholders
of 30,895,514 shares of Class A Common Stock outstanding at March 31, 1998 into an identical
number of shares of Class B Common Stock, (b) the payment of the S Corporation
Dividend to the Existing Stockholders in the form of Dividend Notes prior to
the termination of the Company's S corporation election, (c) repayment of all
of the indebtedness outstanding under the Business Loan and (d) the sale of
3,840,000 shares of Class A Common Stock by the Company and the conversion of
160,000 shares of Class B Common Stock into Class A Common Stock and the
ensuing sale of 160,000 shares of Class A Common Stock by the Selling
Stockholders in the Offering at an assumed initial public offering price of
$9.00 per share, after deduction of the underwriting discount and estimated
offering expenses payable by the Company.

MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- -------------
(IN THOUSANDS, EXCEPT
SHARE DATA)

Line of credit....................................... $ 5,376 $ --
Dividend Notes payable............................... -- 10,000
Other notes payable, including current portion....... 3,751 210
Stockholders' equity:
Preferred stock, par value $0.001 per share,
5,000,000 shares authorized, no shares issued and
outstanding....................................... -- --
Common Stock,stock, par value $0.001 per share,
50,000,000 shares authorized, 30,895,514 shares
issued and outstanding, actual; no shares issued
and outstanding, as adjusted...................... 31 --
Class A Common Stock, par value $0.001 per share,
100,000,000 shares authorized, no shares issued
and outstanding; 4,000,000 shares issued and
outstanding, as adjusted.......................... -- 4
Class B Common Stock, par value $0.001 per share,
100,000,000 shares authorized, no shares issued
and outstanding, actual; 30,735,514 shares issued
and outstanding, as adjusted...................... -- 31
Additional paid-in capital......................... 1,086 32,323
Accumulated other comprehensive income............. 162 162
Accumulated deficit................................ (92) (10,092)
---------- ----------
Total stockholders' (deficit) equity............. 1,187 22,428
---------- ----------
Total capitalization............................. $ 10,314 $ 32,638
========== ==========

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the "Consolidated Financial Statements," the
"Notes to Consolidated Financial Statements" and the other financial
information included elsewhere in this Prospectus. The statement of operations
data for the years ended December 31, 1995, 1996 and 1997, and the balance
sheet data as of December 31, 1996 and 1997, are derived from audited
financial statements included elsewhere in this Prospectus. The statement of
operations data for the year ended December 31, 1994 and the balance sheet
data as of December 31, 1994 and 1995 isare derived from audited financial
statements not included herein. The statement of operations data for the year
ended December 31, 1993 and for the three months ended March 31, 1997 and 1998
and the balance sheet data as of December 31, 1993 and as of March 31, 1998
have been derived from the Company's unaudited consolidated financial
statements, which, in management's opinion, reflect all adjustments necessary
to fairly present this information when read in conjunction with the
Consolidated Financial Statements and the Notes thereto included elsewhere in
the Prospectus.

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------------- -------------------------------------------------------------
1993 1994 1995 1996 1997(1) 1997 1998(1)
----------------------------------- ----------- ----------- ----------- ----------- ---------- ------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Product licenses... $ 676 $ 622 $ 4,077 $ 15,873 $ 36,601 $ 4,731 $ 14,282
Product support.... 3,426 4,358 5,700 6,730 16,956 3,406 5,613
------------ ----------- ----------- ----------- ----------- ---------- ----------
Total revenues.... 4,102 4,980 9,777 22,603 53,557 8,137 19,895
------------ ----------- ----------- ----------- ----------- ---------- ----------
Costs and expenses:
Cost of revenues... 1,502 2,057 2,458 5,257 11,116 2,156 3,701
Sales and
marketing......... 274 771 2,992 13,054 30,468 5,292 10,828
Research and
development....... 153 200 1,855 2,840 5,049 735 2,092
General and
administrative.... 1,463 1,955 2,395 3,742 6,552 895 2,563
------------ ----------- ----------- ----------- ----------- ---------- ----------
Total costs and
expenses......... 3,392 4,983 9,700 24,893 53,185 9,078 19,184
------------ ----------- ----------- ----------- ----------- ---------- ----------
Income (loss) from
operations......... 710 (3) 77 (2,290) 372 (941) 711
Interest income
(expense), net..... 6 (34) (40) (105) (239) (61) (190)
Other income
(expense), net..... 45 (24) 11 20 (12) (1) 21
------------ ----------- ----------- ----------- ----------- ---------- ----------
Net income (loss)... $ 761 $ (61) $ 48 $ (2,375) $ 121 $ (1,003) $ 542
============ =========== =========== =========== =========== ========== ==========
Basic net income
(loss) per
share(2)........... $ 0.03 $ 0.00 $ 0.00 $ (0.08) $ 0.00 $ 0.00 $ 0.02
Shares used in
computing basic net
income (loss) per
share(2)........... 24,640,000 27,988,000 28,896,622 29,493,873 29,493,873 29,493,873 30,895,514
Diluted net income
(loss) per share... $ 0.03 $ 0.00 $ 0.00 $ (0.08) $ 0.00 $ 0.00 $ 0.02
Shares used in
computing diluted
net income (loss)
per share(2)....... 24,640,000 27,988,000 28,896,622 29,493,873 32,256,323 29,493,873 35,040,308

DECEMBER 31, MARCH 31, 1998
------------------------------------- ---------------------------------------------------------------------------------
PRO FORMA
1993 1994 1995 1996 1997 ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------ ------ ------ ------- ------- ------- ------------ -----------------------------
(IN THOUSANDS)

CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents............ $ 141 $ 249 $ 643 $ 1,686 $ 3,506 $ 2,304 $ 2,304 $24,628
Working capital
(deficit).............. 1,752 848 1,343 (2,237) (5,761) (5,824) (15,824) 12,896
Total assets............ 2,352 3,209 5,838 13,004 30,065 30,592 30,592 52,916
Notes payable, long-term
portion................ 323 193 600 460 2,658 2,636 2,636 115
Total stockholders'
(deficit) equity....... 1,564 1,446 1,546 (793) (427) 1,187 (8,813) 22,428

- -------
(1) During each of the periods presented, the Company was an S corporation,
and accordingly was not liable for corporate income taxes. See
"Termination of S Corporation Election and S Corporation Distribution." On
a pro forma basis, had the Company been a tax-paying entity, the Company
would have recorded an income tax provision of approximately $489,000 and
a net loss of approximately $368,000 for the year ended December 31, 1997
and would have recorded an income tax provision of approximately $206,000
and net income of $336,000 for the three months ended March 31, 1998. Pro
forma basic and diluted loss per share would have been $0.01 for the year
ended December 31, 1997 and pro forma basic and diluted income per share
would have been $0.01 for the three months ended March 31, 1998. See Note
1 of "Notes to Consolidated Financial Statements" for the basis of
computing pro forma basic and diluted net loss per share.
(2) The basis for the determination of shares used in computing net income per
share is described in Note 1 of "Notes to Consolidated Financial
Statements."
(3) Pro forma for the effect of the S Corporation Dividend, which is expected
to occur shortly prior to consummation of the Offering. See "Termination
of S Corporation Election and S Corporation Distribution" and "Dividend
Policy."
(4) As adjusted to reflect the sale by the Company of 3,840,000 shares of
Class A Common Stock offered hereby at an assumed public offering price of
$9.00 per share, after deducting the underwriting discount and the
estimated offering expenses payable by the Company and the repayment of
bank borrowings as of March 31, 1998.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operation
of the Company should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto, and the other financial information
included elsewhere in this Prospectus.

OVERVIEW

The primary business of the Company following its incorporation in 1989 was
to provide software consulting services for customers to help them build
custom decision support systems. The Company's activities during 1994 and 1995
increasingly focused on the development and sale of software products,
culminating in the release of a full complement of DSS products in 1995. Since
this time, the Company has continued to focus significant resources on the
development of additional functionality and features to its DSS software
products. As a result, the Company has transitioned its primary business from
that of a provider of services to a provider of software products.

Since 1995, the Company has significantly increased its sales and marketing,
service and support, research and development and general and administrative
staffs. The Company has more than doubled its headcount each year since 1995.
At January 1, 1995, the Company had 59 employees, and at March 31, 1998, it
had 676 employees. Although the Company's revenues have significantly
increased in each of the last eight quarters, the Company experienced
fluctuating operating margins during 1996, 1997 and the first quarter of 1998
primarily as a result of increases in staff levels. The Company expects to
continue to increase staffing levels and incur additional associated costs in
future periods. If the Company is unable to achieve corresponding substantial
revenue growth, the Company could suffer operating losses in one or more
fiscal quarters and may be unable to forecast such losses prior to the end of
any given fiscal quarter. In addition, the Company has experienced net losses
and losses from operations for the fiscal years ended December 31, 1996 and
December 31, 1994, and was only marginally profitable for the fiscal years
ended December 31, 1997 and December 31, 1995. While the Company has
experienced significant percentage growth in revenues in recent periods and
currently expects substantial, although potentially lower, percentage growth
in revenues throughout 1998, prior percentage revenue growth rates should not
be considered as necessarily indicative of future growth rates or operating
results, and there are a number of factors that could materially affect
expected revenue and operating results for fiscal 1998 and subsequent periods.
See "Risk Factors--Limited Operating History; Uncertainty of Future Operating
Results," "--Potential Fluctuations in Quarterly Operating Results," "--
Lengthy Sales and Implementation Cycles," "--Competition," "Management of
Growth," "--Need to Recruit Additional Skilled Personnel; Dependence on Key
Personnel," and "Dependence on New Versions, New Products and Rapid
Technological Change."

The Company's revenues are derived from two principal sources (i) product
licenses and (ii) fees for maintenance, technical support, training and
consulting services (collectively, "product support"). Prior to December 15,
1997January 1,
1998 the Company recognized revenue in accordance with Statement of Position
91-1, "Software Revenue Recognition." Subsequent to December 31, 1997, the
Company began recognizing revenue in accordance with Statement of Position 97-
2, "Software Revenue Recognition." Product license revenues are generally
recognized upon the execution of a contract and shipment of the related
software product, provided that no significant vendor obligations remain
outstanding and the resulting receivable is deemed collectible by management.
Maintenance revenues are derived from customer support agreements generally
entered into in connection with initial product license sales and subsequent
renewals. Fees for the Company's maintenance and support plans are recorded as
deferred revenue when billed to the customer and recognized ratably over the
term of the maintenance and support agreement, which is typically one year.
Fees for the Company's training and consulting services are recognized at the
time the services are performed. For the year ended December 31, 1997 and for
the first three months ended March 31, 1998, no single customer accounted for
more than 3.5% of the Company's revenues.

The sales cycle for the Company's products may span six months or more.
Historically, the Company has typically recognized a substantial portion of
its revenues in the last month of a quarter, with these revenues

frequently concentrated in the last two weeks of a quarter. Even minor delays
in booking orders may have a significant adverse impact on revenues for a
particular quarter. To the extent that delays are incurred in connection with
orders of significant size, the impact will be correspondingly greater.
Moreover, the Company currently operates with virtually no order backlog
because its software products typically are shipped shortly after orders are
received. Product license revenues in any quarter are substantially dependent
on orders booked and shipped in that quarter. As a result of these and other
factors, the Company's quarterly results have varied significantly in the past
and are likely to fluctuate significantly in the future. Accordingly, the
Company believes that quarter-to-quarter comparisons of its results of
operations are not necessarily indicative of the results to be expected for
any future period. See "Quarterly Financial Results" and "Risk Factors--
Potential Fluctuations in Quarterly Operating Results."

The Company licenses its software through its direct sales force and
increasingly through, or in conjunction with, VARs and OEMs. Channel partners
accounted for, directly or indirectly, approximately 23.2%, 27.5%, 9.0% and
0.1% of the Company's revenues for the three months ended March 31, 1998 and
for the years ended 1997, 1996 and 1995, respectively. Although the Company
believes that direct sales will continue to account for a majority of product
license revenues, the Company intends to increase the level of indirect sales
activities. As a result, the Company expects that sales of its product
licenses through sales alliances, distributors, resellers and other indirect
channels will increase as a percentage of product license revenues. However,
there can be no assurance that the Company's efforts to continue to expand
indirect sales will be successful. The Company also intends to continue to
expand its international operations and has committed, and continues to
commit, significant management time and financial resources to developing
direct and indirect international sales and support channels. See "Risk
Factors--International Operations" and "--Reliance on Channel Partners."

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of
total revenues represented by certain items reflected in the Company's
consolidated statements of operations:

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- ---------------------
1995 1996 1997 1997 1998
------- ------- ------- --------- ---------

CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Product licenses......... 41.7% 70.2% 68.3% 58.1% 71.8%
Product support.......... 58.3 29.8 31.7 41.9 28.2
------- ------- ------- --------- ---------
Total revenues......... 100.0 100.0 100.0 100.0 100.0
------- ------- ------- --------- ---------
Cost of revenues:
Product licenses......... 2.6 4.5 3.1 4.4 2.7
Product support.......... 22.5 18.7 17.7 22.1 15.9
------- ------- ------- --------- ---------
Total cost of
revenues.............. 25.1 23.2 20.8 26.5 18.6
------- ------- ------- --------- ---------
Gross margin............... 74.9 76.8 79.2 73.5 81.4
------- ------- ------- --------- ---------
Operating expenses:
Sales and marketing...... 30.6 57.8 56.9 65.0 54.4
Research and
development............. 19.0 12.6 9.4 9.0 10.5
General and
administrative.......... 24.5 16.6 12.2 11.0 12.9
------- ------- ------- --------- ---------
Total operating
expenses.............. 74.1 87.0 78.5 85.0 77.8
Income (loss) from
operations................ 0.8 (10.2) 0.7 (11.5) 3.6
Interest income............ 0.2 0.1 0.2 -- 0.2
Interest expense........... (0.6) (0.6) (0.7) ( 0.7) (1.2)
Other income, net.......... 0.1 0.1 -- -- 0.1
------- ------- ------- --------- ---------
Net income (loss).......... 0.5% (10.6)% 0.2% (12.2)% 2.7%
======= ======= ======= ========= =========

COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

REVENUES. Total revenues increased to $53.6 million in 1997 from $22.6
million in 1996 and from $9.8 million in 1995, representing increases of
136.9% and 131.2%, respectively. Total revenues consist of revenues derived
from sales of software product licenses, services and maintenance. There can
be no assurance that total revenues will continue to increase at the rates
experienced in prior periods, if at all.

Product License Revenues. Product license revenues increased to $36.6
million in 1997 from $15.9 million in 1996 and from $4.1 million in 1995,
representing increases of 130.6% and 289.3%, respectively. Product license
revenues constituted 68.3%, 70.2% and 41.7% of total revenues for 1997, 1996
and 1995, respectively. The significant increases in the dollar amount of
product license revenues were due to growing market acceptance of the
Company's software products and continued expansion of the Company's sales and
marketing organization. The significant increases in product licenses as a
percentage of total revenues from 1995 through 1997 were primarily attributed
to the transition of the Company's business during that period from a provider
of consulting services to a provider of software products. The increase in
product license revenues from 1996 to 1997 was primarily attributable to the
introduction and release of new versions of DSS Administrator, DSS Web and DSS
Agent which were released during 1997. These new product releases and
enhancements included significant new features and functionality offered to a
broader corporate customer base. Approximately 53%, 57% and 70% of product
license revenues were generated from new product releases during 1997, 1996
and 1995, respectively. These factors contributed to increases in the number
and average contract dollar amount of DSS licenses sold. To date, sales of
product licenses have principally been derived from direct sales to customers.

Product Support Revenues. Product support revenues increased to $17.0
million in 1997 from $6.7 million in 1996 and from $5.7 million in 1995,
representing increases of 151.9% and 18.1%, respectively. Product support
revenues constituted 31.7%, 29.8%, and 58.3% of total revenues for 1997, 1996
and 1995, respectively. The increases in the dollar amount of product support
revenues were primarily due to the increase in the number of DSS licenses
sold. However, product support revenues significantly decreased as a
percentage of total revenues during these periods primarily due to the
transition of the Company's business from a provider of consulting services to
a provider of software products. Notwithstanding the foregoing, the Company
expects product support revenues as a percentage of total revenues to continue
to fluctuate on a period to period basis but generally not to vary
significantly from the percentage of total revenues achieved in 1997. However,
an element of the Company's sales and marketing strategy is to leverage third-
party implementation services to enable it to more rapidly penetrate its
target market. To the extent that such efforts are successful, the Company's
product support revenues could continue to decline as a percentage of total
revenues.

International Revenues. The Company recognized $14.3 million, $2.5 million
and $1.1 million of international revenues in 1997, 1996 and 1995,
respectively, representing approximately 26.6%, 11.1% and 11.3% of total
revenues, respectively. The Company opened sales offices in Australia, Canada
and Italy in 1998; in Austria, France and the Netherlands in 1997; in Germany
in 1996; in the United Kingdom in 1995; and in Spain in 1994. The Company
expects to open additional international sales offices in 1998. International
sales are subject to a number of risks. See "Risk Factors--International
Operations" and "--Currency Fluctuations."

COSTS AND EXPENSES

Cost of Product License Revenues. Cost of product license revenues
consists primarily of the costs of product manuals, media, amortization of
capitalized software and shipping paid to third parties. Cost of product
license revenues was $1.6 million, $1.0 million and $0.3 million in 1997, 1996
and 1995, respectively, representing 4.5%, 6.4% and 6.3% of total product
license revenues, respectively. The increases in dollar amounts of the
Company's cost of product licenses are directly attributable to the increases
in the Company's product license revenues. The total cost of product license
revenues as a percentage of revenues decreased during 1997 from 1996, due to
economies of scale realized by producing larger volumes of product materials
and an increasing number of customers reproducing licenses at their sites. The
Company anticipates that the cost of product license revenues will increase in
dollar amount as license fee revenues increase, but remain relatively constant
as a percentage of product license revenues. However, in the event that the
Company enters into any

royalty arrangements in the future, cost of product license revenues as a
percentage of total product license revenues may increase.

Cost of Product Support Revenues. Cost of product support revenues
consists of the costs of providing telephone support, training and consulting
services to customers and partners. Cost of product support revenues was $9.5
million, $4.2 million and $2.2 million in 1997, 1996 and 1995, respectively,
representing 55.9%, 63.0% and 38.6% of total product support revenues,
respectively. The increase in cost of product support revenues, both in dollar
amount and as a percentage of 1996 product support revenues, was primarily due
to the increase in the number of personnel providing consulting, training, and
telephone support to customers and to the training and related costs
associated with increasing personnel levels. Despite the increases in
personnel and other costs in 1997, the total cost of product support revenues
decreased as a percentage of revenues during 1997 from 1996, primarily due to
increases in maintenance revenues without proportional increases in the cost
of product support revenues. The Company expects to continue to increase the
number of training and implementation consultants in the future, as well as
technical support personnel. To the extent that the Company's product support
revenues do not increase at anticipated rates, the hiring of additional
consultants and technical support personnel could increase the cost of product
support revenues as a percentage of product support revenues.

Sales and Marketing Expenses. Sales and marketing expenses include
personnel costs, commissions, office facilities, travel, promotional events
such as trade shows, seminars and technical conferences, advertising and
public relations programs. Sales and marketing expenses were $30.5 million,
$13.1 million and $3.0 million in 1997, 1996 and 1995, respectively,
representing 56.9%, 57.8% and 30.6% of total revenues, respectively. The
significant increase in sales and marketing expenses in dollar amounts in 1997
was primarily due to increased staffing as the Company established new
domestic and international sales offices and expanded its existing direct
sales force, and to a lesser extent, increased commissions to sales
representatives as a result of increased sales of software licenses and
increased promotional activities relating to the announcement of certain
product enhancements or releases. The increase in sales and marketing expenses
in 1996 was primarily attributable to increased costs associated with the
development of a direct sales force, increased commissions to Company sales
representatives due to increased sales of product licenses and increased
marketing activities. The Company believes that it is critically important to
gain market share among high-end customers. The Company has invested and will
continue to invest heavily in sales and marketing in order to create better
market awareness of the value-added potential of DSS products and to acquire
market share. The Company believes that the dollar amount of sales and
marketing expenses will continue to increase, but should probably decrease
over time as a percentage of total revenues from the levels experienced in
1997 and 1996.

Research and Development Expenses. Research and development expenses
consist primarily of salaries and benefits of software engineering personnel,
payments to contract programmers, depreciation of equipment and expendable
equipment purchases. See Note 1 of "Notes to Consolidated Financial
Statements." Research and development expenses were $5.1 million, $2.8 million
and $1.9 million in 1997, 1996 and 1995, respectively, representing 9.4%,
12.6% and 19.0% of total revenues, respectively. The increases in research and
development expenses were primarily due to additional hiring of research and
development personnel. In 1997, in accordance with SFAS No. 86, the Company
began to capitalize research and development costs due to the significant
increase in product development activities associated with the version 5.0
release of the Company's DSS software product line. As a result, the Company
capitalized $1.9 million of research and development costs in 1997.
Expenditures for research and development costs prior to capitalizing software
were $7.0 million in 1997.

General and Administrative Expenses. General and administrative expenses
include the personnel and other costs of the finance, human resources,
information systems, administrative and executive departments of the Company
as well as outside professional fees. General and administrative expenses were
$6.6 million, $3.7 million and $2.4 million in 1997, 1996 and 1995,
respectively, representing 12.2%, 16.6% and 24.5% of total revenues,
respectively. The increases in the dollar amount of general and administrative
expenses were primarily the result of increased staff levels and related costs
associated with the growth of the Company's business during these periods. The
decreases in general and administrative expenses as a percentage of total
revenues in 1997

and 1996 were primarily due to the substantial increase in total revenues.
Although the Company expects that the dollar amount of general and
administrative expenses will continue to increase in the foreseeable future,
such expenses are not expected to significantly vary as a percentage of total
revenues in the future.

Provision for Income Taxes. The Company has elected to be treated as a
Subchapter S corporation for federal and state income tax purposes. Under
Subchapter S, the Company's income has been allocated and taxable to the
Company's individual stockholders rather than to the Company. Accordingly, no
federal or state income taxes have been provided for in the financial
statements. The Company's S corporation status will terminate shortly prior to
consummation of the Offering, at which time the Company will become subject to
federal and state corporate income taxation as a Subchapter C corporation.

Upon termination of the Company's S corporation status, the Company will
account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Had the Company been taxed
as a C corporation, the Company would have recorded a net deferred tax
liability of approximately $0.4 million as of December 31, 1997. As of
December 31, 1997 the Company would have recorded a valuation allowance of
$1.8 million, primarily against the net operating loss carryforwards in
foreign jurisdictions. Management has concluded that no valuation allowance is
required on the domestic net deferred tax assets based on its assessment that
current and expected future levels of taxable income are sufficient to realize
domestic deferred tax assets. See Note 6 of Notes to Consolidated Financial
Statements.

COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997

REVENUES. Total revenues increased 144.5% to $19.9 million for the three
months ended March 31, 1998 from $8.1 million for the three months ended March
31, 1997.

Product License Revenues. Product license revenues increased 201.9% to
$14.3 million for the three months ended March 31, 1998 from $4.7 million for
the three months ended March 31, 1997, representing 71.8% and 58.1% of total
revenues for the three months ended March 31, 1998 and 1997, respectively. The
significant increases in product license revenues were due to growing market
acceptance of the Company's software products and continued expansion of the
Company's sales and marketing organization.

Product Support Revenues. Product support revenues increased 64.8% to $5.6
million for the three months ended March 31, 1998 from $3.4 million for the
three months ended March 31, 1997, representing 28.2% and 41.9% of total
revenues for the three months ended March 31, 1998 and 1997, respectively. The
increase in the dollar amount of product support revenues was primarily due to
the increase in the number of DSS licenses sold. However, product support
revenues decreased as a percentage of total revenues during these periods
primarily due to the transition of the Company's business from a provider of
consulting services to a provider of software products.

International Revenues. The Company recognized $4.2 million and $1.3
million of international revenues in the three months ended March 31, 1998 and
March 31, 1997, representing approximately 20.9% and 16.3% of total revenues,
respectively.

COSTS AND EXPENSES

Cost of Product License Revenues. Cost of product license revenues
increased to $0.5 million for the three months ended March 31, 1998 from $0.4
million for the same period ended March 31, 1997, representing 3.8% and 7.5%
of total product license revenues, respectively. The increase in the Company's
cost of product licenses was directly attributable to the increases in the
Company's product license revenue, coupled with the amortization of
capitalized software. The total cost of product license revenues as a
percentage of revenues decreased during the first quarter of 1998 from the
same period in 1997, due to economies of scale realized by producing larger
volumes of product materials and an increasing number of customers reproducing
licenses at their sites.

Cost of Product Support Revenues. Cost of product support revenues
increased to $3.2 million for the three months ended March 31, 1998 from $1.8
million for the same period ended March 31, 1997, representing 56.3% and 52.8%
of total product support revenues, respectively. The increase in the Company's
cost of product support revenues in 1998 was primarily due to the increase in
the number of personnel providing consulting, training, and telephone support
to customers and to the training and related costs associated with increasing
personnel levels.

Sales and Marketing Expenses. Sales and marketing expenses increased to
$10.8 million for three months ended March 31, 1998 from $5.3 million for the
same period ended March 31, 1997, representing 54.4% and 65.0% of total
revenues, respectively. The increase in sales and marketing expenses in 1998
was primarily due to increased staffing as the Company established new
international sales offices and expanded its existing direct sales force, and
to a lesser extent, increased commissions to sales representatives as a result
of increased sales of software licenses and increased promotional activities
relating to the announcement of certain product enhancements or releases. The
Company believes that in light of the relatively long sales cycle associated
with decision support solutions and the recent emergence of the industry, it
is critically important to gain market share among high-end customers. The
Company has invested and will continue to invest heavily in sales and
marketing in order to create better market awareness of the value-added
potential of DSS products and to acquire market share.

Research and Development Expenses. Research and development expenses
increased to $2.1 million for the three months ended March 31, 1998 from $0.7
million for the same period ended March 31, 1997, representing 10.5% and 9.0%
of total revenues, respectively. The increases in research and development
expenses were primarily due to additional hiring of research and development
personnel. The Company expects that research and development expenses will
continue to increase in dollar amount as the Company continues to invest in
developing new products, applications and product enhancements. In 1997, in
accordance with SFAS No. 86, the Company capitalized research and development
costs due to the significant increase in product development activities
associated with the version 5.0 release of the Company's DSS software product
line. As a result, the Company capitalized $0.4 million of research and
development costs during the three months ended March 31, 1997. During the
three months ended March 31, 1998, in accordance with SFAS No. 86, the costs
incurred between the establishment of technological feasibility and general
availability of the Company's products were not material and therefore have
not been capitalized.

General and Administrative Expenses. General and administrative expenses
increased to $2.6 million for the three months ended March 31, 1998 from $0.9
million for the same period ended March 31, 1997, representing 12.9% and 11.0%
of total revenues, respectively. The increase in the dollar amount of general
and administrative expenses was primarily the result of increased staffing and
related costs associated with the growth of the Company's business during
these periods.

Deferred Compensation Expense. During the three months ended March 31,
1998 the Company issued options to purchase 573,155 shares of common stock, of
which options to purchase 274,000 shares of common stock were granted at
exercise prices below fair market value. The Company will amortize
approximately $0.3 million of compensation expense relating to the options
ratably over the five year vesting period of these options. Subsequent to
March 31, 1998 the Company had granted an additional 434,000 options for the
purchase of common stock on which the Company will amortize approximately $0.5
million of compensation expense ratably over the five year vesting period of
the options. The Company will record additional compensation expense relating
to the options to be allocated across the above expense categories, as
appropriate, for the years ending December 31, 1998, 1999, 2000, 2001, 2002
and 2003 of $0.12 million, $0.16 million, $0.16 million, $0.16 million, $0.16
million and $0.04 million, respectively. For the three months ended March 31,
1998 compensation expense related to the aforementioned options is immaterial.

income taxes have been provided in the financial statements. The Company's S
corporation status will terminate shortly prior to consummation of the
Offering, at which time the Company will become subject to federal and state
corporate income taxation as a Subchapter C corporation.

