<PAGE>
 
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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-Q
 
(MARK ONE)
 
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934
 
  FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
 
                                      OR
 
[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934
 
  FOR THE TRANSITION PERIOD FROM       TO       .
 
                         COMMISSION FILE NO. 00021539
 
                               IA CORPORATION I
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                <C>
            DELAWARE                                 94-3161772
  (STATE OR OTHER JURISDICTION                     (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION)              IDENTIFICATION NUMBER)
</TABLE>
 
                         1900 POWELL STREET, SUITE 600
                         EMERYVILLE, CALIFORNIA 94608
                   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
                                (510) 450-7000
             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
  INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X]  NO [_]
 
  THE NUMBER OF OUTSTANDING SHARES OF THE REGISTRANT'S COMMON STOCK, $0.01 PAR
VALUE, WAS 11,691,967 AS OF OCTOBER 31, 1998.
 
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<PAGE>
 
                                IA CORPORATION I
                              REPORT ON FORM 10-Q
 
                               ----------------
 
                               TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
 
<TABLE>
   <C>     <S>                                                              <C>
   Item 1. Financial Statements
           Condensed Balance Sheet at September 30, 1998 and December 31,
            1997.........................................................     3
           Condensed Statements of Operations for the three months and
            nine months ended September 30, 1998 and 1997................     4
           Condensed Statements of Cash Flows for the nine months ended
            September 30, 1998 and 1997..................................     5
           Notes to Condensed Financial Statements.......................     6
   Item 2. Management's Discussion and Analysis of Financial Condition
            and Results of Operations....................................     8
 
PART II. OTHER INFORMATION
 
   Item 6. Exhibits and Reports on Form 8-K..............................    17
   Signatures.............................................................   18
   Exhibit Index..........................................................   19
</TABLE>
 
                                       2
<PAGE>
 
                         PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                                IA CORPORATION I
 
                            CONDENSED BALANCE SHEET
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                     SEPTEMBER 30, DECEMBER 31,
                                                         1998          1997
                                                     ------------- ------------
                                                      (UNAUDITED)
<S>                                                  <C>           <C>
                       ASSETS
Current assets:
  Cash and cash equivalents.........................   $  2,547      $  7,058
  Short-term investments............................      3,974         2,000
  Receivables, including unbilled receivables of
   $224 at September 30, 1998 and $4,593 at December
   31, 1997, less allowance for doubtful accounts of
   $1,419 at September 30, 1998 and $46 at December
   31, 1997.........................................      2,964         8,867
  Other current assets .............................        825           748
                                                       --------      --------
    Total current assets............................     10,310        18,673
  Property and equipment, net.......................        796           615
                                                       --------      --------
                                                       $ 11,106      $ 19,288
                                                       ========      ========
        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..................................   $    270      $    343
  Accrued compensation and related liabilities......      1,634         1,400
  Deferred revenues.................................      1,827         1,402
  Other accrued liabilities.........................        897           520
                                                       --------      --------
    Total current liabilities.......................      4,628         3,665
Stockholders' equity:
  Common shares, $0.01 par value:
    Authorized shares--35,000,000
    Issued and outstanding shares--9,263,810 at
     September 30, 1998 and 8,866,460 at December
     31, 1997.......................................         93            89
  Class B Common shares, $0.01 par value:
    Authorized shares--5,000,000
    Issued and outstanding shares--2,417,112........         25            25
  Additional paid-in capital........................     28,259        27,563
  Accumulated deficit...............................    (21,568)      (11,923)
  Deferred compensation.............................       (331)         (131)
                                                       --------      --------
    Total stockholders' equity......................      6,478        15,623
                                                       --------      --------
                                                       $ 11,106      $ 19,288
                                                       ========      ========
</TABLE>
 
                             See accompanying notes
 
                                       3
<PAGE>
 
                                IA CORPORATION I
 
                       CONDENSED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                THREE MONTHS     NINE MONTHS
                                                   ENDED            ENDED
                                               SEPTEMBER 30,    SEPTEMBER 30,
                                               --------------- ----------------
                                                1998     1997   1998     1997
                                               -------  ------ -------  -------
<S>                                            <C>      <C>    <C>      <C>
Revenues:
  License..................................... $   532  $1,418 $ 2,561  $ 4,654
  Service.....................................     273   3,507   4,233    9,161
  Maintenance.................................   1,069     804   3,132    2,360
                                               -------  ------ -------  -------
    Total revenues............................   1,874   5,729   9,926   16,175
Cost of revenues:
  License.....................................      38     117     164      266
  Service.....................................   1,296   2,323   5,669    6,169
  Maintenance.................................   1,012     292   2,261      989
                                               -------  ------ -------  -------
    Total cost of revenues....................   2,346   2,732   8,094    7,424
Operating expenses:
  Sales and marketing.........................   1,355   1,145   3,771    3,537
  General and administrative..................   1,311     712   3,504    2,078
  Product development.........................   1,556     998   4,530    3,461
                                               -------  ------ -------  -------
    Total operating expenses..................   4,222   2,855  11,805    9,076
                                               -------  ------ -------  -------
Operating income (loss).......................  (4,694)    142  (9,973)    (325)
Other income:
  Interest income.............................     109     127     330      393
                                               -------  ------ -------  -------
Income (loss) before income taxes.............  (4,585)    269  (9,643)      68
Provision for income taxes....................      --       3      --        3
                                               -------  ------ -------  -------
Net income (loss)............................. $(4,585) $  266 $(9,643) $    65
                                               =======  ====== =======  =======
Basic net income (loss) per share............. $ (0.39) $ 0.02 $ (0.83) $  0.01
                                               =======  ====== =======  =======
Diluted net income (loss) per share........... $ (0.39) $ 0.02 $ (0.83) $  0.01
                                               =======  ====== =======  =======
 
