<PAGE>

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

                         SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, DC 20549

                                  _________________

                                      FORM 10-Q




 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 1998



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



                           COMMISSION FILE NUMBER 0-23475


                             INFORMATION ADVANTAGE, INC.
                (Exact Name of Registrant as Specified in Its Charter)

                 DELAWARE                               41-1718445
       (State or Other Jurisdiction                  (I.R.S. Employer
    of Incorporation or Organization)              Identification No.)


                      7905 GOLDEN TRIANGLE DRIVE, SUITE 190
                       EDEN PRAIRIE, MINNESOTA  55344-7227
          (Address of Principal Executive Offices, including Zip Code)

                                    (612) 833-3700
                 (Registrant's Telephone Number, including Area Code)



Check 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
              ---    ---

As of August 31, 1998, the issuer had outstanding 15,647,931 shares of Common
Stock, par value $0.01 per share.

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

<PAGE>

                                  TABLE OF CONTENTS
                                  -----------------

<TABLE>
<CAPTION>

                                                                                 Page
                                                                                 ----
<S>                                                                              <C>
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

     ITEM 1    FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . .1
     ITEM 2    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . .6
     ITEM 3    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. . . . . 13

PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

     ITEM 1    LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . 14
     ITEM 2    CHANGES IN SECURITIES AND USE OF PROCEEDS . . . . . . . . . . . . . 14
     ITEM 3    DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . 14
     ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . 14
     ITEM 5    OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 14
     ITEM 6    EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . 15

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

</TABLE>

<PAGE>

PART I

ITEM 1  FINANCIAL STATEMENTS

                            INFORMATION ADVANTAGE, INC.
                             CONSOLIDATED BALANCE SHEET
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                   JULY 31,      JANUARY 31,
                                                                    1998           1998
                                                                 -----------      ---------
                                                                 (Unaudited)      (Audited)
<S>                                                              <C>             <C>
ASSETS
Current Assets:
     Cash and cash equivalents . . . . . . . . . . . . . . .       $  9,618       $ 22,170
     Short-term investments. . . . . . . . . . . . . . . . .          9,434             --
     Accounts receivable, net. . . . . . . . . . . . . . . .          7,909          5,400
     Receivable from officer . . . . . . . . . . . . . . . .             79             80
     Prepaid expenses and other current assets . . . . . . .          1,370            582
                                                                   --------       --------
     Total current assets. . . . . . . . . . . . . . . . . .         28,410         28,232

Furniture and equipment, net . . . . . . . . . . . . . . . .          2,715          2,579
Other assets . . . . . . . . . . . . . . . . . . . . . . . .             94            105
                                                                   --------       --------
                                                                   $ 31,219       $ 30,916
                                                                   --------       --------
                                                                   --------       --------

LIABILITIES AND STOCKHOLDERS'
     EQUITY
Current Liabilities:
     Current portion--long-term liabilities. . . . . . . . .       $    271       $    349
     Accounts payable. . . . . . . . . . . . . . . . . . . .          1,391          1,628
     Accrued expenses. . . . . . . . . . . . . . . . . . . .          4,080          2,747
     Deferred revenue. . . . . . . . . . . . . . . . . . . .          4,348          5,920
                                                                   --------       --------
     Total current liabilities . . . . . . . . . . . . . . .         10,090         10,644

Long-term liabilities, less current portion. . . . . . . . .            166            259
                                                                   --------       --------
     Total liabilities . . . . . . . . . . . . . . . . . . .         10,256         10,903
                                                                   --------       --------

Stockholders' equity:
     Common stock, $0.01 par value;
     60,000,000 shares authorized. . . . . . . . . . . . . .            156            155
     Additional paid-in capital. . . . . . . . . . . . . . .         47,209         46,806
     Accumulated other comprehensive income. . . . . . . . .            (18)            (2)
     Accumulated deficit . . . . . . . . . . . . . . . . . .        (26,384)       (26,946)
                                                                   --------       --------
Total stockholders' equity . . . . . . . . . . . . . . . . .         20,963         20,013
                                                                   --------       --------
                                                                   $ 31,219       $ 30,916
                                                                   --------       --------
                                                                   --------       --------

</TABLE>

    The accompanying notes are an integral part of these consolidated financial
                                    statements.

                                        1

<PAGE>

                            INFORMATION ADVANTAGE, INC.
                        CONSOLIDATED STATEMENT OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                    (UNAUDITED)

<TABLE>
<CAPTION>

                                                                       THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                            JULY 31,                      JULY 31,
                                                                    ----------------------        ----------------------
                                                                     1998           1997           1998           1997
                                                                    -------        -------        -------        -------
<S>                                                                 <C>            <C>            <C>            <C>
Revenues:
     License . . . . . . . . . . . . . . . . . . . . . . . .        $ 5,959        $ 2,862        $10,926        $ 5,000
     Services. . . . . . . . . . . . . . . . . . . . . . . .          4,136          2,941          8,172          5,148
                                                                    -------        -------        -------        -------
     Total revenues. . . . . . . . . . . . . . . . . . . . .         10,095          5,803         19,098         10,148
                                                                    -------        -------        -------        -------