RECENTLY ISSUED ACCOUNTING STANDARDS

As of March 31, 1998, the Company has adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires additional disclosures with respect to
certain changes in assets and liabilities that previously were not required to
be reported as results of operations for the period, and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the manner in which public companies report
information about operating segments in annual and interim financial
statements.

2728

QUARTERLY FINANCIAL RESULTS

The following tables set forth the unaudited consolidated statement of
operations data for the eight quarters ended March 31, 1998, as well as such
data expressed as a percentage of the Company's total revenues for the periods
indicated. This data has been derived from unaudited interim consolidated
financial statements that, in the opinion of management, have been prepared on
a basis consistent with Consolidated Financial Statements contained elsewhere
herein and include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information when read
in conjunction with the Consolidated Financial Statements and Notes thereto.
The operating results for any quarter are not necessarily indicative of
results for any future period. See "Risk Factors--Potential Fluctuations in
Quarterly Operating Results."

THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1996 1996 1996 1997 1997 1997 1997 1998
-------- ------------- ------------ --------- -------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)

CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
Product licenses....... $3,975 $4,500 $ 4,696 $ 4,731 $8,134 $10,545 $13,191 $14,282
Product support........ 1,578 1,870 1,898 3,406 3,741 4,206 5,603 5,613
------ ------ ------- ------- ------ ------- ------- -------
Total revenues.........revenues.... 5,553 6,370 6,594 8,137 11,875 14,751 18,794 19,895
------ ------ ------- ------- ------ ------- ------- -------
Cost of revenues:
Product licenses....... 233 269 333 357 396 434 454 538
Product support........ 1,008 1,151 1,195 1,799 2,059 2,462 3,155 3,163
------ ------ ------- ------- ------ ------- ------- -------
Total cost of
revenues..............revenues.......... 1,241 1,420 1,528 2,156 2,455 2,896 3,609 3,701
------ ------ ------- ------- ------ ------- ------- -------
Gross margin............ 4,312 4,950 5,066 5,981 9,420 11,855 15,185 16,194
Operating expenses:
Sales and marketing.... 2,789 3,634 4,663 5,292 7,036 7,872 10,268 10,828
Research and
development........... 617 874 910 735 915 1,487 1,912 2,092
General and
administrative........ 664 980 1,482 895 1,270 1,998 2,389 2,563
------ ------ ------- ------- ------ ------- ------- -------
Total operating
expenses..............expenses......... 4,070 5,488 7,055 6,922 9,221 11,357 14,569 15,483
Income (loss) from
operations............. 242 (538) (1,989) (941) 199 498 616 711
Interest income......... -- 1 11 -- 17 37 40 47
Interest expense........ (24) (20) (56) (61) (93) (48) (131) (237)
Other income (expense),
net.................... -- (117) 137 (1) (1) (1) (9) 21
------ ------ ------- ------- ------ ------- ------- -------
Net income (loss)....... $ 218 $ (674) $(1,897) $(1,003) $ 122 $ 486 $ 516 $ 542
====== ====== ======= ======= ====== ======= ======= =======
PERCENT OF TOTAL
REVENUES:
Revenues:
Product licenses....... 71.6% 70.6% 71.2% 58.1% 68.5% 71.5% 70.2% 71.8%
Product support........ 28.4 29.4 28.8 41.9 31.5 28.5 29.8 28.2
------ ------ ------- ------- ------ ------- ------- -------
Total revenues.........revenues.... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------- ------- ------ ------- ------- -------
Cost of revenues:
Product licenses....... 4.2 4.2 5.1 4.4 3.3 2.9 2.4 2.7
Product support........ 18.2 18.1 18.1 22.1 17.3 16.7 16.8 15.9
------ ------ ------- ------- ------ ------- ------- -------
Total cost of
revenues..............revenues......... 22.4 22.3 23.2 26.5 20.6 19.6 19.2 18.6
------ ------ ------- ------- ------ ------- ------- -------
Gross margin............ 77.6 77.7 76.8 73.5 79.4 80.4 80.8 81.4
Operating expenses:
Sales and marketing.... 50.2 57.0 70.7 65.0 59.3 53.4 54.6 54.4
Research and
development........... 11.1 13.7 13.8 9.0 7.7 10.1 10.2 10.5
General and
administrative........ 12.0 15.4 22.5 11.0 10.7 13.5 12.7 12.9
------ ------ ------- ------- ------ ------- ------- -------
Total operating
expenses..............expenses......... 73.3 86.1 107.0 85.0 77.7 77.0 77.5 77.8
Income (loss) from
operations............. 4.3 (8.4) (30.2) (11.5) 1.7 3.4 3.3 3.6
Interest income......... -- -- 0.2 -- 0.1 0.2 0.2 0.2
Interest expense........ (0.4) (0.3) (0.8) (0.7) (0.8) (0.3) (0.7) (1.2)
Other income (expense),
net.................... -- (1.8) 2.1 -- -- -- -- 0.1
------ ------ ------- ------- ------ ------- ------- -------
Net income (loss)....... 3.9% (10.5)% (28.7)% (12.2)% 1.0% 3.3% 2.8% 2.7%
====== ====== ======= ======= ====== ======= ======= =======

2829

The Company's operating results have in the past and are likely in the
future to vary significantly from quarter to quarter as a result of a number
of factors, including the size and timing of significant orders, the timing of
new product announcements, changes in pricing policies by the Company and its
competitors, market acceptance of decision support software generally and of
new and enhanced versions of the Company's products in particular, the length
of the Company's sales cycles, changes in operating expenses, personnel
changes, the Company's success in expanding its direct sales force and
indirect distribution channels, the pace and success of international
expansion, delays or deferrals of customer implementation and foreign currency
exchange rates. Fluctuations in operating results may in turn produce
fluctuations in annual revenues and operating results.

The Company's product revenues are not predictable with any significant
degree of certainty. Historically, the Company has typically recognized a
substantial portion of its revenues in the last month of a quarter, with these
revenues frequently concentrated in the last two weeks of a quarter. Even
minor delays in booking orders may have a significant adverse impact on
revenues for a particular quarter. To the extent that delays are incurred in
connection with orders of significant size, the impact will be correspondingly
greater. Moreover, the Company currently operates with virtually no order
backlog because its software products typically are shipped shortly after
orders are received. As a result, product license revenues in any quarter are
substantially dependent on orders booked and shipped in that quarter. Product
license revenues are also difficult to forecast because the market for the
Company's products is rapidly evolving, and the sales cycles, which may last
many months, vary substantially from customer to customer. The sales cycle is
subject to a number of factors over which the Company has little or no
control, including customers' budgetary constraints, the timing of budget
cycles, concerns about the introduction of new products by the Company or its
competitors and potential downturns in general economic conditions, which may
be associated with reductions in demand for management information systems.
See "Risk Factors--Lengthy Sales and Implementation Cycles." Product support
revenues depend in substantial part on maintenance revenues from existing
customers, and to the extent that existing customers do not require ongoing
maintenance, revenues would be adversely affected. Seasonal factors may also
impact revenue trends as, for example, European sales may tend to be
relatively lower during the summer months than during other periods.

In light of the planned expansion of the Company's business, the Company
anticipates substantial increases in operating costs and expenses, including
costs and expenses to be incurred in connection with expansion of its
technical support, research and development and sales and marketing
organizations. Substantial resources are also expected to be devoted to
expansion of indirect sales channels and international operations. The
Company's operating expenses are budgeted on anticipated revenue trends, and
achieving expense reductions (or even reductions in the rate of expense
growth) may not be possible in the short term, irrespective of whether actual
revenue growth is commensurate with the budgeted growth on which expense
levels are based. As a result, variations in the timing and amounts of revenue
could have a material adverse effect on the Company's quarterly operating
results.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has primarily financed its operations and
met its capital expenditure requirements through cash flows from operations
and short- and long-term borrowings. At March 31, 1998 and December 31, 1997,
the Company had $2.3 million and $3.5 million, respectively, of cash and cash
equivalents.

Cash flows provided (used) by operations were $5.0 million, $0.9 million and
$(0.3) million in 1997, 1996 and 1995, respectively. The increase in cash
provided by operations in fiscal 1997 and 1996 was primarily due

2930

to an increase in deferred revenue and accounts payable, offset by an increase
in accounts receivable and a net operating loss in 1996. The decrease in cash
from operations in 1995 was due to an increase in accounts receivable offset
by an increase in deferred revenue. Cash used by operating activities for the
three months ended March 31, 1998 was $0.9 million as compared to cash
provided by operating activities for the three months ended March 31, 1997
which was $0.2 million. The cash used by operating activities for the three
months ended March 31, 1998 was primarily due to decreases in accounts payable
and accrued liabilities.

The Company's investing activities used cash of $7.9 million, $1.7 million
and $0.5 million in 1997, 1996 and 1995, respectively. For the three months
ended March 31, 1998 and 1997, cash used for investing activities was $1.4
million and $1.0 million, respectively. The principal use of cash in investing
activities was for capital expenditures related to the acquisition of computer
equipment required to support expansion of the Company's operations.

The Company's financing activities provided cash of $4.6 million, $1.8
million and $1.1 million in 1997, 1996 and 1995, respectively. For the three
months ended March 31, 1998 and 1997, cash provided (used) from the Company's
financing activities was $1.1 million and $(0.2) million, respectively. The
principal source of cash from financing activities has been net borrowings
from commercial lending institutions. In December 1996, the Company entered
into the Business Loan with a commercial bank. Pursuant to the Business Loan,
the Company originally had available a $6.4 million revolving line of credit
for general working capital purposes, a $2.0 million revolving line of credit
for equipment and, since November 1997, a $2.0 million term loan for
equipment. On March 31, 1998, the Company increased the revolving working
capital line of credit by $3.0 million to $9.4 million, increased the
equipment term loan by $2.0 million to $4.0 million and amended certain of its
debt covenants. Borrowings under the Business Loan may not exceed 80% of
eligible accounts receivable for the revolving working capital line of credit
and 80% of the cost of the asset for the revolving equipment line of credit.
The borrowings bear interest at (i) the lender's prime rate or LIBOR plus
2.75% for the revolving line of credit and (ii) for the equipment lines of
credit (revolving and term) at the lender's prime rate plus 0.5% or a rate
equal to the yield of U.S. Treasury Bonds plus 2.65% for loans with the three-
year maturity or 2.85% for loans with a four-year maturity. In addition,
borrowings under the Business Loan are collateralized by substantially all of
the Company's assets and are partially guaranteed by a stockholder and officer
of the Company for up to $2.0 million for all amounts borrowed under the
Business Loan in excess of $2.0 million. As of March 31, 1998, $8.9 million
were outstanding under the Business Loan. Subsequent to March 31, 1998, the
Company had additional net borrowings of $2.6$4.7 million under the Business Loan.

The Business Loan requires the Company to maintain certain financial ratios
and to comply with certain other covenants, including financial ratios
relating to the following: (i) total liabilities less deferred revenue to
consolidated tangible net worth; (ii) cash flow coverage; and (iii) funded
debt to earnings before interest, taxes, depreciation and amortization. As of
December 31, 1996 the Company was not in compliance with these financial
ratios. The Company has received from the lender a waiver for non-compliance
with these covenants for 1996 and for each fiscal quarter of 1997. Since
December 31, 1997, under the amended Business Loan, the Company has been in
compliance with the revised covenants, and the Company expects that it will
continue to be in compliance with such covenants in the future. The Company
intends to repay all indebtedness outstanding under the Business Loan using a
portion of the net proceeds of the Offering; however, in order to preserve
flexibility, the Company does not intend to terminate the commitment for the
Business Loan. The Company also intends, following completion of the Offering,
to enter into negotiations with the lender to amend certain provisions of the
Business Loan on more favorable terms. No assurance can be given that the
Company will be able to renegotiate more favorable terms of the Business Loan.

The Company expects to declare and pay the S Corporation Dividend to the
Existing Shareholders in the form of the Dividend Notes prior to the
termination of the Company's S corporation election, which is expected to
occur prior to the consummation of the Offering. The Dividend Notes have (i) a
term of one year; (ii) bear

3031

interest at the applicable federal rate for debt obligations having a maturity
of one year, which was 5.29% as of March 31, 1998, and (iii) are payable in
four equal quarterly installments. The Dividend Notes may be prepaid without
penalty at any time at the option of the Company. The Company intends to repay
the Dividend Notes from cash flows generated from operations, current
available cash and cash equivalents, bank borrowings under the Company's
Business Loan, and, to the extent that other sources are insufficient for this
purpose, from the proceeds of the Offering. See "Dividend Policy."

The Company believes that the proceeds generated by the sale of Class A
Common Stock offered by the Company in the Offering, the available borrowings
under the Business Loan and the cash generated internally by operations will
satisfy the Company's working capital requirements for the foreseeable future.

3132

BUSINESS

The following description of the Company's business should be read in
conjunction with the information included elsewhere in this Prospectus. This
description contains certain forward-looking statements that are based largely
on the Company's current expectations and are subject to a number of risks and
uncertainties. The Company's actual results could differ significantly from
the results discussed in the forward-looking statements as a result of certain
of the factors set forth below and elsewhere in this Prospectus.

OVERVIEW

MicroStrategy is a leading worldwide provider of enterprise DSS software
applications and related services. The Company's DSS Suite enables both active
and passive delivery of information from large-scale databases, providing
Global 2000 enterprise user communities with timely answers to mission-
critical questions. MicroStrategy's decision support platform enables users to
query and analyze the most detailed, transaction-level databases, turning data
into business intelligence. In addition to supporting internal enterprise
users, MicroStrategy's products extend DSS beyond corporate boundaries to
customers, partners, and supply chain constituencies through a broad range of
pull and push technology such as the Internet, e-mail, telephones, pagers and
other wireless communications devices.

INDUSTRY BACKGROUND

ONLINE TRANSACTION PROCESSING; CONSTRUCTION OF DATA WAREHOUSES. The
development of the DSS industry has been made possible by the widespread
implementation over the past ten years of online transaction processing
("OLTP") systems which create large volumes of transaction-oriented data. OLTP
applications include standardized resource planning packages from vendors such
as SAP AG, The Baan Company, Peoplesoft, Inc., Oracle and J.D. Edwards, as
well as custom and semi-custom systems which have been created to process
transactions such as securities trading, bank deposit withdrawals, airline
reservations, mortgage payments, wire transfers, retail sales, credit card
payments and telephone billing.

The transactional data created by OLTP systems is typically detailed and
updated regularly, and has a short utility time horizon. In contrast, data
required by decision support analysts are typically detailed, summarized and
have a lengthy utility time horizon. In order to provide data to decision
support analysts, relevant transactional data must often be extracted from
OLTP systems, cleansed, encoded, summarized and uploaded into a database known
as a data warehouse. Data warehouses have been developed in order to store the
vast historical logs of transaction details generated from one or more OLTP
applications. Data warehouses are substantially larger than the OLTP
databases, as data warehouses contain a broader scope of transaction data
spanning longer periods of time. The majority of Global 2000 enterprises have
constructed or are constructing data warehouses to serve as an information
foundation for analyzing and optimizing their business operations. According
to Forrester Research, the size of the decision support component of the data
warehouse market will grow at a 35% compound annual rate from $1.1 billion in
1997 to $3.6 billion in 2001.

THE ENTERPRISE DSS MARKET OPPORTUNITY. The construction of data warehouses
from OLTP applications has created the market opportunity for scalable,
sophisticated and maintainable DSS applications that are capable of extracting
from data warehouses highly useful business information. The mission of DSS
applications is different but complementary to that of OLTP applications--
while OLTP enables companies to "do business" by processing transactions that
are similar in nature, cost, frequency and complexity, DSS enables companies
to "do business better" by allowing rapid, effective and comprehensive data
analysis. Using OLTP applications, companies may mail proposals to prospects,
bill customers, reverse fraudulent charges or book airline seats. In contrast,
using DSS applications, companies may select prospect lists to receive direct
mail, allocate inventory to sell to customers, identify potentially fraudulent
charges or allocate airline seats among various travel routes. Business
analysts often employ DSS applications to translate business questions into
database-interpretable queries. DSS applications mathematically process query
results to provide the business analyst with insightful answers to their
questions. "Enterprise DSS" refers to applications designed to answer
questions at all levels of

3233

detail, ranging from minute, operational questions to large-scale strategic
assessments, targeted at all types of decision makers within an enterprise.

Enterprise DSS applications help users address critical uncertainties
affecting their business by answering highly focused performance questions.
These questions vary by industry and examples include:

Retail. What products or groups of products should be sold? Where? At what
price? How much shelf space should be allocated for specific products? How
much promotion should each product receive? Which products sell well together?
How much inventory should be carried? What are the primary customer
characteristics?

Banking & Finance. Who should be targeted for direct marketing efforts?
What products are most likely to appeal to existing customers? How profitable
are existing customers? Which customer groups are credit risks? What is the
proper pricing strategy for a given set of financial products? How much
fraudulent activity is occurring? How efficiently are underwriters and credit
officers performing?

Healthcare. What is the range of outcomes for a given treatment? How
frequently is this treatment prescribed? Which drugs, hospitals, doctors,
healthplans are most effective? Which patient groups are most at risk? How
efficient and effective is a given technique for treating a specific illness?

The promise of Enterprise DSS is to offer decision makers across a broad
range of industries the opportunity to ask and answer mission-critical
questions about their businesses using transactional data assets that have
been captured but not exploited to their fullest extent.

FACTORS DRIVING ENTERPRISE DSS DEVELOPMENT. Despite the significant promise
of Enterprise DSS applications, until recently a number of technical and cost
constraints had impaired development of the DSS market. The increase in
electronically captured and stored transactional data, together with recent
advances in software, hardware and networking, have converged to help resolve
these technical and cost constraints. Factors driving Enterprise DSS
development include:

Increased Electronic Capture of Transactional Data. Electronically-
captured data is critical to Enterprise DSS. In industries such as retail,
telecommunications, financial services and healthcare, an increasing
percentage of customer and supply chain transactions are captured and stored
electronically. The rapid growth in the electronic capture of business
transactions and the increased availability of related profile data on the
parties or products involved in each transaction are providing a rich data
foundation for the growth of Enterprise DSS.

Improved RDBMS Software. Relational database management system ("RDBMS")
technology has become accepted as the primary data storage and access platform
for Enterprise DSS applications. Traditionally optimized for OLTP applications
only, RDBMS technology has been improved specifically for DSS applications.
Such improvements have removed many of the database size, manageability and
query performance constraints that have traditionally made Enterprise DSS
development difficult.

Improved Price/Performance of Computing and Storage Hardware. The
widespread availability of scalable hardware from a variety of server vendors
has produced significant improvements in server price and performance. In the
early 1990's, building and managing databases of one to five gigabytes of
stored data was considered typical. Over the past four years, symmetric multi-
processing ("SMP") servers running Unix have achieved commercial acceptance,
providing RDBMS vendors with the first non-proprietary hardware platforms
capable of supporting enterprise-scale databases which considerably exceed
five gigabytes. Based on a survey of 60 companies in the Fortune 1,000
published by Forrester Research, the average data warehouse was 132 gigabytes
in 1997 and is expected to grow to 259 gigabytes by 1999. SMP servers have
provided the capacity to store, index, aggregate, query and manage these large
data volumes, and, because no one hardware vendor controls the market for
these servers, the capacity is available on a cost-effective basis. Further
developments such as massively parallel processing ("MPP") servers are
expected to provide substantial improvements in

3334

performance over SMP servers, and are also now becoming commercially available
from a wide variety of hardware vendors.

Improved Networking Protocols and Infrastructure. The emergence of
protocols such as TCP/IP, HTML, ActiveX and Java, combined with commercially
available servers and browsers supporting these protocols (collectively
comprising the infrastructure of the Web), bandwidth, security products,
authoring tools, administrative suites, access devices and third party
expertise have substantially decreased the cost of deploying multi-user
applications such as Enterprise DSS. The corresponding advances in usability,
reliability, maintainability and connectivity have accelerated the commercial
acceptance of Enterprise DSS by making such deployment less risky, less
expensive and less time-consuming for information systems organizations.

THE EMERGENCE OF NEW DSS APPLICATIONS. Synergies produced by the combination
of improved database software, abundant computing power and efficiently
connected networks are resulting in a dramatic increase in overall DSS market
potential and growth rate. According to IDC, the market for Internet-related
Enterprise DSS will grow from $43 million in 1996 to $2.3 billion in 2001, and
based on its survey of 60 Fortune 1,000 companies, Forrester Research
estimates that 80% of the survey sample will have Web access to the databases
by 1999. As these advances converge, the value of DSS applications (and
therefore the size of information technology budgets which support their
development) is being enhanced by increasing the number of users, the
frequency of use and the importance of the information obtained and by
transforming under-utilization data into revenue-generating assets, not simply
measures for cost control. These advances are also increasing the size of the
market by enabling entirely new types of applications to be deployed to new
constituencies from the same central data warehouse. In particular, three new
classes of DSS applications are becoming factors in the growth of the DSS
market.

Remote DSS. The purpose of Remote DSS applications is to provide
information to operational professionals throughout an enterprise and enable
them to improve performance on a routine basis. Potential users include
managers and other professional staff throughout the sales, marketing,
manufacturing, logistics, finance, human resources and technology functions
regardless of their geographic location. Although an enterprise rarely has
more than a few hundred centralized analysts and executives for any given DSS
application, the same enterprise may have thousands of remote enterprise
users, spread across dozens, hundreds or even thousands of locations. For
example, a Remote DSS application that profiles customers and provides
relevant sales information allows account executives located across a business
organization to identify problem accounts, discern abnormal trends in their
territory and proactively manage sales calls.

Supply Chain DSS. The purpose of Supply Chain DSS applications is to allow
and encourage trading partners to give preferential treatment to one another
in exchange for greater certainty and visibility up and down their value
chains. In order to obtain the information that enables this visibility and
certainty, partners may want to offer more favorable terms, invest more in co-
marketing, make available increased levels of supplies, provide more shelf-
space or pay higher prices. Potential users include a firm's vendors,
distributors, partners, outsourcers, resellers and financing sources. The
number of potential Supply Chain DSS users can range from hundreds to tens of
thousands. For example, a DSS application that provides access to retail sales
information would be valuable to the manufacturers and distributors who stock
the shelves within each store. This information can be used to design new
products, refine marketing campaigns, develop optimal pricing schemes,
rationally allocate inventory and proactively schedule factory production.

Commercial DSS. The purpose of Commercial DSS applications is to offer
customers a new value-added information service that can result in improved
pricing, greater market share, longer customer retention or a new revenue
stream for the owner of the DSS. Information systems have been successfully
bundled with products and services over the past decade, although largely in
the context of OLTP applications such as automated teller machines, voice
response units and ticketing reservation systems. Those firms in the best
position to exploit the opportunities of Commercial DSS include major banks,
financial services, healthcare providers, retailers, publishers, utilities and
travel service providers all of whom have large volumes of customers who must
make intricate decisions on a routine basis. Many of these systems have the
potential for hundreds of

3435

thousands, or even millions, of users. For example, healthcare providers that
use DSS applications to offer outcome analysis for various combinations of
patients, treatments, drugs, hospitals and doctors could provide patients with
substantial peace of mind, possibly encouraging them to be treated by that
provider.

CHALLENGES FACED BY ENTERPRISE DSS DEVELOPERS

Notwithstanding the market potential for DSS applications, attempts to build
and deploy Enterprise DSS applications have traditionally been hampered by a
variety of factors, including the following:

OPTIMAL QUERY GENERATION IS TECHNICALLY CHALLENGING. Although Structured
Query Language ("SQL") has been held out as a universal software standard to
enable database queries, each RDBMS vendor has added extensions and created a
SQL interpreter that favors certain queries. In many cases, the same SQL will
not work against two different RDBMSs and in most cases, the same SQL will not
be optimal for both. Changes in the RDBMS version, data warehouse design,
query profiles or application requirements may require costly and time-
consuming revisions to the SQL execution plans. Since RDBMS vendors are
constantly seeking to gain competitive advantage for their particular database
engine, severe maintenance demands have been imposed on those firms developing
their own DSS applications that generate SQL directly against the RDBMS.
Certain DSS tools force the designer to "hardwire" application logic directly
against the logical database schema, resulting in either a "brittle" solution
that may preclude any future enhancements to the database, a "crippled"
solution that prevents many types of analysis from being implemented, or a
"slow" solution because optimal query response requires dynamic repathing at
runtime.

ADMINISTRATIVE TOOLS ARE LACKING. Companies need to deploy a multitude of
applications to a variety of constituencies, each with their own set of
security and access privileges. These constituencies need to share the same
data and application reporting objects, while using them to perform different
tasks. Users also require tools for version control, customer billing,
performance management and tuning, usage assessment, application maintenance
and mass upgrades. Because the DSS market is relatively new and still
developing, many of the administrative tools that are taken for granted in the
OLTP market are still missing. Given the lack of management tools, it is quite
challenging to scale up a workgroup application meant to serve a small,
localized set of users into a family of DSS services.

END-USER APPLICATION PROTOCOL INTERFACES ("APIS") ARE IN FLUX. Currently,
users interact with their DSS applications through a variety of interfaces
including: (i) native Windows applications that are tailored to the power-user
or analyst; (ii) executive information system ("EIS") interfaces; (iii)
printed reports; (iv) Microsoft Excel add-in modules; (v) Web browsers
supporting only HTML, Java, Active X or various combinations of these
protocols; (vi) custom interfaces constructed in Visual Basic, C++ or other
programming languages; (vii) Microsoft Access and (viii) other Microsoft
Office applications, such as Word or PowerPoint. The optimal interface is a
function of the user, its level of comfort with the DSS application, the
client hardware and the client operating system. Since these factors are
continually changing, it has been and remains unlikely that any dominant
interface will emerge. Accordingly, DSS developers are required to develop
applications that are compatible with a number of different APIs, without the
emergence of clear standards. This interface flux introduces additional
design, development, quality assurance and support requirements into the
typical Enterprise DSS project.

CERTAIN DSS TOOLSETS ARE NOT SCALABLE. A number of DSS vendors have
developed OLAP and hybrid OLAP ("HOLAP") database toolsets in an attempt to
solve data warehouse design and query generation challenges. In contrast to
ROLAP technology, OLAP and HOLAP solutions require the creation of
intermediate data caches or proprietary, non-relational databases that provide
the basis for their analytical capabilities. These proprietary databases have
traditionally been optimized for the type of summary analysis that a financial
auditor or executive would find valuable in the context of a
planning/budgeting review, and their design reflects explicit trade-offs
between performance, simplicity, power and flexibility. Technically, they have
been optimized to handle low-cardinality, low-dimensionality data structures.
Due to the rapid increase in the size of decision support databases in recent
years, the design constraints of OLAP and HOLAP architectures have become

3536

increasingly visible. For example, these "solutions" may truncate the range of
schema designs (which are the physical and logical models of how the data
should be stored within a database), limit data volumes, limit the breadth and
richness of a data set and require indexing, consolidating, caching and
loading schemes that are prohibitively expensive for Enterprise DSS
applications. Published benchmarks of OLAP vendors have seldom attempted to
analyze more than one gigabyte of input data. However, market research
suggests that the typical data warehouse contains in excess of 100 gigabytes
of input data. Thus, while very well suited for solving certain decision
support problems, many currently available OLAP toolsets are optimized to
analyze datasets which are two orders of magnitude smaller than those required
for Enterprise DSS.

