SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C. 20549
                                  
                              Form 10-Q
                                  
            Quarterly Report Under Section 13 or 15(d) of
                 the Securities Exchange Act of 1934

For Quarter Ended          October 31, 1996

Commission file number          0-20085

                       IQ SOFTWARE CORPORATION
       (Exact name of registrant as specified in its charter)




           GEORGIA                                 58-1614492
(State or other jurisdiction of                 (I.R.S. Employer
 incorporation or organization)                Identification No.)

                3295 River Exchange Drive, Suite 550
                         Norcross, Georgia 
                                30092
               (Address of principal executive office)
                             (Zip Code)
                                  
                           (770) 446-8880
        (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.

Yes     X  No

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

                                              NUMBER OF SHARES
        CLASS                         OUTSTANDING AT DECEMBER 14, 1996
       Common                                    4,625,507


FORM 10-Q
Page 1 of 12
<PAGE>
                       IQ SOFTWARE CORPORATION
                              FORM 10-Q
                   QUARTER ENDED OCTOBER 31, 1996
                                  
                          TABLE OF CONTENTS
                                                                       
                                                               Page
                                                              Number
        PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

        Condensed Consolidated Balance Sheets - 
          October 31, 1996 (unaudited) and January               3

        Condensed Consolidated Statements of Income (Loss)
          (unaudited) - Three months and nine months ended
           October 31, 1996 and 1995                             4

        Condensed Consolidated Statements of Cash Flows 
          (unaudited) - Nine months ended October 31, 1996 
          and 1995                                               5

        Notes to Condensed Consolidated 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                         11

        Signatures                                               11



FORM 10-Q
Page 2 of 12
<PAGE>
                   PART I.  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
<TABLE>
              IQ SOFTWARE CORPORATION AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                          October 31, 1996          January 31, 1996
                                                                              (unaudited)
<S>                                                                          <C>                        <C>
                                       ASSETS
Current Assets:
    Cash and cash equivalents......................................          $ 4,323,355                $ 5,632,580
    Marketable securities..........................................            5,164,046                  2,601,055
    Accounts receivable, net of allowance for doubtful accounts of 
      $698,000 at October 31, 1996 and $457,000 at January 31, 1996            7,979,084                  5,838,128
    Note receivable from affiliate (Note 2)........................            1,800,000                  1,800,000
    Prepaid expenses and other current assets......................            1,373,314                  1,266,595
                                                                           
Total current assets...............................................           20,639,799                 17,138,358
Property and equipment:
    Furniture and fixtures.........................................            1,192,908                  1,183,692
    Equipment......................................................            4,544,807                  4,259,707
                                                                           
                                                                               5,737,715                  5,443,399
Allowance for depreciation.........................................           (4,095,138)                (3,416,027)
                                                                           
                                                                               1,642,577                  2,027,372

Capitalized software development costs, net of accumulated amortization of
    $1,516,000 at October 31, 1996 and  $936,000 at January 31, 1996           1,215,326                  1,226,123
Purchased software, net of accumulated amortization of $381,000 at
    October 31, 1996 and $211,000 at January 31, 1996..............              619,689                    774,286
Goodwill, net of accumulated amortization of $163,000 at October 31, 1996
    and $56,000 at January 31, 1996................................            1,094,218                    794,477
Other assets.......................................................              165,922                    163,245
                                                                           
    Total assets...................................................          $25,377,531                $22,123,861
                                                                           
                                                                           

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
    Accounts payable...............................................          $   528,391                $ 1,091,638
    Accrued expenses...............................................              817,410                    816,378
    Unearned revenue...............................................            1,510,049                  1,375,449
    Income taxes payable...........................................              538,509                         --
    Current portion of deferred income taxes.......................              209,000                    200,000
                                                                           
Total current liabilities..........................................            3,603,359                  3,483,465

Deferred income taxes, less current portion........................              522,000                    620,000

Shareholders' equity:
Preferred stock, $.01 par value:
    Authorized shares - 5,000,000 - Issued and outstanding shares - none              --                         --
Common stock, $.00033 par value:
    Authorized shares - 30,000,000
    Issued and outstanding shares - 4,624,007 at October 31, 1996
    and 4,494,941 at January 31, 1996..............................                1,527                      1,484
Additional paid-in capital.........................................           12,347,207                 11,404,931
Retained earnings..................................................            8,943,417                  6,827,235
Net unrealized gain on marketable securities available for sale....                4,150                        947
Foreign currency translation adjustments...........................              (44,129)                  (214,201)
                                                                           