Cost of revenues:
     License.. . . . . . . . . . . . . . . . . . . . . . . .             83             41            195             77
     Services. . . . . . . . . . . . . . . . . . . . . . . .          2,036          1,886          4,070          3,445
                                                                    -------        -------        -------        -------
     Total cost of revenues. . . . . . . . . . . . . . . . .          2,119          1,927          4,265          3,522
                                                                    -------        -------        -------        -------

Gross margin . . . . . . . . . . . . . . . . . . . . . . . .          7,976          3,876         14,833          6,626
                                                                    -------        -------        -------        -------

Operating expenses:
     Sales and marketing . . . . . . . . . . . . . . . . . .          5,536          4,153         10,297          7,827
     Research and development... . . . . . . . . . . . . . .          1,525          1,267          2,940          2,373
     General and administrative. . . . . . . . . . . . . . .            593            550          1,335          1,035
                                                                    -------        -------        -------        -------
     Total operating expenses. . . . . . . . . . . . . . . .          7,654          5,970         14,572         11,235
                                                                    -------        -------        -------        -------

Income (loss) from operations. . . . . . . . . . . . . . . .            322         (2,094)           261         (4,609)
                                                                    -------        -------        -------        -------

Other income (expense):
      Interest income. . . . . . . . . . . . . . . . . . . .            208             41            443             78
      Interest expense . . . . . . . . . . . . . . . . . . .             (8)           (58)           (19)          (118)
                                                                    -------        -------        -------        -------
          Total other income (expense) . . . . . . . . . . .            200            (17)           424            (40)
                                                                    -------        -------        -------        -------

Income (loss) before provision for income taxes. . . . . . .            522         (2,111)           685         (4,649)
Provision for income taxes . . . . . . . . . . . . . . . . .             78              -            123              -
                                                                    -------        -------        -------        -------

Net income (loss)... . . . . . . . . . . . . . . . . . . . .        $   444        $(2,111)       $   562        $(4,649)
                                                                    -------        -------        -------        -------
                                                                    -------        -------        -------        -------

Net income (loss) per share:
     Basic . . . . . . . . . . . . . . . . . . . . . . . . .        $  0.03        $ (1.98)       $  0.04        $ (4.37)
                                                                    -------        -------        -------        -------
                                                                    -------        -------        -------        -------
     Diluted . . . . . . . . . . . . . . . . . . . . . . . .        $  0.03        $ (1.98)       $  0.03        $ (4.37)
                                                                    -------        -------        -------        -------
                                                                    -------        -------        -------        -------

</TABLE>

    The accompanying notes are an integral part of these consolidated financial
                                    statements.

                                        2

<PAGE>

                            INFORMATION ADVANTAGE, INC.
                        CONSOLIDATED STATEMENT OF CASH FLOWS
                                    (UNAUDITED)
                                   (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                        SIX MONTHS ENDED
                                                                            JULY 31,
                                                                   -----------------------
                                                                     1998           1997
                                                                   --------        -------
<S>                                                                <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss) . . . . . . . . . . . . . . . . . . .       $    562        $(4,649)
     Adjustments to reconcile net income (loss) to
     net cash used by operating activities -
     Depreciation and amortization . . . . . . . . . . . . .            594            524
     Changes in operating assets and liabilities:
     Accounts receivable . . . . . . . . . . . . . . . . . .         (2,508)          (583)
     Prepaid expenses and other current assets . . . . . . .           (788)          (290)
     Accounts payable. . . . . . . . . . . . . . . . . . . .           (237)            47
     Accrued expenses. . . . . . . . . . . . . . . . . . . .          1,333            467
     Deferred revenue. . . . . . . . . . . . . . . . . . . .         (1,572)           341
     Other . . . . . . . . . . . . . . . . . . . . . . . . .             (5)            17
                                                                   --------        -------
Net  cash used in operating activities . . . . . . . . . . .         (2,621)        (4,126)
                                                                   --------        -------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Additions to furniture and equipment. . . . . . . . . .           (730)          (222)
     Purchase of investments held-to-maturity. . . . . . . .        (12,434)           ---
     Maturities of investments held to maturity. . . . . . .          3,000            ---
                                                                   --------        -------
Net cash used in investing activities. . . . . . . . . . . .        (10,164)          (222)
                                                                   --------        -------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from exercise of stock options . . . . . . . .             43             48
     Proceeds from purchase of shares under employee stock
     purchase plan . . . . . . . . . . . . . . . . . . . . .            361            ---
     Proceeds from sale of convertible redeemable preferred
     stock, net of expenses. . . . . . . . . . . . . . . . .            ---          6,926
     Principle payments on long-term liabilities . . . . . .           (171)          (400)
                                                                   --------        -------
Net cash provided by financing activities. . . . . . . . . .            233          6,574
                                                                   --------        -------

Net increase (decrease) in cash and cash equivalents . . . .        (12,552)         2,226
Cash and cash equivalents, beginning of period . . . . . . .         22,170            874
                                                                   --------        -------

Cash and cash equivalents, end of period . . . . . . . . . .       $  9,618        $ 3,100
                                                                   --------        -------
                                                                   --------        -------

</TABLE>

    The accompanying notes are an integral part of these consolidated financial
                                    statements.