EXISTING DSS TOOLS LACK FEATURES. Multi-dimensional analysis performed on a
large, relatively amorphous relational database can prove quite challenging
due to the stresses placed on the application server, network and client
interface during the analytical process. The tools typically used for DSS
application development have been designed to satisfy a lowest common
denominator requirement-- making certain assumptions about the volume and
nature of the data along with the complexity of analyses in order to simplify
the engineering challenges. Most do not allow the designer the ability to
articulate the sophisticated queries necessary for granular transaction-level
analysis (e.g. fraud detection, market basket analysis, call detail analysis,
database marketing, credit analysis, patient outcomes analysis). Others lack
object-based development environments, preventing developers from reusing
standard application logic. DSS tools may limit the range of dimensionality,
attribute richness, hierarchical choices, and filtering options available to
the end-user. They may lack advanced analytical capabilities such as rankings
("top 10 vendors by department"), decilings ("bottom quartile of customers in
sales"), time-based calculations ("percent change over the same period last
year") and multi-dimensional calculations ("product contribution to division
profitability"). Many tools also lack sophisticated SQL generators and are
forced to rely upon intermediate data caches that are created on the desktop
or application server in order to perform their analysis. These caches create
network and CPU bottlenecks which prevent the execution of certain queries and
slow the performance of the MPP and SMP servers storing the database.

THE EXISTING RDBMS MARKET IS FRAGMENTED. According to Giga Group, the data
warehouse market is fragmented, with no single RDBMS provider having more than
a 30% share of the market. Supporting the multiplicity of RDBMS APIs, as well
as the Interface APIs, is difficult without incurring significant sacrifices
in functionality and scalability. Global 2000 enterprises, VARs, data
syndicators, OEMs and system integrators require DSS platforms that run well
against RDBMS platforms such as Oracle, Informix, Red Brick, Sybase, Tandem,
Teradata, DB2/390, DB2/400 and DB2/UDB from IBM and SQL Server and Access from
Microsoft. Providing this portability may not be desirable or even possible
for DSS vendors that have a disproportionately large investment in one of the
competing RDBMS standards. Even DSS vendors which claim to be "open" often
have not invested the resources necessary to provide scalable performance
against each of these databases.

ESSENTIAL ENTERPRISE DSS SERVICES ARE SCARCE. Most RDBMS vendors have tended
to design their products for OLTP performance, rather than DSS performance. As
the data warehousing market began to grow, the vendors of these products have
added features and modified their core products in order to better serve the
needs of the DSS user. However, as a database grows in depth and breadth, and
the queries become more sophisticated, it has proven increasingly difficult to
create high-performance database designs that properly balance performance,
functionality and maintainability requirements. Designs can vary based upon
the nature of the RDBMS platform, server hardware, network, client hardware,
data set, user constituencies and query profile. The complexities of data
warehouse design have created a critical, but largely unmet, need for
Enterprise DSS services, including: (i) data warehouse design education; (ii)
DSS application design education; (iii) end-user DSS usage education; (iv)
data warehouse consulting to assist with hardware selection, RDBMS selection,
network and database tuning, database design and project management; (v) DSS
consulting to assist with metric, filter and report definition and development
and (vi) telephone, Web-based and onsite support from professionals that
understand Enterprise DSS. Successful Enterprise DSS developers must be able
to resolve problems quickly that arise in a heterogeneous environment
consisting of multiple hardware servers, database servers, application
servers, networks, APIs and client hardware devices from multiple vendors.

3637

THE MICROSTRATEGY SOLUTION

Through DSS Suite, MicroStrategy offers a comprehensive set of products and
services that function as a platform for developing and deploying Enterprise
DSS applications. MicroStrategy's software is designed to address the
requirements of DSS application developers who are required to create
scalable, portable and highly functional systems. DSS Suite frees application
developers from the need to divert scarce resources to the technical and
system integration challenges that are common across every industry. Instead,
developers are able to focus on solving the business critical analytical
problems unique to their particular industry. The advantages of DSS Suite
include:

EXTREMELY POWERFUL ANALYTICS TO TRANSACTION-LEVELS OF DETAIL. DSS Suite
offers support beyond summary and detail queries to include queries at the
most detailed level. This feature is critical to a wide range of applications,
including call detail analysis, market basket analysis, fraud detection,
credit analysis and campaign management. DSS Suite supports analysis ranging
from 10 attributes to 10,000 attributes, as well as support for sophisticated
multi-dimensional qualities (for example, weather, loan status or promotional
flags) and many-to-many relationships (colors, features). This sophistication
allows the creation of granular, transaction-specific DSS applications that
provide insight into customer behavior. Examples of the difference between
"Summary" and "Detail" questions (which many DSS tools can offer) and
"Transaction" level questions (where the Company believes it holds a distinct
advantage over its competition) are illustrated below for a typical retailer:

Summary: What were sales by department for the month of January?

Detail: What were sportswear item sales and costs by store for
Mondays in January?

Transaction: What were sales and costs for the top 5 selling items in
January? What were the 5 items most often purchased with
each of those items, and what is the typical customer
profile of individuals who buy these items by age, gender
and income bracket? What percentage of profits are
derived from the 5 items associated with our best
sellers?

Applications built with DSS Suite can access volumes of data ranging from a
few megabytes to terabytes--the Company's benchmark database for assessing
core functionality and scalability is 147 gigabytes. Using DSS Suite,
customers of the Company have successfully deployed DSS applications with
terabytes of data, thousands of attributes, and billions of rows of detail.
This scalability is accomplished with support for VLDB schemes (partitioned
snowflakes, multi-facts), a three-tier architecture with support for query
governing and asynchronous execution and a relational query engine that
intelligently leverages the RDBMS server, thereby avoiding any middle tier or
client caching bottlenecks.

OPTIMIZED SUPPORT FOR ALL MAJOR RDBMS/HARDWARE COMBINATIONS. DSS Suite
supports all major RDBMS platforms commonly used for Enterprise DSS with SQL-
optimizing drivers that contain hundreds of optimization rules. DSS Suite has
been designed to take into account the strengths, weaknesses and
idiosyncrasies of each database's SQL interpreter so that queries are made in
as efficient a manner as possible. Databases supported by DSS Suite include
Oracle, Informix, Sybase, Red Brick, Tandem, Teradata, SQL Server, Access,
DB2/390, DB2/400, DB2/UDB, Adabas D, Paradox and Dbase. The databases can be
run on platforms that support Unix, MVS, OS400, Windows NT, Windows, Tandem
NonStop and OpenVMS and that include hardware from companies such as Tandem,
NCR, IBM, Sun, Sequent, HP, Pyramid, SNI, Data General, DEC and SGI. Although
the Company's DSS solutions allow the core database component to reside on
nearly all enterprise server hardware and operating system combinations
(Mainframe, AS/400, Unix, Windows NT, Windows), the Company's application
server component currently runs only on the Windows NT operating system.
Therefore, the Company's ability to increase sales of its products may depend
on the continued acceptance of the Windows NT operating system.

APPLICATIONS DEPLOYABLE TO MULTIPLE TYPES OF USERS WITH FULL INTERFACE
FLEXIBILITY. DSS Suite enables developers to create DSS applications in a
modular fashion and to deploy common components across the enterprise in a
variety of different forms without redundant coding. The same report logic can
be tailored for

3738

different constituencies such as non-computer users, company executives,
spreadsheet analysts, operations personnel, novices, power users, suppliers,
customers and consumers. Applications developed using DSS Suite will
simultaneously run the following interfaces: (i) DSS Agent analytical
interface on Windows 3.1, Windows 95, Windows NT and OS/2; (ii) DSS Executive
information system interface on the Windows platform; (iii) Microsoft Excel on
the Windows platform; (iv) Custom applications developed using VBA, Visual
Basic, C or C++ combined with DSS Objects on the Windows Platform; (v)
Netscape Navigator with various combinations of HTML, Java and ActiveX on all
platforms supported by Netscape; and (vi) Internet Explorer with various
combinations of HTML, Java and ActiveX.

SUPPORT FOR LARGE NUMBERS OF USERS IN FLEXIBLE CONFIGURATIONS. The Company's
ROLAP technology allows applications built with DSS Suite to be deployed to
any number of users, from one to tens of thousands. DSS Suite fully leverages
the parallel processing and clustering features of the underlying RDBMS.
Applications can be run in the following modes: (i) stand-alone and untethered
on a single laptop; (ii) local area network with direct connection to the
database server; (iii) wide area network ("WAN") with a high-speed connection
to the application server, which in turn connects to the data warehouse server
via a slower speed WAN; (iv) Internet via DSS Web and a standard browser; and
(v) remote using DSS Web combined with wireless modems or satellite link-ups.
DSS Suite offers a wide variety of features to support international
deployment, including modular language support and support for many
international character sets.

FULL RANGE OF SERVICES NECESSARY FOR ENTERPRISE DSS SUCCESS. The Company
offers a full range of support services to ensure the success of its
customers. During the "proof of concept phase," the Company's consultants
assist with application prototyping, infrastructure assessments, feasibility
studies and provide overall Enterprise DSS architecture guidance. The
Company's educational courses such as "Introduction to DSS and Data
Warehousing" provide the customer's information system professionals with a
framework for planning and managing the process during this concept stage.
During the data warehouse "construction phase," Company consultants provide
project oversight and data warehouse design services, while Company educators
teach courses such as "Data Warehousing--Data Modeling and Design" to the
customer's information system professionals. In order to support the "full-
scale development phase," Company consultants assist with end-user
requirements analysis, DSS application design, project management and quality
assurance. Company educators offer courses in DSS design and development and
certify DSS development professionals. During the "deployment phase," Company
consultants offer end-user support, system administration, performance tuning
and troubleshooting assistance. Company educators teach courses in Enterprise
DSS management and administration. Throughout all phases, the Company's
support staff provides online support for databases and system utilities over
the Web, along with hotline telephone, fax and e-mail support. Company support
engineers are fully certified DSS engineers, capable of debugging
client/server networks, providing RDBMS configuration and tuning guidance,
offering data warehouse design support, DSS application development support,
and are fully certified in the installation, configuration and usage of the
Company's products. In the event that technical issues cannot be resolved
remotely, Company field engineers are dispatched on location to ensure the
customer's success in implementing the Company's product.

STRATEGY

The Company's objective is to become the world's leading provider of DSS
products and related services implemented by Global 2000 enterprises. The
Company's strategy for achieving this objective includes marketing,
technological and sales dimensions:

MARKETING STRATEGY--CREATE WIDESPREAD DEMAND FOR DECISION SUPPORT
SERVICES. The Company's marketing strategy focuses on communicating the
possibilities for value creation that new DSS technology offers to data
content owners and other potential users. Organizations that have accumulated
substantial data assets are frequently unaware of the "resonance" these data
assets may have both within and outside their enterprise--i.e., the extent to
which decision makers may benefit from the ability to query and analyze data
assets in diverse, sophisticated and spontaneous ways. In other cases, there
is a clear latent demand for information, but organizations are unaware that
the tools now exist to facilitate the creation of "industrial strength" DSS

3839

applications that can satisfy this demand. Accordingly, the Company's
marketing strategy is primarily educational, seeking to create demand for DSS
applications among the broadest possible set of decision makers, while at the
same time providing a clear technology solution to the information technology
professionals who are charged with building these applications. The Company
believes that the future of decision support is "Query Tone," a cue signaling
the availability of information on demand. The Company seeks to position DSS
application services as a utility, comparable to water, electricity,
telecommunications and radio, to be relied upon daily by individuals in both
their professional and personal lives.

A principal theme of the Query Tone concept involves appealing to the
individual's "need to know." The Company believes that Query Tone will
ultimately enable knowledge workers to pose questions against databases that
they previously had thought were impossible to ask: How loyal are my
customers? In which geographic areas are they concentrated? What are their
demographic characteristics? How should marketing funds be allocated? To which
customers should sales efforts be targeted? Consumers may similarly benefit
from Query Tone's interrogatory potential. How much money is in my bank
account? What is my stock portfolio worth? Is someone using my credit card
fraudulently? Which hospital has the best safety record for elective surgery?
Which vacation resorts have the most loyal customer base?

The Company believes that Query Tone will become as commonplace as the dial
tone, the universally recognized cue signaling the availability of
communication on demand. The Company believes that Query Tone will provide
data content owners with a business opportunity that allows them to
differentiate their current offerings, capture new revenue streams, increase
market share and ensure the continued loyalty of existing customers.

TECHNOLOGY STRATEGY--PROVIDE A SCALABLE, SOPHISTICATED AND MAINTAINABLE DSS
PLATFORM. The Company's technology strategy is to provide scalable,
sophisticated and maintainable solutions that support the RDBMS platforms
maintained by the major vendors in the VLDB segment of the data warehouse
market, including IBM, Oracle, NCR, Tandem/Compaq, Informix, Sybase and
Microsoft. Through its commitment to cross-platform flexibility, the Company
is improving its competitive position vis-a-vis larger data warehouse
developers by exploiting the reluctance of the major vendors to provide
optimal support for each other's platforms and protocols. The Company intends
to further differentiate its product offerings by increasing functionality
along the key dimensions of: (i) capacity--the volume of information that can
be efficiently analyzed; (ii) concurrency--the number of users which can be
supported simultaneously; (iii) sophistication--the range of analytical
methods available to the application designer; (iv) performance--the response
time of the system to user queries; (v) schema flexibility--the range of DSS
and OLTP databases which the software is capable of efficiently querying
without modification; (vi) maintainability--the ease with which applications
can be deployed, modified, upgraded and tuned; (vii) interface flexibility--
the number of interface options and display features supported; and (viii)
robustness--the reliability and availability of the software in mission
critical environments.

SALES STRATEGY--ACQUIRE MARKET SHARE AMONG HIGH-VOLUME DATA CONTENT
OWNERS. The Company's sales strategy focuses on building direct sales
infrastructure and relationships with indirect channel partners that are each
targeted toward acquiring market share among high-volume data content owners
both domestically and abroad. The Company believes that in many data-rich
industries, including retail, financial services and healthcare, a relative
handful of large firms control a disproportionate share of the data assets
that have widespread business applications both within those firms and
throughout the larger economy. The Company also believes that in light of the
relatively long sales cycle associated with acquiring DSS products and the
recent emergence of the DSS industry, it is critically important to gain
market share with the firms that have "resonant" data assets and that have the
highest potential to attract large numbers of decision makers. The Company is
aggressively targeting key departments within these firms that can be expected
to help spread demand for the Company's DSS solutions across the enterprise as
a whole. The Company also is expanding its active consulting practice to
enable ongoing customers to maximize the value of their investment, as well as
a support function to ensure that current customers have access to the
Company's field engineering and tele-support. Finally, the Company is
expanding its education program to enhance its potential customers' and
channel partners' understanding of the power of DSS applications.

3940

PRODUCTS

As illustrated by the following diagram, DSS Suite enables the access and
analysis of information stored in large relational databases through various
access devices. DSS Suite provides the infrastructure and products used to
implement three categories of applications: (i) internal corporate information
solutions; (ii) business-to-business information solutions; and (iii)
business-to-consumer information solutions.

Windows Off-the-Shelf Custom Applications World Wide Web Consumer Devices

Report Executive SpreadSheets Vertical-Statistics Data HTML Java Activexs Pager & Fax & E-mail &
Information Sys. Applications Mining Phone Printer Web

DSS Agent DSS Objects DSS Web DSS Broadcaster

DSS Server
DSS Architect Query Engine DSS Administrator

RDBMS Optimized for VLDB

Oracle Sybase Informix DB2 Teradata Red Tandem SQL
Brick Server

LOGO

RELATIONAL ONLINE ANALYTICAL PROCESSING SERVER

DSS Server-High Performance Server for Analysis of Very Large Databases.
DSS Server provides multidimensional analysis against MicroStrategy's broad
array of supported relational databases, including Oracle, Informix, DB2,
Tandem, Sybase, SQL Server, Teradata and Red Brick. In order to optimize DSS
application performance, DSS Server also contains MicroStrategy's High
Performance Drivers, a set of optimization rules built into MicroStrategy's
ROLAP Engine that tunes the SQL generated by DSS Server for superior query
performance against the target data warehouse RDBMS. Specifically designed for
enterprise and commercial data warehouse applications, DSS Server scales to
meet the decision making requirements of thousands of users accessing
terabytes of information.

4041

DSS Server provides a sophisticated array of enterprise-critical management
tools such as caching of frequently accessed data sets and query governing to
streamline performance and batch job scheduling. DSS Server also has built-in
multi-threaded user and queue management for load balancing. With this broad
set of management tools, organizations have the flexibility to tailor their
DSS architecture to work optimally within their business environment.

DSS Server also has the capability to create dynamic relational data marts
to create summary tables within the data warehouse for improved performance
and to pull subsets of the data warehouse into another relational data store
for focused analysis.

LARGE-SCALE DEPLOYMENT SERVERS

DSS Web--Interactive Analysis Environment for the World Wide Web. DSS Web
extends information access and analysis capabilities of DSS Server to any
Internet- or intranet-connected user with a Web browser. Using the DSS Web
infrastructure, corporations can rapidly implement systems that allow local
and remote users to develop and access business reports that contain
information from a relational database.

DSS Web provides a broad array of options for viewing information sets,
such as spreadsheet grids and a wide variety of graphs. Through DSS Web's
exception reporting capabilities, users receive key elements of a report in
easily interpretable, plain English messages. DSS Web also allows users to
drill dynamically to a lower level of detail to view the underlying
information or to create and save new analyses. For sensitive information, DSS
Web's security plug-ins allow businesses to extend the standard security
functionality with additional user authentication routines.

DSS Web includes an interface API that allows businesses to customize,
integrate and embed DSS Web functionality into other applications. For
example, a data syndicator for healthcare information could utilize DSS Web
with a customized interface to sell access to this information to HMOs,
hospitals, and pharmacies.

DSS Broadcaster--Personalized Information Broadcast Server. DSS
Broadcaster, which commenced Beta testing in February 1998, is a powerful
information broadcast server designed to be capable of delivering personalized
messages to many thousands of recipients via e-mail, fax, pager and mobile
phone. DSS Broadcaster will send personalized information to subscribers at
pre-defined intervals when business metrics exceed pre-defined thresholds.
Continually monitoring business conditions ensures that the appropriate
information is delivered when it is required. DSS Broadcaster's support for
consumer devices delivers information where it is most convenient, improving
productivity by eliminating the need for users to actively log onto a
dedicated information analysis application.

DSS Broadcaster will provide both a platform for distributing information
throughout the corporate enterprise and an infrastructure to implement
information products and services over the Internet to target a broader
community. For example, a retailer will be able to offer suppliers a
subscription to a set of services that delivers product performance
information to a supplier's fax machine or e-mail.

DSS Broadcaster will reduce information overload and help security
requirements by automatically customizing the contents of broadcast messages
for each individual subscriber. Microsoft Excel enclosures and embedded
hyperlinks to DSS Web products will provide access to the underlying details
for further, interactive analysis.

ADVANCED ANALYSIS AND APPLICATIONS DEVELOPMENT INTERFACES

DSS Agent--Desktop Environment for Sophisticated Analysis and
Development. DSS Agent is a desktop product that allows users to ask
sophisticated business questions against relational databases. DSS Agent
provides a broad range of business reporting views, including spreadsheet
grids, a wide variety of graphs, mapping, and presentation-quality report
writing. DSS Agent provides an advanced set of analytical capabilities such as
rankings, deciles, time-based calculations and multi-dimensional calculations.
The information filtering

4142

capabilities provided by DSS Agent enable users to specify in plain English
precisely which constraints they wish to apply to the targeted information,
allowing them to ask questions such as: "What are the sales in Boston on
weekends in June for customers who are single, earn more than $30,000 per year
and increased their purchases by 15% over last year?" Once users have run a
business report, DSS Agent provides capabilities for analytical follow-up such
as successively interjecting new information into the report, and drilling
throughout the user's business information. DSS Agent's intelligent agents and
alerts also allow users to take actions by automatically scanning the data
warehouse and highlighting exception areas.

DSS Agent's filtering, reporting and analytical capabilities provide users
with the ability to scan through transaction-level detail in their data
warehouse and perform sophisticated market basket analyses. Through DSS
Agent's ability to build a sophisticated analytical report, users can
understand what products sell well together and whether or not that
combination of product sales is more or less profitable than the average
market basket of products sold. All reports and analyses developed with DSS
Agent can be distributed via the Internet with DSS Web and by e-mail, fax,
pager, and mobile phone with DSS Broadcaster. The sample retail report in the
figure below illustrates DSS Agent's powerful reporting capabilities.

[GRAPHIC ILLUSTRATION OF A SAMPLE RETAIL REPORT]LOGO

DSS Objects--API for Custom Application Development. DSS Objects is a
development tool for building customized applications on top of DSS Server.
Specialized applications (such as forecasting, category management, scenario
analysis, and budgeting) and applications that tightly integrate DSS with OLTP
are easily developed in Visual Basic, VBA, Delphi, and Visual C++. DSS Objects
allows systems integrators, VARs, in-house application developers and vertical
solution providers to develop customized ROLAP applications.

DSS Objects also is packaged with an Excel Add-In that enables ROLAP
analyses to be conducted directly within Microsoft Excel for those end-users
who wish to use Excel as their analytical front-end interface. The

4243

Excel Add-In allows users to run reports against the data warehouse and
conduct follow-on analyses on that data through the use of the drill
everywhere capabilities included in the Excel Add-In.

APPLICATION DEVELOPMENT AND MANAGEMENT TOOLS

DSS Architect--Tool for Rapid DSS Development. DSS Architect is a tool for
implementing information analysis applications on top of a relational
database. DSS Architect creates a set of business definitions and rules based
on the underlying structure of the relational database. Users of applications
such as DSS Agent, DSS Objects, DSS Web, and DSS Broadcaster can use these
business definitions to ask questions and conduct analysis of information in
the database. DSS Architect is highly automated and is based on an open,
flexible metadata architecture, which greatly reduces the cost and time
required to implement and maintain systems.

DSS Executive--Object-Based EIS Development Tool. DSS Executive is a
design tool for developing EIS or briefing books, that provide high-level
users with a series of views that describe their business. Once created, end-
users can access briefing books by running DSS Agent in EIS mode. These
systems are easily implemented on top of any DSS Agent application by simply
compiling sets of analyses into dynamic pages that immediately focus users on
their key business drivers.

DSS Administrator--Management and Monitoring Tools for Enterprise
Deployments. DSS Administrator provides a complete set of tools for managing
and monitoring large-scale decision support applications. System monitoring
capabilities provide the information needed to tune systems for high
performance and availability. The user and object management functionality
provided by DSS Administrator enables organizations to maintain enterprise
systems supporting thousands of users.

DSS Administrator's Billing module provides the infrastructure needed to
implement billing systems for Internet-based information services. The Billing
module can be used to track system usage and generate the reports needed to
charge users of an Internet-based information service.

CUSTOMER CASE STUDIES

The following case studies illustrate the application and implementation of
the Company's products and related services by certain of the Company's
customers.

HALLMARK. Hallmark is a leader in the greeting card industry.

Representative Questions. Which type of retail outlets are over-stocked
for a particular Hallmark greeting card? Should Hallmark change its marketing
campaign strategy before shipping more cards from its distribution center?

Problem. With over 40,500 domestic retail outlets and 40,000 products,
Hallmark faces an enormous challenge in monitoring the inventory of its
individual stores. The company's ability to track inventory and to determine
which retail outlets are over-stocked or under-stocked for particular greeting
cards has important implications with respect to marketing, distribution and
development decisions. To address these challenges, Hallmark sought out a
software system that would allow managers, product analysts, and high-level
executives to access over one billion rows of transaction level and product
level data. The company needed a system that could run against a variety of
platforms and relational databases, provide a single tool with the capability
to build point-of-sale and financial reporting applications, support complex
data drilling, and offer an intuitive, easy-to-use executive interface.

Solution. By combining several different products from DSS Suite, Hallmark
created a DSS system that enables Hallmark personnel, from product analysts to
high-level executives, to utilize previously inaccessible information. For
example, using the system, product managers can quickly analyze detailed
point-of-sale data to determine the profitability of new products. By making
strategic decisions based on this information, product

4344

managers can eliminate poorly selling products from the development cycle.
Additionally, reports of actionable trends at the end of each business day
provide critical information that managers use to make inventory decisions
which help avoid out-of-stock and over-stock situations. As a result, the
system has reduced product development time and improved product performance
and inventory management.

LA CAIXA. La Caixa is the largest Spanish financial institution and one of
the largest savings banks in Europe.

Representative Questions. How many customers does La Caixa have with
current account balances greater than 5 million pesetas? Which customers have
at least one credit card and what is the distribution of these customers by
age and income?

Problem. Like many large banks with a diverse customer base, La Caixa
prefers to target-market specific products to those groups of customers who,
based on demographic and other information, would most likely benefit from
such products. In order to achieve this objective, the bank's product managers
and financial analysts needed a software system that would enable them to
access and analyze approximately one terabyte of detailed customer
information, and which was scalable to several terabytes of data. This system
had to provide high performance access to La Caixa's existing database, allow
for intranet database access to enable executives to analyze predefined
reports and offer a low maintenance solution for the company's information
technology department.

Solution. Using DSS Suite, La Caixa enabled more than 250 bank managers
to analyze over 15,000 customer characteristics to define market segmentation,
understand product profitability, monitor cash flow and analyze the loan risk
of customers of the bank's 3,500 branches. Such powerful analytic capabilities
have enabled La Caixa to improve the effectiveness of its marketing campaigns
and reduce the risk in the personal loans it grants. Additionally, executives
now can view high level reports through their intranet interface, creating a
cost effective and low maintenance solution.

SOURCE INFORMATICS, A SUBSIDIARY OF NATIONAL DATA CORPORATION. Source
Informatics is a leading data solutions and information provider to the
healthcare industry.

Representative Questions. To what degree was a specific company's market
share affected when the patent expired on its most successful drug? Who are
the top 100 prescribers of Amoxicillin in Manhattan?

Problem. Source Informatics collects information on approximately 130
million claims per month from a number of the largest pharmacies across the
United States and on 2.8 billion prescriptions from 893,000 doctors. In the
past this information was distributed through a limited number of channels to
a narrow set of large pharmaceutical companies. As a result, Source
Informatics was not utilizing the full potential of its data warehouse. The
Web made it possible to allow new mass markets to access the information in
its data warehouse. In order to realize this possibility, National Data needed
to implement a system that would deploy a multitude of analytical applications
to a large number of customers simultaneously, where each of these customers
requires a different set of security and access privileges. Such a system had
to analyze multi-terabytes of data, handle many concurrent users and provide
the high levels of customized analytic complexity.

Solution. Source Informatics looked to the Company's DSS Suite,
particularly DSS Web, to develop and implement a creative solution to its
problem. The diagram below illustrates how the Company addressed Source
Informatics' needs. Using various components of the DSS Suite, Source
Informatics divides its multi-terabyte data warehouse into focused subsets of
information which are then offered to specific target markets. Customers who
do not need all the raw data now leverage these information subsets via the
Web on a subscription or a per-access basis. The DSS Administrator component
of the DSS Suite is then used to administer and monitor usage patterns of
potentially thousands of users, creating a complete analysis, distribution and
maintenance system. As a result, Source Informatics is able to leverage its
data warehouse via the Web to reach a larger set of paying customers who can
now answer their questions using empirical data.

4445

[GRAPHIC ILLUSTRATION OF BUILDING A DATA WAREHOUSE AND EXTRACTING FULL VALUE
FROM THE DATA WAREHOUSE APPEARS HERE]LOGO

PROFESSIONAL SERVICES AND CUSTOMER SUPPORT

DSS CONSULTING--DATA WAREHOUSE AND DSS IMPLEMENTATION SERVICE. DSS Consulting
is dedicated to providing clients with the DSS industry's most focused data
warehouse and DSS implementation expertise. The Company's QuickStrike program,
a consulting program for organizations who have already committed to a DSS
development effort, includes ten working days of consulting provided by an
experienced MicroStrategy data warehouse DSS expert at a client's facilities.
MicroStrategy consultants contribute to the success of Enterprise DSS projects
by providing services such as: (i) DSS application design, development, test
and deployment; (ii) data warehouse design, population, development, tuning,
and maintenance; (iii) system integration project planning, methodology and
audit oversight; and (iv) custom application design, development and
implementation methodology for those who wish to develop applications with
proprietary interfaces using DSS Objects.