Weighted common shares outstanding............  11,646  11,214  11,552   11,128
Diluted common shares outstanding.............  11,646  11,497  11,552   11,441
</TABLE>
 
                             See accompanying notes
 
                                       4
<PAGE>
 
                                IA CORPORATION I
 
                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                NINE MONTHS
                                                                   ENDED
                                                               SEPTEMBER 30,
                                                              -----------------
                                                                1998     1997
                                                              --------  -------
<S>                                                           <C>       <C>
OPERATING ACTIVITIES
Net income (loss)............................................ $ (9,643) $    65
Adjustments:
  Depreciation...............................................      244      241
  Amortization of deferred compensation......................      155       31
  Changes in operating assets and liabilities:
    Receivables..............................................    5,903   (1,660)
    Other current assets.....................................      (77)    (255)
    Accounts payable.........................................      (73)    (397)
    Accrued compensation and related liabilities.............      234       17
    Deferred revenues........................................      425     (137)
    Other accrued liabilities................................      377       38
                                                              --------  -------
Net cash used in operating activities........................   (2,455)  (2,057)
 
INVESTING ACTIVITIES
Purchases of property and equipment..........................     (427)    (418)
Purchases of short-term investments..........................  (10,827)      --
Maturities of short-term investments.........................    8,853       --
                                                              --------  -------
Net cash used in investing activities........................   (2,401)    (418)
 
FINANCING ACTIVITIES
Net proceeds from exercise of stock options..................       31       18
Net proceeds from employee stock purchase plan...............      314      421
Borrowings under bank line of credit.........................       --      300
Repayment of borrowings under bank line of credit............       --     (300)
                                                              --------  -------
Net cash provided by financing activities....................      345      439
 
Net decrease in cash and cash equivalents....................   (4,511)  (2,036)
Cash and cash equivalents at beginning of period.............    7,058   10,806
                                                              --------  -------
Cash and cash equivalents at end of period................... $  2,547  $ 8,770
                                                              ========  =======
Supplemental disclosure of cash flow information:
  Deferred compensation related to stock options............. $    355  $    --
                                                              ========  =======
</TABLE>
 
                             See accompanying notes
 
                                       5
<PAGE>
 
                               IA CORPORATION I
 
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
 
                                  (UNAUDITED)
 
1. BASIS OF PRESENTATION
 
  The unaudited condensed financial statements included herein reflect all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management are necessary to fairly present the Company's financial
position, results of operations, and cash flows for the periods presented.
These financial statements should be read in conjunction with the Company's
audited financial statements as included in the Annual Report on Form 10-K for
the year ended December 31, 1997. Certain information and footnote disclosures
normally included in audited financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the Securities and Exchange Commission rules and regulations. The
results of operations for the three months and nine months ended September 30,
1998 are not necessarily indicative of the results to be expected for any
subsequent quarter or for the entire fiscal year ending December 31, 1998.
 
2. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
 
  The Company's net income (loss) per share has been calculated in accordance
with Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share". Basic net income (loss) per share has been computed using the weighted
average number of common shares outstanding during the period. Basic net
income (loss) per share has been computed using the weighted average number of
common shares outstanding plus the dilutive effect of outstanding stock
options using the "treasury stock" method. The following table shows the
computation of basic and diluted net income (loss) per share.
 
<TABLE>
<CAPTION>
                          THREE MONTHS   THREE MONTHS NINE MONTHS   NINE MONTHS
                             ENDED          ENDED        ENDED         ENDED
                            9/30/98        9/30/97      9/30/98       9/30/97
                          ------------   ------------ -----------   -----------
                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                       <C>            <C>          <C>           <C>
Basic and diluted net
 income (loss) available
 to common
 shareholders...........    $(4,585)       $   266      $(9,643)      $    65
Shares used in computing
 basic net income (loss)
 per share..............     11,646         11,214       11,552        11,128
Effect of dilutive
 securities--stock
 Options................         -- (a)        283           -- (a)       313
                            -------        -------      -------       -------
Shares used in computing
 diluted net Income
 (loss) per share.......     11,646         11,497       11,552        11,441
                            =======        =======      =======       =======
Basic net income (loss)
 per share..............    $ (0.39)       $  0.02      $ (0.83)      $  0.01
                            =======        =======      =======       =======
Diluted net income
 (loss) per share.......    $ (0.39)       $  0.02      $ (0.83)      $  0.01
                            =======        =======      =======       =======
</TABLE>
--------
(a) The effect of outstanding stock options is excluded from the calculation
    of diluted net loss per share, as their inclusion would be anti-dilutive.
 
3. REVENUE RECOGNITION
 
  On January 1, 1998, the Company adopted Statement of Position No. 97-2,
"Software Revenue Recognition" (SOP 97-2) which superseded Statement of
Position 91-1, "Software Revenue Recognition" (SOP 91-1). The implementation
of SOP 97-2 did not have a material adverse affect on the Company's business
or on the Company's reported revenues and earnings for the three months and
nine months ended September 30, 1998. In accordance with SOP 97-2, revenue
from product licensing is recognized when the product is delivered, all
significant contractual obligations have been satisfied and the resulting
receivable is deemed collectible by management.
 
                                       6
<PAGE>
 
                               IA CORPORATION I
 
             NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
 
                                  (UNAUDITED)
 
 
  Software license and service revenues from contracts requiring significant
customization services are recognized on the percentage-of-completion method
based on the ratio of incurred costs to total estimated costs. Actual costs
and gross margins on such contracts could differ from the Company's estimates
and such differences could be material to the financial statements. An
allowance for future estimated warranty costs are provided at the time revenue
is recognized. Maintenance revenue is recognized ratably over the term of the
related agreements, which in most cases is one year.
 