    Total shareholders' equity.....................................           21,252,172                 18,020,396
                                                                           
    Total liabilities and shareholders' equity.....................          $25,377,531                $22,123,861
<?TABLE>                                                                           
                                                                           
                                                                           

See Notes to Condensed Consolidated Financial Statements

FORM 10-Q
Page 3 of 12
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)

</TABLE>
<TABLE>

                                       IQ SOFTWARE CORPORATION AND SUBSIDIARIES
                                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                                                      (unaudited)

                                                            Three Months Ended               Nine Months Ended
                                                                October 31,                      October 31,
                                                           1996            1995              1996            1995
<S>                                                   <C>             <C>              <C>             <C>
Revenues:
    License fees...........................           $4,722,876      $ 3,669,297      $13,141,528     $11,196,221
    Service fees...........................            1,923,383        1,626,016        5,618,839       4,651,905
                                                     
                                                       6,646,259        5,295,313       18,760,367      15,848,126
Operating expenses:
    Cost of license fees...................              368,071          254,859          931,451         657,828
    Cost of service fees...................              811,017          659,058        2,362,103       1,751,613
    Development............................              560,824          624,297        1,565,775       2,214,271
    Selling................................            2,630,792        2,486,356        7,784,647       7,192,699
    General and administrative.............            1,243,863        1,136,712        3,533,814       3,233,338
    Restructuring charges (Note 4).........                   --        1,281,811               --       1,281,811
    Acquired research and development costs (Note 3)          --        3,586,674               --       3,586,674
                                                     
      Total operating expenses.............            5,614,567       10,029,767       16,177,790      19,918,234
                                                     

Operating income (loss)....................            1,031,692       (4,734,454)       2,582,577      (4,070,108)

Investment income, net.....................              131,906          167,924          359,289         461,417
                                                   

Income (loss) before income taxes..........            1,163,598       (4,566,530)       2,941,866      (3,608,691)
Income tax.................................              307,000         (431,000)         826,000        (210,000)
                                                     
Net income (loss)..........................           $  856,598      $(4,135,530)     $ 2,115,866     $(3,398,691)
                                                   
Net income (loss) per common share.........           $     0.18      $     (0.96)     $      0.44     $     (0.80)
                                                     
Weighted average number of common and
  common equivalent shares outstanding.....            4,822,000        4,312,000        4,771,000       4,241,000
</TABLE>                                                     
                                                     

See Notes to Condensed Consolidated Financial Statements 




FORM 10-Q
Page 4 of 12
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued) 
<TABLE>



                                       IQ SOFTWARE CORPORATION AND SUBSIDIARIES
                                    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (unaudited)
                                                                                                   
                                                                                       Nine Months Ended
                                                                                           October 31,
                                                                                      1996            1995
                                                                                   
                                                                                   
                                                                                   
                                                                                   
<S>                                                                               <C>              <C>
Operating activities:
Net income (loss)........................................................         $ 2,115,866      $(3,398,691)
Adjustments to reconcile net income (loss)
    to net cash provided by operating activities:
    Depreciation and amortization........................................           1,534,892        1,301,384
    Deferred income taxes................................................             (92,000)        (261,000)
    Acquired research and development (Note 3)...........................                  --        3,586,674
    Write-down of capitalized software development costs
      and property and equipment.........................................                  --          918,551
    Gain on disposal of equipment........................................              (9,333)              --
    Changes in operating assets and liabilities:
      Accounts receivable................................................          (2,021,261)         802,892
      Prepaid expenses and other current assets..........................             (88,623)        (141,524)
      Accounts payable...................................................            (436,814)          66,956
      Accrued expenses...................................................            (192,296)        (108,822)
      Unearned revenue...................................................             130,721          120,192
      Income taxes payable...............................................             484,346         (242,086)
Net cash provided by operating activities................................           1,425,498        2,644,526

Investing activities:
Purchases of property and equipment......................................            (325,346)      (1,127,535)
Additions of capitalized software development costs......................            (569,773)        (805,043)
Advance under note receivable (Note 2)...................................                  --       (1,800,000)
(Purchases) sales of marketable securities, net..........................          (2,557,393)       1,988,112
Payments in connection with acquisition of Skribe Software, Inc..........            (346,175)              --
Payments in connection with acquisition of Soft Systems, Ltd.............             (35,000)      (2,146,830)
Other investing activities...............................................              (2,178)         (46,227)
Net cash used in investing activities....................................          (3,835,865)      (3,937,523)