DSS EDUCATION--DATA WAREHOUSE AND DSS IMPLEMENTATION
METHODOLOGY. MicroStrategy offers training courses to provide current and
potential customers with an effective way to learn about decision support
systems and data warehousing. These courses have been developed and are taught
by senior MicroStrategy consultants with years of experience designing and
implementing data warehouses and DSS solutions. MicroStrategy's training
curriculum includes: (i) Introduction to DSS and Data Warehousing; (ii) Data
Warehousing, Decision Support and the Web; (iii) Advanced DSS Functionality and
Architecture; and (iv) Data Warehousing--DSS Modeling and Design.

DSS SUPPORT--HOTLINE, KNOWLEDGE BASE AND FIELD ENGINEERING
SERVICES. MicroStrategy provides full product implementation cycle support for
Enterprise DSS development and deployment through a variety of channels
including a Web-accessible knowledge base, a telephone hotline, e-mail and fax.
The Company's support engineers are capable of providing client/server
configuration assistance, data warehouse design support, DSS application
development assistance, RDBMS tuning and configuration assistance and
installation, configuration, tuning, and usage support for all of
MicroStrategy's products. The Company's support engineers maintain close
relationships with the development centers of the major RDBMS providers in
order to quickly resolve VLDB performance issues that arise from the
interaction between DSS and RDBMS software. In the event that it is not
possible to troubleshoot an issue remotely, Company field engineers are
available to be dispatched directly to a client site to isolate and solve
problems locally. MicroStrategy support personnel are capable of providing
mission critical support and will interface on behalf of the customer with the
relevant VLDB

4546

and RDBMS providers to address incompatibilities, particular to a given
configuration, that are impairing the successful deployment of the Company's
DSS applications.

The diagram set forth below illustrates the complete range of the Company's
consulting, education and support services.

FINANCE HEALTH CARE RETAIL TELCO MEDIA MANUFACTURING

Data Warehouse/Decision Support Best Practices Methodology

===============================================================

MicroStrategy University

DSS Training DSS Consulting DSS Support

Off-Site On-Site Partner Production Sales Channels Field Tele VTG
Training Training Certification Consulting Consulting Consulting Engineering Support Technologies

Knowledge Transfer Implementation Maintenance

46ARTWORK APPEARS HERE

CUSTOMERS

MicroStrategy provides DSS products and related services that can support
thousands of users in multiple countries, speaking different languages and
working with different currencies. MicroStrategy has in excess of 500
customers, spread across a variety of major industries. A representative list
of the firms that sinceduring and after the year ended December 31, 1995 have
purchased over $250,000 of the Company's products and services is as follows:

BANKING & FINANCE TELECOMMUNICATIONS CONSUMER PACKAGED GOODS
Bank of America* Ameritech Borax, US
Banco Santander Bell South* Brown & Williamson
Barnett Bank Concert Management Services CPC Baking
CIBC Hughes Galaxy* CPC International
First Data MCI* Estee Lauder
First Union* Pacific Bell* Hallmark
First USA Bank Sprint* Heublein
Freddie Mac* WorldCom MCA Universal*
GE Capital*

Ralston Purina*
J.P. Morgan PHARMACEUTICAL & HEALTHCARE S.C. Johnson Wax*
La Caixa* Cardinal Health
Royal Trust Glaxo Wellcome* TECHNOLOGY
Societe General MedPartners AC Nielsen*
The Provident Bank Merck/Medco* NCR
RETAIL Premier Healthcare Oculus AB
Asda Stores Warner Lambert* Perot Systems*
B & Q* Software AG*

Belk Department Stores Tandem Computers*
Best Buy* GROCERY & PHARMACY Western Digital
Comet American Stores*

Dayton Hudson* Associated Food Stores OTHER
Eddie Bauer* DM--Drogerie Market* Detroit Edison
Elder Beerman CVS Pharmacy* ESPN/CHILTON
Federated Systems Group* Food Lion London Electricity
Kmart* Hannaford Bros. Co.* McDonald's
Liz Claiborne* Harris Teeter Pacific Gas &
Littlewoods* Marsh Supermarkets Electric

LCBO Penn Traffic
Metro MGI Informatik* MANUFACTURING & INDUSTRIAL Price Waterhouse*
Nieman Marcus Allied Signal The SABRE Group*
Payless Cashways DuPont* U.S. Air Force
Exxon Chemical

Payless Shoe Source
Exxon Chemical
ShopKo* General Motors* INSURANCE
The Burton Group* General Motors* INSURANCE
Victoria's Secret Koch Industries Commercial Union Ins.
Woolworths*Victoria's Secret Lexmark Nationwide Insurance
Woolworths* Messer Grieshem USAA*
Monsanto* Winterthur
Nissan
Samsung
Shaw Industries
Xerox Inc*

* Indicates that customer has purchased in excess of $500,000 in products and
services sinceduring and after the year ended December 31, 1995.

4748

SALES AND MARKETING

DIRECT SALES ORGANIZATION. MicroStrategy markets its software and services
primarily through its direct sales organization. As of March 31, 1998, the
Company had domestic sales offices in Atlanta, Bedminster, Boston, Chicago,
Cincinnati, Dallas, Denver, Detroit, Kansas City, Los Angeles, Minneapolis,
New York City, San Francisco, Seattle, Tampa and Washington, D.C., and
international sales offices located in The Netherlands (Amsterdam), Spain
(Barcelona and Madrid), Germany (Cologne), the United Kingdom (London), France
(Paris), and Austria (Vienna). The Company is represented by distributors in
countries in which it does not have sales offices, including Australia,
Brazil, Chile, Columbia, Czech Republic, Finland, Greece, Ireland, New
Zealand, Singapore, South Africa, South Korea and Sweden.

INDIRECT SALES CHANNELS. The Company has entered into relationships with
over 80 system integration, application development and platform partners
whose products and services are used in conjunction with the Company's.
Agreements with these partners generally provide them with non-exclusive
rights to market the Company's products and services and allow access to the
Company's marketing materials, product training and direct sales force for
field level assistance. In addition, the Company offers its partners product
discounts. By using indirect sales channels, the Company obtains favorable
product recommendations from the leading system integration, application
developers and platform partners, thereby increasing MicroStrategy's market
coverage. The Company also believes that such indirect sales channels allow it
to leverage sales and service resources, marketing and industry specific
expertise to expand the Company's user base. The Company is not dependent upon
any single third party partner or small group of partners, the loss of which
would have a material adverse effect on the Company.

VALUE-ADDED RESELLERS. VARs who resell DSS Suite bundled with their own
Enterprise DSS application and/or syndicated data products include:

RETAIL PHARMACEUTICAL FINANCE
AC Nielsen Concepts Dynamics American Management
Consist International IMS America Systems
FourGen Software IMS Canada Databasics
ICL Retail Systems Source Informatics PaySys
Intrepid Systems TELECOM CROSS INDUSTRY
Price Waterhouse CableData Acxiom
Radiant Systems Cincinnati Bell Chilton Research
Radius Retail Information Systems Services
Retek Systems UTILITY CIC/MetroMail
Technology Investments james + martin Naviant
RDI--DW Specialists

4849

SYSTEM INTEGRATORS. MicroStrategy has also entered into agreements to
provide training, support, marketing and sales assistance to a number of
system integrators, including:

AMS EMS PRAGMATEK Consulting
Group
Andersen Consulting Ernst & Young GroupPrice Waterhouse
Archer Decision Sciences H.I.T. Price WaterhouseProfessional Software
Consulting
Anubis Solutions james + martin Professional SoftwareProLink
Beggsheidt Enterprise
Consulting Consulting
John Galt EIS Pulse
CBSI Knightsbridge Solutions ProLinkRetail Dynamics (RDI)
Clarity Consulting Lancet Software DevelopmentEIS PulseDevelopment RIS Information
Services
CMS Manifest Solutions Retail Dynamics (RDI)Revere Group
Computer Sciences
Corporation RIS Information
Marketing Info Systems ServicesShamrock Computer
Resources
Coopers & Lybrand Naviant Technology Solutions Software AG
Cornerstone Concepts NCR Revere GroupStonebridge
Technologies
Database Technologies NexGen SI Shamrock ComputerSyndicated Technologies
Decision Support Associates Nichols Research ResourcesVirtual Solutions
Deloitte & Touche Noblestar Systems Software AGZyga
DMR/Trecom Olympus Group
Stonebridge
Emergent Corporation Technologies Perspective Data Architecture
Syndicated Technologies
Virtual Solutions
Zyga

PLATFORM PARTNERS. The Company's platform partners consist of firms which
co-sell and co-market complementary technology to the same target customer
base. These platform partners include IBM, Tandem/Compaq, NCR, Sequent, ICL,
Data General, Informatica, Oracle, Informix and Red Brick.

RESEARCH AND PRODUCT DEVELOPMENT

The Company has made substantial investments in research and product
development. The Company believes that its future performance will depend in
large part on its ability to maintain and enhance its current product line,
develop new products that achieve market acceptance, maintain technological
competitiveness and meet an expanding range of customer requirements. As of
March 31, 1998, the Company's research and product development staff consisted
of 122 employees. The Company's total expenses for research and development
for the three months ended March 31, 1998 and 1997 were $2.1 million and $0.7
million, respectively and for the years 1997, 1996 and 1995 were $5.1 million
(excluding $1.9 million of capitalized software costs), $2.8 million and $1.9
million, respectively.

COMPETITION

The markets for decision support and Internet-based information services are
intensely competitive and subject to rapidly changing technology. The
Company's most direct competitors in these markets are providers of decision
support software, push products, browsers with webcasting functionality,
electronic and Internet commerce systems, vertical Internet information
systems, wireless communications products, OSPs and event-driven technology.
Many of these competitors are offering (or may soon offer) products and
services that may compete with the Company's information analysis and soon-to-
be-released information broadcasting products. The bases of competition in
these markets include volume and type of information accessed, timeliness of
information delivery, degree of personalization, range of information delivery
media, quality of presentation, price/performance, sophistication of
notification events and ease of implementation.

The Company's competitors in the decision support market fall generally into
the following categories: (i) vendors of ROLAP software such as Information
Advantage, Inc. and Platinum Technologies Corporation; (ii) vendors of desktop
OLAP software such as Business Objects S.A. and Cognos Incorporated; and (iii)
vendors of multidimensional OLAP software such as Oracle Corporation, Arbor
Software Corporation (which has entered into a strategic relationship with
IBM), Seagate and SAS. The Company anticipates continued growth and
competition in the decision support software market and the entrance of new
competitors into this market in the future. Such new competitors may include
Microsoft, which has indicated

4950

that it may introduce certain products in 1998 that may overlap to some extent
with the functionality of the Company's products.

Push product vendors such as PointCast, Marimba and BackWeb offer
technologies that deliver information over the Internet to recipients via Web-
browsers and proprietary interfaces. Vendors of push products are focused
generally on the delivery of text-based information, such as news and sports,
but often include some level of numeric information such as stock price
updates. Moreover, Marimba has entered into technology partnerships that will
extend the scope of its offering to include the delivery of information and
analysis from relational data sources, which could provide the Company with
increased competition.

Products and turn-key solutions for electronic commerce, Internet commerce
and electronic business, such as those provided by IBM, Open Market, U.S. Web,
SVIP and Sun, provide a set of functionality that could be used to implement
Internet-based information services. To the extent that these information
products sell information and analysis from relational databases they will
compete with the Company's products.

Wireless communications and messaging providers, such as AT&T, Nextel,
Sprint, MCI, WorldCom, Tridium, PageNet and SkyTel, offer a variety of alpha
enabled mobile phones and pagers. It is possible that these companies will
implement custom-developed information services for consumers of their mobile
phones and pagers that will compete with applications using the Company's
products and services.

OSPs include companies such as America Online, MSN, Prodigy, @Home and WebTV
(acquired by Microsoft) that provide text-based content, such as news and
sports, over the Internet and on proprietary online services. The potential
exists for these companies to implement applications that overlap with the
functionality provided by the Company.

Providers of event notification systems include companies such as TIBCO,
which markets a product that monitors stock tickers and notifies subscribers
when preset thresholds are crossed, Clarify; which handles loan applications
with a financial system developed by SAP AG; BEA Systems, which provides
middleware; and Vitria Technology, which provides event-based workflow
software. The systems for event-driven notification provided by these
companies at present and in the future may result in technology that overlaps
with that provided by the Company.

5051

Company's competitors have well established relationships with current and
potential customers and extensive knowledge of the data warehouse industry. As
a result, these 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 can the Company. Increased competition may result in price reductions,
reduced gross margins and loss of market share. 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 adversely affect its business, operating results and financial
condition. See "Business--Competition."

INTELLECTUAL PROPERTY AND LICENSES

The Company relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary technology. For example, the Company licenses rather
than sells its software and requires licensees to enter into license
agreements which impose certain restrictions on licensees' use of the
software. In addition, the Company has made efforts to avoid disclosure of its
trade secrets, including but not limited to requiring those persons with
access to the Company's proprietary technology and information to enter into
confidentiality agreements with the Company and restricting access to the
Company's source code. 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 presently has no
patents or patent applications pending. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult, and while the Company is unable to determine the extent
to which piracy of its software products exists, software piracy can be
expected to be a persistent problem. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to as great an
extent as do the laws of the United States. 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.

Generally, the Company's products are licensed through "named-user
licenses," under which only one identified user may access the product for
each "named-user" license fee paid. A user is an individual to whom a licensee
has assigned an identification number for purposes of tracking use of a
product and who is under an obligation to the licensee to protect any
confidential information of the Company. Under its standard software license
agreement, the Company has the ability to request certified statements of
records regarding identification numbers in particular, and use of the
products in general, once per year, and has the right to audit use of the
products at least once per year. Copying of products and documentation is
limited to the number of users for whom license fees have been paid.

There can be no assurance that third parties will not claim infringement by
the Company with respect to current or future products. The Company expects
that software product developers will increasingly be subject to infringement
claims as the number of products and competitors in the Company's industry
segment grows and the functionality of products in different industry segments
overlaps. Any such claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available

5152

on terms acceptable to the Company or at all, which could have a material
adverse effect upon the Company's business, operating results and financial
condition.

EMPLOYEES

As of March 31, 1998, the Company had a total of 676 employees, of whom 521
were based in the United States and 155 based internationally. Of the total,
248 were engaged in sales and marketing, 122 in product development, 197 in
professional services and 109 in finance, administration and corporate
operations. The Company's future performance depends in significant part upon
the continued service of its key management personnel, none of whom is bound
by an employment agreement. The loss of the services of one or more of the
Company's key employees could have a material adverse effect on the Company's
business, operating results and financial condition. The Company's future
success also depends on its continuing ability to attract, train and retain
highly qualified technical, sales, service, marketing and managerial
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company can retain its key personnel in the future. None of
the Company's employees is represented by a labor union. The Company has not
experienced any work stoppages and considers its relations with its employees
to be good.

The Company believes that effective recruiting, education, and nurturing of
human resources is critical to its success and has traditionally made
substantial investments in these areas in order to differentiate itself from
its competition, increase employee loyalty and create a culture conducive to
creativity, cooperation and continuous improvement. These measures include:

PROFESSIONAL EDUCATION. All newly hired professionals complete a
professional orientation course that ranges from 4-8 weeks long presented by
"MicroStrategy University," the Company's in-house education function. The
curriculum consists of lectures, problem sets and independent and group
projects, covering data warehousing, Enterprise DSS, MicroStrategy's products,
the Company's competitors and customers. Certain lectures also deal with
general business practices, ethics and teamwork. At the end of this training,
students must pass a number of oral and written examinations in order to begin
their assignments. Following this introductory course, veteran employees
normally complete at least two weeks of continuing professional development
each year. Course content for MicroStrategy University is created by the most
experienced members of the professional staff, who generally have an annual
obligation to create "expert content" based upon the best practices they have
most recently observed in the field. This expert content is then used to
upgrade and revitalize the Company's education, consulting, support,
technology and marketing operations.

COMPANY DAYS. Each quarter, the Company invites the entire employee base
together for knowledge transfer within functions, across functions and across
geographic boundaries. These events are generally built around a set of
company-wide meetings and breakout sessions, but they also have particular
cultural themes. These events include: the "Company Retreat," which allows
employees to network with colleagues in an informal setting and which
traditionally has consisted of a Company-sponsored cruise; "University Week,"
which focuses on continuing professional development along with the creation
and codification of industry-best practices; "Friends and Family Weekend,"
during which the Company sponsors a weekend-long open house and plays host to
immediate and extended family, as well as significant others of employees; and
"Customer and Partner Festival," where the Company's business partners and
customers are encouraged to mix with the employee base in order to exchange
information and strengthen the firm's ties to the marketplace. The Company
believes that its "Company Day" events are long-term investments which will,
over time, result in superior productivity, morale, and loyalty among the
employee base, and the Company expects to continue to engage in these
activities in the future.

FACILITIES

The Company's principal offices currently occupy approximately 79,000 square
feet in Vienna, Virginia pursuant to multiple leases which expire between July
1998 and February 2001, and the Company has recently signed a four year lease
commencing in June 1999 for approximately 66,000 additional square feet in the
Vienna

5253

area. In addition, the Company also leases sales offices domestically in the
metropolitan areas of Atlanta, Bedminster, Boston, Chicago, Cincinnati,
Dallas, Detroit, Los Angeles, Minneapolis, New York City, San Francisco,
Seattle and Washington, D.C. and internationally in Amsterdam, Barcelona,
Cologne, London, Madrid, Milan, Paris and Vienna. The Company believes that
suitable additional or alternative space will be available in the future on
commercially reasonable terms as needed.

LEGAL PROCEEDINGS

On April 6, 1998, the Company filed two lawsuits in Virginia Circuit Court
against Strategic Decisions, Inc. ("SDI") shortly before an earlier action
filed by SDI against the Company in the United States District Court in Ohio
was voluntarily dismissed. The Company asserted claims for damages for breach
of contract and claims for injunctive relief to enforce the provisions of the
contract, which involved the marketing and sale by MicroStrategy of a category
management product line developed in conjunction with SDI. The Company also
sought a declaratory judgment regarding, among other things, the Company's
joint ownership of the category management product line under the terms of the
agreement. SDI asserted counterclaims, including a claim for damages and a
declaration that it retained a joint ownership interest in the Company's
product line upon termination of the agreement. The Company expects that it
will prevail on its claims against SDI and believes that, although discovery
has recently commenced, SDI's counterclaims are either without merit or the
Company has meritorious defenses to such counterclaims. As a result, the
Company believes that these matters will not have a material adverse effect on
the Company's business, operating results or financial condition.

From time to time, the Company may be involved in other litigation that
arises in the normal course of its business operations. As of the date of this
Prospectus, the Company is not presently a party to any such other litigation
that the Company believes could reasonably be expected to have a material
adverse effect on its business or results of operation.

5354

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is certain information concerning members of the Board of
Directors and executive officers of the Company:

NAME AGE POSITION
---- --- --------

President, Chief Executive Officer and Chairman
of
Michael J. Saylor...Saylor....... 33 of the Board of Directors
Executive Vice President, Chief Operating Officer
and
Sanju K. Bansal.....Bansal......... 32 and Director
Eduardo S. Sanchez..Sanchez...... 41 Vice President, International Operations
Stephen D. Foley....Foley........ 38 Vice President, Sales
Stephen S. Trundle..Trundle...... 29 Vice President, Technology
Mark S. Lynch....... 35
Vice President, Finance and Chief Financial
Mark S. Lynch........... 35 Officer
Charles A. Veley....Veley........ 32 Vice President, Corporate Development
David B. Sherwood, Jr... 29 Vice President, Marketing
Ralph S. Terkowitz..Terkowitz...... 47 Director
Frank A. Ingari.....Ingari......... 48 Director
Jonathan J. Ledecky..... 40 Director*

- --------

*It is expected that Mr. Ledecky will be elected to the Board of Directors of
the Company shortly prior to consummation of the Offering.

Michael J. Saylor has served as President, Chief Executive Officer and
Chairman of the Board of Directors since founding the Company in November
1989. Prior to joining the Company, Mr. Saylor was employed by E.I. du Pont de
Nemours & Company as a Venture Manager from 1988 to 1989 and by Federal Group,
Inc. as a Consultant from 1987 to 1988. Mr. Saylor received an S.B. in
Aeronautics and Astronautics and an S.B. in Science, Technology and Society
from the Massachusetts Institute of Technology.

Sanju K. Bansal has served as Executive Vice President and Chief Operating
Officer since 1993 and was previously Vice President, Consulting since joining
the Company in 1990. He has been a member of the Board of Directors of the
Company since September 1997. Prior to joining the Company, Mr. Bansal was a
consultant at Booz Allen & Hamilton, a worldwide technical and management
consulting firm, from 1987 to 1990. Mr. Bansal received an S.B. in Electrical
Engineering from the Massachusetts Institute of Technology and an M.S. in
Computer Science from The Johns Hopkins University.

Eduardo S. Sanchez has served as Vice President, International Operations
since July 1997. From 1994 to 1997, he served as Managing Director, European
Operations and prior to that as Senior Manager, U.S. Consulting since joining
the Company in 1992. Prior to joining the Company, Mr. Sanchez was a
manufacturing consultant in Europe, the United States, South America and
Japan. Mr. Sanchez received an M.S. in Systems Engineering from George Mason
University and a B.S. in Electrical Engineering from the University of La
Plata in Argentina.

Stephen D. Foley has served as Vice President, Sales since October 1997.
From March 1997 to October 1997, he served as Vice President, Sales for
Diffusion, an information delivery software provider. From 1996 to March 1997,
Mr. Foley served as Vice President of Sales for XDB Systems, a database
middleware company. From 1994 to 1996, he was Vice President, North American
Sales, for Visix, an application development tools company. Prior to joining
Visix, Mr. Foley served as Vice President, U.S. Direct Sales for Cognos, a
decision support software company, from 1991 to 1993. Mr. Foley received a
B.S. in Industrial Organization Psychology from Michigan State University.

Stephen S. Trundle has served as Vice President, Technology since July 1997
and as Director, Technology from 1994 to 1997. From 1992 to 1994, Mr. Trundle
served as a Consultant and then a Senior Consultant with the Company. Prior to
joining the Company, Mr. Trundle worked for Bath Iron Works on the Aegis
Destroyer

55
program from 1991 to 1992. Mr. Trundle received an A.B. in Engineering and an
A.B. in Government from Dartmouth College.

Mark S. Lynch has served as Vice President, Finance and Chief Financial
Officer since September 1997. Prior to joining the Company, Mr. Lynch was
Chief Financial Officer for WorldCorp and World Airways from 1996 to 1997, and
before that was Vice President, Finance for Intelidata, an electronic commerce
firm, from

54
1991 to 1996. Mr. Lynch has also held several senior accounting
positions with KPMG Peat Marwick and Clark Construction Group. Mr. Lynch is a
certified public accountant and received a B.S. in Accounting from Penn State
and an M.B.A. from George Washington University.

Charles A. Veley has served as Vice President, Corporate Development since
October 1997 and as Director, Corporate Development from 1996 to October 1997.
From 1994 to 1996, Mr. Veley was an Account Executive for Cambridge Technology
Partners, a client/server system integrator. From 1991 to 1994, Mr. Veley was
employed by the Company as Vice President, Sales and Marketing. Prior to
joining the Company in 1991, Mr. Veley was an Associate Consultant with the
Boston Consulting Group. Mr. Veley received an A.B. in Computer Science from
Harvard College.

David B. Sherwood, Jr. has served as Vice President, Marketing since
February 1998 and as Director, Sales Programs from 1997 to 1998. From 1992 to
1996, Mr. Sherwood served as consultant and then Director of Field Sales.
Prior to joining the Company, Mr. Sherwood worked at Merrill Lynch as a
financial analyst. Mr. Sherwood received a A.B. in English from Dartmouth
College.

Ralph S. Terkowitz has been a member of the Board of Directors of the
Company since September 1997. Mr. Terkowitz is Vice President, Technology for
the Washington Post Company, a position he has held since 1992. Until February
1996, Mr. Terkowitz was Chief Executive Officer, President and publisher of
Digital Ink, an Internet publishing venture that launched, among other
ventures, WashingtonPost.com and PoliticsNow. Mr. Terkowitz is a director of
Junglee, an Internet startup venture, and was a director of New Century
Network, a Web publishing consortium, from its inception until 1998. Mr.
Terkowitz received an A.B. in Chemistry from Cornell University and an M.S. in
Chemical Physics from the University of California, Berkeley.

Frank A. Ingari has been a member of the Board of Directors of the Company
since October 1997. Mr. Ingari is Chairman of the Board of Directors of Shiva
Corporation and was the President and Chief Executive Officer of Shiva
Corporation from 1993 to 1997. Mr. Ingari also serves as Chief Executive
Officer of Growth Ally, L.L.C., a consulting firm specializing in assisting
private technology companies in accelerating their growth. Prior to joining
Shiva Corporation, Mr. Ingari was Vice President, Marketing at Lotus
Development Corporation. From 1991 to 1992, he served as Chairman of the Board
of Directors and Chief Executive Officer of ONTOS, Inc., a supplier of object-
oriented database management systems and application development software. Mr.
Ingari received a B.A. in Creative Writing and U.S. Foreign Relations from
Cornell University.

Jonathan J. Ledecky is expected to be elected to the Board of Directors of
the Company shortly prior to consummation of the Offering. Mr. Ledecky founded
U.S. Office Products Company in October 1994 and served as its Chairman of the
Board and Chief Executive Officer from inception through November 1997 and
thereafter as a Director until May 1998. Mr. Ledecky also co-founded
UniCapital Corporation, a publicly held consolidator and operator of equipment
leasing and specialty finance businesses, in October 1997 and has since served
as a director. In addition, Mr. Ledecky co-founded U.S.A. Floral Products,
Inc., a publicly held consolidator and operator of floral products
distribution businesses, in April 1997 and has since served as its Non-
Executive Chairman of the Board. In February 1997, Mr. Ledecky founded
Consolidation Capital Corporation which is presently consolidating the
facilities services management industry, and has since served as its Chairman
and Chief Executive Officer. From 1991 to September 1994, Mr. Ledecky was the
President and Chief Executive Officer of Legacy Dealer Capital Fund, Inc., a
wholly owned subsidiary of Steelcase, Inc. ("Steelcase"), the nation's largest
manufacturer of office furniture products.

BOARD OF DIRECTORS

The Company's Bylaws currently provide that the number of directors shall be
fixed by the Board. The Board of Directors has fixed the number of directors
at four. The Bylaws provide that directors shall be elected by a plurality
vote, with no cumulative voting, at the annual meeting of stockholders. Each
elected director holds office for a term of one year or until his successor
shall have been duly elected and qualified. Each of the Company's directors
has been elected to serve until the Company's 1999 annual meeting of
stockholders, or until his successor shall have been duly elected and
qualified. The Company plans to hold annual stockholders' meetings in the
future for the election of directors.

The Board of Directors has established a Compensation Committee and an Audit
Committee consisting in each case of Messrs. Terkowitz and Ingari. Mr.
Terkowitz is the Chairman of the Compensation Committee and Mr. Ingari is
Chairman of the Audit Committee. The Compensation Committee will be
responsible for making recommendations to the Board concerning salaries and
incentive compensation for officers and employees of the Company. The Audit
Committee will be responsible for reviewing the results and scope of the audit
and other accounting related services.

Directors do not receive any fees or other cash compensation for serving on
the Company's Board of Directors or any committee thereof, but each non-
employee director who has served during the prior six month period shall be
entitled to receive an option to purchase 5,000 shares of Class A Common Stock
on the date of each annual stockholders meeting pursuant to the terms of the
Director Option Plan. All directors are reimbursed for their reasonable out-
of-pocket expenses arising from attendance of meetings of the Board of
Directors, 55
committees thereof or in respect of Company-related business. Mr.
Terkowitz and Mr. Ingari, who are not current or former officers of the
Company, were granted options to purchase 45,000 shares each of Class A Common
Stock under the Director Option Plan described below in connection with their
election to the Board of Directors. See "--Stock Option Plans."