                                        3

<PAGE>

                            INFORMATION ADVANTAGE, INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                    (UNAUDITED)

1.   BASIS OF PRESENTATION
     The financial information furnished is unaudited except for the balance
     sheet as of January 31, 1998.  The unaudited consolidated financial
     statements as of and for the three and six month periods ended July 31,
     1998 and 1997 have been prepared on the same basis as the audited
     consolidated financial statements for the year ended January 31, 1998, and
     include all adjustments, consisting only of normal recurring accruals,
     which in the opinion of management are necessary for the fair presentation
     of such information for the periods presented.

     Certain notes normally included in financial statements prepared in 
     accordance with generally accepted accounting principles have been 
     omitted. These financial statements should be read in conjunction with 
     the Company's audited financial statements and notes thereto for the 
     three years ended January 31, 1998, included in the Company's annual 
     report on Form 10-K.  In addition, the results of operations for the 
     interim periods presented may not be indicative of results for the 
     entire year.

2.   NEW ACCOUNTING PRONOUNCEMENTS
     In June 1997, the Financial Accounting Standards Board issued Statement No.
     130, "Reporting Comprehensive Income" (SFAS No. 130).  SFAS No. 130 is
     effective for financial statements for fiscal years beginning after
     December 15, 1997.  This standard defines comprehensive income as the
     changes in equity of an enterprise except those resulting from stockholder
     transactions.  All material components of comprehensive income are required
     to be reported in a new financial statement.  The adoption of SFAS No. 130,
     effective February 1, 1998, did not have a material effect on the Company's
     financial statements.

     In June 1997, the Financial Accounting Standards Board issued Statement No.
     131, "Disclosures about Segments of an Enterprise and Related Information"
     (SFAS No. 131).   SFAS No. 131 is effective for annual financial statements
     for periods beginning after December 15, 1997.  SFAS No. 131 establishes
     standards for disclosures about operating segments, products and services,
     geographic areas and major customers.  The Company will adopt SFAS No. 131
     effective for its annual report for the fiscal year ending January 31,
     1999.  Management believes the adoption of SFAS No. 131 will not have a
     material effect on the Company's financial statements.
     
     The American Institute of Certified Public Accountants has approved
     Statement of Position (SOP), SOP 97-2, effective for transactions entered
     into after December 15, 1997, which supersedes Statement of Position 91-1,
     "Software Revenue Recognition."  Management has adopted this new statement
     and has determined that its adoption has not had a material effect on the
     timing of the Company's revenue recognition or caused changes to its
     revenue recognition policies.

3.   SHORT-TERM INVESTMENTS
     Short-term investments consist of United States Government Treasury Bills
     having original maturities greater than 90 days.  Treasury Bills are
     considered "held-to-maturity" and are stated at their amortized cost which
     approximates fair value.


                                        4

<PAGE>

4.   EARNINGS PER SHARE
     A reconciliation of the denominators of the basic and diluted earnings per
     share computations for the three and six month periods ended July 31 is
     presented below:

<TABLE>
<CAPTION>

                                                     Three Months Ended            Six Months Ended
                                                           July 31,                      July 31,
                                                 --------------------------    --------------------------
                                                     1998           1997           1998           1997
                                                 -----------     ----------    -----------     ----------
<S>                                              <C>             <C>           <C>             <C>
Net Income (Loss)                                $       444     $   (2,111)   $       562     $   (4,649)
                                                 -----------     ----------    -----------     ----------
                                                 -----------     ----------    -----------     ----------

Shares Calculation:
     Weighted average basic shares outstanding    15,555,803      1,067,773     15,535,214      1,064,143
     Effect of dilutive securities
     Options                                       1,858,763              -      1,807,410              -
     Warrants                                        100,956              -         99,924              -
                                                 -----------     ----------    -----------     ----------
     Total shares used to compare
     diluted earnings per share                   17,515,522      1,067,773     17,442,548      1,064,143
                                                 -----------     ----------    -----------     ----------

Net Income (Loss) per Share:
        Basic                                    $      0.03     $    (1.98)   $      0.04     $    (4.37)
                                                 -----------     ----------    -----------     ----------
                                                 -----------     ----------    -----------     ----------
        Diluted                                  $      0.03     $    (1.98)   $      0.03     $    (4.37)
                                                 -----------     ----------    -----------     ----------
                                                 -----------     ----------    -----------     ----------

</TABLE>

                                        5

<PAGE>

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

     THE FOLLOWING DISCUSSION AND ANALYSIS DESCRIBES CERTAIN FACTORS AFFECTING
THE RESULTS OF OPERATIONS OF INFORMATION ADVANTAGE, INC. (THE "COMPANY") FOR THE
THREE AND SIX MONTH PERIODS ENDED JULY 31, 1998 AND ITS FINANCIAL CONDITION AS
OF JULY 31, 1998.  THIS DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY
31, 1998.