  In March 1998, Statement of Position No. 98-4, "Deferral of the Effective
Date of a Provision of SOP 97-2, Software Revenue Recognition" (SOP 98-4) was
issued. SOP 98-4 defers for one year the application of certain provisions of
SOP 97-2. These provisions limit what is considered vendor-specific objective
evidence of the fair value of the various elements in a multiple element
arrangement. All other provisions of SOP 97-2 remain in effect.
 
4. COMPREHENSIVE INCOME
 
  The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," as of January 1, 1998. SFAS No. 130
establishes new rules for the reporting of comprehensive income and its
components, however, it had no impact on the Company's net income (loss) or
stockholders' equity. There is no difference between comprehensive income
(loss) and net income (loss) for the three months and nine months ended
September 30, 1998 and 1997.
 
5. STOCK OPTION REPRICING
 
  In August 1998, the Board of Directors approved a stock option repricing
program pursuant to which employees of the Company could elect to exchange or
amend their then outstanding employee stock options for new employee stock
options having an exercise price of $1.75 per share (equal to the fair market
value at August 17, 1998), with exercisability generally prohibited until
September 29,1998, except in the event of death or disability. A total of
1,166,378 options with exercise prices ranging from $6.00 to $1.81 per share
were exchanged or amended under the program.
 
                                       7
<PAGE>
 
  This report contains forward-looking statements that involve risks and
uncertainties, including statements regarding the sufficiency of the Company's
cash position, the development of software products, future strategic
development projects, future releases or enhanced products, potential markets,
future purchase and implementation of the enhanced software for the Company's
internal computer systems, likelihood of a material adverse impact due to Year
2000 contingencies, Year 2000 compliance of the Company's software products,
expected purchase and implementation of enhanced software, the Company's
strategy, financial performance, expense, revenue and cash flow sources. The
Company's actual results could differ materially from those discussed herein.
For a more complete discussion of the factors that might cause such a
difference, see the risk factors discussed herein and in the Company's Annual
Report as filed on Form 10-K.
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
OVERVIEW
 
  The Company's total revenues are derived from software licenses, services,
and maintenance agreements. The Company licenses software to end-users under
non-cancelable license agreements and provides services such as software
development, software customization installation, training and software
maintenance. Software license revenue for contracts not requiring significant
customization services are recognized when a product has been shipped, all
significant contractual obligations have been satisfied and the resulting
receivable is deemed collectible by management. Software license and service
revenues from contracts requiring significant customization services are
recognized on the percentage-of-completion method based on the ratio of
incurred costs to total estimated costs. Actual costs and gross margins on
such contracts could differ from the Company's estimates and such differences
could be material to the financial statements. An allowance for future
estimated warranty costs are provided at the time revenue is recognized.
Maintenance revenue is recognized ratably over the term of the related
agreements, which in most cases is one year.
 
  Total revenues for the three months ended September 30, 1998 decreased 67.3%
to $1.9 million from $5.7 million for the three months ended September 30,
1997. Total revenues for the nine months ended September 30, 1998 decreased
38.6% to $9.9 million, compared to total revenues of $16.2 million for the
same period in 1997. The decrease in revenues is in part attributable to
numerous mergers in the banking industry causing elimination of expected new
contracts, customer delays in installing the Company's software products, thus
slowing the revenue recognition process, and deferral of purchase decisions
arising from the impact of companies continuing to reallocate technology
resources toward Year 2000 compliance solutions. The Company believes that
mergers and Year 2000 issues have put severe constraints on resources
available within the banking industry to successfully implement the Company's
offerings. The Company believes its technology and expertise apply to a
broader sector of financial services markets, such as brokerage, mutual funds,
insurance and credit card sectors. Although the Company has successfully
completed installations at both Fidelity Investments and Merrill Lynch, there
can be no assurance that the Company will be successful in these markets, nor
can there be any assurance as to the timing of this success.
 
  The Company had an accumulated deficit of approximately $21.6 million at
September 30, 1998, as compared to an accumulated deficit of approximately
$12.4 million at September 30, 1997. The Company reported a net loss of
approximately $9.6 million and net income of $65,000 for the nine months ended
September 30, 1998 and 1997, respectively. There can be no assurance that the
Company will have operating profits in any future period and profitable
operating results recorded in the 1996 and 1997 calendar years should not be
considered indicative of future financial performance.
 
RESULTS OF OPERATIONS
 
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
 
REVENUES
 
  License. License revenue is primarily derived from licenses of the Company's
CheckVision software products. License revenue decreased 62.5% to $532,000
from $1.4 million for the three months ended
 
                                       8
<PAGE>
 
September 30, 1998 and 1997, respectively. The decrease in license revenues
resulted from cancellation of purchase decisions arising from the impact of
the banking industry mergers and preoccupation with Year 2000 issues. The
Company also expected to realize substantial revenues from its 1997 strategic
alliance with NCR. These revenues have been much slower to materialize than
expected. As a percentage of total revenues, license revenues increased
slightly to 28.4% for the three months ended September 30, 1998 from 24.8% for
the three months ended September 30, 1997.
 
  Service. Service revenue has been comprised primarily of fees from software
application development contracts, and to a lesser extent, fees from
installation services and training for the Company's CheckVision and
RemitVision software products. Service revenue decreased 92.2% to $273,000
from $3.5 million for the three months ended September 30, 1998 and 1997,
respectively. The service revenue decrease is primarily the result of customer
delays deferring revenue recognition coupled with deferral of expected new
contracts. As a percentage of total revenues, service revenues decreased to
14.6% for the three months ended September 30, 1998 as compared to 61.2% for
the three months ended September 30, 1997. Service revenue as a percentage of
total revenues will vary between periods due to changes in demand for the
Company's services.
 
