UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 ---------------


                                    FORM 10-Q

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


                      FOR QUARTER ENDED SEPTEMBER 30, 1998


                         COMMISSION FILE NUMBER 0-24719


                                 SOFTWORKS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

          DELAWARE                          7372                52-1092916
(State or other jurisdiction of (Primary Standard Industrial  (I.R.S. Employer
Incorporation or organization)   Classification Code Number) Identification No.)



                        5845 RICHMOND HIGHWAY, SUITE 400
                              ALEXANDRIA, VA 22303
                                (703) 317 - 2424
  Address, including zip code, and telephone number, including area code, of
                    registrant's principal executive offices)


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

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 issuer's classes of common
stock as of the latest practicable date:

                                               NUMBER OF SHARES OUTSTANDING ON
          TITLE OF CLASS                             September 30, 1998
    Common Stock, $.001 par value                        15,973,000



<PAGE>



                                 SOFTWORKS, INC.
   Quarterly Report on Form 10-Q for the Nine Months Ended September 30, 1998
                                Table of Contents



                                                                         PAGE
PART I    FINANCIAL INFORMATION

  ITEM 1.   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  Consolidated Balance Sheets as of September 30, 1998 and December 31,   3
  1997

  Consolidated Statements of Operations for the three and nine months
  ended September 30, 1998 and 1997                                       4

  Consolidated Statements of Cash Flows for  the nine months
  ended September 30, 1998 and 1997                                       5

  Notes to Consolidated Financial Statements                              6

  ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF                      10
              FINANCIAL CONDITION AND RESULTS OF OPERATIONS


PART II   OTHER INFORMATION

  ITEM 1.   LEGAL PROCEEDINGS                                            17


  ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS                    17


  ITEM 3.   DEFAULTS UPON SENIOR SECURITIES                              17


  ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY                  17
              HOLDERS


  ITEM 5.   OTHER INFORMATION                                            17


  ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                             18


  SIGNATURE                                                              19



<PAGE>
                                     PART I

ITEM 1.   FINANCIAL STATEMENTS

                                 SOFTWORKS, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                               September 30,      December 31,
                                                   1998               1997
                                             ----------------   ----------------
                                                (UNAUDITED)
<S>                                                <C>                <C>
          Assets
Current Assets:
 Cash and cash equivalents                          $ 6,704           $   360
 Accounts receivable, net of allowance for
  doubtful accounts of $288 and $206, respectively    9,177            10,652
 Installment receivables                             10,154             6,148
 Prepaid expenses and other current assets            1,406               984
 Deferred tax assets                                    180               138
                                             ----------------   ----------------
 Total current assets                                27,621            18,282

 Installment receivables, noncurrent                  7,729             6,480
 Property and equipment, net                          1,498             1,523
 Software development costs, net                      3,361             3,357
 Goodwill, net of accumulated amortization of
  $3,124 and $2,477, respectively                     4,365             4,611
 Other assets                                         1,056               734
 Deferred tax assets, noncurrent                        365               696
                                            -----------------   ----------------
          Total assets                              $45,995             35,683
                                            =================   ================

          Liabilities and Stockholders' Equity
Current Liabilities:
 Accounts payable and accrued expenses              $ 3,959             4,689
 Current portion of long-term debt                      968             1,083
 Deferred maintenance revenue                         6,435             6,225
 Deferred installment revenue                         6,938             5,506
 Income taxes payable                                   356                -
 Due to Parent                                            -             1,554
                                             ----------------   ----------------

     Total current liabilities                       18,656            19,057

 Deferred maintenance revenue, noncurrent             1,866               740
 Deferred installment revenue, noncurrent             7,662             7,122
 Long-term debt                                       1,575             1,294
 Payable to Parent for federal income taxes             760             1,383
                                             ----------------   ----------------
     Total liabilities                               30,519            29,596

Stockholders' Equity:
 Preferred stock, $.001 par value; 2,000,000 shares
  authorized; none issued or outstanding                -                  -
 Common stock, $.001 par value; 150,000,000             16                 14
 authorized; 15,973,000 and 14,083,000 shares
 issued and outstanding, respectively
 Additional paid-in capital                         15,201              5,549
 Retained earnings                                     335                578
 Accumulated other comprehensive loss                  (76)               (54)
                                             ----------------   ----------------
     Total stockholders' equity                     15,476              6,087
                                             ----------------   ----------------
     Total liabilities and stockholders' 
        equity                                      45,995             35,683
                                             ================   ================

  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
</TABLE>

<PAGE>

                                 SOFTWORKS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                     Three Months Ended     Nine Months Ended
                                        September 30,         September 30,
                                      ------------------     -----------------
                                        1998       1997       1998      1997
                                     ---------   -------    -------    -------
                                    (UNAUDITED)(UNAUDITED)(UNAUDITED)(UNAUDITED)
<S>                                   <C>        <C>       <C>         <C>
Revenue:
 Software licenses                    $  8,172   $ 4,281    $17,934    $10,385
 Maintenance                             2,619     2,578      7,795      7,407
 Professional services                     456        45      1,168         45
                                      --------   -------    -------    --------

     Total revenue                      11,247     6,904     26,897     17,837
                                      --------   -------    -------    --------

Cost of revenue (exclusive of
 amortization and depreciation shown
 separately below):
 Software licenses                        426        161      1,059        376
 Maintenance                            1,675      1,355      4,933      3,855
 Professional services                    244         38        665         38
                                      --------     -----      -----      ------
     Total cost of revenue              2,345      1,554      6,657      4,269
                                      --------    ------      -----      ------
Gross margin                            8,902      5,350     20,240     13,568