     CERTAIN OF THE STATEMENTS IN THE FOLLOWING DISCUSSION CONSTITUTE 
FORWARD-LOOKING STATEMENTS WHICH ARE MADE PURSUANT TO THE SAFE HARBOR 
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.  VARIOUS 
FACTORS MAY CAUSE ACTUAL RESULTS OF OPERATIONS AND FINANCIAL CONDITION TO 
VARY SIGNIFICANTLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENT MADE 
HEREIN OR IN OTHER REPRESENTATIONS MADE BY THE COMPANY'S MANAGEMENT OR BY 
OTHERS ON BEHALF OF THE COMPANY.  PLEASE REFER TO THE COMPANY'S ANNUAL REPORT 
ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 FOR A DESCRIPTION OF 
THE FACTORS KNOWN TO THE COMPANY THAT MAY CAUSE ACTUAL RESULTS TO VARY.

OVERVIEW

     Information Advantage, Inc. develops, markets and supports enterprise
scalable on-line, analytical processing (OLAP) software that is designed to
allow a large number of users to access and analyze large amounts of data to
make quicker and more informed business decisions.  The Company's server-based
solution, DecisionSuite, provides powerful, robust and flexible analysis
processing capabilities that transform raw data into meaningful information from
a wide range of desktop and Internet platforms.  Through the use of an advanced
architecture, the Company designed DecisionSuite to accommodate terabytes of
data and thousands of active users.  DecisionSuite enables organizations to push
effective decision making to all levels of users thereby creating an
"intelligent enterprise," one capable of quickly identifying and reacting to
market opportunities.  DecisionSuite supports many UNIX operating systems and
employs relational database technology, allowing it to access most popular
databases, data warehouses and data marts.

     To date, substantially all of the Company's revenues have been derived 
from licenses of DecisionSuite and related services.  The Company expects 
that sales of DecisionSuite and related services will continue to account for 
all of the Company's revenues for the foreseeable future.  The Company's 
license revenues are derived from one-time licenses for the right to use 
DecisionSuite in perpetuity and are determined on a per server, per named 
user and database size basis.  The Company's service revenues, which have 
accounted for approximately one-half of the Company's total revenues for the 
past three years, include fees for maintenance, training and consulting 
services.  The Company anticipates that service revenues will continue to 
account for a significant portion of the Company's total revenues.

     The American Institute of Certified Public Accountants has approved
Statement of Position (SOP) 97-2, effective for transactions entered into after
December 15, 1997, which supersedes SOP 91-1, "Software Revenue Recognition." 
Management has adopted this new statement and has determined that its adoption
has not had a material effect on the timing of the Company's revenue recognition
or caused changes to its revenue recognition policies.
     
     Revenues derived from software licenses are recognized upon execution of a
license agreement, delivery of the software product and fulfillment of other
delivery requirements.  Revenues from software provided for demonstration or
pilot purposes are not recognized until execution of a license agreement and
fulfillment of other delivery requirements.  Revenues derived from maintenance
contracts, which are bundled with the initial licenses, and all revenues from
extended maintenance contracts are deferred and recognized ratably over the term
of the maintenance contract.  Revenues from maintenance contracts are included
in service revenues.  Revenue from training and consulting services are
recognized as the services are performed.

     The Company licenses its software through its direct sales force and
increasingly through or in conjunction with solution development partners, sales
affiliates and marketing partners.  Revenues from indirect sales involving
strategic partners accounted for approximately 12.7% and 11.3% of the Company's
license revenues for the quarters ended July 31, 1998 and 1997, and 11.3% and
22.1% for the six month periods ended July 31, 1998 and 1997.  The Company
intends to expand its strategic relationships, thereby increasing the revenues
generated from indirect 

                                        6

<PAGE>

channels as a percentage of total license revenues.  The Company intends 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.  The Company 
has international sales and support offices in Toronto, Canada; London, 
England; Paris, France; and Koln, Germany. To date, most of the Company's 
international revenues have been derived from the United Kingdom and Canada.

     Although the Company's personnel related costs are higher in Europe than
they are in the United States, and the Company's international operations are
subject to economic, fiscal and monetary policies of foreign governments, to
date, these factors have not had a material effect on the Company's results of
operations or liquidity.  In addition, because all of the Company's sales have
been denominated in U.S. dollars, the Company has been able to minimize the
impact of foreign exchange rate changes.  There can be no assurance that the
Company will be able to continue to denominate foreign sales in U.S. dollars or
that international operations' costs and economic, fiscal and monetary policies
of foreign governments will not in the future have a material adverse effect on
the Company's results of operations or liquidity.

     Since inception, the Company has made significant strategic investments in
building an infrastructure to support long-term growth.  The Company has more
than tripled its headcount from 75 at January 31, 1995 to 254 at July 31, 1998,
reflecting personnel increases throughout the Company.  As a result, although
the Company's revenues have increased in each of the last ten quarters, the
Company has incurred net losses in each quarter since inception, except the
quarters ended April 30 and July 31, 1998, and had an accumulated deficit of
$26.4 million as of July 31, 1998.

     The Company's limited operating history makes the prediction of future
operating results difficult and unreliable.  In addition, given its limited
operating history and recent rapid growth, historical growth rates in the
Company's revenues should not be considered indicative of future revenue growth
rates or operating results.  There can be no assurance that any of the Company's
business strategies will be successful or that the Company will be able to
achieve profitability on a consistent quarterly or annual basis.