  Maintenance. Maintenance revenue is generated primarily by software support
contracts to customers who have entered into license agreements for the use of
the Company's software products. Such contracts include telephone support,
minor software upgrades and, in some cases, third party support. Maintenance
revenue increased 33.0% to $1.1 million from $804,000 for the three months
ended September 30, 1998 and 1997, respectively. The increase in maintenance
revenue is principally due to the growing base of installed CheckVision
products resulting in a corresponding increase in demand for maintenance
service. Accordingly, the Company believes that fluctuations in the demand for
products could result in fluctuations of maintenance revenue. As a percentage
of total revenues, maintenance revenue increased to 57.0% for the three months
ended September 30, 1998 as compared to 14.0% for same period in 1997.
 
COST OF REVENUES
 
  License. Cost of license revenue decreased 67.5% to $38,000 from $117,000
for the three months ended September 30, 1998 and 1997, respectively,
representing 7.1% and 8.3% of license revenues for the three months ended
September 30, 1998 and 1997, respectively. The cost of license revenue
decrease is due to a negotiated decrease in royalties payable to third
parties.
 
  Service. Cost of service revenue is primarily comprised of employee-related
costs and fees for third-party consultants incurred in providing installation,
training and development services. Cost of service revenue decreased 44.2% to
$1.3 million from $2.3 million for the three months ended September 30, 1998
and 1997, respectively, representing 474.7% and 66.2% of service revenues for
the three months ended September 30, 1998 and 1997, respectively. The decrease
in cost of service revenue is attributable to the decrease in service revenue
and to customer delays in installing the Company's software products.
 
  Maintenance. Cost of maintenance revenue is primarily comprised of employee-
related costs incurred in providing customer support and also includes the
costs of services provided by third parties for hardware-related maintenance
for certain of the installed base of customers. Cost of maintenance revenue
increased 246.6% to $1.0 million from $292,000 for the three months ended
September 30, 1998 and 1997, respectively, representing 94.7% and 36.3% of
maintenance revenues for the three months ended September 30, 1998 and 1997,
respectively. The cost of maintenance revenue increase is due to maintenance
revenue growth coupled with recently completed software development contracts
requiring much higher level of maintenance labor.
 
OPERATING EXPENSES
 
  Sales and marketing. Sales and marketing expenses consist primarily of
salaries, commissions, and bonuses earned by sales and marketing personnel,
field office expenses, travel and entertainment, promotional expenses, and
advertising. Sales and marketing expenses increased 18.3% to $1.4 million for
the three months
 
                                       9
<PAGE>
 
ended September 30, 1998 as compared to $1.1 million for the three months
ended September 30, 1997. Sales and marketing expense increase is due to the
expansion of the marketing staff of both direct hires and consultants. Sales
and marketing expenses represent 72.3% and 20.0% of total revenues for the
three months ended September 30, 1998 and 1997, respectively. The Company,
however, is implementing cost control measures in an effort to manage expense
growth.
 
  General and administrative. General and administrative expenses increased
84.1% to $1.3 million from $712,000 for the three months ended September 30,
1998 and 1997, respectively. The increase is attributable to an increase in
executive salary and executive recruiting cost totaling $230,000 coupled with
an increase in allowance for doubtful accounts for certain contracts
associated with high collectibility risks. Also contributing to the increase
in general and administrative expenses is stock-based compensation expense
required by EITF 96-18 for stock options granted to non-employees. General and
administrative expenses represent 70.0% and 12.4% of total revenues for the
three months ended September 30, 1998 and 1997, respectively. The Company,
however, is implementing cost control measures in an effort to manage expense
growth.
 
  Product development. Product development expenses consist primarily of
salaries and other personnel-related expenses. Product development expenses
increased 55.9% to $1.6 million from $998,000 for the three months ended
September 30, 1998 and 1997, respectively. The increase is directly
attributable to personnel costs and associated infrastructure costs required
to support software development initiatives to enhance and expand the
Company's core software product offerings. Product development expenses
represent 83.0% and 17.4% of total revenues for the three months ended
September 30, 1998 and 1997, respectively. The Company, however, is
implementing cost control measures in an effort to manage expense growth.
 
  Interest income. Interest income represents interest earned by the Company
on its cash, cash equivalents and short-term investments. Interest income
decreased slightly to $109,000 from $127,000 for the three months ended
September 30, 1998 and 1997, respectively, due to lower average invested cash
balances in the three months ended September 30, 1998.
 
  Provision for income taxes. The Company did not record a provision for
income taxes for the three months ended September 30, 1998. A nominal tax
provision was recorded for the three months ended September 30, 1997.
 
RESULTS OF OPERATIONS
 
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
 
REVENUES
 
  License. License revenue is primarily derived from licenses of the Company's
CheckVision software products. License revenue decreased 45.0% to $2.6 million
from $4.7 million for the nine months ended September 30, 1998 and 1997,
respectively. The decrease in license revenues resulted from cancellation of
purchase decisions arising from the impact of the banking industry mergers and
preoccupation with Year 2000 issues. The Company also expected to realize
substantial revenues from its 1997 strategic alliance with NCR. These revenues
have been much slower to materialize than expected. As a percentage of total
revenues, license revenues decreased to 25.8% for the nine months ended
September 30, 1998 as compared to 28.8% for the same period in 1997.
 
  Service. Service revenue is comprised primarily of fees from software
application development contracts, and to a lesser extent, fees from
installation services and training for the Company's CheckVision and
RemitVision products. Service revenue decreased 53.8% to $4.2 million from
$9.2 million for the nine months ended September 30, 1998 and 1997,
respectively. The decrease in service revenues primarily is the result of
customer delays deferring revenue recognition coupled with deferral of
expected new contracts. As a percentage of total revenues, service revenues
decreased to 42.7% for the nine months ended September 30, 1998 as
 
                                      10
<PAGE>
 
compared to 56.6% for the nine months ended September 30, 1997. Service
revenue as a percentage of total revenues will vary between periods due to
changes in demand for the Company's services.
 