EMPLOYMENT AGREEMENTS

Employees of the Company are generally required to enter into
confidentiality agreements prohibiting such employee from disclosing any
confidential or proprietary information of the Company. In addition, the
agreements generally provide that upon termination such employee will not work
for a competitor and will not solicit Company customers and employees for a
period of one year. At the time of commencement of employment, the Company's
employees also generally sign offer letters specifying certain basic terms and
conditions of employment. Otherwise, employees of the Company are not subject
to written employment agreements.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the fiscal years ended December 31, 1996 and 1997, the Board of
Directors had no Compensation Committee. Decisions regarding compensation for
1996 and 1997 were made by the Company's senior management. On a going-forward
basis, the Compensation Committee will be responsible for making
recommendations to the Board of Directors concerning salaries and incentive
compensation (including option grants) for officers and directors of the
Company. See "Board of Directors."

57
EXECUTIVE COMPENSATION

SUMMARY COMPENSATION. The following table provides certain summary
information concerning compensation paid or accrued by the Company to or on
behalf of the Company's Chief Executive Officer and each of the other
executive officers of the Company who earned more than $100,000 (salary and
bonus) for all services rendered in all capacities to the Company during the
fiscal year ended December 31, 1997 (the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

LONG TERM COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
---------------------- -------------------------
NAME AND PRINCIPAL POSITION SALARY BONUS SHARES UNDERLYING OPTIONS
- --------------------------- ----------- ---------- -------------------------

Michael J. Saylor............. $ 124,000 $ 30,000 --
Chairman of the Board, Chief
Executive Officer
and President
Sanju K. Bansal............... 111,667 30,000 --
Executive Vice President and
Chief Operating Officer
Eduardo S. Sanchez............ 122,300 -- 54,000
Vice President, International
Operations
Stephen S. Trundle............ 100,100 -- --
Vice President, Technology
Charles A. Veley.............. 90,250 50,000 --
Vice President, Corporate
Development

- --------
(1) With respect to each of the Named Executive Officers, the aggregate
amount of perquisites and other personal benefits, securities or property
received was less than either $50,000 or 10% of the total annual salary
and bonus reported for such Named Executive Officer.

STOCK OPTIONS. The following table contains information concerning the stock
option grants made to each of the Named Executive Officers during the fiscal
year ended December 31, 1997:

OPTION GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (3)
------------------------------------------------- ----------------------
NUMBER OF
SHARES OF
CLASS A
COMMON % OF TOTAL
STOCK OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (1) 1997 PER SHARE (2) DATE 5% 10%
- ---- ----------- ------------ ------------- ---------- ---------- -----------

Michael J. Saylor....... -- -- % $ -- -- $ -- $ --
Sanju K. Bansal......... -- -- -- -- -- --
Eduardo S. Sanchez...... 54,000 2.03 2.50 9/30/07 32,125 131,118
Stephen S. Trundle...... -- -- -- -- -- --
Charles A. Veley........ -- -- -- -- -- --

- --------
(1) The options vest over a five-year period and expire on the tenth
anniversary of the date of grant.
(2) The exercise price may be paid in cash or in shares of Class A Common
Stock valued at fair market value on the exercise date. All stock options
were granted with an exercise price equal to the fair market value of the
common stock as determined by the Board of Directors on the grant date
using a revenue multiple valuation methodology.

(3) Assumes appreciation at the independently appraised value of the Class A
Common Stock of 5% and 10% per year over the ten-year option period as
mandated by the rules and regulations of the Securities and Exchange
Commission, and does not represent the Company's estimate or projection
of the future value of the Class A Common Stock. If the assumed per share
offering price of $9.00 had been used to calculate potential realizable
value, instead of the independently appraised value, appreciation at an
assumed annual rate of 5% and 10% would have resulted in values of
approximately $657,000 and $1,126,000, respectively. The actual value
realized may be greater or less than the potential realizable values set
forth in the table.

The following table sets forth information concerning option holdings
through December 31, 1997 by each of the Named Executive Officers:

FISCAL YEAR-END OPTION VALUES

NUMBER OF SHARES OF CLASS A
COMMON STOCK UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT YEAR END (1) AT YEAR-END (2)
------------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------- -------------- ----------- -------------

Michael J. Saylor... -- -- $ -- $ --
Sanju K. Bansal..... -- -- -- --
Eduardo S. Sanchez.. 5,200 74,800 18,200 153,800
Stephen S. Trundle.. 20,200 80,800 70,700 282,800
Charles A. Veley.... 14,000 56,000 38,500 154,000

- --------
(1) "Exercisable" refers to those options which will be vested and
exercisable immediately upon completion of the Offering, while
"Unexercisable" refers to those options which will be unvested at such
time.
(2) Value is determined by subtracting the exercise price from the fair
market value of the Class A Common Stock at December 31, 1997 ($4.00 per
share), multiplied by the number of shares underlying the options.

STOCK OPTION PLANS

1996 STOCK PLAN. The Company's 1996 Stock Plan (the "1996 Stock Plan"), as
amended, was approved by the Board of Directors and by the stockholders in
August of 1997. The 1996 Stock Plan provides for the granting to employees of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and for the granting of nonqualified stock
options to employees (including officers and employee directors) and
consultants. A total of 8,000,000 shares of Class A Common Stock have been
reserved for issuance under the 1996 Stock Plan, and options to purchase
5,219,018 shares have been granted as of March 31, 1998 thereunder. To date,
substantially all options granted under the 1996 Stock Plan have been
designated as incentive stock options. The 1996 Stock Plan is currently
administered by the Company's Board of Directors.

Options granted under the 1996 Stock Plan are not transferable by the
optionee other than by will or the laws of descent and distribution, and each
option is exercisable during the lifetime of the optionee only by such
optionee. The exercise price of all incentive stock options granted under the
1996 Stock Plan must be at least equal to the fair market value of the shares
of Class A Common Stock on the date of grant. With respect to any participant
who owns stock possessing more than 10% of the voting power of all classes of
the Company's outstanding capital stock, the exercise price of any incentive
stock option must be equal to at least 110% of the fair market value of the
shares of Class A Common Stock on the grant date and the maximum term of the
option must not exceed five years. The terms of all other incentive options
granted under the 1996 Stock Plan may not exceed 10 years.

Stock options granted under the 1996 Stock Plan generally vest over a five-
year period. No portion of an option shall be exercisable, whether or not
vested, until the earliest of (i) the closing of an underwritten public
offering of the Company's Class A Common Stock, (ii) a change in control of
the Company or (iii) 78 months following the date of grant of an option. In
the event of a merger of the Company with or into another

corporation, each option would be assumed or an equivalent option substituted
by the successor corporation. In the event that such successor corporation
refuses to assume the option or to substitute an equivalent option, the option
shall be deemed exercisable to the extent of the greater of (a) 40% of the
number of shares of Common Stock subject to the option and (b) the number of
shares then vested immediately prior to the change in control. As of March 31,
1998, no options to purchase shares of Class A Common Stock had been
exercised. Options to purchase 5,219,018 shares at a weighted average exercise
price of $1.98 per share are currently outstanding under the 1996 Stock Plan
and options to purchase 2,780,982 shares of Class A Common Stock remain
available for future grants under the 1996 Stock Plan.

FRENCH PLAN. The 1997 Stock Option Plan for French employees (the "French
Plan") was approved by the Board of Directors in March of 1997. The French
Plan provides for the granting of options to employees of MicroStrategy France
SARL, the Company's French subsidiary. A total of 300,000 shares of Class A
Common Stock has been reserved for issuance under the French Plan, and options
to purchase 105,000 shares have been granted as of March 31, 1998 thereunder.
The French Plan is administered by the Company's Board of Directors. Options
granted under the French Plan are not transferable by the optionee other than
by will or by the laws of descent and distribution. The exercise price for
each option granted under the French Plan shall be 100% of the fair market
value of the shares of Class A Common Stock on the date the option is granted
and the maximum term of the option must not exceed ten years.

Stock options granted under the French Plan vest over a five year period
with 40% of options vesting on the second anniversary of the vesting
commencement date and 20% vesting on each subsequent anniversary. Options
issued under the French Plan have the same limitations on exercisability and
provisions for vesting upon a merger of the Company as options issued under
the 1996 Stock Plan described above.

1997 DIRECTOR OPTION PLAN. The Company's 1997 Director Option Plan (the
"Director Option Plan") was adopted by the Board of Directors and the
stockholders in September of 1997. A total of 200,000 shares of Class A Common
Stock has been reserved for issuance under the Director Option Plan. The
Director Option Plan provides for the grant of nonqualified stock options to
non-employee directors of the Company.

58
The Director Option Plan provides that each person who becomes a non-
employee director of the Company shall, on the date on which the optionee
first becomes a director of the Company, be granted an option to purchase
45,000 shares of Class A Common Stock (the "First Option"). On the date of
each annual stockholders meeting thereafter, each non-employee director shall
be granted an option to purchase 5,000 shares of Class A Common Stock (a
"Subsequent Option") if, on such date, he or she shall have served on the
Company's Board of Directors for at least six months prior to the annual
meeting. Options to purchase 45,000 shares of Class A Common Stock have been
granted to each of Mr. Terkowitz and Mr. Ingari at an exercise price of $2.50
per share. None of such options are presently vested or exercisable.

The Director Option Plan sets neither a maximum nor a minimum number of
shares subject to options that may be granted to any one non-employee
director, but does stipulate the method of making a grant. No option granted
under the Director Option Plan is transferable by the optionee other than by
will or the laws of descent and distribution, and each option is exercisable,
during the lifetime of the optionee, only by such optionee. The Director
Option Plan provides that the First Option shall become exercisable in
installments of one-fifth of the shares subject to the First Option on each of
the first, second, third, fourth and fifth anniversaries of the date of grant
of the First Option, and that each Subsequent Option shall become exercisable
in full on the fifth anniversary of its date of grant. The exercise price of
all stock options granted under the Director Option Plan shall be equal to the
fair market value of the shares of Class A Common Stock on the date of grant
of the option. Options granted under the Director Option Plan have a term of
10 years. In the event of a merger of the Company with or into another
corporation or a sale of substantially all of the Company's assets, each
option will be assumed or an equivalent option substituted by the successor
corporation. If the successor corporation does not assume outstanding options,
the exercisability of all outstanding options shall be accelerated. The Board
of

60
Directors may amend or terminate the Director Option Plan, provided, however,
that no such action may adversely affect any outstanding option and provided
further that the provisions affecting the grant and terms of options may not
be amended more than once during any six-month period.

1998 EMPLOYEE STOCK PURCHASE PLAN. Prior to the closing of the Offering, the
Board will submit to the Existing Stockholders, and the Existing Stockholders
are expected to approve, an Employee Stock Purchase Plan (the "Purchase
Plan"), covering an aggregate of 400,000 shares of Class A Common Stock. The
Purchase Plan is intended to qualify for favorable tax treatment under Section
423 of the Internal Revenue Code of 1986, as amended. Under the Purchase Plan,
eligible employees may purchase shares of the Company's Class A Common Stock
through periodic payroll deductions. The Purchase Plan will be implemented
through a series of six month offering periods commencing on each January 1
and July 1 (each an "Offering Period"), except for the initial Offering Period
which will begin on the date of the closing of the Offering and end on
December 31, 1998. All employees of the Company or its majority-owned
subsidiaries who work at least twenty hours per week and more than five months
per calendar year are eligible to participate in the Purchase Plan.

During the first Offering Period, participants may designate not more than
10% of their cash compensation, and in subsequent Offering Periods not more
than 10% of their average total compensation, to be deducted each pay period
for the purchase of Class A Common Stock under the Purchase Plan. Participants
may purchase no more than $15,000 in Class A Common Stock in any one calendar
year. The purchase price per share will be 85% of the lesser of the fair
market value of the Class A Common Stock on the beginning or end of the
Offering Period. Employees may terminate their participation in the Purchase
Plan at any time during an Offering Period, but may not alter their rate of
payroll deduction for that offering. Participation ends automatically on
termination of employment with the Company. The Purchase Plan will terminate
no later than December 31, 2002.

5961

CERTAIN TRANSACTIONS

EQUITY ISSUANCE, STOCKHOLDER LOANS AND LOAN GUARANTEES

Effective January 1, 1998, the Company issued a total of 1,401,641 shares of
Common Stock to Messrs. Saylor and Bansal to purchase their approximately 21%
minority interest in certain of the Company's foreign subsidiaries. As a
result of such exchange, each such subsidiary became wholly-owned by the
Company. The Company obtained an independent, third-partytransaction and the valuation of the percentage of interests held by
each of Messrs. Saylor and Bansal for purposes of determining the number of
shares of Common Stock to be issued but the Company
did not seek or obtain an opinion about the fairnessto each of the transaction to the
Company or its stockholders. The transactionthem respectively was reviewed
and approved by the disinterested members of the Board of Directors. Mr.
Saylor received 1,134,662 shares of Common Stock in the exchange and Mr.
Bansal received 266,979 shares. The cost to the Company to acquire the
minority interest in foreign subsidiaries was approximately $5.6 million using
a fair value of $4.00 per share as of January 1, 1998 and a valuation approved
by the Board of Directors that assigned approximately 20% of the total market
value of the Company to the foreign subsidiaries.

The Company expects to declare the S Corporation Dividend and pay the
Dividend Notes to the Existing Shareholders in the form of the Dividend Notes
prior to the termination of the Company's S corporation election, which is
expected to occur prior to the consummation of the Offering. The Dividend
Notes have (i) a term of one year, (ii) bear interest at the applicable
federal rate for debt obligations having a maturity of one year, which was
5.29% as of March 31, 1998, and (iii) are payable in four equal quarterly
installments. The Dividend Notes may be prepaid without penalty at any time at
the option of the Company. The Company intends to repay the Dividend Notes
from cash flows generated from operations, current available cash and cash
equivalents, borrowings under the Company's Business, and to the extent that
other sources are insufficient for this purpose, from the proceeds of the
Offering. See "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."

The Company has on occasion made certain open, non-interest bearing advances
to Mr. Saylor and Mr. Bansal. As of December 31, 1997, the Company had
advanced Messrs. Saylor and Bansal $113,983 and $50,910, respectively. These
advances resulted primarily from the Company paying S corporation taxes for
these individuals and other miscellaneous expenses since the Company's
inception.

Mr. Saylor has guaranteed amounts outstanding under the Company's Business
Loan to the extent that such amounts exceed $2.0 million. Mr. Saylor's
liability under the guarantee is capped at $2.0 million. The guarantee
automatically terminates upon the closing of the Offering. Mr. Saylor did not
receive any compensation from the Company for providing such guarantee.

OPTION GRANTS

On various occasions during 1998 and the three preceding fiscal years, the
Company granted options to purchase Common Stock to the following executive
officers: (i) on March 31, 1996 David Sherwood, Stephen Trundle and Eduardo S.
Sanchez were granted options to purchase 101,000, 101,000 and 26,000 shares of
Common Stock, respectively with an exercise price of $.50 per share; (ii) on
December 31, 1996 Charles Veley was granted options to purchase 70,000 shares
of Common Stock with an exercise price of $1.25 per share; (iii) on September
30, 1997 Mark Lynch and Eduardo S. Sanchez were granted options to purchase
250,000 and 54,000 shares of Common Stock, respectively with an exercise price
of $2.50 per share; and (iv) on November 30, 1997 Stephen Foley was granted
options to purchase 120,000 shares of Common Stock with an exercise price of
$4.00 per share. During 1997, the Company's independent directors were also
granted options to purchase Common Stock under the 1997 Director Option Plan.
See "Management--Stock Option Plan--1997 Director Option Plan."

62
STOCK PURCHASE

On February 28, 1995, Messrs. Sanchez and Trundle purchased 442,408.08 and
294,938.72 shares, respectively, of Common Stock at a price of $0.107 per
share, and on March 25, 1995 David Sherwood purchased 294,938.72 shares of
Common Stock at a price of $0.107 per share, each such purchase price to be
payable in four installments. Upon the payment of each installment, Messrs.
Sanchez, Trundle and TrundleSherwood acquired 25% of the total shares. Installments
were initially paid on February 28, 1995 and each succeeding
December 31,annually thereafter, with the
final installment paid on December 31, 1997.

EXISTING STOCKHOLDERS AGREEMENTS

The Company has entered into certain agreements with the Existing
Stockholders (the "Existing Stockholders Agreements") pursuant to which the
Existing Stockholders have consented to (i) the revocation of the Company's S
corporation election, (ii) the termination of existing stock purchase
agreements and buy/sell agreements between the Company and the Existing
Stockholders, (iii) the exchange of all Class A Common Stock owned by the
Existing Stockholders for Class B Common Stock and (iv) the execution of tax
indemnification and lock-up agreements. In addition, the Existing Stockholders
Agreement for Thomas Spahr (one of the Selling Stockholders) provides Mr.
Spahr with certain registration and indemnification rights with respect to the
Offering.

TAX INDEMNIFICATION AGREEMENT

Pursuant to the Existing Stockholders Agreements, the Company has entered
into tax indemnification agreements with the Existing Stockholders ("Tax
Indemnification Agreements") which provide for, among other things, the
indemnification of the Company by such stockholders for any federal and state
income taxes (including interest and penalties) incurred by the Company, if
for any reason, the Company

60
is deemed to be treated as a C corporation during
any period for which it reported its taxable income as an S corporation. The
tax indemnification obligation of the Existing Stockholders is limited to the
lesser of (i) the amount of any reduction in their tax liability as a result
of any such determination or (ii) the aggregate amount received in
distributions from the Company from January 1, 1990 until the S corporation
termination date. The Existing Stockholders Agreement also provides for the
cross-indemnification by the Company of each Existing Stockholder for any
losses or liabilities with respect to certain additional taxes (including
interest and penalties) resulting from the Company's operations during the
period in which it was an S corporation. Purchasers of Class A Common Stock in
the Offering will not be parties to any Existing Stockholders Agreement. See
"Termination of S Corporation Election and S Corporation Distribution."

6163

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998 and as adjusted
to reflect the sale of the shares of Class A Common Stock offered hereby, (i)
by each person who is known by the Company to own beneficially more than 5% of
the Company's Common Stock, (ii) by each Named Executive Officer and member of
the Board of Directors, (iii) by the Selling Stockholders and (iv) by all
executive officers and directors as a group.

SHARES BENEFICIALLY NUMBER OF SHARES SHARES BENEFICIALLY
OWNED PRIOR TO BEING OFFERED OWNED AFTER OFFERING
OFFERING (1)(2) (1) (1)(2)
--------------------- ---------------- ---------------------
NAME NUMBER PERCENTAGE NUMBER NUMBER PERCENTAGE
---- ---------- ---------- ---------------- ---------- ----------

Alcantara LLC (3)....... -- -- -- 22,574,662 65.0%
Michael J. Saylor (4)... 22,574,662 73.1% -- -- --
Shangri-La LLC (5)...... -- -- -- 4,966,979 14.3%
Sanju K. Bansal (6)..... 5,066,979 16.4% 100,000 -- --
Thomas P. Spahr (7)..... 962,000 3.1% 60,000 902,000 2.6%
Eduardo S. Sanchez(8)... 452,808 1.5% -- 452,808 1.3%
Charles A. Veley(9)..... 334,000 1.1% -- 334,000 1.0%
Stephen S. Trundle(10).. 335,339 1.1% -- 335,339 1.0%
Frank A. Ingari......... -- -- -- -- --
Ralph S. Terkowitz...... -- -- -- -- --
All executive officers
and directors as a
group
(9 persons)(1)......... 28,763,788 93.1% 100,000 28,663,788 82.5%

- -------
(1) Shares listed in the table are shares of Class B Common Stock which have
ten votes per share, except that 2,000, 10,400, 14,000 and 40,400 shares
of Common Stock held by Mr. Spahr, Mr. Sanchez, Mr. Veley and Mr.
Trundle, respectively, consist of options to purchase Class A Common
Stock, and 60,000 and 100,000 shares of Common Stock held by Mr. Spahr
and Mr. Bansal, respectively, consist of shares of Class A Common Stock.
Shares held by the executive officers and directors as a group include
options to purchase 64,800 shares of Class A Common Stock. Options held
by Messrs. Ingari and Terkowitz are to purchase shares of Class A Common
Stock; however, none of such options are vested or exercisable within 60
days of March 31, 1998. The information in this table does not reflect
the transfer by Mr. Saylor on May 22, 1998 of 100,000 shares of Common
Stock to a trust in which Mr. Saylor does not have voting and dispositive
powers over the trust assets.
(2) The persons named in this table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them, subject to community property laws where applicable. Beneficial
ownership is determined in accordance with the rules of the United States
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person
that are currently exercisable or exercisable within 60 days after March
31, 1998 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Options that would be exercisable within 60 days after
March 31, 1998 but for the fact that the Company had not completed its
initial public offering as of such date are treated as exercisable within
60 days after March 31, 1998 and are included in this table.
(3) In connection with the Offering, it is anticipated that Mr. Saylor will
transfer his interest in the Company to Alcantara LLC, an entity that is
controlled by Mr. Saylor.
(4) Represents shares of Class B Common Stock that, upon the closing of the
Offering, will be held beneficially by Mr. Saylor as a result of his
beneficial ownership interest in Alcantara LLC.LLC and certain trusts.
(5) In connection with the Offering, it is anticipated that Mr. Bansal will
transfer his interest in the Company to Shangri-La LLC, an entity that is
controlled by Mr. Bansal.
(6) Represents shares of Class B Common Stock that, upon the closing of the
Offering, will be held beneficially by Mr. Bansal as a result of his
beneficial ownership interest in Shangri-La LLC.LLC and certain trusts.

(7) Includes 2,000 shares of Class A Common Stock issuable upon exercise of
options. Mr. Spahr is currently employed as the Company's Director of
Information Services.
(8) Includes 10,400 shares of Class A Common Stock issuable upon exercise of
options.
(9) Includes 14,000 shares of Class A Common Stock issuable upon exercise of
options.
(10) Includes 40,400 shares of Class A Common Stock issuable upon exercise of
options.

6264

DESCRIPTION OF CAPITAL STOCK

The following description is a summary of the Amended and Restated
Certificate of Incorporation of the Company (the "Certificate") a copy of
which will be filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, and which will be incorporated by reference herein.

As of the date of this Prospectus, the authorized capital stock of the
Company will consist of 100,000,000 shares of Class A Common Stock,
100,000,000 shares of Class B Common Stock and 5,000,000 shares of preferred
stock. As of the date of this Prospectus (but giving effect to the Offering),
there will be 4,000,000 shares of Class A Common Stock, 30,735,514 shares of
Class B Common Stock and no shares of preferred stock outstanding.

COMMON STOCK

VOTING RIGHTS. Holders of Class A Common Stock are entitled to one (1) vote
per share. Holders of Class B Common Stock are entitled to ten (10) votes per
share. Holders of Class A Common Stock and Class B Common Stock vote together
as a single class on all matters presented to the stockholders for their vote
or approval, except as may be required by Delaware law or as otherwise
expressly specified in the Certificate. The Company, by action of its Board of
Directors and the affirmative vote of the holders of a majority of the voting
power of the Class A Common Stock and Class B Common Stock, voting together as
a class, may increase or decrease the number of authorized shares of any class
of capital stock of the Company.

DIVIDENDS. Holders of Class A Common Stock and Class B Common Stock are
entitled to receive dividends at the same rate, when and if declared by the
Board of Directors, out of legally available funds. The Company may not make
any dividend or distribution with respect to any class of Common Stock unless
at the same time the Company makes a ratable dividend or distribution with
respect to each outstanding share of Common Stock regardless of class. In the
case of a stock dividend or other distribution payable in shares of a class of
Common Stock, only shares of Class A Common Stock may be distributed with
respect to Class A Common Stock and only shares of Class B Common Stock may be
distributed with respect to Class B Common Stock, and the number of shares of
Common Stock payable per share will be equal for each class.

SPLIT, SUBDIVISION OR COMBINATION. None of the Class A Common Stock or the
Class B Common Stock may be subdivided or combined in any manner unless the
other classes are subdivided or combined in the same proportion.

CONVERSION RIGHTS. Class A Common Stock has no conversion rights. Each share
of Class B Common Stock is convertible at any time, at the option of the
holder, into one share of Class A Common Stock. Each share of Class B Common
Stock shall convert automatically into one share of Class A Common Stock upon
its sale, assignment, gift or other transfer, other than a transfer approved
in advance of the effectiveness thereof by the holders of a majority of the
Class B Common Stock outstanding, voting separately as a class; provided,
however, that a transfer effected as a result of the death of the transferor
may be approved by the holders of a majority of the Class B Common Stock
outstanding, voting separately as a class, within thirty days following such
transfer. For purposes of determining whether a transfer has been approved by
the holders of a majority of the Class B Common Stock outstanding, the shares
for which approval of the transfer is being sought shall continue to be
considered outstanding shares of Class B Common Stock and the proposed
transferor (or in the case of shares transferred as a result of the death of
the proposed transferor, the Executor or similar personal representative of
such proposed transferor) shall be entitled to vote on such transfer.

Notwithstanding the foregoing, (i) these conversion rights shall not apply
in the case of a merger or similar transaction by the corporation in which all
the outstanding shares of Common Stock of the Company regardless of class are
purchased by the acquiror, and (ii) any holder of Class B Common Stock may
pledge his shares of Class B Common Stock to a financial institution (the
"Pledgee") pursuant to a bona fide pledge of such shares as collateral
security for indebtedness due to the Pledgee and that, if the Pledgee
forecloses or takes similar action, such pledged shares of Class B Common
Stock shall be converted automatically into shares of Class A Common Stock;
provided, however, that if within five business days after such foreclosure or
similar event such

65
converted shares are returned to the pledgor, such shares shall be converted
automatically back into shares of Class B Common Stock.

MERGER. Upon the merger or consolidation of the Company, holders of each
class of Common Stock will be entitled to receive equal per share payments or
distributions, except that in any transaction in which shares of capital stock
are distributed, such shares may differ only to the extent that the Class A
Common Stock and the Class B Common Stock differ as provided in the Company's
Certificate.

LIQUIDATION. Upon any dissolution or liquidation of the Company, the holders
of the Class A Common Stock and Class B Common Stock will be entitled to
receive ratably all assets of the Company available for distribution to
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.

OTHER PROVISIONS. The holders of the Class A Common Stock and Class B Common
Stock are not entitled to preemptive rights. The rights of holders of Class A
Common Stock and Class B Common Stock are subject to the rights of holders of
shares of any series of Preferred Stock that the Company may designate and
issue in the future.

PREFERRED STOCK

The Board of Directors has the authority, without further action by the
stockholders, to issue shares of preferred stock from time to time in one or
more series. Each series of preferred stock will have the number of shares,
designations, powers, preferences and special or relative rights and
privileges as may be determined by the Board of Directors, which may include
dividend rights, voting rights, redemption and sinking fund provisions,
liquidation preferences, conversion rights and preemptive rights. The
authority of the Board of Directors to issue preferred stock without further
action by the stockholders provides flexibility in connection with possible
acquisitions and other corporate purposes, but may also result in the issuance
of preferred stock with voting, conversion or other rights that could
adversely affect the voting power and other rights of the holders of Common
Stock or which could make it more difficult for a third party to gain control
of the Company.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Class A Common Stock will be
American Stock Transfer & Trust Company.

LISTING

Application has been made to have the Class A Common Stock approved for
quotation on the Nasdaq National Market under the trading symbol "MSTR."

CERTAIN ANTI-TAKEOVER, LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS

DELAWARE ANTI-TAKEOVER LAW. The Company is a Delaware corporation that is
subject to Section 203 of the Delaware General Corporation Law ("DGCL"). Under
Section 203, certain "business combinations" between a Delaware corporation
whose stock generally is publicly traded or held of record by more than 2,000
stockholders and an "interested stockholder" are prohibited for a three-year
period following the date that such stockholder became an interested
stockholder, unless (i) the corporation has elected in its certificate of
incorporation not to be governed by Section 203 (the Company has not made such
an election), (ii) the business combination or the transaction which resulted
in the stockholder becoming an interested stockholder was approved by the
board of directors of the corporation before such stockholder became an
interested stockholder, (iii) upon consummation of the transaction that made
such stockholder an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
commencement of the transaction (excluding voting stock owned by directors who
are also officers or held in employee benefit plans in which the employees do
not have a confidential right to tender stock held by the plan in a tender or
exchange offer) or (iv) the business combination is approved by the board of
directors of the corporation and authorized at a meeting by two-thirds of the
voting stock which the interested stockholder did not own. The three-year

6466

prohibition also does not apply to certain business combinations proposed by
an interested stockholder following the announcement or notification of
certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation's directors. The term "business combination" is defined generally
to include mergers or consolidations between a Delaware corporation and an
interested stockholder, transactions with an interested stockholder involving
the assets or stock of the corporation or its majority-owned subsidiaries, and
transactions which increase an interested stockholder's percentage ownership
of stock. The term "interested stockholder" is defined generally as those
stockholders who become beneficial owners of 15% or more of a Delaware
corporation's voting stock, together with the affiliates or associates of that
stockholder.