                                        7

<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth certain statement of operations data as a
percentage of total revenues for the three and six month periods ended July 31:

<TABLE>
<CAPTION>

                                                       THREE MONTHS ENDED             SIX MONTHS ENDED
                                                             JULY 31,                      JULY 31,
                                                       1998           1997           1998            1997
                                                       -----          -------        -----          -------
<S>                                                   <C>            <C>             <C>           <C>
Revenues:
     License . . . . . . . . . . . . . . . .            59.0%          49.3%          57.2%          49.3%
     Service . . . . . . . . . . . . . . . .            41.0           50.7           42.8           50.7
                                                       -----          -------        -----          -------
        Total revenues.. . . . . . . . . . .           100.0          100.0          100.0          100.0
                                                       -----          -------        -----          -------

Cost of Revenues:
     License . . . . . . . . . . . . . . . .             0.8            0.7            1.0            0.8
     Service . . . . . . . . . . . . . . . .            20.2           32.5           21.3           33.9
                                                       -----          -------        -----          -------
        Total cost of revenues . . . . . . .            21.0           33.2           22.3           34.7
                                                       -----          -------        -----          -------

Gross margin.. . . . . . . . . . . . . . . .            79.0           66.8           77.7           65.3
                                                       -----          -------        -----          -------

Operating expenses:
     Sales and marketing . . . . . . . . . .            54.8           71.6           53.9           77.1
     Research and development. . . . . . . .            15.1           21.8           15.4           23.4
     General and administrative. . . . . . .             5.9            9.5            7.0           10.2
                                                       -----          -------        -----          -------
        Total operating expenses . . . . . .            75.8          102.9           76.3          110.7
                                                       -----          -------        -----          -------

Income (loss) from operations. . . . . . . .             3.2          (36.1)           1.4          (45.4)
Interest income (expense), net . . . . . . .             2.0          ( 0.3)           2.2           (0.4)
                                                       -----          -------        -----          -------

Income (loss) before provision for income taxes.         5.2          (36.4)           3.6          (45.8)
Provision for income taxes . . . . . . . . .             0.8            ---            0.6            ---
                                                       -----          -------        -----          -------

Net income (loss). . . . . . . . . . . . . .             4.4%         (36.4)%          3.0%          (45.8)%
                                                       -----          -------        -----          -------
                                                       -----          -------        -----          -------

</TABLE>

     The following table sets forth, for each component of revenues, the gross
margin associated with such components of revenues for the three and six month
periods ended July 31:

<TABLE>
<CAPTION>

                                                        THREE MONTHS ENDED            SIX MONTHS ENDED
                                                              JULY 31,                      JULY 31,
                                                        1998           1997           1998           1997
                                                       -----           ----           ----           ----
<S>                                                    <C>             <C>            <C>            <C>
Gross Margin:
     License.. . . . . . . . . . . . . . . .            98.6%          98.6%          98.2%          98.5%
     Service . . . . . . . . . . . . . . . .            50.8           35.9           50.2           33.1

</TABLE>

REVENUES

     LICENSE.  License revenues are recognized upon execution of a license 
agreement and shipment of the product if no other significant obligations 
remain, and collection of the resulting receivable is probable.  License 
revenues increased 108.2%, to $6.0 million from $2.9 million, between the 
three months ended July 31, 1998 and 1997, and 118.5%, to $10.9 million from 
$5.0 million, between the six months ended 

                                        8

<PAGE>

July 31, 1998 and 1997.  The increase in the Company's license revenues in 
each period was attributable primarily to greater market acceptance of 
DecisionSuite which led to an increase in volume, an increase in the average 
revenues derived from each license as the average number of seats per 
customer increased, and an increase in sales headcount.  To date, price 
increases have not had a significant impact on revenues.  The Company does 
not believe that the historical percentage growth rates of license revenues 
will be sustainable or are indicative of future results.

     SERVICE.  Service revenues include fees from maintenance contracts,
training, training materials and consulting services.  Fees for maintenance,
training, training materials and consulting services are generally charged
separately from the license of DecisionSuite.  Maintenance fees are for ongoing
support and product updates, and are recognized ratably over the life of the
contract.  Revenues from training are recognized upon completion of the related
training class. Revenues from training materials are recognized upon shipment or
upon provision of the materials to attendees of training classes.  Consulting
revenues are recognized when the services are performed.  Service revenues
increased 40.6%, to $4.1 million from $2.9 million, between the quarters ended
July 31, 1998 and 1997, and increased 58.7%, to $8.2 million from $5.1 million,
between the six months ended July 31, 1998 and 1997.  Service revenues accounted
for 41.0% and 50.7%of the Company's total revenues for the three months ended
July 31, 1998 and 1997, and 42.8% and 50.7% for the six month periods ended July
31, 1998 and 1997.  In particular, maintenance revenues accounted for 31.4% and
24.8% of service revenues for the quarters ended July 31, 1998 and 1997, and
29.6% and 25.7% of service revenues for the six months ended July 31, 1998 and
1997.  The Company anticipates that service revenues will continue to account
for a significant percentage of the Company's total revenues and that revenues
from maintenance will increase as a percentage of service revenues as additional
licenses are sold.