Financing activities:
Payments on long-term debt...............................................                  --          (45,216)
Payments on long-term debt assumed in connection with acquisition........                  --         (126,760)
Proceeds from issuance of common stock...................................           1,020,856          269,784
Net cash provided by financing activities................................           1,020,856           97,808
Effect of exchange rate changes on cash..................................              80,286           10,533
Net decrease in cash and cash equivalents................................          (1,309,225)      (1,184,656)
Cash and cash equivalents at beginning of period.........................           5,632,580        7,699,398
Cash and cash equivalents at end of period...............................         $ 4,323,355      $ 6,514,742
                                                                                   
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................................         $     5,516      $     1,611
Cash paid during the period for income taxes.............................         $   355,000      $   291,000
</TABLE>

See Notes to Condensed Consolidated Financial Statements



FORM 10-Q
Page 5 of 12
<PAGE>
              IQ SOFTWARE CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                          OCTOBER 31, 1996
                             (UNAUDITED)


1.      BASIS OF PRESENTATION

        The accompanying unaudited condensed consolidated financial 
statements have been prepared in accordance with generally accepted 
accounting principles for interim financial information and with the 
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements.  In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation of the results of operations have been included.


2.      NOTE RECEIVABLE FROM AFFILIATE

        On April 18, 1995, the Company loaned $1.8 million to Daystar 
Digital, Inc. pursuant to a note receivable (the "Note"). Under the
terms of the agreement, the Note was payable one year from the date of
the agreement. The Note bore interest payable monthly at a rate of
prime plus 1/2 percent adjusted quarterly. The interest rate on the
date of the agreement was 9 1/2%. The Note is guaranteed by
Intelligent Systems Corporation and is secured by 240,163 shares of
the Company's common stock held by Intelligent Systems Corporation.

        On April 18, 1996, the Company renewed the original agreement
with Daystar Digital, Inc. for an additional nine months. Under the
terms of the renewal, the Note bears interest payable monthly at a
rate of prime plus 1 1/2 percent, adjusted quarterly.

3.      ACQUISITION

        On September 29, 1995 the Company acquired all of the
outstanding common shares of Soft Systems, Ltd. ("Soft Systems"), a
United Kingdom corporation, for approximately $4,020,000 (consisting
of $2,251,280 of cash and 248,083 unregistered shares of the Company's
common stock) plus direct acquisition costs approximating $325,000.
The acquisition was accounted for under the purchase method and,
accordingly, the operating results of Soft Systems, Ltd. have been
included in the Company's operating results since the date of the
acquisition. The purchase price was allocated among identifiable 
tangible assets and liabilities based on their respective fair values.
In addition, the purchase price was allocated to certain intangible
assets, including existing software products which had reached
technological feasibility and acquired research and development costs
of $3,586,674 which was expensed as a one-time, nontax-deductible
charge in the quarter ended October 31, 1995.


FORM 10-Q
Page 6 of 12
<PAGE>
4.      RESTRUCTURING CHARGES

        During the third quarter ended October 31, 1995, the Company
began to allocate a larger portion of its development resources to
recently acquired products resulting in a restructuring of its product
development operations. As a result, the Company recorded one-time,
pretax restructuring charges totaling $1,281,811 during the quarter
ended October 31, 1995. The restructuring charges consist primarily of
the write-down of certain capitalized software development costs and
other costs associated with the restructuring of its product
development operations.

5.      THE FRANCE SUBSIDIARY

        In August 1996, the Company made a decision to discontinue the 
operations of its France subsidiary. In connection with the
discontinuation of its France subsidiary, the Company recorded an
one-time charge of approximately $101,000 which is included in general
and administrative expenses in the accompanying condensed consolidated
statements of income (loss). This charge was related to the write down
of certain assets to their estimated net realizable value and
estimated wrap-up costs. In addition, the Company recorded an income
tax benefit of $115,000 in the quarter ended October 31, 1996
associated with the write off of certain receivables from its France
subsidiary.

6.      RECLASSIFICATIONS

        Certain prior-year amounts have been reclassified to conform
with current year presentation in the accompanying consolidated
financial statements.



FORM 10-Q
Page 7 of 12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations  

LIQUIDITY AND CAPITAL RESOURCES

        The Company's working capital increased $3,381,000 to
$17,036,000 as of October 31, 1996 from $13,655,000 as of January 31,
1996. This increase was due primarily to increases in working capital
provided from operations partially offset by additions to capitalized
software development cost of $570,000 and property and equipment
additions of $325,000.

        The Company believes that the current cash, cash equivalents
and cash flow from operations will be sufficient to provide the
liquidity and capital resources to meet its lease obligations and to
finance operating needs, research and development activities and
planned growth for at least the next twelve months.