LIMITATION OF OFFICER AND DIRECTOR LIABILITY AND INDEMNIFICATION
ARRANGEMENTS. The Company's Certificate provides that an officer or director
of the Company will not be personally liable to the Company or its
stockholders for monetary damages for any breach of his fiduciary duty as an
officer or director, except in certain cases where liability is mandated by
the DGCL. The provision has no effect on any non-monetary remedies that may be
available to the Company or its stockholders, nor does it relieve the Company
or its officers or directors from compliance with federal or state securities
laws. The Certificate also generally provides that the Company shall
indemnify, to the fullest extent permitted by law, any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, investigation, administrative hearing or any other
proceeding (each, a "Proceeding") by reason of the fact that he is or was a
director or officer of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another entity, against
expenses incurred by him in connection with such Proceeding. An officer or
director shall not be entitled to indemnification by the Company if (i) the
officer or director did not act in good faith and in a manner reasonably
believed to be in, or not opposed to, the best interests of the Company, or
(ii) with respect to any criminal action or proceeding, the officer or
director had reasonable cause to believe his conduct was unlawful.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market or the availability of substantial amounts of Common Stock for
sale could adversely affect prevailing market prices.

Upon the closing of the Offering, the Company will have 4,000,000 shares of
Class A Common Stock and 30,735,514 shares of Class B Common Stock
outstanding, assuming no exercise of the Underwriters' over-allotment option
and no exercise of outstanding options to purchase Class A Common Stock. Of
these shares, the 4,000,000 shares of Class A Common Stock sold in the
Offering are freely tradable without restriction or further registration under
the Securities Act of 1933, as amended (the "Securities Act"), except that any
shares held by an "affiliate" of the Company, as that term is defined in Rule
144 under the Securities Act ("Rule 144"), may generally only be sold in
compliance with the limitations of Rule 144 described below. The remaining
30,735,514 shares of Class B Common Stock are "restricted securities" within
the meaning of Rule 144 in that they have not been registered under the
Securities Act. These restricted securities will generally be available for
sale in the open market after the Offering, subject to the Lock-up Agreements
(defined below) and the applicable requirements of Rule 144.

In general, Rule 144 provides that after a period of one year has elapsed
between the later of the date on which restricted securities were acquired
from the Company and the date on which they were acquired from an affiliate of
the Company, the holder of such restricted securities (including an affiliate)
is entitled to sell a number of shares within any three-month period that does
not exceed the greater of (i) one percent of the then outstanding shares of
the Class A Common Stock or (ii) the average weekly reported volume of trading
of the Class A Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 also are subject to certain requirements pertaining
to the manner of such sales, notice of such sales and the availability of
current

6567

public information concerning the Company. Affiliates may sell shares not
constituting restricted securities in accordance with the foregoing volume
limitations and other requirements of Rule 144 but without regard to the one
year holding period. Under Rule 144(k), after a period of two years has
elapsed between the later of the date on which restricted securities were
acquired from the Company and the date on which they were acquired from an
affiliate, a holder of such restricted securities who is not an affiliate of
the Company at the time of the sale and has not been an affiliate for at least
three months prior to the sale would be entitled to sell the shares
immediately without regard to the volume limitations and other conditions of
Rule 144 described above.

The holders of all of the 30,735,514 shares of Class B Common Stock
outstanding prior to the Offering have agreed to enter into agreements with
the Underwriters (the "Lock-up Agreements") which will provide that, until the
expiration of 180 days after the date of this Prospectus, they will not offer,
sell, contract to sell or otherwise dispose of, any shares of Class A Common
Stock or any securities of the Company that are substantially similar to the
Class A Common Stock or which are convertible into or exchangeable for, or
represent the right to receive, Class A Common Stock (including Class B Common
Stock) without the prior written consent of the representatives of the
Underwriters. In addition, the Company has agreed not to sell or otherwise
dispose of any shares of Common Stock during the 180-day period following the
date of the Prospectus, except the Company may issue, and grant options to
purchase, shares of Class A Common Stock under the Company Stock Plans. In
addition, the Company may issue shares of Class A Common Stock in connection
with any acquisition of another company if the terms of such issuance provide
that such Class A Common Stock shall not be resold prior to the expiration of
the 180-day period referenced in the preceding sentence.

The Company intends to file a Registration Statement on Form S-8 as soon as
practicable after the date of this Prospectus to register the 8,000,000,
300,000, 200,000 and 200,000400,000 shares of Class A Common Stock that are issuable
upon the exercise of stock options either outstanding or available for grant
pursuant to the 1996 Stock Plan, the French Plan, and the Director Option Plan and
the Purchase Plan, respectively. Such registration statement is expected to
become effective immediately upon filing; however, consistent with the terms
of the Company Stock Plans, holders of options will be unable to sell any
shares of Class A Common Stock received upon the exercise of options granted
thereunder until the expiration of 180 days after the date of this Prospectus.Prospectus,
and no shares will be acquired under the Purchase Plan prior to February 1,
1999. Options granted under the Director Option Plan do not begin to vest
until October of 1998. Following effectiveness, shares covered by the
Registration Statement on Form S-8 will be eligible for sale in the public
markets, subject to Rule 144 limitations applicable to affiliates as well as
to the limitations on sale and vesting described above. See "Shares Eligible
for Future Sale."

6668

UNDERWRITING

Subject to the terms and conditions set forth in a purchase agreement (the
"Underwriting Agreement") between the Company, the Selling Stockholders and
each of the underwriters named below (the "Underwriters"), the Company and the
Selling Stockholders have agreed to sell to each of the Underwriters, and each
of the Underwriters has severally agreed to purchase from the Company and the
Selling Stockholders the aggregate number of shares of Class A Common Stock
set forth opposite its name below.

UNDERWRITERS NUMBER OF SHARES
------------ ----------------

Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................................
Hambrecht & Quist LLC.......................................
Friedman, Billings, Ramsey & Co., Inc.......................
---------
Total..................................................... 4,000,000
=========

Merrill Lynch, Pierce, Fenner & Smith Incorporated, Hambrecht & Quist LLC
and Friedman, Billings, Ramsey & Co., Inc. are acting as representatives (the
"Representatives") of the Underwriters.

The Underwriters propose to offer the shares of Class A Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such prices less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain brokers and dealers. After the shares of
Class A Common Stock are released for sale to the public, the offering price
and other selling terms may from time to time be varied by the
Representatives.

The representatives of the Underwriters have informed the Company and the
Selling Stockholders that they do not expect sales to accounts over which the
Underwriters exercise discretionary authority to exceed five percent of the
total number of shares of Class A Common Stock offered by them.

The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 600,000
shares of Class A Common Stock solely to cover over-allotments, if any at the
public offering price. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of
shares to be purchased by each of them, as shown in the foregoing table, bears
to the 4,000,000 shares of Class A Common Stock offered hereby.

The holders of all of the shares of Class B Common Stock outstanding prior
to completion of the Offering have agreed to enter into Lock-up Agreements
which will provide that, until the expiration of 180 days after the date of
this Prospectus, they will not offer, sell, contract to sell or otherwise
dispose of, any shares of Class A Common Stock or any securities of the
Company that are substantially similar to the Class A Common Stock or which
are convertible into or exchangeable for, or represent the right to receive
Class A Common Stock (including Class B Common Stock) without the prior
written consent of the Representatives. The Company Stock Plans restrict
option holders under the plans from selling, transferring or otherwise
disposing of Class A Common Stock or any security convertible into or
exchangeable or exercisable for Class A Common Stock, without the prior
written consent of the Representatives,received pursuant to a
Company Stock Plan for a period of 180 days after the date of this Prospectus.
In addition, the Company has agreed not to sell or otherwise dispose of any
shares of Common Stock during the 180-day period following the date of the
Prospectus, except the Company may issue, and grant options to purchase,
shares of Common Stock under the Stock Plans. In addition, the Company may
issue shares of Class A Common Stock in connection with any acquisition of
another company if the terms of such issuance provide that such Class A Common
Stock shall not be resold prior to the expiration of the 180-day period
referenced in the preceding sentence.

6769

At the Company's request, the Underwriters have reserved for sale at the
initial public offering price up to 460,000 shares of Class A Common Stock
offered hereby for certain individuals who have expressed an interest in
purchasing such shares of Class A Common Stock in the Offering. The number of
shares available for sale to the general public will be reduced to the extent
such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters to the general public on the
same basis as other shares offered hereby.

Prior to the Offering, there has been no public market for the shares of
Class A Common Stock. The initial public offering price will be negotiated
among the Company and the representatives of the Underwriters. Among the
factors to be considered in determining the initial public offering price of
the Class A Common Stock, in addition to prevailing market conditions, will be
the Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.

In connection with the Offering, the Underwriters may purchase and sell the
Class A Common Stock in the open market. These transactions may include over-
allotment and stabilizing transactions and purchases to cover short positions
created by the Underwriters in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Class A Common
Stock; and syndicate short positions involve the sale by the Underwriters of a
greater number of shares of Class A Common Stock than they are required to
purchase from the Company in the Offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to broker-dealers in respect
of the securities sold in the Offering may be reclaimed by the Underwriters if
such shares of Class A Common Stock are repurchased by the Underwriters in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Class A Common Stock, which may be
higher than the price that may otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq National Market, in the over-the-counter market
or otherwise.

LEGAL MATTERS

The validity of the Class A Common Stock offered hereby and certain other
legal matters will be passed upon for the Company by Latham & Watkins,
Washington, D.C. A partner of Latham & Watkins holds nonstatutory options to
purchase approximately 25,000 shares of Class A Common Stock. Certain legal
matters in connection with the Offering will be reviewed for the Underwriters
by Ropes & Gray, Boston, Massachusetts.

EXPERTS

The consolidated balance sheets of MicroStrategy Incorporated, as of
December 31, 1996 and 1997, and the consolidated statements of operations,
stockholders' (deficit) equity, and cash flows for each of the three years in
the period ended December 31, 1997 included in this Prospectus, have been
audited by Coopers & Lybrand L.L.P., independent accountants, as set forth in
their report thereon appearing elsewhere herein and are included in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., 20549, a Registration Statement on Form S-1
under the Securities Act of 1933, as amended, with respect to the Class A
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Certain items are omitted in accordance

6870

with the rules and regulations of the Commission. For further information with
respect to the Company and the Class A Common Stock offered hereby, reference
is made to the Registration Statement and the exhibits and schedules files as
a part thereof. Statements contained in this Prospectus as to the contents of
any contract or any other document referred to are not necessarily complete,
and, in each instance, if such contract or document is filed as an exhibit,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference to such exhibit. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge at
the public reference facilities maintained by the Commission in Room 1024, 450
Fifth Street, N.W., Washington, D.C., 20549, and the Commission's regional
offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois,
60661 and Seven World Trade Center, 13th Floor, New York, New York, 10048.
Copies of all or any part thereof may be obtained from the Commission after
payment of fees prescribed by the Commission. The Commission also maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants, including the Company, that file
electronically with the Commission. The address of this site is
http://www.sec.gov.

6971

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and as of
March 31, 1998 (unaudited) and Pro Forma as of March 31, 1998
(unaudited).............................................................. F-3
Consolidated Statements of Operations and Comprehensive Income for the
Years Ended December 31, 1995, 1996 and 1997 and for the three months
ended March 31, 1997 and 1998 (unaudited)................................ F-4
Consolidated Statements of Stockholders' (Deficit) Equity for the Years
Ended December 31, 1995, 1996 and 1997 and for the three months ended
March 31, 1998 (unaudited)............................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and for the three months ended March 31, 1998 and
1997 (unaudited)......................................................... F-6
Notes to Consolidated Financial Statements................................ F-7

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
MicroStrategy Incorporated

We have audited the accompanying consolidated balance sheets of
MicroStrategy Incorporated and its subsidiaries as of December 31, 1996 and
1997, and the related consolidated statements of operations and comprehensive
income, stockholders' (deficit) equity, and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. These 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 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 MicroStrategy Incorporated and its subsidiaries as of December 31, 1996 and
1997, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

Coopers & Lybrand L.L.P

McLean, Virginia

January 30, 1998, except for Notes 4Note 4as to which the date is May 8, 1998 and
Note 8 as to which the date is May 8,June 9, 1998

F-2

MICROSTRATEGY INCORPORATED

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

DECEMBER 31, PRO FORMA
------------------ MARCH 31, MARCH 31,
1996 1997 1998 1998
-------- -------- --------- ---------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents..... $ 1,686 $ 3,506 $ 2,304 $ 2,304
Accounts receivable, net...... 8,475 16,085 15,939 15,939
Prepaid expenses and other
current assets............... 395 1,435 1,461 1,461
-------- -------- -------- --------
Total current assets........ 10,556 21,026 19,704 19,704
-------- -------- -------- --------
Property and equipment, net..... 2,197 6,891 7,739 7,739
Deposits and other assets....... 251 2,148 3,149 3,149
-------- -------- -------- --------
Total assets................ $ 13,004 $ 30,065 $ 30,592 $ 30,592
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
(DEFICIT) EQUITY
Current liabilities:
Line-of-credit................ $ 2,758 $ 4,508 $ 5,376 $ 5,376
Notes payable, current
portion...................... 356 900 1,115 1,115
Notes payable to
stockholders................. -- -- -- 10,000
Accounts payable and accrued
expenses..................... 2,811 9,406 7,273 7,273
Accrued compensation and
employee benefits............ 1,748 3,633 2,449 2,449
Deferred revenue.............. 5,120 8,340 9,315 9,315
-------- -------- -------- --------
Total current liabilities... 12,793 26,787 25,528 35,528
Notes payable, long-term
portion........................ 460 2,658 2,636 2,636
Deferred revenue................ 544 1,047 1,241 1,241
-------- -------- -------- --------
Total liabilities........... 13,797 30,492 29,405 39,405
-------- -------- -------- --------
Commitments and contingencies
Stockholders' (deficit) equity:
Preferred stock, par value
$0.001 per share, 5,000,000
shares authorized, no shares
issued or outstanding........ -- -- -- --
Common stock, par value $0.001
per share, 50,000,000 shares
authorized; 31,442,673 in
1996, 29,493,873 in 1997,
30,895,514 in 1998 and pro
forma 1998 .................. 31 29 31 31
Class A Common Stock, par
value $0.001 per share,
100,000,000 shares
authorized, no shares issued
or outstanding............... -- -- -- --
Class B Common Stock, par
value $0.001 per share,
100,000,000 shares
authorized, no shares issued
or outstanding............... -- -- -- --
Additional paid-in capital.... 213 20 1,086 1,0861,416 1,416
Accumulated other
comprehensive income......... -- 158 162 162
Accumulated deficit........... (755) (634) (92) (10,092)
Deferred compensation......... -- -- (330) (330)
Notes receivable from
stockholders................. (87) -- -- --
Less cost of treasury stock,
1,948,800 shares in 1996 and
no shares in 1997 and 1998... (195) -- -- --
-------- -------- -------- --------
Total stockholders'
(deficit) equity........... (793) (427) 1,187 (8,813)
-------- -------- -------- --------
Total liabilities and
stockholders' (deficit)
equity.................... $ 13,004 $ 30,065 $ 30,592 $ 30,592
======== ======== ======== ========

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-3

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------

REVENUES:
Product licenses...... $ 4,077 $ 15,873 $ 36,601 $ 4,731 $ 14,282
Product support....... 5,700 6,730 16,956 3,406 5,613
---------- ---------- ---------- ---------- ----------
Total revenues...... 9,777 22,603 53,557 8,137 19,895
---------- ---------- ---------- ---------- ----------
Cost of revenues:
Product licenses...... 257 1,020 1,641 357 538
Product support....... 2,201 4,237 9,475 1,799 3,163
---------- ---------- ---------- ---------- ----------
Total cost of
revenues........... 2,458 5,257 11,116 2,156 3,701
---------- ---------- ---------- ---------- ----------
Gross margin............ 7,319 17,346 42,441 5,981 16,194
Operating expenses:
Sales and marketing... 2,992 13,054 30,468 5,292 10,828
Research and
development.......... 1,855 2,840 5,049 735 2,092
General and
administrative....... 2,395 3,742 6,552 895 2,563
---------- ---------- ---------- ---------- ----------
Total operating
expenses........... 7,242 19,636 42,069 6,922 15,483
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations............. 77 (2,290) 372 (941) 711
Interest income......... 16 22 94 -- 47
Interest expense........ (56) (127) (333) (61) (237)
Other income (expense),
net.................... 11 20 (12) (1) 21
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 48 $ (2,375) $ 121 $ (1,003) $ 542
========== ========== ========== ========== ==========
Other comprehensive
income:
Foreign currency
translation
adjustment........... -- -- 158 78 4
---------- ---------- ---------- ---------- ----------
Other comprehensive
income................. -- -- 158 78 4
---------- ---------- ---------- ---------- ----------
Comprehensive income
(loss)................. $ 48 $ (2,375) $ 279 $ (925) $ 546
========== ========== ========== ========== ==========
Basic net income (loss)
per share.............. $ 0.00 $ (0.08) $ 0.00 $ 0.00 $ 0.02
========== ========== ========== ========== ==========
Weighted average shares
outstanding used in
computing basic net
income (loss) per
share.................. 28,896,622 29,493,873 29,493,873 29,493,873 30,895,514
========== ========== ========== ========== ==========
Diluted net income
(loss) per share....... $ 0.00 $ (0.08) $ 0.00 $ 0.00 $ 0.02
========== ========== ========== ========== ==========
Weighted average shares
outstanding used in
computing diluted net
income (loss) per
share.................. 28,896,622 29,493,873 32,256,323 29,493,873 35,040,308
========== ========== ========== ========== ==========
PRO FORMA INFORMATION
(UNAUDITED):
Net income, as
reported............... $ 121 $ 542
Pro forma income taxes.. (489) (206)
========== ==========
Pro forma net income
(loss)................. $ (368) $ 336
========== ==========
Pro forma basic net
income (loss) per
share.................. $ (0.01) $ 0.01
========== ==========
Pro forma diluted net
income (loss) per
share.................. $ (0.01) $ 0.01
========== ==========

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-4

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

ACCUMULATED RETAINED NOTES
COMMON STOCK ADDITIONAL OTHER EARNINGS RECEIVABLE TREASURY STOCK
------------------ PAID-IN COMPREHENSIVE (ACCUMULATED FROM ------------------
SHARES AMOUNT CAPITAL INCOME DEFICIT) STOCKHOLDERS SHARES AMOUNT TOTAL
---------- ------ ---------- ------------- ------------ ------------ ---------- ------ -------

Balance, December 31,
1994................. 31,328,000 $ 31 $ 40 $-- $ 1,738 $ -- 3,648,000 $(363) $ 1,446
Issuance of common
stock in exchange
for notes receivable
from stockholders... 1,666,404 2 157 -- -- (159) -- -- --
Proceeds from
payments on notes
receivable.......... -- -- -- -- -- 52 -- -- 52
Retirement of
treasury stock...... (688,000) (1) -- -- (66) -- (688,000) 67 --
Net income........... -- -- -- -- 48 -- -- -- 48
---------- ---- ------ ---- ------- ----- ---------- ----- -------
Balance, December 31,
1995................. 32,306,404 32 197 -- 1,720 (107) 2,960,000 (296) 1,546
Issuance of common
stock in exchange
for notes receivable
from stockholders... 147,469 -- 16 -- -- (16) -- -- --
Proceeds from
payments on notes
receivable.......... -- -- -- -- -- 36 -- -- 36
Retirement of
treasury stock...... (1,011,200) (1) -- -- (100) -- (1,011,200) 101 --
Net loss............. -- -- -- -- (2,375) -- -- -- (2,375)
---------- ---- ------ ---- ------- ----- ---------- ----- -------
Balance, December 31,
1996................. 31,442,673 31 213 -- (755) (87) 1,948,800 (195) (793)
Proceeds from
payments on notes
receivable.......... -- -- -- -- -- 87 -- -- 87
Retirement of
treasury stock...... (1,948,800) (2) (193) -- -- -- (1,948,800) 195 --
Translation
adjustment.......... -- -- -- 158 -- -- -- -- 158
Net income........... -- -- -- -- 121 -- -- -- 121
---------- ---- ------ ---- ------- ----- ---------- ----- -------
Balance, December 31,
1997................. 29,493,873 29 20 158 (634) -- -- -- (427)
Issuance of common
stock in exchange
for minority
interest of
Company's foreign
subsidiaries........ 1,401,641 2 1,066 -- -- -- -- -- 1,068
Translation
adjustment.......... -- -- -- 4 -- -- -- -- 4
Net income........... -- -- -- -- 542 -- -- -- 542
---------- ---- ------ ---- ------- ----- ---------- ----- -------
Balance, March 31,
1998 (unaudited)..... 30,895,514 $ 31 $1,086 $162 $ (92) $ -- -- $ -- $ 1,187
========== ==== ====== ==== ======= ===== ========== ===== =======

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-5

MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- --------------------
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
Operating activities:
Net income (loss)..... $ 48 $ (2,375) $ 121 $(1,003) $ 542
Adjustments to reconcile
net loss to net cash
from operating
activities:
Depreciation and
amortization......... 283 306 1,243 148 650
Provision for doubtful
accounts, net of
write-offs and
recoveries........... 36 381 312 66 --
Loss on sale of
property and
equipment............ -- 17 -- -- --
Compensation expense
recognized in
exchange for notes
payable.............. 397 -- -- -- --
Changes in operating
assets and liabilities,
net of effect of
foreign exchange rate
changes:
Accounts receivable... (2,771) (4,859) (8,235) 219 113
Prepaid expenses and
other current
assets............... (4) (230) (1,051) (2) (37)
Accounts payable and
accrued expenses,
compensation and
benefits............. 117 3,780 8,951 1,085 (3,162)
Deferred revenue...... 1,627 3,985 3,512 (214) 1,168
Deposits and other
assets............... -- (58) 102 (63) (155)
-------- -------- -------- --------- --------
Net cash provided by
(used in) operating
activities......... (267) 947 4,955 236 (881)
-------- -------- -------- --------- --------
Investing activities:
Acquisition of
property and
equipment............ (469) (1,680) (5,954) (594) (1,365)
Increase in
capitalized
software............. -- -- (1,928) (400) --
-------- -------- -------- --------- --------
Net cash used in
investing
activities:........ (469) (1,680) (7,882) (994) (1,365)
-------- -------- -------- --------- --------
Financing activities:
Borrowings on short-
term line of credit,
net.................. 750 2,008 1,750 -- 868
Proceeds from payments
on stockholders'
notes receivable..... 52 36 87 40 --
Proceeds from issuance
of note payable...... 438 306 3,264 -- 432
Principal payments on
notes payable........ (110) (574) (521) (225) (240)
-------- -------- -------- --------- --------
Net cash provided by
financing
activities......... 1,130 1,776 4,580 (185) 1,060
-------- -------- -------- --------- --------
Effect of foreign
exchange rate
changes on cash.... -- -- 167 (48) (16)
-------- -------- -------- --------- --------
Net increase (decrease)
in cash and cash
equivalents............ 394 1,043 1,820 (991) (1,202)
Cash and cash
equivalents, beginning
of year................ 249 643 1,686 1,686 3,506
-------- -------- -------- --------- --------
Cash and cash
equivalents, end of
year................... $ 643 $ 1,686 $ 3,506 $ 695 $ 2,304
======== ======== ======== ========= ========
Supplemental disclosure
of noncash investing
and financing
activities:
Issuance of notes
receivable in
exchange for common
stock................ $ 159 $ 16 $ -- $ -- $ --
======== ======== ======== ========= ========
Retirement of treasury
stock................ $ 67 $ 101 $ 195 $ 195 $ --
======== ======== ======== ========= ========
Issuance of common
stock in exchange for
minority interest of
Company's foreign
subsidiaries......... $ -- $ -- $ -- $ -- $ 1,068
======== ======== ======== ========= ========
Supplemental disclosure
of cash flow
information:
Cash paid during the
year for interest.... $ 58 $ 112 $ 290 $ 46 $ 205
======== ======== ======== ========= ========

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-6

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization

MicroStrategy Incorporated (the "Company") designs, develops, markets and
supports high performance, mission critical client/server relational database
management systems and provides related software and services for data
warehouse applications. The Company provides its products and services to
customers both domestically and worldwide.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries located in France, Germany, United Kingdom,
the Netherlands and Spain. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Prior to January 1, 1998, the Company owned 79% of its foreign subsidiaries,
with17% of the remaining 21% beingforeign subsidiaries was owned by the Company's majority
stockholders.stockholder and the remaining 4% was owned by a minority stockholder. Due to
the fact that 96% of the foreign subsidiaries were under common control and
the remaining minority shareholder's interest was immaterial, the Company has
consolidated 100% of the foreign subsidiaries since inception and has not
reflected the minority interest in its consolidated balance sheets. Effective
January 1, 1998, the Company acquired the remaining 21% minority interest of
its foreign subsidiaries from its majority stockholders through the issuance of 1,401,641 shares of Class B
Common Stock. Due to the
management control the Company had over its foreign subsidiaries prior to the
transaction and due to the fact that the Company owned 100% of its foreign
subsidiaries after the transaction, the Company has consolidated the financial
statements of these foreign subsidiaries as wholly owned subsidiaries for
financial reporting.

Use of Estimates

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

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents include various short-term money market instruments.

Software Development Costs

In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed," software development
costs are expensed as incurred until technological feasibility has been
established, at which time such costs are capitalized until the product is
available for general release to customers. The Company defines the
establishment of technological feasibility as the completion of all planning,
designing, coding and testing activities that are necessary to establish
products that meet design specifications including functions, features and
technical performance requirements. Under the Company's definition,
establishing technological feasibility is considered complete only after the
majority of customer testing and customer feedback has been incorporated into
product functionality. Software development costs capitalized includes direct
labor costs and fringe labor overhead costs attributed to programmers,
software engineers, quality control and field certifiers working on products
after they reach technological feasibility but before they are generally
available to customers for sale. Capitalized costs are amortized over the
estimated product life using the greater of the straight-line method or the
ratio of current product revenues to total projected future revenues. Software
development costs net of accumulated amortization are $1,831 and $1,681 at
December 31, 1997 and March 31, 1998, respectively, and are included in
deposits and other assets on the balance sheet. Amortization

F-7

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

expense related to software development costs was $97 and $150 for the year
ended December 31, 1997 and the three months ended March 31, 1998,
respectively. Prior to the year ended December 31, 1997, the establishment of
technological feasibility of the Company's products and general release of
such software had substantially coincided. As a result, software development
costs qualifying for capitalization were insignificant and, therefore, the
Company had not capitalized any software development costs prior to 1997.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to ten years. Leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful lives of the
assets or the terms of the leases.

F-7

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Depreciation and amortization expense
related to property and equipment was $283, $306 and $1,141, respectively, for
the years ended December 31, 1995, 1996 and 1997.

Revenue Recognition

The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' (AICPA) Statement of Position (SOP) 91-1
Software Revenue Recognition. Revenue from product licensing arrangements is
generally recognized after execution of a licensing agreement and shipment of
the product, provided that no significant vendor obligations remain and the
resulting receivable is deemed collectible by management. In addition, the
Company recognizes revenue from sales to value-added resellers (VARs) and
original equipment manufacturers (OEMs) at the time of product shipment,
subject to evaluation of possible product returns or exchanges. Historically,
the Company has not experienced any returns of exchanges of its products from
direct sale customers, VARs or OEMs. Services revenue, which includes training
and consulting, is recognized at the time the service is performed. The
Company defers and recognizes maintenance revenue ratably over the terms of
the contract period, ranging from 12 to 36 months.