     INTERNATIONAL REVENUES.  International revenues include all revenues 
other than from the United States.  International revenues from the Company's 
direct sales organizations in Europe and export sales to or through strategic 
partners in Europe and other areas outside of the United States accounted for 
8.7% and 10.0% of total revenues for the quarters ended July 31, 1998 and 
1997, and 12.1% and 11.6% of total revenues for the six months ended July 31, 
1998 and 1997.  The Company expects that international license and related 
service revenues will continue to account for a significant portion of its 
total revenues in the future.

COST OF REVENUES

     LICENSE.  Cost of license revenues consists primarily of salaries,
royalties, product packaging and shipping costs.  Cost of license revenues was
$83,000 and $41,000 for the quarters ended July 31, 1998 and 1997, representing
1.4% of license revenues for both periods.   For the six months ended July 31,
1998 and 1997, cost of license revenues was $195,000 and $77,000, representing
1.8% and 1.5% of license revenues for these periods.   The increase in cost of
license revenues as a percentage of license revenue between the six month period
ended July 31, 1998 and 1997 was primarily due to royalties and increased
personnel costs associated with the packaging and shipping of product.

     SERVICE.  Cost of service revenues consists primarily of personnel-related
and facilities costs incurred in providing customer support, training and
consulting services, as well as third-party costs incurred in providing training
and consulting services.  Cost of service revenues was $2.0 million and $1.9
million for the quarters ended July 31, 1998 and 1997, and $4.1 million and $3.4
million for the six months ended July 31, 1998 and 1997, representing 49.2%,
64.1%, 49.8% and 66.9%, of service revenues for these periods.  The decrease in
cost of service revenues as a percentage of service revenues for the three and
six month periods ended July 31, 1998 and 1997 was primarily due to increased
productivity from a significant number of newly hired training, support and
consulting personnel, and improved economies of scale of the technical support
center.
     
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 and promotional expenses. Sales and
marketing expenses were $5.5 million and $4.2 million for the quarters ended
July 31, 1998 and 1997, and $10.3 million and $7.8 million for the six months
ended July 31, 1998 and 1997, respectively.  The increase in sales and marketing
expenses in each period was primarily due to the hiring of additional sales and
marketing personnel 

                                        9
<PAGE>

and, to a lesser extent, the increase in the number of sales offices.  Sales 
and marketing expenses represented 54.8% and 71.6% of total revenues for the 
quarters ended July 31, 1998 and 1997, and were 53.9% and 77.1% for the six 
month periods ended July 31, 1998 and 1997.  The decrease in sales and 
marketing expenses as a percentage of total revenues in each period was 
primarily due to the timing of hiring additional sales personnel.
     
     The Company expects that sales and marketing expenses will increase as the
Company continues to hire additional sales and marketing personnel, establish
additional sales offices and increase promotional activities.

     RESEARCH AND DEVELOPMENT.  Research and development expenses consist
primarily of salaries and benefits of software engineering personnel, payments
to contract programmers and expendable equipment purchases.  The Company
believes that a significant level of investment for research and development is
required to remain competitive.  Research and development expenses were $1.5
million and $1.3 million for the quarters ended July 31, 1998 and 1997, and $2.9
million and $2.4 million for the six months ended July 31, 1998 and 1997.  The
increase for each period was primarily attributable to additional hiring of
research and development personnel.  Research and development expenses
represented 15.1% and 21.8% of total revenues for the quarters ended July 31,
1998 and 1997, and 15.4% and 23.4% for the six month periods ended July 31, 1998
and 1997.  The Company anticipates that it will continue to devote substantial
resources to research and development and that these expenses will increase in
future periods.

     GENERAL AND ADMINISTRATIVE.  General and administrative expenses were $0.6
million and $0.6 million for the quarters ended July 31, 1998 and 1997, and $1.3
million and $1.0 million for the six months ended July 31, 1998 and 1997.  The
increase between the six month periods was predominantly due to increased
staffing and, to a lesser extent, associated expenses necessary to manage and
support the Company's increased scale of operations. General and administrative
expenses represented 5.9% and 9.5% of total revenues for the quarters ended July
31, 1998 and 1997, and 7.0% and 10.2% for the six months ended July 31, 1998 and
1997.  The Company believes that its general and administrative expenses will
increase in future periods as a result of an anticipated expansion of the
Company's administrative staff to support its growing operations.

     INTEREST INCOME.  Interest income represents earnings on the Company's
cash, cash equivalents and short-term investments.  Interest income was $208,000
and $41,000 for the quarters ended July 31, 1998 and 1997, and $443,000 and
$78,000 for the six months ended July 31, 1998 and 1997.

     INTEREST EXPENSE.  Interest expense represents interest on long-term debt
and capitalized leases, and totalled $8,000 and $58,000 for the three months
ended July 31, 1998 and 1997, and $19,000 and $118,000 for the six months ended
July 31, 1998 and 1997.