  Maintenance. Maintenance revenue is generated primarily by software support
contracts to customers who have entered into license agreements for the use of
the Company's software products. Such contracts include telephone support,
minor software upgrades and, in some cases, third party support. Maintenance
revenue increased 32.7% to $3.1 million from $2.4 million for the nine months
ended September 30, 1998 and 1997, respectively. As a percentage of total
revenues, maintenance revenue increased to 31.6% for the nine months ended
September 30, 1998 as compared to 14.6% for the nine months ended September
30, 1997. The increase in maintenance revenue is primarily due to the growing
base of installed CheckVision and RemitVision products resulting in
corresponding increase in demand for maintenance service. Accordingly, the
Company believes that fluctuations in the demand for its products could result
in fluctuations of maintenance revenue.
 
COST OF REVENUES
 
  License. Cost of license revenue decreased 38.4% to $164,000 from $266,000
for the nine months ended September 30, 1998 and 1997, respectively,
representing 6.4% and 5.7% of license revenues for the nine months ended
September 30, 1998 and 1997, respectively. The decrease in cost of license
revenue is due to a negotiated decrease in royalties payable to third parties.
 
  Service. Cost of service revenue is primarily comprised of employee-related
costs and fees for third-party consultants incurred in providing installation,
training and development services. Cost of service revenue decreased 8.1% to
$5.7 million from $6.2 million for the nine months ended September 30, 1998
and 1997, respectively, representing 133.9% and 67.3% of service revenues for
the nine months ended September 30, 1998 and 1997, respectively. The decrease
in cost of service revenue is attributable to customer delays in installing
the Company's products. The cost of service revenue has not decreased
proportionately with the decrease in service revenue due to increased costs
incurred to deliver on several of the Company's current contracts.
 
  Maintenance. Cost of maintenance revenue is primarily comprised of employee-
related costs incurred in providing customer support and also includes the
costs of services provided by third-parties for hardware-related maintenance
for certain of the installed base of customers. Cost of maintenance revenue
increased 128.6% to $2.3 million from $989,000 for the nine months ended
September 30, 1998 and 1997, respectively, representing 72.2% and 41.9% of
maintenance revenues for the nine months ended September 30, 1998 and 1997,
respectively. The cost of maintenance revenue increase is the result of
increased demand for maintenance services for a growing base of installed
CheckVision and RemitVision products, and from a much higher maintenance labor
required to support recently completed development contracts.
 
OPERATING EXPENSES
 
  Sales and marketing. Sales and marketing expenses consist primarily of
salaries, commissions, and bonuses earned by sales and marketing personnel,
field office expenses, travel and entertainment, promotional expenses, and
advertising. Sales and marketing expenses increased 6.6% to $3.8 million from
$3.5 million for the nine months ended September 30, 1998 and 1997,
respectively, representing 38.0% and 21.9% of total revenues for the nine
months ended September 30, 1998 and 1997, respectively. The increase was
attributable to the expansion of the marketing staff of both direct hires and
consultants. The Company, however, is implementing cost control measures in an
effort to manage expense growth.
 
  General and administrative. General and administrative expenses increased
68.6% to $3.5 million from $2.1 million for the nine months ended September
30, 1998 and 1997, respectively. The increase is primarily attributed to an
increase in executive compensation and executive recruiting expenses of
$230,000 coupled with an increase allowance for doubtful accounts for certain
contracts associated with high collectibility risks. Additionally, stock-based
compensation expense was recorded as required by EITF 98-16 for the issuance
of stock options to non-employees. General and administrative expenses
represent 35.3% and 12.9% of total
 
                                      11
<PAGE>
 
revenues for the nine months ended September 30, 1998 and 1997, respectively.
The Company, however, is implementing cost control measures in an effort to
manage expense growth.
 
  Product development. Product development expenses consist primarily of
salaries and other personnel-related expenses. Product development expenses
increased 30.9% to $4.5 million from $3.5 million for the nine months ended
September 30, 1998 and 1997, respectively. The increase is directly
attributable to personnel costs and associated infrastructure costs required
to support software development initiatives to enhance and expand the
Company's core software product offerings. In particular, the Company's
development expenditure increases during 1998 have been driven by expenditures
associated with the unveiling of RemitVision Release 2.0 in July 1998, and by
expenditures required to enhance and expand its CheckVision product line.
Product development expenses represent 45.6% and 21.4% of total revenues for
the nine months ended September 30, 1998 and 1997, respectively. The Company,
however, is implementing cost control measures in an effort to manage expense
growth.
 
  Interest income. Interest income represents interest earned by the Company
on its cash, cash equivalents and short-term investments. Interest income
decreased slightly to $330,000 from $393,000 for the nine months ended
September 30, 1998 and 1997, respectively, due to lower average invested cash
balances in the nine months ended September 30, 1998.
 
  Provision for income taxes. The Company did not record a provision for
income taxes for the nine months ended September 30, 1998. A nominal tax
provision was recorded for the nine months ended September 30, 1997.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  The Company used cash of $2.5 million for operating activities for the nine
months ended September 30, 1998, an increase of $400,000 from cash used from
operating activities for the nine months ended September 30, 1997. For the
nine months ended September 30, 1998, cash used by operations was principally
the result of the net loss offset by cash receipts on outstanding accounts
receivables coupled with cash receipts of customer deposits for new and
renewals of annual maintenance agreements.
 