RESULTS OF OPERATIONS

Revenues

       Revenues were $18,760,000 for the nine months ended October 31,
1996 and $15,848,000 for the nine months ended October 31, 1995, an
increase of $2,912,000 or 18%. Revenues were $6,646,000 for the
quarter ended October 31, 1996 and $5,295,000 for the quarter ended
October 31, 1995, an increase of $1,351,000 or 26%.

       License fees were $13,142,000 for the nine months ended October
31, 1996 compared to $11,196,000 for the nine months ended October 31,
1995, an increase of $1,946,000 or 17%. License fees were $4,723,000
for the quarter ended October 31, 1996 and $3,669,000 for the quarter
ended October 31, 1995, an increase of $1,054,000 or 29%.      

        Service fees were $5,619,000 for the nine months ended October
31, 1996 compared to $4,652,000 for the nine months ended October
31,1995, an increase of $967,000 or 21%. Service fees were $1,923,000
for the quarter ended October 31, 1996 compared to $1,626,000 for the
quarter ended October 31, 1995, an increase of $297,000 or 18%.
Service fees increased principally as a result of the increase in the
installed base of the Company's software products and increases in
training and consulting revenues.

Cost of License Fees

        Cost of license fees includes the amortization of capitalized 
software development costs, royalties related to licensed products and
the costs of magnetic media, packaging and documentation. Cost of
license fees was $931,000 or 5% of revenues and $658,000 or 4% of
revenues for the nine months ended October 31, 1996 and 1995
respectively. Cost of license fees was $368,000 or 6% of revenues for
quarter ended October 31, 1996. For the comparable quarter of the
prior year, cost of license fees was $255,000 or 5% of revenues. The
increase in cost of license fees in dollars and as a percentage of
revenues for the nine months and quarter ended October 31, 1996 
is due primarily to increases in amortization and royalties related to 
licensed products. Amortization of capitalized software development
costs was $735,000 and $567,000 and $267,000 and $230,000 for the nine
months and the quarters ended October 31, 1996 and 1995, respectively.


FORM 10-Q
Page 8 of 12
<PAGE>
Cost of Service Fees

        Cost of service fees consists of the costs associated with
supplying customers with technical assistance and training and
consulting services. Cost of service fees was $2,362,000 or 13% of
revenues and $1,752,000 or 11% of revenues for the nine months ended
October 31, 1996 and 1995 respectively. Cost of service fees was
$811,000 or 12% of revenues for the quarter ended October 31, 1996.
Cost of service fees was $659,000 or 12% of revenues for the quarter
ended October 31, 1995. The increase in cost of service fees in 
dollars is due principally to increases in the Company's support,
training and consulting staffs and related expenses. The Company
expects costs of service fees to continue to increase in dollars as
the Company's customer base expands.

Development Expenses

        Development expenses were $1,566,000 or 8% of revenues for the
nine months ended October 31, 1996 compared to $2,214,000 or 14% of
revenues for the nine months ended October 31, 1995. Development
expenses were $561,000 or 8% of revenues for the quarter ended October
31, 1996 and $624,000 or 12% of revenues for the quarter ended October
31, 1995. Development expenses for the nine months and quarter ended
October 31, 1996 decreased due to the restructuring of the Company's
product development operations in the third quarter ended October 31,
1995. The Company capitalized $570,000 and $808,000 and $146,000 and
$398,000 of development expenditures for the nine months and the
quarters ended October 31, 1996 and 1995, respectively.

Selling Expenses

        Selling expenses were $7,785,000 for the nine months ended
October 31, 1996 as compared to $7,193,000 for the nine months ended
October 31, 1995, an increase of 8%. Selling expenses were $2,631,000
for the quarter ended October 31, 1996 and $2,486,000 for the quarter
ended October 31, 1995, an increase of 6%. Selling expenses as a
percentage of revenues were 41% for the nine months ended October 31,
1996 and 45% for the nine months ended October 31, 1995, and 40% for
the quarter ended October 31, 1996 and 47% for the quarter ended
October 31, 1995. The increase in selling expenses in dollars is due
principally to the addition of sales and marketing personnel and
increased marketing expenses. The decrease in selling expenses as a 
percentage of revenues is due to an increase in revenues without a 
proportionate increase in selling expenses.