     PROVISION FOR INCOME TAXES.  The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."  The Company has paid no federal, state or foreign income
taxes, other than the required state and foreign minimums, for the three and six
month periods ended July 31, 1998 and 1997.  At July 31, 1998, the Company had
approximately $20.5 million in federal net operating loss carryforwards, which
will begin to expire in the year 2007 if not utilized.  In addition, the Tax
Reform Act of 1986 contains certain provisions that may limit the net operating
loss carryforwards available for use in any given period upon the occurrence of
certain events, including a significant change in ownership interests.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" (SFAS No. 130).  SFAS No. 130 is effective
for financial statements for fiscal years beginning after December 15, 1997. 
This standard defines comprehensive income as the changes in equity of an
enterprise except those resulting from stockholder transactions.  All material
components of comprehensive income are required to be reported in a new
financial statement. Management believes the adoption of SFAS No. 130, effective
February 1, 1998, has not had a material effect on the Company's financial
statements.

                                        10

<PAGE>

     In June 1997, the Financial Accounting Standards Board also issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131).  SFAS No.131 is effective for annual financial
statements for periods beginning after December 15, 1997.  SFAS No. 131
establishes standards for disclosures about operating segments, products and
services, geographic areas and major customers.  Management believes the
adoption of SFAS No. 131 will not have a material effect on the Company's
financial statements.

LIQUIDITY AND CAPITAL RESOURCES

     OPERATING ACTIVITIES.  Net cash used in operating activities was $2.6
million and $4.1 million for the six months ended July 31, 1998 and 1997.
     
     During the six months ended July 31, 1997, cash used in operating
activities resulted primarily from net operating losses of $4.6 million, and a
$583,000 increase in accounts receivable, partially offset by $524,000 noncash
depreciation expense and a $467,000 increase in accrued expenses.

     During the six months ended July 31, 1998, cash used in operating 
activities included $2.5 million in additional accounts receivable and a $1.6 
million increase in deferred revenue due to increases in business activities. 
  Also resulting in a use of cash was an increase of $788,000 in prepaid 
expenses and other current assets.  These uses of cash were partially offset 
by $562,000 net income, a $1.3 million increase in accrued expenses and 
$594,000 noncash depreciation expense.
     
     INVESTING ACTIVITIES.  Net cash used in investing activities during the six
months ended July 31, 1997 consisted of $222,000 in purchases of furniture and
equipment.  Net cash of $10.2 million used in investing activities during the
six months ended July 31, 1998 was composed of $12.4 million for the acquisition
of short-term investments and $730,000 in purchases of furniture and equipment,
partially offset by the maturities of $3.0 million in short-term investments.
     
     FINANCING ACTIVITIES.  Net cash provided by financing activities during the
six months ended July 31, 1997 of $6.6 million was generated principally by $6.9
million from the sale of preferred stock, partially offset by $400,000 in
principal payments on capital leases.  Net cash provided by financing activities
during the six months ended July 31, 1998 consisted of $404,000 in proceeds from
the exercise of stock options and purchase of shares of common stock under the
Company's employee stock purchase plan, partially offset by $171,000 in
principal payments on capital leases.
     
     COMMITMENTS AND BORROWING CAPACITY.  As of July 31, 1998, the Company had
no material commitments for capital expenditures.

     The Company's revolving credit line of $2.0 million expired in September
1998, and is currently under renegotiation.  There were no amounts outstanding
under this facility as of July 31, 1998.

     Total borrowings under the revolving credit line are limited generally to
the lesser of 70% of eligible accounts receivable or $2.0 million.  The
Company's line of credit contains certain financial covenants and restrictions
as to various matters including the Company's ability to pay cash dividends and
effect mergers or acquisitions without the bank's prior approval.  The Company
is currently in compliance with such financial covenants and restrictions.  The
Company has granted a first priority security interest in substantially all of
its assets as security for its obligations under its credit line.  The Company
believes that this line will be replaced at similar or more favorable terms.

     The Company believes that the net proceeds from the December 1997 initial
public offering and its existing cash, cash equivalents and short-term
investments will be adequate to meet its cash needs for at least the next 12
months.  Thereafter, the Company may require additional funds to support its
working capital requirements or for other purposes and may seek to raise such
additional funds through public or private equity financing or from other
sources.  There can be no assurance that additional financing will be available
at all or that, if available, such financing will be obtainable on terms
favorable to the Company or will not be dilutive.

                                        11

<PAGE>

     MERGER PROCEEDINGS.  On June 29, 1998 the Company announced its intent to
merge with IQ Software Corporation, subject to shareholder approval.  Management
expects the transaction will be accounted for as a pooling of interests.   The
Company estimates that it will incur transaction costs of approximately $7.1
million associated with the merger, which will be charged to operations when
incurred.

YEAR 2000 ISSUES 

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 just over one year, 
computer systems and software used by many companies may need to be 
upgraded to comply with such "Year 2000" requirements.

The Company is presently assessing its Year 2000 readiness for operations
worldwide, focusing on critical operating and applications systems, particularly
the Year 2000 compliance of: (1) its DecisionSuite product, (2) the Company's
key software/hardware vendors, and (3) its financial accounting systems.