  During the nine months ended September 30, 1998, the Company's net use of
cash for investing activities included purchases and maturities of short-term
investments coupled with purchases of capital equipment totaling $427,000.
Capital expenditures consisted of purchases of computer equipment to support
the Company's product development programs. The Company currently has no
significant capital spending requirements or purchase commitments other than a
non-cancelable operating lease for its facilities.
 
  Financing activities for the nine months ended September 30, 1998 and 1997
is related to the proceeds from the exercise of common stock options by
employees and stock issuance under the employee stock purchase plan program.
 
  At September 30, 1998, the Company had $5.7 million in working capital,
including $2.5 million in cash and cash equivalents and $4.0 million in short-
term investments consisting primarily of high quality commercial paper. The
Company's bank line of credit agreement expired in July 1998. The Company has
decided not to renew the line of credit agreement.
 
  The Company believes that its existing cash, cash equivalents and short-term
investments, together with expected cash flow from operations, will be
sufficient to fund the Company's operations for the next 12 months. In the
event that such existing and expected resources are insufficient to fund the
Company's operations for the next 12 months, the Company will need to obtain
additional financing. There can be no assurance that such additional financing
will be available on acceptable terms, if at all.
 
                                      12
<PAGE>
 
YEAR 2000
 
  The Year 2000 Problem generally involves whether a computer system, software
product, or business system, when working alone or in conjunction with other
software or hardware systems, accepts input of, stores, manipulates and
outputs dates in the Year 2000 or thereafter without error or interruption
(the "Year 2000 Problem").
 
  The Company has completed its assessment of the Year 2000 Problem with
respect to its internal technology systems, which include, telecommunications
and internal computer systems. The Company has identified necessary
modifications to its internal technology system to make them Year 2000
compliant. Modifications to the telecommunications and the internal computer
systems are anticipated to be implemented by July 31, 1999 and estimated to
cost approximately $50,000. The Company has expended and will continue to
expend appropriate resources to address this issue on a timely basis. However,
there can be no assurance that the Year 2000 Problem will not have an adverse
impact on the Company's earnings.
 
RISK FACTORS
 
  History of Operating Losses; No Assurance of Profitability. The Company has
incurred significant net losses since inception. At September 30, 1998, the
Company had an accumulated deficit of approximately $21.6 million. The Company
has had operating profits only in the quarters ended March 31, 1995, 1996 and
1997, June 30, 1996, September 30, 1996 and 1997, and December 31,1996 and
1997. There can be no assurance that the Company will have operating profits
in future quarters or on an annual basis. The Company expects a net loss for
the quarter ended December 31, 1998.
 
  Variability of Quarterly Operating Results. The Company's revenues and
operating results have varied in the past, and may continue to vary
significantly in the future. The Company's revenues and operating results are
difficult to forecast and could be materially adversely affected by many
factors, some of which are outside the control of the Company, including,
among others, the relatively long sales and implementation cycles of the
Company's software products, the variable size and timing of individual
license transactions, the timing of revenue recognized under the percentage-
of-completion method, increased competition, the timing of new product
releases by the Company and its competitors, market acceptance of the
Company's software products, delay or deferral of customer implementation of
the Company's software products, software defects or other quality problems
with the Company's software products, changes in the Company's and its
competitors' pricing policies, the mix of license and service revenue,
budgeting cycles of the Company's customers, the impact of the current
consolidations in the banking industry which may continue to slow sale cycles,
the introduction of indirect sales into the Company's revenue mix which could
result in lower gross margins, changes in operating expenses, changes in
Company strategy, personnel changes and general economic factors. In addition,
the Company is still in the process of transitioning from providing software
development services to developing and selling software products, which
entails a number of risks, including potential declines in revenue and the
need to develop the appropriate sales, marketing and software production and
distribution infrastructure. Further, because the Company's orders range in
size from several hundred thousand dollars to several million dollars, any
deferral or cancellation of an expected new order, termination of, or delay in
completion of, an existing large application development contract has, and may
continue to have a significant impact on quarterly operating results. In
addition, the Company had expected substantial revenue contributions from its
1997 alliance with NCR. This alliance has to-date provided significantly less
revenue than originally expected, and there can be no assurance this alliance
will be successful in the future. Although the Company is pursuing additional
alliance opportunities, there can be no assurance any of these will be
successful either. In addition, in the event of any downturn in any potential
customer's business or the economy in general, purchases of the Company's
software products may be deferred or canceled. Further, as the Year 2000
approaches, many current and potential customers are focusing their resources
on the Year 2000 capability issues, which may further cause deferrals or
cancellations on their decision to purchase the Company's software products.
 
                                      13
<PAGE>
 
  Due primarily to hardware requirements and customer site preparation, there
is typically a three to four month period between when a CheckVision customer
order is placed and the commencement of the Company's installation services.
The Company has experienced a nine-month to one-year installation period for
RemitVision. Installation of the Company's software products requires the
cooperation of the Company's customers. To the extent the installation of the
Company's software products is delayed, the Company's recognition of revenue
may be delayed, which could have a material adverse effect on the Company's
business, operating results and financial condition. In the past, the Company
has experienced product installation delays, which resulted in strained
customer relations, and, in one instance, a contract termination. Similar
situations in the future could continue to have an adverse effect on the
Company's operating results and could also adversely effect the Company's
ability to market its products. The Company's expense levels are based in part
on its expectations of future revenues. If revenue continues to be below
expectations, net income may be disproportionately affected because a
significant portion of the Company's expenses does not vary with revenues. The
Company's future operating results could continue to be adversely affected if
revenues do not meet the Company's expectations. The Company may also choose
to reduce prices, increase spending in response to competition or to pursue
new market opportunities. In particular, the Company's operating margins may
continue to be materially adversely affected in the future if new competitors,
technological advances by existing competitors, other competitive factors, or
the Company's failure to obtain software development contracts continue to
require the Company to invest significant resources in software product
development efforts.
 