In October 1997, the AICPA issued SOP 97-2 which will supersede SOP 91-1
effective January 1, 1998, which was amended March 31, 1998 by SOP 98-4.
Management has assessed this new statement as amended and believes that its
adoption will not have a material effect on the timing of the Company's
revenue recognition or cause changes to its revenue recognition polices.

Income Taxes

The Company has elected to be treated for federal and state income tax
purpose as a Subchapter S corporation. Under Subchapter S, the taxable income
or loss is reported by the stockholders and, accordingly, no federal or state
income taxes have been provided in the financial statements.

In connection with the initial public offering of the Company's common stock
(the Offering), the Company will no longer be treated as a Subchapter S
corporation for tax purposes. The Company will be subject to federal and state
income taxes and will recognize deferred taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting For Income Taxes". This
statement provides for a liability approach under which deferred income taxes
are provided based upon enacted tax laws and rates applicable to the periods
in which the taxes become payable.

The consolidated statement of operations includes pro forma information to
reflect income taxes as if the Company had been a Subchapter C corporation for
the year ended December 31, 1997 and the three months ended March 31, 1998.

F-8

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Basic and Diluted Net Income (Loss) Per Share

Net income (loss) per share is computed on a basic and diluted basis using
the weighted average number of shares of Common Stock, assuming conversion of
dilutive common stock equivalent shares from common stock options.

Pro Forma Basic and Diluted Net Loss per Share (Unaudited)

Unaudited pro forma basic net income per share for the year ended December
31, 1997 and the three months ended March 31, 1998 is based on the weighted
average number of common shares outstanding during the

F-8

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) period. The unaudited
pro forma weighted average number of common shares includes shares of common
stock to be issued to two of the existing shareholders in exchange for their
minority interests in certain of the Company's foreign subsidiaries and the
number of shares issued upon the Company's initial public offering. In
addition, the unaudited pro forma weighted average number of common shares
outstanding includes the number of shares whose proceeds would be necessary to
pay the dividend as required by Staff Accounting Bulletin topic 1.B.3. The
Company expects to pay the dividend out of cash flows from future operations.
The unaudited pro forma weighted average number of common shares assuming
dilution includes shares issuable upon the exercise of stock options computed
in accordance with the treasury stock method, and shares issuable upon the
exercise of the underwriters' over-
allotmentover-allotment option.

Foreign Currency Translation

The assets and liabilities of non-U.S. operations are translated into U.S.
dollars at exchange rates in effect as of each balance sheet date. To date,
the Company has not sought to hedge the risks associated with fluctuations in
exchange rates but may undertake such transactions in the future. Revenue and
expense accounts of these operations are translated at average exchange rates
prevailing during the period the transactions occur. Accordingly, translation
gains and losses are included as component of stockholders' equity. Foreign
currency transaction gains and losses are included in determining net income.
To date, such gains and losses have not been significant.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash, cash equivalents and accounts
receivable. The Company sells products and services to various companies
across several industries throughout the world in the ordinary course of
business. The Company routinely assesses the financial strength of its
customers and maintains allowances for anticipated losses.

For the years ended December 31, 1996 and 1997, no one customer accounted
for 10% or more of total revenues. For the year ended December 31, 1995, one
customer accounted for 14% of total revenues.

For the year ended December 31, 1995, one customer accounted for 13% of
accounts receivable. For the years ended December 31, 1996 and 1997, no one
customer accounted for 10% or more of total accounts receivable.

Fair Value of Financial Instruments

The Company's financial instruments, which consist of cash, cash
equivalents, accounts receivable, payables, line of credit and notes payable,
approximate fair value. The carrying amounts of the line of credit and notes
payable approximate fair value as these financial instruments contain variable
interest rates which reprice frequently.

Purchase of Minority Interest in Foreign Subsidiaries

Effective January 1, 1998, the Company issued a total of 1,401,641 shares of
Class B Common Stock to certain existing stockholders in exchange for their
approximate 21% minority interest in certain of the

F-9

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Company's foreign subsidiaries. The transaction and the valuation of the
percentage interests held by each of the minority interest stockholders for
purposes of determining the number of shares of Common Stock to be issued to
each of them were reviewed and approved by the disinterested members of the
Board of Directors. The Company accounted for the transaction under the
purchase method of accounting. AfterThe 1,134,662 shares issued to the exchange, each subsidiary was wholly-owned by
the Company. The Company obtained an independent, third-party valuationmajority
stockholder of the interests held byCompany in exchange for his shares in the stockholders.foreign
subsidiaries' minority interest (representing 17% of the foreign subsidiaries)
was an exchange between entities under common control and was therefore
accounted for at historical cost. The historical cost for the majority
stockholder's investment in the minority interest was approximately $58. The
shares issued to the other minority interest stockholder (representing 4% of
the foreign subsidiaries) was recorded a fair value. Accordingly the Company
recorded goodwill of $1,068 for acquired intangible assets, which is included in deposits
and other assets in the balance sheet representing the excess of the fair
F-9

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

market value of 266,979 of the shares issued in exchange for the non
controlling interests shares in the foreign subsidiaries. The Company has
allocated the following amounts to the identifiable intangible assets and is
amortizing those assets on a straight-line basis over the costfollowing estimated
useful lives:

Distribution channels ..................................... $478 15 years
Trade name................................................. 239 20 years
Customer list.............................................. 267 10 years
Assembled workforce........................................ 66 10 years
Goodwill................................................... 18 5 years
------
$1,068
======

Had the Company purchased the minority interest as of January 1, 1997, the
non-controlling interest of one ofCompany would have reduced net income by $68 and $17 for the shareholders. The Company is amortizing the goodwill over a period of 15
years.year ended
December 31, 1997 and three months ended March 31, 1997, respectively. There
would have been no impact on revenues, basic earnings and diluted earnings per
share.

Interim results (unaudited)

The accompanying consolidated balance sheet as of March 31, 1998, the
consolidated statements of operations and of cash flows for the three months
ended March 31, 1997 and 1998, and the consolidated statement of stockholders'
equity for the three months ended March 31, 1998 are unaudited. In the opinion
of management, the statements have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of the results of interim periods. The data disclosed in these notes
to consolidated financial statements for these periods are also unaudited.

NOTE 2--ACCOUNTS RECEIVABLE

Accounts receivable, net of allowances, consist of the following:

DECEMBER 31,
---------------
1996 1997
------ -------

Billed...................................................... $7,947 $16,621
Unbilled.................................................... 986 234
Less allowance for doubtful accounts........................ (458) (770)
------ -------
$8,475 $16,085
====== =======

F-10

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 3--PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

DECEMBER 31,
----------------
1996 1997
------- -------

Computer equipment and software............................ $ 2,209 $ 6,703
Furniture and equipment.................................... 494 1,512
Leasehold improvements..................................... 47 292
Less: accumulated depreciation and amortization............ (553) (1,616)
------- -------
$ 2,197 $ 6,891
======= =======

NOTE 4--BANK BORROWINGS

On December 10, 1996, the Company entered into a business loan with a bank
(the "Business Loan"). This Business Loan was used to repay the Company's
previous line of credit with another financial institution. Pursuant to the
Business Loan, at December 31, 1997 the Company had available a $6.4 million
revolving line of credit, a $2.0 million revolving equipment line and, since
November 1997, a $2.0 million non-revolving equipment loan. On March 31, 1998,
the Company increased the revolving credit line by $3.0 million to $9.4
million, increased the non-revolving equipment loan by $2.0 million to $4.0
million and amended certain of its debt covenants. Borrowings under the
Business Loan may not exceed 80% of eligible accounts receivable for the
revolving credit line and 80% of the cost of the asset for the equipment
credit lines. The borrowings bear interest at the lender's prime rate or LIBOR
plus 2.75% for the revolving line of credit and prime plus one-half F-10

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

percent or
a rate equal to the yield of U.S. Treasury Bonds plus 2.65% for loans with a
3-year maturity or 2.85% for loans with a 4-year maturity for the equipment
lines of credit (revolving and non-revolving). In addition, borrowings under
the Business Loan are collateralized by substantially all of the Company's
assets and are partially guaranteed by a stockholder and officer of the
Company for up to $2.0 million for all amounts borrowed under the Business
Loan in excess of $2.0 million. As of March 31, 1998, $5.4 million and $3.5
million were outstanding under the revolving line of credit and revolving
equipment lines of credit, respectively.

Subsequent to March 31, 1998, the Company had additional borrowings of $2.7
million under the revolving line of credit and additional repayments of $0.1
million under the revolving equipment line.

The Business Loan requires the Company to maintain certain financial ratios
and to comply with certain other covenants. From time to time, the Company has
not been in compliance with certain of these covenants. However, the Company
has obtained a waiver from the financial institution for events of non-
compliance with these covenants through December 31, 1997. On March 31, 1998,
the Company amended certain of these debt covenants and is in compliance with
these revised covenants.

F-11

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 5--NOTES PAYABLE

Notes payable consist of the following:

DECEMBER 31,
-------------
1996 1997
----- ------

Notes payable to financial institution with interest rates
varying from 8.8% to 9.4%, at December 31, 1997, maturities
through December 31, 2001, repayable in monthly
installments and collateralized by the related equipment... $ 306 $3,328
Note payable to consultant bearing interest at 8.5%,
repayable in monthly installments of $9 through December
2000....................................................... 315 230
Notes payable to stockholders............................... 195 --
----- ------
Total notes payable......................................... 816 3,558
Less: current portion....................................... (356) (900)
----- ------
Notes payable, long term portion............................ $ 460 $2,658
===== ======

Annual maturities of long-term debt at December 31, 1997 are as follows:

1998.................................................................. $ 900
1999.................................................................. 976
2000.................................................................. 991
2001.................................................................. 691
------
$3,558
======

F-11

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 6--PRO FORMA INCOME TAXES (UNAUDITED)

As of December 31, 1997 the Company was an S corporation, and accordingly,
the Company was not liable for corporate income taxes. Had the Company been a
tax-paying entity, the tax provision would have consisted of the following:

YEAR ENDED
DECEMBER 31,
1997
------------

Current:
Federal....................................................... $ (148)
State......................................................... 71
Foreign....................................................... 124
-------
47
Deferred:
Federal....................................................... 794
State......................................................... 170
Foreign....................................................... (1,443)
-------
(479)
Increase in valuation allowance................................. 921
-------
$ 489
=======

F-12

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Pre tax income for the year ended December 31, 1997 for the domestic
operations was $1,031. The pro forma provision for income taxes differs from
the amount computed by applying the federal statutory income tax rate to the
Company's pro forma income before taxes as follows:

YEAR ENDED
DECEMBER 31,
1997
------------

Income tax benefit at federal statutory rate.................... $ 41
State income tax, net of federal tax effect..................... 5
Foreign income taxes............................................ 2
Research and development tax credit............................. (480)
Change in valuation allowance................................... 921
-----
Provision for income taxes...................................... $ 489
=====

Significant components of the Company's pro forma deferred tax assets and
liabilities are as follows:

DECEMBER 31,
1997
------------

Deferred tax assets:
Accounts receivable allowances................................ $ 287
Accrued compensation.......................................... 384
Deferred revenue.............................................. 595
Foreign net operating losses.................................. 1,801
-------
3,067
Valuation allowance........................................... (1,801)
-------
Net deferred tax assets......................................... 1,266
-------
Deferred tax liabilities:
Prepaid assets................................................ 447
Depreciation.................................................. 558
Capitalized software.......................................... 703
-------
Total deferred tax liabilities.............................. 1,708
-------
Total net deferred tax liability................................ $ (442)
=======

Upon termination of its S corporation status, the Company will account for
income taxes in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". Had the Company been taxed as a C
corporation, the Company would have recorded net deferred tax liability of
$442 as of December 31, 1997. As of December 31, 1997, the Company would have
recorded a valuation allowance of $1,801, primarily against the net operating
loss carryforwards in foreign jurisdictions. As of December 31, 1997,
management has concluded that no valuation allowance is required on the
domestic deferred tax assets based on its assessment that current and expected
future levels of taxable income are sufficient to realize domestic deferred
tax assets.

NOTE 7--COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space under operating lease agreements expiring at
various dates through 2000. In addition to base rent, the Company is
responsible for certain taxes, utilities, and maintenance costs. Future

F-13

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

minimum lease payments under noncancelable operating leases with a remaining
term in excess of one year at December 31, 1997 are as follows:

1998................................................................... $ 781
1999................................................................... 795
2000................................................................... 667
2001................................................................... 321
2002................................................................... 184

Total rental expense for 1995, 1996 and 1997 was approximately $298, $699
and $1,635, respectively.

Contingencies

The Company is involved in proceedings through the normal course of
business, however, the ultimate resolution of these proceedings cannot be
predicted with certainty. Management believes that any unfavorable outcome
related to these proceedings will not have a material effect on the Company's
financial position or results of operations.

NOTE 8--STOCKHOLDERS EQUITY

Net Income (Loss) Per Share

Reconciliations of the basic net income (loss) per share and diluted net
income (loss) per share computations for the years ended December 31, 1995,
1996, 1997 and the three months ended March 31, 1998 are as follows:

FOR THE THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31, 1998
--------------------------------- PRO FORMA -----------------------
---
1995 1996 1997 1997 ACTUAL PRO FORMA
---------- ---------- ---------- ----------- ----------- -----------
---
(UNAUDITED) (UNAUDITED) (UNAUDITED)

BASIC NET INCOME (LOSS)
PER SHARE:
Weighted-average common
shares outstanding..... 28,896,622 29,493,873 29,493,873 35,846,625 30,895,514 35,846,625
========== ========== ========== ========== ========== ==========
Net income (loss)....... $ 48 $ (2,375) $ 121 $ (368) $ 542 $ 336
========== ========== ========== ========== ========== ==========
Basic net income (loss)
per share.............. $ 0.00 $ (0.08) $ 0.00 $ (0.01) $ 0.02 $ 0.01
========== ========== ========== ========== ========== ==========
DILUTED NET INCOME
(LOSS) PER SHARE:
Weighted-average common
shares outstanding..... 28,896,622 29,493,873 29,493,873 35,846,625 30,895,514 35,846,625
---------- ---------- ---------- ---------- ---------- ----------
Common shares issuable
on exercise of stock
options, net of shares
assumed to be repur-
chased at the average
market price........... -- -- 2,762,450 2,762,450 4,144,794 4,144,794
Common shares issuable
upon underwriters op-
tion................... -- -- -- 600,000 -- 600,000
========== ========== ========== ========== ========== ==========
Weighted-average common
shares outstanding, as-
suming dilution........ 28,896,622 29,493,873 32,256,323 39,209,075 35,040,308 40,591,419
========== ========== ========== ========== ========== ==========
Net income (loss)....... $ 48 $ (2,375) $ 121 $ (368) $ 542 $ 336
========== ========== ========== ========== ========== ==========
Diluted net income
(loss) per share....... $ 0.00 $ (0.08) $ 0.00 $ (0.01) $ 0.02 $ 0.01
========== ========== ========== ========== ========== ==========

Common stock equivalents are included in the computation of diluted net
income (loss) per share using the treasury stock method. During 1996, stock
options granted by the Company to purchase 1,172,963 common shares were not
included in the computation because the effect was anti-dilutive.

F-14

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Prior to consummation of the Offering, all shares of common stock
outstanding prior to the Offering will be changed and converted into shares of
Class A Common Stock and exchanged for an identical number of shares of Class
B Common Stock.

Pro forma weighted average shares outstanding during 1997 and the three
months ended March 31, 1998 includes 1,401,641 shares of common stock issued
to two of the existing stockholders effective January 1, 1998 in exchange for
their minority interests in certain of the Company's foreign subsidiaries and
also includes 3,840,000 shares of common stock issued upon the Company's
initial public offering. Pro forma weighted average shares outstanding also
includes the assumed issuance of an additional 1,111,111 shares of common
stock which would be necessary for the Company to pay a $10 million dividend
to the existing shareholders.

Employee and Directors Stock Option Plans

In February, 1996, the Company adopted a Stock Plan (the "1996 Stock Plan")
in order to provide an incentive to eligible employees, consultants and
officers of the Company. Under the 1996 Stock Plan, as amended, 8,000,000
shares of common stock are reserved, options to purchase 4,720,863 shares of
which have been granted.

In March, 1997, the Company adopted the "French Plan", which provides for
the granting of options to employees of MicroStrategy France SARL, the
Company's French subsidiary. A total of 300,000 shares of common stock has
been reserved under the French Plan, options to purchase 101,000 shares of
which have been granted as of December 31, 1997.

In September, 1997, the Company adopted the "1997 Director Option Plan",
which provides for the grants of nonqualified stock options to non-employee
directors of the Company. A total of 200,000 shares of common stock has been
reserved under the Director Option Plan, options to purchase 90,000 shares of
which have been granted as of December 31, 1997.

Shares of Class A Common Stock will be issued upon exercise of any of the
stock options granted under the 1996 Stock Plan, the French Plan and the 1997
Director Option Plan.

The stock option exercise price of options under the Company's stock option
plans may not be less than the determined fair market value at the date of
grant. Stock options to date generally vest ratably over five years from the
date of grant and expire ten years after grant. Vested stock options are
exercisable at the earliest of (1) the closing of an underwritten public
offering, (2) change in control of the Company or (3) 78 months following the
date of grant of an option.

F-15

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

A summary of the status of the Company's stock option plans as required by
SFAS 123 is presented below:

WEIGHTED
AVERAGE
REMAINING WEIGHTED
OPTION PRICE CONTRACTUAL AVERAGE
SHARES RANGE PER SHARE LIFE (YEARS) EXERCISE PRICE
--------- --------------- ------------ --------------

Outstanding at December
31, 1995............... -- $ -- -- $ --
Granted............... 2,482,416 0.50--1.25 8.5 0.84
Exercised............. -- -- -- --
Surrendered........... (23,000) 0.50--1.13 8.3 0.55
--------- ----------- --- -----
Outstanding at December
31, 1996............... 2,459,416 0.50--1.25 8.5 0.84
Granted............... 2,660,363 1.50--4.00 9.7 2.44
Exercised............. -- -- -- --
Surrendered........... (207,916) 0.50--2.50 8.8 1.10
--------- ----------- --- -----
Outstanding at December
31, 1997............... 4,911,863 0.50--4.00 9.1 1.70
Granted............... 573,155 4.00--6.00 9.8 4.29
Exercised............. -- -- -- --
Surrendered........... (71,000) 0.50--4.00 9.1 2.04
--------- ----------- --- -----
Outstanding at March 31,
1998................... 5,414,018 0.50--6.00 8.9 1.99
========= =========== === =====
Options vested at
December 31, 1997...... 456,300 $0.50--1.25 8.5 $0.83
========= =========== === =====

No options were exercisable as of December 31, 1996.

OPTIONS EXERCISABLE AT
OPTIONS OUTSTANDING AT DECEMBER 31, 1997 DECEMBER 31, 1997
--------------------------------------------------------------- --------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER OF REMANING CONTRACTUAL WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE
EXERCISE PRICES SHARES LIFE(YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
--------------- --------- -------------------- ---------------- --------- ----------------

$0.50-$1.00 1,445,000 8.31 $0.65 289,000 $0.62
1.13- 1.50 1,200,433 8.96 1.42 167,300 1.19
2.00- 4.00 2,266,430 9.74 2.62 -- --
--------- -------
4,911,863 456,300
========= =======

In 1996, the Company adopted Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock--Based Compensation." As permitted by
SFAS 123, the Company has elected to continue following the provisions of
Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees," and to adopt the disclosure only provisions of SFAS No.
123. If compensation expense had been recorded based on the fair value at the
grant dates for awards under the Plans, the Company's net loss would have been
adjusted to the pro forma amounts presented below:

YEAR ENDED
DECEMBER 31,
---------------
1996 1997
------- ------

Net income (loss)
As reported................................................. $(2,375) $ 121
Pro forma................................................... $(2,467) $ (258)
Basic net income (loss) per share, as reported.............. $ (0.08) $ 0.00
Diluted net income (loss) per share, as reported............ $ (0.08) $ 0.00
Pro forma basic net income (loss) per share................. $ (0.08) $(0.01)
Pro forma diluted net income (loss) per share............... $ (0.08) $(0.01)

F-16

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants issued during the years ended December 31, 1996 and 1997, respectively:
volatility factors of 70% and 60%, weighted-average expected life of 5 years
and 2.5 years, risk-free interest rates of 6%, and no dividend yields. The
weighted average fair value of grants made during the years ended December 31,
1996 and 1997 are $0.52 and $1.04, respectively.

During the three months ended March 31, 1998, the Company issued options to
purchase 573,155 shares of common stock, of which the option to purchase
274,000 shares of common stock were granted a total of
573,155 options withat exercise prices ranging from $4.00below fair
market value. The Company will amortize approximately $330 of compensation
expense related to $6.00.the options ratably over the five year vesting period of
these options. Subsequent to March 31, 1998 the Company had granted an
additional 434,000 options for the purchase of common stock on which the
Company will amortize approximately $475 of compensation expense ratably over
the five year vesting period of the options. The Company will record
additional compensation expense relating to the options for the years ending
December 31, 1998, 1999, 2000, 2001, 2002 and 2003 of $121, $161, $161, $161,
$161 and $40, respectively. For the three months ended March 31, 1998
compensation expense related to the aforementioned options is immaterial.

Distribution to S Corporation Stockholders

The Company intends to distribute a dividend of $10,000 to the existing
stockholders of the S corporation in the form of short-term notes prior to the
termination of the Company's S corporation election. The notes issued to the
existing stockholders by the Company will bear interest at the "applicable
federal rate" for short-term obligations and will be due and payable at
various times during 1998. The Company plans to repay the notes from cash
flows from future operations of the Company in accordance with the terms of
the notes. This dividend has been reflected in the Company's unaudited pro
forma balance sheet at December 31, 1997.

NOTE 9--EMPLOYEE BENEFIT PLAN

The Company sponsors a plan to provide retirement and incidental benefits
for its employees, known as the MicroStrategy 401(k) plan (the "Plan").
Participants may make voluntary contributions to the Plan of up to 20% of
their compensation not to exceed the Federally determined maximum allowable
contribution. The Plan permits for discretionary company contributions;
however, no contributions were made for the years ended December 31, 1995,
1996 and 1997.

NOTE 10--SEGMENT INFORMATION

The following table presents a summary of operations by geographic region,
including eliminations of all significant intercompany transactions:

YEAR ENDED
DECEMBER 31,
-----------------------------
1995 1996 1997
------- --------- ---------

REVENUE:
Domestic..................................... $ 8,675 $ 20,089 $ 39,310
Europe....................................... 1,102 2,514 14,247
------- --------- ---------
Total revenue.............................. $ 9,777 $ 22,603 $ 53,557
======= ========= =========
OPERATING (LOSS) INCOME:
Domestic..................................... $ 129 $ (1,172) $ (639)
Europe....................................... (52) (1,118) 1,011
------- --------- ---------
Total operating (loss) income.............. $ 77 $ (2,290) $ 372
======= ========= =========
IDENTIFIABLE ASSETS:
Domestic..................................... $ 9,046 $ 21,376
Europe....................................... 3,958 8,689
--------- ---------
Total assets............................... $ 13,004 $ 30,065
========= =========

F-17

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Transfers of $365, $1,047, and $4,443 for the years ended December 31, 1995,
1996 and 1997 from domestic to foreign operations have been excluded from the
above table and eliminated in the consolidated financial statements.

F-17F-18

GLOSSARY OF TERMS

"API"--APPLICATION PROGRAM INTERFACE. Provides routines, protocols and tools
for developing custom applications. Software that provides an API affords
businesses an opportunity to customize, integrate and embed provided
functionality into their own applications.

"BUSINESS METRICS"--Business measures used to gauge corporate performance.
For example: profit, loss, sales, and inventory.

"C++"--A popular programming language used to create computer applications
software.

"COMMERCIAL DSS"--COMMERCIAL DECISION SUPPORT SYSTEMS. A DSS based on
corporate data that is provided to customers, as opposed to employees. For
example, healthcare providers that provide patients with outcome analysis
capabilities for various combinations of patients, treatments, drugs,
hospitals and doctors.

"CPU"--CENTRAL PROCESSING UNIT. The CPU is the brain of the computer.
Sometimes referred to simply as the processor or central processor, the CPU is
where most calculations take place. In terms of computing power, the CPU is
the most important element of a computer system.

"DATA WAREHOUSE"--A collection of data designed to support management
decision-making. Data warehouses contain refined, standardized data culled
from many different departments across a business enterprise. These data
present a coherent picture of business conditions at a single point in time.

"DECILINGS"--A type of analysis that distributes results into ten groups;
1st 10%, 2nd 10%, etc.

"DELPHI"--A programming language developed by Borland International, Inc.
Delphi is similar to Visual Basic from Microsoft, but whereas Visual Basic is
based on the BASIC programming language, Delphi is based on Pascal.

"DSS"--DECISION SUPPORT SYSTEM. Software designed to support the management
decision-making process via adhoc query processing against corporate data
stores.

"EIS"--EXECUTIVE INFORMATION SYSTEM. Software designed to provide predefined
reports or briefing books to top-level executives.

"ENTERPRISE DSS"--A Decision Support System that comprises the information
requirements of all departments within a corporation, thereby satisfying the
reporting requirements of the corporate "enterprise", as opposed to a single
department.

"GIGABYTE"--A measure of computer data storage; approximately 1 billion
bytes (1,000,000,000). In comparison, a 3.5" floppy disk contains 1.44
Megabytes; approximately 1,440,000 bytes.

"GLOBAL 2000"--The 2000 largest publicly traded corporations worldwide
(based on revenue).

"HARDWARE"--Refers to computer components such disks, disk drives, monitors,
keyboards, printers, memory chips, CPUs, etc.

"HOLAP"--HYBRID ONLINE ANALYTICAL PROCESSING. A Decision Support System with
the capability to extract data from a proprietary, multi-dimensional array
(cube) or a relational database.

"HTML"--HYPERTEXT MARKUP LANGUAGE. The language used to create World Wide
Web pages, with hyperlinks and markup for text formatting (different heading
styles, bold, italic, numbered lists, insertion of images, etc.).

G-1

"JAVA"--A cross-platform programming language developed by Sun Microsystems
that can be used to create animations and interactive features on World Wide
Web pages. Java programs are embedded into HTML documents.

"LOAD BALANCING"--Distributing processing and communications activity evenly
across computer systems so that no single device is overwhelmed.

"MIDDLEWARE"--Software that connects two otherwise separate software
programs.

"MPP"--MASSIVELY PARALLEL PROCESSING. A type of computing that uses many
separate CPUs running in parallel to execute a single program.

"OEM"--ORIGINAL EQUIPMENT MANUFACTURER. A company that manufactures a
product and sells it to a reseller.

"OLAP"--ONLINE ANALYTICAL PROCESSING. A category of software tools that
provides analysis of data stored in a database.

"OLTP"--ONLINE TRANSACTION PROCESSING. A type of computer processing in
which the computer responds immediately to user requests. Each request is
considered to be a transaction. Automatic teller machines for banks are an
example of transaction processing.

"OSP"--ONLINE SERVICE PROVIDER. Internet content providers that bundle
multiple sources of information into a single, easily navigable home site.
Examples include America Online, LEXIS/NEXIS, and Microsoft Network.

"PLATFORM PARTNERS"--MicroStrategy Platform Partners are firms which co-sell
and co-market complementary technology to the same target customer base. These
platform partners include IBM, Tandem/Compaq, NCR, Sequent, ICL, Data General,
Informatica, Oracle, Informix and Red Brick.

"PULL TECHNOLOGY"--To request data from another program or computer. The
World Wide Web is based on pull technologies where a page isn't delivered
until a browser request is received.