Although the Company believes that its products are Year 2000 compliant,
management believes that the purchasing patterns of customers and potential
customers may be affected as companies expend a significant portion of their
limited information technology 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.

The Company is currently performing a compliance survey of its critical 
vendors, although management presently has little information concerning 
their Year 2000 compliance status.  In the event that any such key suppliers 
do not achieve Year 2000 compliance in a timely manner, or at all, the 
Company's business or operations could be adversely affected.

The Company uses outside vendors to supply its most significant financial 
accounting software. Management believes its current accounting software 
package is Year 2000 compliant. However, in the normal course of business, 
the Company has undertaken a search for a financial accounting software 
package to replace its existing system.  A critical attribute of the system 
ultimately selected will be compliance with Year 2000 requirements.   The 
cost of replacing the existing financial software is not anticipated to 
exceed $250,000.

As a part of its Year 2000 assessment, the Company intends to demonstrate its 
Year 2000 readiness by simulating the Year 2000 in an orchestrated manner for 
its key infrastructure components, critical business processes and key 
applications systems.  The Company expects that minor Year 2000 compliance 
issues will be identified as an outcome of the Year 2000 simulation test and 
intends to address these compliance issues no later than the second quarter 
of calendar 1999.

The Company recognizes the need for Year 2000 contingency plans in the event
that remediation is not fully successful or that the remediation efforts of its
vendors, suppliers and governmental/regulatory agencies are not timely
completed.  The Company intends to address contingency planning during calendar
1999.

The Company intends to complete its Year 2000 remediation efforts primarily 
with in-house resources, but will utilize consultants should the need arise.  
The Company believes that the costs of Year 2000 remediation described above 
will not be material and can be funded from operations.

The Company recognizes that issues related to Year 2000 constitute a material 
known uncertainty.  The Company also recognizes the importance of ensuring 
its operations will not be adversely affected by Year 2000 issues.  It 
believes that the processes described above will be effective to manage the 
risks associated with the problem.  However, there can be no assurance that 
the processes can be completed on the timetable described above or that 
remediation will be fully effective.   The failure to identify and remediate 
Year 2000 issues, or the failure of customers, key vendors or other critical 
third parties who do business with the Company to timely remediate their Year 
2000 issues could cause system failures or errors, business interruptions 
and, in a worst case scenario, the inability to engage in normal business 
practices for an unknown length of time.  The effect on the Company's 

                                        12

<PAGE>

operations, income and financial condition could be materially adverse.

ITEM 3    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.

                                        13

<PAGE>

PART II

ITEM 1     LEGAL PROCEEDINGS

     The Company is not currently subject to any material legal proceeding.

ITEM 2     CHANGES IN SECURITIES AND USE OF PROCEEDS

     From the effective date of the Registration Statement on Form S-1 through
July 31, 1998, the Company had used approximately $3.3 million of the net
proceeds for the repayment of indebtedness, and $730,000 for the purchase of
furniture and equipment.

ITEM 3     DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

ITEM 4     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     (a)  The Annual Meeting of Stockholders was held on June 17, 1998.
     
     (b)  Not required.
     
     (c)  Three proposals were submitted for stockholder approval, all of which
          passed with voting results as follows:
          (1)  To elect three Class I directors to have three-year terms
               expiring in 2001 and until their successors have been duly
               elected and qualified.

<TABLE>
<CAPTION>

                                           FOR            WITHHOLD
               <S>                      <C>                 <C>
               Donald R. Hollis         12,107,338          5,995
               Richard L. Tanler        12,105,338          7,995
               William H. Younger, Jr.  12,107,838          5,495

</TABLE>

          (2)  To approve the amendment to the Company's 1997 Employee Stock
               Purchase Plan to increase the number of shares reserved
               thereunder for issuance from 200,000 to 550,000.

               FOR       12,082,632     AGAINST        25,990    
               ABSTAIN        4,711     NON-VOTE            0

          (3)  To ratify the appointment of PricewaterhouseCoopers LLP as the
               Company's independent public accountants for the fiscal year
               ending January 31, 1999.

               FOR       12,053,572     AGAINST         2,110
               ABSTAIN       57,651     NON-VOTE            0



ITEM 5     OTHER INFORMATION

     Not applicable.

                                        14

<PAGE>

ITEM 6     EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibit 27.1 - Financial Data Schedule

     (b)  Reports on Form 8-K
          (1)  The Company's Current Report on Form 8-K filed on July 2, 1998,
               relating to the Company's agreement to merge with IQ Software, a
               Georgia corporation.

                                        15

<PAGE>

                                      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 on September 14, 1998.


                                           INFORMATION ADVANTAGE, INC.



                                           By:  /s/ Larry J. Ford
                                                ------------------------------
                                                Larry J. Ford
                                                President and Chief
                                                     Executive Officer



                                           By:  /s/ Donald W. Anderson
                                                ------------------------------
                                                Donald W. Anderson
                                                Chief Financial Officer

                                        16

<PAGE>

          EXHIBIT INDEX

<TABLE>
<CAPTION>

EXHIBIT
NUMBER         DESCRIPTION
------         -----------
<S>            <C>
27.1           Financial Data Schedule

</TABLE>

                                        17