  Because of the foregoing factors, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and that
such comparisons should not be relied upon as indications of future
performance. Further, it is possible that in future periods the Company's
operating results may be below the expectations of public market analysts and
investors. In such an event, the price of the Company's Common Stock would
likely be materially adversely affected. See "--Risks Associated with
Transition to Software Product Business," "--Dependence on Growth of Market
for Client/Server Applications Software in the Financial Services Industry,"
and "--Lengthy Sales Cycle".
 
  Risks Associated with Transition to Software Product Business. When the
Company was formed in 1992, the Company shifted its strategy to focus
increasingly on deriving revenue from software products rather than from
system integration services. During the transition from providing software
development services to developing and selling software products, which is
still under way, a majority of the Company's total revenues had been derived
from the provision of services pursuant to large software development
contracts, certain of which provided the basis for the Company's software
products. The Company recognizes revenue from software development contracts
on the percentage-of-completion basis. Service revenue as a percentage of
total revenues for 1997 and 1996 was 50.5% and 48.0%, respectively, and 42.7%
and 56.6% for the nine months ended September 30, 1998 and 1997, respectively.
To achieve revenue growth and improve operating margins, the Company must
increase market acceptance and sales of the Company's software products. As
the Company has become increasingly reliant upon software product sales, it
could continue to experience a decline in total revenues if service revenue
continues to decline more quickly than the Company can increase revenue from
software product sales. The Company must develop and enhance its sales and
marketing capabilities and software production and distribution infrastructure
as it continues the transition from a service business to a software product
business. There can be no assurance that the Company will be successful in
creating the necessary capabilities and infrastructure. Any significant
failure by the Company to manage the transition successfully would continue to
have a material adverse effect on the Company's business, operating results
and financial condition and would continue to create significant fluctuation
in quarterly operating results.
 
  Dependence on Development Services. Through 1997 the majority of the
Company's total revenues had been derived from large application development
contracts. The majority of these contracts are now complete, and the Company
has been unable to attract new customers to enter into such contracts while
focusing on sales of its software products. Sales of the Company's software
products have been lower than expected. Furthermore, the Company has
historically used the research derived from its software development contracts
as the basis for its software products and anticipates that future software
products may arise from new software development contracts. To the extent that
the Company is unable to attract new customers to enter into such contracts,
the
 
                                      14
<PAGE>
 
Company's ability to develop new software products will be materially
adversely affected. In addition, to the extent the Company is required to
develop future software products without software development contracts, the
Company's expenditures for software product development may continue to
materially adversely affect operating margins. There can be no assurance that
the Company will be able to attract new customers to enter into software
development contracts or that it will be able to develop new software products
based on the research undertaken in connection with new software development
contracts or that it will be able to independently develop new software
products, and any such failure would have a material adverse effect on the
Company's business, operating results and financial condition. To the extent
that the Company does develop new software products, the Company may have to
expend substantial additional financial resources on software product
development, and there can be no assurance that such software products will
achieve market acceptance. In addition, upon commercialization of software
products developed in connection with software development contracts, the
Company has agreed under certain circumstances in the past, and may in the
future agree to pay royalties to repay development expenses to the customer
for whom the development services were undertaken, and any such payments could
have a material adverse effect on the Company's business, operating results
and financial condition.
 
  Reliance on Banking Industry; Need to Penetrate Additional Segments of the
Financial Services Industry. Currently, a substantial majority of the
Company's total revenue results from services and licenses provided to large
banks. The Company's future operating results will depend in part on its
ability to penetrate additional segments of the financial services industry
such as the brokerage, mutual funds, insurance and credit card segments. While
the Company may devote substantial resources to penetrate these and other
markets, there can be no assurance that the revenues generated from this
effort, if any, will exceed the cost of such efforts. To be successful in
expanding its product offerings to market segments other than the banking
industry, the Company will be required to create new software products and to
modify its existing software products. There can be no assurance that it will
be able to create or modify such software products effectively or that such
software products, if successfully created or modified, will achieve market
acceptance. To the extent that the Company is unable to penetrate new markets,
its future financial condition will be dependent upon its ability to further
penetrate the banking industry. The current focus of the banking industry on
mergers and on Year 2000 issues may continue to impede the Company's ability
to further penetrate this industry. If the Company is unable to adapt its
software products, or its sales and marketing efforts to meet the needs of new
markets, or if the Company is unsuccessful in its efforts to further penetrate
the banking industry, the Company's business, operating results and financial
condition could be materially adversely affected.
 
  Lengthy Sales Cycle. The Company's sales cycle is typically six to twelve
months and varies substantially from customer to customer. The Company
believes the purchase of its software products is discretionary and represents
a strategic decision requiring a significant capital investment by its
customers. As a result, purchase of the Company's software products generally
involves a significant commitment of management attention and resources by
prospective customers and requires multiple approvals. In addition, sale
cycles could continue to be impacted by current consolidations in the banking
industry. Accordingly, the Company's sales are subject to a long approval
process. The Company's business, operating results and financial condition
have been in the past, and could be in the future, materially adversely
affected if customers delay, reduce or cancel orders. Such delays, reductions
or cancellations may contribute to significant fluctuations of quarterly
operating results in the future and may adversely affect such results.
 