"PUSH TECHNOLOGY"--A technology that allows information to be delivered or
"pushed" directly to a user who subscribes to it, rather than the user having
to request the information. Probably the oldest and most widely used push
technology is email--mail is pushed (delivered) to you whether or not
requested. The prime example of an Internet push technology is the PointCast
Network.

"QUERY TONE"--Query Tone is universal knowledge enablement--the ability of
any user to ask any question at any time.

"RDBMS"--RELATIONAL DATABASE MANAGEMENT SYSTEM. A type of database
management system (DBMS) that stores data in the form of related tables.
Relational databases are powerful because they require few assumptions about
how data is related or how it will be extracted from the database. As a
result, the same database can be viewed in many different ways. Examples of
RDBMSs include Oracle, Sybase, SQL Server, and Informix.

"REMOTE DSS"--Remote DSS applications provide information to operational
professionals throughout an enterprise regardless of their geographic
location. Users may be spread across dozens, hundreds or even thousands of
locations.

"ROLAP"--RELATIONAL ONLINE ANALYTICAL PROCESSING. A form of OLAP that
provides information from data stored in a relational database management
system.

G-2

"SCALABLE HARDWARE"--How well a computer's hardware system (memory,
processor, disk drives, etc.) can adapt to different demands. As demands
increase, scalable hardware systems provide additional capabilities in cost-
effective increments with minimal impact on the unit cost of business and the
procurement of additional services.

"SMP"--SYMMETRIC MULTIPROCESSING. A computer architecture that provides fast
performance by making multiple CPUs available to complete individual processes
simultaneously (multiprocessing). SMP uses a single operating system that
shares common memory and disk input/output resources.

"SQL"--STRUCTURED QUERY LANGUAGE (PRONOUNCED SQL OR SEQUEL). A language used
to create, maintain, and query relational databases. SQL uses regular English
words for many of its commands, which makes it easy to use. It is often
embedded within other programming languages.

"SUPPLY CHAIN DSS"--Supply Chain Decision Support Systems allow and
encourage trading partners to give preferential treatment to one another in
exchange for greater certainty and visibility up and down their value chains.
For example, a DSS application that provides access to retail sales
information would be valuable to the manufacturers who stock the shelves
within each store. This information can be used to design new products, refine
marketing campaigns, develop optimal pricing schemes, rationally allocate
inventory and proactively schedule factory production.

"TCP/IP"--THE TRANSMISSION CONTROL PROTOCOL (TCP) ON TOP OF THE INTERNET
PROTOCOL (IP). A transmission protocol used to transfer data between different
types of computers and computer networks.

"TERABYTE"--A measure of computer data storage; approximately 1 trillion
bytes (1,000,000,000,000). In comparison, a 3.5" floppy disk contains 1.44
Megabytes; approximately 1,440,000 bytes.

"VAR"--VALUE ADDED RESELLER. Solution providers that bundle other software
products with their own applications.

"VISUAL BASIC"--A programming language from Microsoft in which a programmer
uses a graphical user interface to choose and modify pre-selected chunks of
code written in the BASIC programming language.

"VBA"--Visual Basic for Applications. Visual Basic for Applications is an
edition of Visual Basic designed specifically to provide rich development
capabilities inside an off-the-shelf application.

"VLDB"--VERY LARGE DATABASE. While there is apparently no official or
standard definition for the term Very Large DataBase, it is sometimes used to
describe databases occupying magnetic storage in the terabyte range and
containing billions of table rows.

"WAN"--WIDE AREA NETWORK. A network in which computers are connected to each
other over a long distance, using telephone lines and satellite
communications.

G-3

Mission: Provide Query Tone to the World's Largest Companies

Banking [LOGO OF ROYAL TRUST APPEARS HERE]

Royal Trust, a private investment trust and custody subsidiary of the Royal Bank
of Canada, with more than 1 million clients worldwide, is providing one-to-one
marketing services by using a decision support solution based on MicroStrategy's
technology. The integrated one-to-one marketing solution, deployed via the World
Wide Web, enables Royal Trust's marketing and distributed sales forces in its
Wealth Management Divisions to interactively analyze 200-gigabytes of customer
portfolio and market information. Trust believes that the new web-based DSS
solution makes it possible for its personnel to more closely target and market
their products and services to meet client requirements, thereby increasing
customer loyalty and profitability.

Royal Trust believes that its DSS solution provides users with information that
helps to identify market opportunities, identify the scope of the clients
affected, and communicate with each relationship manager the impact on a
specific portfolio, along with a recommended action. Expected benefits to Royal
Trust may include higher response rates to marketing campaigns, enhanced
customer retention, increased sales force productivity, and faster decision
making capabilities.

Retail [LOGO OF HALLMARK APPEARS HERE]

Hallmark, the multi-billion dollar leader in the greeting card industry, is
getting closer to its customers and making more informed decisions using its
point of sale data warehouse in conjunction with MicroStrategy's DSS technology.
Hallmark is now able to improve decision making for determining assortments,
promotions, advertising, inventory management, pricing, and product development.

Hallmark believes its DSS Solution provides users with reports of actionable
trends by the end of the business day, resulting in cost savings, more efficient
production, and promotion decision processes. Over 200 Hallmark managers and
analysts now have the ability to better understand sales trends and customer
purchase patterns by analyzing 200 gigabytes of transaction-level data and
item-level data on over 40,000 products and 18,000 retail stores.

Using MicroStrategy's technology to retrieve data from the warehouse, Hallmark
believes that it has reduced product development and merchandising time, enabled
evaluation of promotional programs, reduced in-store testing time, and improved
inventory and planning for individual stores. The application has increased the
efficiency of the decision making process, affecting total product performance,
product selection, and inventory management for individual stores or clusters of
stores.

Pharmaceutical [LOGO OF GLAXO WELLCOME APPEARS HERE]

Glaxo Wellcome, a research-based pharmaceutical manufacturer, has developed a
strategic analysis application for its data warehouse that projects product
demand and availability to reduce the risk that life preserving pharmaceutical
products are not available to customers. Glaxo Wellcome believes that its DSS
solution provides analyses of sales, inventory, and prescription data for drugs
manufactured by Glaxo Wellcome by analyzing the distribution cycle of
pharmaceutical drugs, along with historical market data.

Using MicroStrategy's technology, Glaxo Wellcome can project increased demand,
respond more efficiently to consumer requirements, and maximize the efficiency
of the supply chain. In addition to helping Glaxo Wellcome, Inc. project market
demand for their products, Glaxo Wellcome believes that a number of other
benefits are associated with this business-critical pharmaceutical application.
By improving inventory management, the DSS solution is helping Glaxo Wellcome
streamline the business process, and control expenses. MicroStrategy's products
have also enhanced reporting processes: monthly reports are now fully automated,
can be produced and distributed within hours, are easy to understand, and
provide additional analytical capabilities to users.

Telecommunications [LOGO OF MCI APPEARS HERE]

MCI, a pioneer of diversified communications and one of the world's largest long
distance providers, needs to provide users with the correct information in order
to operate their businesses in an efficient manner. MCI collects and summarizes
information on millions of customers and billion of calls. The system
"Data$martMCI" is growing at the rate of almost half a terabyte a year. Easy
access to this data is the key to the system's success. It is expected that the
system will be handling thousands of queries every day.

In the near future, MCI's Business Markets Finance Unit expects that as many as
10,000 of its employees will be using a MicroStrategy-built DSS solution to
access several terabytes of data to answer highly detailed questions on every
aspect of business. Using MicroStrategy's technology, MCI's Business Markets
Finance Unit expects that its field sales staff will be able to review their
customers' phone usage patterns, accountants will be able to view performance
trends over time, and financial analysts will be able to more accurately project
the profitability of potential customers. In addition to projected cost savings,
MCI's Business Markets Finance Unit believes that MicroStrategy's products have
resulted in significant cost savings during the project's pilot stage.

Query Tone represents the ability, where appropriate, of any user to receive the
answer to any question, any time, anywhere from the proper data warehouse.

[LOGO OF MICROSTRATEGY APPEARS HERE]

[GRAPHIC ARTWORK APPEARS HERE]

Data Warehouse Department Enterprise Supply/Chain Commercial Consumer

Department Enterprise Data
Data Mart/DSS Warehouse/DSS Supply Chain DSS Commercial DSS Consumer DSS

Typical User VP of Marketing Regional Sales Manager Vendor Account Executive Small Business Owner Mom

Typical How effective was Which are the bottom Which items had more Where are my new My child needs
Question last week's $10 10 stores by sales? than 3 stock-outs customers coming surgery, which
million promotion Show me unprofitable during the last year from? How loyal are hospital, doctor,
campaign? departments within for my largest they? What are their HMO should I use?
each. customer? demographic & How does our bank
psychographic account fluctuate
profiles? during December?
Potential

Users per
Database* 50 - 500 500 - 5,000 50,000 500,000 5,000,000

Global Users* 5,000,000 50,000,000 100,000,000 250,000,000 1,000,000,000

*The above potential user counts are for illustrative purposes only and do not
represent actual market size estimates.

VICTORIA'S
Apparel SECRET

Victoria's Secret Stores, a leading provider of women's lingerie and
accessories, developed a data warehouse and intranet application to streamline
its supply chain and maintain optimal inventory per store. The data warehouse
contains detailed sales and inventory information for each item in each store
for three seasons, which amounts to approximately 150 gigabytes of data. Using
MicroStrategy's technology, Victoria's Secret Stores is able to deliver a set of
merchandising best practices to hundreds of its merchandisers, individual store
managers, and associates, providing them with a consistent methodology to follow
when making decisions about product pricing, promotion, and inventory.

This DSS solution enables the Victoria's Secret Stores to provide its customers
with an optional selection of styles, colors and size combinations at its
shops--with little or no increase in inventory costs. Victoria's Secret Stores
estimates that it has the potential to significantly reduce markdown expenses by
varying promotions and allocating inventory based on the geographic buying
patterns it has found through the MicroStrategy-based application.

Healthcare [LOGO OF PREMIER APPEARS HERE]

Premier Inc., the largest hospital alliance in the United States, is using
MicroStrategy's DSS technology to enable its 1,800 member hospitals to make more
cost-effective decisions and improve market position. Market Vantage, an
innovative Query Tone application for healthcare, provides subscribers with
information from the National Database of all Medicare Discharges and All-Payor
Data from 28 states, which in the aggregate contain more than 11 million records
in a 50-gigabyte data warehouse. Member hospitals subscribe to Market Vantage to
evaluate hospital efficiency, market share, quality of care, patient
demographics, physician profiles, and a variety of competitive positioning
questions.

Premier believes that it will generate substantial revenue by commercializing
its data. By offering services that project the future volume of procedures
required by certain communities, Premier is able to more accurately identify the
long-term cost savings and value associated with mergers of community hospitals.
Premier also provides hospitals with assessments that pinpoint opportunities for
cost reduction. Using MicroStrategy's technology, Premier believes that it will
make a positive impact in the healthcare industry by providing hospitals with
the information they require to determine procedures that can be performed at a
lower cost without sacrificing the quality of care.

Financial/Insurance [LOGO OF USAA FEDERAL SAVINGS BANK APPEARS HERE]

USAA, one of the largest insurers in the United States, is a worldwide insurance
and financial services association. USAA's 13 million clients primarily include
present and former military officers and their families. USAA implemented a
comprehensive DSS Solution using MicroStrategy's DSS Web and DSS Agent to give
decision-makers direct access to mission-critical loss and claim data.

This information provides USAA's property and casualty analysts with the ability
to track losses and assess costs over time, determine the risk profile of
clients with certain characteristics, establish insurance rates and reserve
levels, and remain informed of industry trends. The accuracy with which these
analyses are conducted can significantly impact profitability and market
viability of a company. USAA believes that MicroStrategy's DSS Solution will
enable it to provide the level of accuracy required by insurance businesses,
while reducing IT from the business of end-user reporting.

Media/Market Research [LOGO OF ESPN/CHILTON APPEARS HERE]

ESPN, the leading cable television sports network, and Chilton Research
Services, one of America's top market research and consulting firms, have formed
a joint venture to offer Sports Poll Interactive, the first web-based data
warehouse subscription service for sports marketers. Powered by MicroStrategy's
DSS Web, Sports Poll Interactive guides major marketing decisions by allowing
advertisers, event sponsors, media outlets, and sports associations to purchase
information on the behaviors, perceptions, interests, and demographics of sports
fans across the United States.

ESPN/CHILTON believes that this powerful e-commerce solution will enable it to
increase the number of organizations it can serve, significantly reduce the need
for ESPN/CHILTON to hire additional staff to field customer requests and reduce
printing and distribution costs associated with using paper reports. For
example, for the first time companies can log onto the Internet to gauge whether
hockey is more popular than baseball in Los Angeles and which pro athlete it
should secure to endorse its next product. This Query Tone application enables
organizations to make more effective marketing and organizational decisions.

Information Like Water(TM)

MicroStrategy's Services

FINANCE HEALTH CARE RETAIL TELCO MEDIA MANUFACTURING

Data Warehouse/Decision Support Best Practices Methodology

===============================================================

MicroStrategy University

DSS Training DSS Consulting DSS Support

Off-Site On-Site Partner Production Sales Channels Field Tele VTG
Training Training Certification Consulting Consulting Consulting Engineering Support Technologies

Knowledge Transfer Implementation Maintenance

DSS Training includes classes for beginner, intermediate, and advanced DSS
users, DSS developers, and Data Warehouse modelers. These classes are taught at
many fixed locations throughout the US and Europe, as well as on customer sites.
For our Channel Partners, we also offer Certification Courses which are more
challenging and empowering. Thousands of DSS professionals have attended these
classes, which range in duration from one day to three weeks.

DSS Consulting includes one group dedicated to helping our customers achieve
production success with their DSS applications, another group focused upon sales
support, prototyping, and pilot applications development, and a third group that
is especially dedicated to helping our VAR and SI partners overcome those
challenges unique to building and deploying successful industry specific DSS
applications. MicroStrategy consulting provides the expertise necessary to
support all major phases of the Data Warehouse and Decision Support lifecycle.

DSS Support consists of traditional telephone support services, augmented by
field engineers able to travel onsite on less than one day's notice, as well as
RDBMS specific very large database (VLDB) experts capable of working directly
with either customers or platform vendors to optimize the performance of key
high-end configurations. MicroStrategy support engineers undergo the same
rigorous training that is required of consultants who work in the field. Their
expertise allows us to offer the mission critical support and deployment
security that is expected by the world's largest organizations.

MicroStrategy University consists of compulsory "bootcamps" for Technical (6
weeks) as well as Sales & Marketing (4 weeks) professionals. These are followed
by continuing professional development courses for veteran employees (at least 2
weeks/year).

For one week each year, the firm is converted into the world's largest DSS/DW
campus, with dozens of courses being taught to 85% of the firm's employees by
the most experienced 5% of our professional staff. This annual exercise results
in the creation of thousands of pages of fresh, recently updated courseware
(Expert Content) on topics such as Vertical Applications, DW Modeling & Tuning
Methods, Optimization Strategies for Various RDBMS Platforms, DSS Design
Techniques, Consulting, and Methodology. This Expert Content is then used to
upgrade & revitalize our operational Education, Consulting, and Support
programs.

MicroStrategy draws Data Warehouse / Decision Support Best Practice Methodology
from its first hand experience implementing large-scale DW projects across all
major RDBMS platforms and industries. These engagements provide invaluable
primary knowledge of the current state of DSS technology. With in-excess-of 500
customers across data rich industries such as finance, health care, retail,
telecommunications, media, and manufacturing, we have had the opportunity to
gather "real world" knowledge that is nearly impossible to duplicate in a
laboratory.

[LOGO OF MICROSTRATEGY APPEARS HERE]

"Any sufficiently advanced
technology is indistinguishable from magic."

Arthur C. Clarke

Relational [ARTWORK APPEARS HERE]
Online Analytical
Processing Server
DSSServer
High Performance Server
for Very Large Databases
---------------------------------------------------------------------------------------

Large-Scale Information [ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE]
Deployment Servers

DSSWeb DSSBroadcaster
Interactive Analysis Personalized Information
Environment for the Broadcast Server
World Wide Web *Currently in beta testing
---------------------------------------------------------------------------------------

Advanced Analysis [ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE]
and Application
Development Interfaces
DSSAgent DSSObjects
Desktop Environment for OLE API for Custom
Sophisticated Analysis Application Development
and Development
---------------------------------------------------------------------------------------

Decision Support [ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE]
Development and
Management Tools
DSSArchitect DSSAdministrator DSSExecutive
CASE Tool for Rapid Management and Monitoring Object-Based
DSS Development Tools for Enterprise Deployments EIS Development Tool
---------------------------------------------------------------------------------------

Professional [ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE]
Services
DSSConsulting DSSTraining DSSSupport
Data Warehouse and DSS Data Warehouse and DSS Data Warehouse and DSS
Implementation Services Implementation Methodology Customer Services

[LOGO OF MICROSTRATEGY APPEARS HERE]

Information Like Water(TM)

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Class A Common Stock being registered hereby. All of the
amounts shown are estimates except for the Commission registration fee, NASD
filing fee, and Nasdaq National Market Listing Fees.

Commission Registration Fee....................................... $ 13,570
NASD Filing Fee................................................... 4,100
Nasdaq National Market Listing Fees............................... 25,000
Accounting Fees and Expenses...................................... 175,000
Blue Sky Fees and Expenses........................................ 15,000
Legal Fees and Expenses........................................... 350,000
Printing and Engraving Expenses................................... 225,000
Transfer Agent Fees............................................... 25,000
Miscellaneous Expenses............................................ 67,300
---------
TOTAL........................................................... $ 900,000
=========

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the General Corporation Law of the State of Delaware
("Section 145") permits a Delaware corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of
the corporation) by reason of the fact that such person is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred by such person in
connection with such action, suit, or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such person's conduct
was unlawful.

In the case of an action by or in the right of the corporation, Section 145
permits the corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that such person is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interest of the corporation. No indemnification
may be made in respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.

To the extent that a present or former director or officer of a corporation
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in the preceding two paragraphs, Section 145
requires that such person be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.

II-1

Section 145 provides that expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal, administrative, or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in Section 145.

The Company's Certificate provides that an officer or director of the
Company will not be personally liable to the Company or its stockholders for
monetary damages for any breach of his fiduciary duty as an officer or
director, except in certain cases where liability is mandated by the DGCL. The
provision has no effect on any non-monetary remedies that may be available to
the Company or its stockholders, nor does it relieve the Company or its
officers or directors from compliance with federal or state securities laws.
The Certificate also generally provides that the Company shall indemnify, to
the fullest extent permitted by law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, investigation, administrative hearing or any other proceeding (each, a
"Proceeding") by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another entity, against expenses incurred by him
in connection with such Proceeding. An officer or director shall not be
entitled to indemnification by the Company if (i) the officer or director did
not act in good faith and in a manner reasonably believed to be in, or not
opposed to, the best interests of the Company, or (ii) with respect to any
criminal action or proceeding, the officer or director had reasonable cause to
believe his conduct was unlawful.

The Underwriting Agreement filed herewith as Exhibit 1.1 provides for
indemnification of the directors, certain officers and controlling persons of
the Company by the Underwriters against certain civil liabilities, including
liabilities under the Securities Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following transactions reflect the issuance during the previous three
years of securities not registered under the Securities Act:

1. At various times during the period from March 31, 1996 through March
31, 1998, the Company has granted to employees and directors options to
purchase an aggregate of 5,414,018 shares of Common Stock with exercise
prices ranging from $0.50 to $6.00 and with a weighted average exercise
price of $1.99 per share.

2. On February 28, 1995, the Company issued 1,327,224.32 shares of Common
Stock for an aggregate purchase price of $142,152.75 to four employees of
the Company. The purchase price for the Common Stock was to be paid in four
cash installments, the first due on the date of issuance and the remaining
payments due on December 31 of each year over the next three-year period.

3. On March 23, 1995, the Company issued 294,938.72 shares of the Common
Stock for a purchase price of $31,589.50 to an employee of the Company. The
purchase price for the Common Stock was to be paid in four cash
installments, the first due on the date of issuance and the remaining
payments due on December 31 of each year over the next three-year period.

4. On March 29, 1995, the Company issued 44,240.80 shares of the Common
Stock for a purchase price of $4,738.42 to an employee of the Company. The
purchase price for the Common Stock was to be paid in four cash
installments, the first due on the date of issuance and the remaining
payments due on December 31 of each year over the next three-year period.

5. On January 10, 1996, the Company issued 147,469.44 shares of the
Common Stock for a purchase price of $15,794.75 to an employee of the
Company. The purchase price for the Common Stock was to be paid in three
cash installments, the first due on the date of issuance and the remaining
payments due on December 31 of each year over the next two-year period.

6. Effective January 1, 1998, the Company issued a total of 1,401,641
shares of Common Stock to Messrs. Saylor and Bansal in exchange for their
interests in certain of the Company's international subsidiaries.

All of the shares of Common Stock described in paragraphs 2 through 6 above
are being changed and converted into shares of Class A Common Stock and
exchanged for an identical number of shares of Class B Common Stock prior to
consummation of the Offering. The issuances of the securities described above
were made in reliance on one or more of the exemptions from registration under
the Securities Act, including those provided for by Section 4(2) and Rule 701
thereunder. The purchasers of these securities represented that they had
adequate access, through their employment with the Company, to information
about the Company.

II-2

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

EXHIBIT
NUMBER DESCRIPTION
------- -----------

1.1*1.1 Form of Underwriting Agreement.
3.1*3.1 Form of Amended and Restated Certificate of Incorporation of the
Company (as proposed to be effective upon closing of the Offering).
3.2*3.2 Form of Restated Bylaws of the Company (as proposed to be effective
upon closing of the Offering).
4.1*4.1 Form of Certificate of Class A Common Stock of the Company.
5.1*5.1 Opinion of Latham & Watkins.
10.110.1** Stock Purchase Agreement dated September 8, 1991 between the Company
and Sanju K. Bansal.
10.210.2** Stock Purchase Agreement dated October 11, 1992 between the Company
and Charles A. Veley.
10.310.3** Stock Purchase Agreement dated February 28, 1995 between the Company
and Eduardo S. Sanchez.
10.410.4** Stock Purchase Agreement dated February 28, 1995 between the Company
and Stephen S. Trundle.
10.510.5** 1996 Stock Plan (as amended) of the Company.
10.610.6** 1997--Stock Option Plan for French Employees.
10.710.7** 1997 Director Option Plan of the Company.
10.810.8** Business Loan/Security Agreement between the Company and NationsBank,
N.A., dated December 10, 1996.
10.910.9** First Modification of Business Loan/Security Agreement between the
Company and NationsBank, N.A. dated November 20, 1997.
10.1010.10** Second Modification of Business Loan/Security Agreement between the
Company and NationsBank, N.A. dated March 31, 1998.
10.11 Form of Tax Indemnification Agreement between the Company and the
Existing Stockholders.
10.12*10.11** Form of Master Amendment Agreement between the Company and the
Existing Stockholders.
21.110.12 Amendment Agreement between the Company, Michael J. Saylor and Thomas
P. Spahr dated December 31, 1997.
21.1** Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2*23.2 Consent of Latham & Watkins.
27Watkins (included in Exhibit 5.1).
23.3* Consent of Jonathan J. Ledecky
27** Financial Data Schedule.
27.127.1** Financial Data Schedule.

- --------
* To be filed by amendment.
** Previously filed.

(b) Financial Statement Schedules

The following schedule to the Financial Statements of the Company and its
subsidiaries is included in this Registration Statement:

Schedule I Valuation and Qualifying Accounts and Reserves

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred

II-3

or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such new securities at that time shall
be deemed to be the initial bona fide offering thereof.

II-4

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
MICROSTRATEGY INCORPORATED HAS DULY CAUSED THIS AMENDMENT NO. 13 TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN VIENNA, VIRGINIA ON MAY 22,JUNE 10, 1998.

MicroStrategy Incorporated

/s/ Michael J. Saylor
By: _________________________________---------------------------------
MICHAEL J. SAYLOR
CHAIRMAN OF THE BOARD, CHIEF
EXECUTIVE OFFICER AND PRESIDENT

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

NAME TITLE DATE
Chairman of the---- ----- ----
/s/ Michael J. Saylor Chairman of the
- ------------------------------------- Board, Chief May 22,June 10, 1998
- ------------------------------------- Executive Officer
MICHAEL J. SAYLOR Executive Officer
and
President (PrincipalPresident(Principal
Executive Officer)

* Executive Vice
*- ------------------------------------- President and Chief May 22,June 10, 1998
- ------------------------------------- Operating Officer
SANJU K. BANSAL Vice President,Operating Officer

/s/ Mark S. Lynch Vice President,
- ------------------------------------- Finance and Chief May 22,June 10, 1998
- ------------------------------------- Financial Officer
MARK S. LYNCH Financial Officer
(Principal
Financial and
Accounting Officer)

Director
* May 22, 1998Director
- ------------------------------------- June 10, 1998
FRANK A. INGARI

Director
* May 22, 1998Director
- ------------------------------------- June 10, 1998
RALPH S. TERKOWITZ

*By: /s/ Mark S. Lynch
- ----------------------
May 22, 1998-------------------------------------
MARK S. LYNCH
Attorney-in-fact
June 10, 1998

II-5

SCHEDULE I

VALUATION QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

BALANCE AT ADDITIONS BALANCE AT
BEGINNING OF CHARGED TO END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- ------------ ---------- ---------- ----------

Allowance for doubtful
accounts...............
December 31, 1995....... 41 36 -- 77
December 31, 1996....... 77 432 (51) 458
December 31, 1997....... 458 579 (267) 770

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
MicroStrategy Incorporated

In connection with our audits of the consolidated financial statements of
MicroStrategy Incorporated as of December 31, 1996 and 1997, and for each of
the three years in the period ended December 31, 1997, which financial
statements are included in the Prospectus, we have also audited the financial
statement schedule listed in Item 16 herein.

In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, present fairly,
in all material respects, the information required to be included therein.

Coopers & Lybrand L.L.P

McLean, Virginia
January 30, 1998, except for Notes 4 and 8,
as to which the date is May 8, 1998

S-1

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------- -----------

1.1*1.1 Form of Underwriting Agreement.
3.1*3.1 Form of Amended and Restated Certificate of Incorporation of the
Company (as proposed to be effective upon closing of the Offering).
3.2*3.2 Form of Restated Bylaws of the Company (as proposed to be effective
upon closing of the Offering).
4.1*4.1 Form of Certificate of Class A Common Stock of the Company.
5.1*5.1 Opinion of Latham & Watkins.
10.110.1** Stock Purchase Agreement dated September 8, 1991 between the Company
and Sanju K. Bansal.
10.210.2** Stock Purchase Agreement dated October 11, 1992 between the Company
and Charles A. Veley.
10.310.3** Stock Purchase Agreement dated February 28, 1995 between the Company
and Eduardo S. Sanchez.
10.410.4** Stock Purchase Agreement dated February 28, 1995 between the Company
and Stephen S. Trundle.
10.510.5** 1996 Stock Plan (as amended) of the Company.
10.610.6** 1997 Stock Option Plan for French Employees.
10.710.7** 1997 Director Option Plan of the Company.
10.810.8** Business Loan/Security Agreement between the Company and NationsBank,
N.A., dated December 10, 1996.
10.910.9** First Modification of Business Loan/Security Agreement between the
Company and NationsBank, N.A. dated November 20, 1997.
10.1010.10** Second Modification of Business Loan/Security Agreement between the
Company and NationsBank, N.A. dated March 31, 1998.
10.11 Form of Tax Indemnification Agreement between the Company and the
Existing Stockholders.
10.12*10.11** Form of Master Amendment Agreement between the Company and the
Existing Stockholders.
21.110.12 Amendment Agreement between the Company, Michael J. Saylor and Thomas
P. Spahr dated December 31, 1997.
21.1** Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2*23.2 Consent of Latham & Watkins.
27Watkins (included in Exhibit 5.1).
23.3* Consent of Jonathan J. Ledecky
27** Financial Data Schedule.
27.127.1** Financial Data Schedule.

- --------
* To be filed by amendment.
** Previously filed.