General and Administrative Expenses

        General and administrative expenses were $3,534,000 for the
nine months ended October 31, 1996 and $3,233,000 for the nine months
ended October 31, 1995, an increase of 9%. General and administrative
expenses were $1,244,000 for the quarter ended October 31, 1996 and
$1,137,000 for the quarter ended October 31, 1995, an increase of 9%.
General and administrative expenses were 19% of revenues for the nine
months ended October 31, 1996 and 20% of revenues for the nine months
ended October 31, 1995. These expenses were 19% of revenues for the
quarter ended October 31, 1996 and 21% for the quarter ended October
31, 1995. The decrease in general and administrative expenses as a
percentage of revenue for the nine months and the quarter ended 
October 31, 1996 reflects increased revenues without a proportionate
increase in general and administrative expenses. 


FORM 10-Q
Page 9 of 12
<PAGE>
Income Taxes

        The Company's effective tax rate on pretax income was 28% and
6% for the nine months ended October 31, 1996 and 1995, respectively,
and 26% and 9% for the quarters ended October 31, 1996 and 1995,
respectively. Income tax expense (benefit) was $826,000 and ($210,000)
for the nine months ended October 31, 1996 and 1995, respectively.
Income tax expense (benefit) was $307,000 and ($431,000) for the
quarters ended October 31, 1996 and 1995, respectively. The increase
in income tax expense and the Company's effective tax rate for the
nine months and the quarter ended October 31, 1996 was due principally
to an increase in operating income resulting from charges related 
to the acquisition of Soft Systems, Ltd. and the restructuring of the 
Company's product development operations in the quarter ended October
31, 1995, coupled with a decrease in the amount of research and
development credits utilized to reduce federal income taxes. Research
and development credits of approximately $40,000 and $117,500 were
utilized in the nine months ended October 31, 1996 and 1995
respectively to reduce federal income taxes. 

        The Company does not provide for U.S. federal income taxes on 
undistributed earnings of foreign subsidiaries as such earnings are 
considered to be permanently reinvested. The amount of undistributed
earnings which would be subject to U.S. federal income tax if
repatriated as of July 31, 1996 was approximately $602,000. The tax
liability on these earnings, if repatriated, would not be material.

Income Per Share

        Net income (loss) per share increased to $0.44 from ($0.80)
for the nine months ended October 31, 1996 and 1995, respectively. Net
income (loss) per share increased to $0.18 from ($0.96) for the
quarters ended October 31, 1996 and 1995, respectively. This increase
was due primarily to increased income from operations.




FORM 10-Q
Page 10 of 12
<PAGE>
                     PART II.  OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)    Exhibits

               11.  Computation of Primary and Fully Diluted Per Share
                    Earnings

        (b)    Reports on Form 8-K

               None




                         S I G N A T U R E S



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.
                                          IQ SOFTWARE CORPORATION
                                               (Registrant)

Date:      December 14, 1996
                                                                       
          
                                         By: /s/ Charles R. Chitty
                                            Charles R. Chitty
                                            Chairman, President and
                                            Chief Executive Officer
                                            (Principal Executive
                                            Officer)


                                                                       
            
                                        By: /s/ J. Kent Elmer
                                           J. Kent Elmer
                                           Controller
                                           (Principal Accounting
                                           Officer) 




FORM 10-Q
Page 11 of 12
<PAGE>
EXHIBIT 11
<TABLE>

                                       IQ SOFTWARE CORPORATION AND SUBSIDIARIES
                              COMPUTATION OF PRIMARY AND FULLY DILUTED PER SHARE EARNINGS


                                                             Three Months Ended                 Nine Months Ended
                                                                October 31,                       October 31,
                                                           1996              1995              1996            1995
<S>                                                    <C>               <C>               <C>             <C>
PRIMARY

    Weighted average Common Stock outstanding           4,597,000         4,312,000         4,572,000       4,241,000

    Net effect of dilutive stock options 
      based on the treasury stock method...               225,000                --           199,000              --

      Total................................             4,822,000         4,312,000         4,771,000       4,241,000

    Net income (loss)......................            $  857,000       $(4,136,000)       $2,116,000     $(3,399,000)

    Net income (loss) per share............            $     0.18       $     (0.96)       $     0.27     $     (0.80)

FULLY DILUTED

    Weighted average Common Stock outstanding           4,597,000         4,312,000         4,572,000       4,241,000

    Net effect of dilutive stock options 
      based on the treasury stock method...               248,000                --           247,000              --

      Total................................             4,845,000         4,312,000         4,819,000       4,241,000

    Net income (loss)......................           $   857,000       $(4,136,000)       $2,116,000     $(3,399,000)

    Net income (loss) per share............           $      0.18       $     (0.96)       $     0.27     $     (0.80)
</TABLE>

FORM 10-Q
Page 12 of 12