  Customer Concentration. To date the Company has been highly dependent on a
concentrated customer base. In 1997, 1996 and 1995, the Company's two largest
customers provided 24%, 34% and 45% of the Company's total revenue,
respectively. For the three months ended September 30, 1998, the Company's
largest three customers provided 54.5% of the Company's total revenues. For
the nine months ended September 30, 1998, no sales to any one customer
accounted for 10% or more of total revenues. For the nine months ended
September 30, 1997, the Company's largest two customers provided 22.0% of the
Company's total revenues. The Company's reliance on a concentrated base of
customers has been due primarily to the Company's dependence on large software
development contracts and on the Company's reliance on the top tier of the
banking market. The Company intends to continue to seek customer support for
strategic development projects
 
                                      15
<PAGE>
 
that may yield additional software products and expects that it may continue
to experience a dependence on a few significant customers for the foreseeable
future. If the Company is unable to establish relationships with additional
significant customers and if the Company continues to experience difficulties
in increasing revenues derived from the sale of software products as a
percentage of total revenues, the Company's business, operating results and
financial condition could continue to be materially adversely affected.
 
  Rapid Technological Change and Dependence on New Software Products. The
market for the Company's software products is characterized by rapid
technological developments, evolving industry standards and rapid changes in
customer requirements. The introduction of competitive software products
responding to these trends could render the Company's existing software
products obsolete and unmarketable. As a result, the Company's success depends
upon its ability to continue to enhance its existing software products,
respond to changing customer requirements and develop and introduce in a
timely manner new software products that keep pace with technological
developments and emerging industry standards. Customer requirements include,
but are not limited to, operability across distributed heterogeneous and
changing hardware platforms, operating systems, relational databases and
networks. For example, as more of the Company's customers start to utilize
Microsoft NT or adopt other emerging operating systems on server platforms, it
may be necessary for the Company to optimize the operation of the Company's
software products on such platforms in order to maintain its competitive
ability. There can be no assurance that the Company's software products will
achieve market acceptance, or will adequately address the changing needs of
the marketplace, or that the Company will be successful in developing and
marketing enhancements to its existing software products, or new software
products incorporating new technology on a timely basis. If the Company is
unable to develop and introduce new software products, or enhancements to
existing software products, in a timely manner to adequately address changing
market conditions or customer requirements, the Company's business, operating
results and financial condition will be materially adversely affected.
 
  The Company has a number of ongoing software development projects. The
Company expects to release enhancements to its CheckVision and RemitVision
products. The Company's objective is to increase the portion of the Company's
total revenues derived from these software products. There can be no assurance
the Company will release these enhancements in a timely manner or at all, or
that the features these enhanced software products include will be features
required to achieve market acceptance. The Company's product development
programs have been delayed in the past and the Company has experienced delays
in the development of RemitVision. The Company had lower than anticipated
profits due to delays in RemitVision contracts and due to its much lower sales
of CheckVision products than originally anticipated. The failure of the
Company's software products to achieve broader market acceptance and increased
sales could continue to have a material adverse effect on the Company's
business, operating results and financial condition. See "--Year 2000
Compliance".
 
  Year 2000 Compliance. The Year 2000 issue is the result of computer programs
being written using two digits rather than four to define the applicable year.
Computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. If the Company's internal
systems do not correctly recognize date information when the year changes to
2000, there could be an adverse impact on the Company's operations. The
Company has completed an assessment and expects to purchase enhanced software
for its internal computer systems, which is expected to be Year 2000
compliant. The new software is expected to be implemented by July 31, 1999.
The Company has contacted its critical suppliers of products and services to
determine that such suppliers' operations and the products and services they
provide to the Company are Year 2000 capable. There can be no assurance that
the failure of one of the Company's suppliers to ensure appropriate Year 2000
capability would not have an adverse effect on the Company. The Company has
also assessed the capability of its products sold to customers and believes
that the likelihood of a material adverse impact due to contingencies related
to the Year 2000 issue for the product it has sold is remote. There can be no
assurance, however, that the Company's software products contain all necessary
software for Year 2000 compatibility. If any of the Company's licensees
experience Year 2000 problems, such licensees could assert claims for damages
against the Company. Any such litigation could result in substantial costs and
diversion of the Company's resources, even if ultimately decided in favor of
the Company. In addition, many companies are expending significant resources
to correct their software systems for Year 2000 compliance. These expenditures
may result
 
                                      16
<PAGE>
 
in reduced funds available to purchase new software products such as those
offered by the Company. The occurrence of any of the foregoing could have a
material adverse effect on the Company's business, financial condition and
results from operations.
 
  Additional Risks. For a discussion of additional risks and uncertainties
that could affect the Company's business, operating results or financial
condition please see the Company's Annual Report on Form 10-K, "Item 1,
Business Risk Factors."
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
  (a) Exhibits
 
      The following exhibits are furnished along with this Form 10-Q
    Quarterly Report for the three and nine months ended September 30,
    1998:
 
<TABLE>
      <C>  <S>
      10.1 Employment Agreement between the Registrant and Kevin Moran, dated
           July 22, 1998.
 
      10.2 Severance and Non-Compete Agreement between the Registrant and Dr.
           C.V. Ravi, dated July 27, 1998.
 
      27.1 Financial Data Schedule (electronic filing only).
</TABLE>
 
  (b) Reports on Form 8-K
 
      The Company did not file any reports on Form 8-K during the three
    months ended September 30, 1998.
 
                                      17
<PAGE>
 
                               IA CORPORATION I
 
                                  SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
 
                                          IA Corporation I
 
                                               /s/   David M. Winkler
                                          _____________________________________
                                                    David M. Winkler
                                           Vice President and Chief Financial
                                                         Officer
                                           (Principal Financial and Accounting
                                                        Officer)
 
Date: November 13, 1998
 
                                      18
<PAGE>
 
                                IA CORPORATION I
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
   EXHIBIT
     NO.
   -------
   <C>     <S>
    10.1   Employment Agreement between the Registrant and Kevin Moran, dated
           July 22, 1998.
 
    10.2   Severance and Non-Compete Agreement between the Registrant and Dr.
           C.V. Ravi, dated July 27, 1998.
 
    27.1   Financial Data Schedule (electronic filing only).
</TABLE>
 
                                       19