                                      --------    ------     -------    -------
Operating expenses:
 Sales and marketing                    5,181      3,247     13,092      8,852
 General and administrative             1,087        586      3,443      2,064
 Amortization and depreciation            616        500      1,631      1,381
 Research and development                 850        683      1,543      1,369
                                     ---------    -------    ------     -------
     Total operating expenses           7,734      5,016     19,709     13,666
                                     ---------    -------    ------     -------
Operating income (loss)                 1,168        334        531        (98)

Other expenses                            (84)        -        (253)        -
                                     ---------    -------    -------    -------

Income (loss) from operations before
 income taxes                           1,084        334        278        (98)

Provision for income taxes                547        207        521        128
                                     ---------    -------      -----    -------

Net income (loss)                     $   537     $  127     $  243)    $ (226)
                                     =========    =======    =======    =======
Basic and diluted net income (loss)   $  0.04     $  0.01    $(0.02)    $(0.02)
                                     =========    =======    =======    =======

Basic and diluted weighted average
 shares outstanding                    15,275      14,083     14,485     14,083
                                     =========    =======    =======    =======


  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
</TABLE>


<PAGE>

                                 SOFTWORKS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
       
<TABLE>
<CAPTION>
                                                          Nine Months Ended
                                                            September 30,
                                                     ---------------------------
                                                        1998           1997
                                                     ---------------------------
                                                     (UNAUDITED)    (UNAUDITED)
<S>                                                  <C>            <C> 
Cash flows from operating activities:
 Net loss                                            $     (243)    $     (226)
 Adjustments to reconcile net loss to net
  cash provided by (used in) operating activities ---
  Amortization and depreciation
   Property and equipment                                   589            465
   Software development costs                             1,172            480
   Goodwill                                                 647            551
  Provision for doubtful accounts                           159             76
  Deferred tax expense                                      289            193
 Changes in operating assets and liabilities---
  Accounts receivable and installment receivables        (3,938)        (7,347)
  Prepaid expenses and other current assets                (422)          (284)
  Other assets                                             (322)          (163)
  Accounts payable and accrued expenses                    (497)           818
  Income taxes payable                                      356            -
  Deferred revenue                                        3,308          5,541
                                                    ------------    -----------
     Net cash provided by operating activities            1,098            104
                                                    ------------    -----------
Cash flows from investing activities:
 Purchases of property and equipment                       (564)          (732)
 Software development and technology purchases           (1,286)          (525)
 Additional consideration for SOFTWORKS, Inc.
  acquisition                                              (408)          (546)
                                                    ------------    -----------

     Net cash used in investing activities               (2,258)        (1,803)
                                                    ------------    -----------
Cash flows from financing activities:
 Net (payments to) borrowings from Parent                (1,554)           275
 Change in amount payable to Parent for federal
  income taxes                                             (623)            -
 Repayments of long-term debt                                -            (189)
 Proceeds from long-term debt                                49             -

 Net proceeds from initial public offering                9,654             -
                                                    ------------    -----------
     Net cash provided by financing activities            7,526             86
                                                    ------------    -----------
Effect of exchange rate changes on cash and 
 cash equivalents                                          (22)             -
                                                    ------------    -----------
Net increase (decrease) in cash and cash equivalents      6,344         (1,613)
Cash and cash equivalents, beginning of period              360          1,735
                                                    ------------    -----------
Cash and cash equivalents, end of period             $    6,704     $      122 
                                                   
Supplemental disclosure of cash flow information:
 Interest paid                                       $       21             22      
                                                    -----------     -----------
 Income taxes paid                                   $       14            -
                                                    ===========     ===========
Supplemental schedule of noncash investing and
 financing activities:
 Assumption of long-term debt from capitalized
  software technology                                $     -             2,160
                                                    ===========     ===========

  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
</TABLE>

<PAGE>
                                 SOFTWORKS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      AS OF SEPTEMBER 30, 1998 (UNAUDITED)


1. Organization and Nature of Operations:

The Company

     SOFTWORKS, Inc. ("SOFTWORKS" or the "Company") designs, develops,  markets,
and supports  systems  management  software  products for  enterprise  computing
environments primarily in the United States.  SOFTWORKS owns subsidiaries in the
United Kingdom,  France,  Brazil,  Australia,  Italy,  Germany,  and Spain which
operate primarily as sales offices. SOFTWORKS was incorporated in 1977 under the
state  laws of  Maryland  and  reincorporated  in 1998  under the state  laws of
Delaware.  In 1993,  SOFTWORKS  was  acquired by Computer  Concepts  Corp.  (the
"Parent").  

Public Offering

     On August 4, 1998, the Company completed an initial public offering ("IPO")
of 4,200,000 shares of the Company's common stock, par value $.001. 1,700,000 of
these shares were sold by the Company,  resulting in net proceeds to the Company
of approximately  $9.7 million,  while the remaining  2,500,000 shares sold were
owned by the Parent and another  stockholder.  In conjunction  with the IPO, the
Company also issued 190,000 shares of common stock to a financial advisor.


Voting Trust Agreement

     In conjunction with the IPO, shares owned by the Parent were deposited in a
voting trust.  The voting power of the shares  deposited in the trust is held by
three  trustees  who are members of the Board of  Directors  of  SOFTWORKS.  One
trustee is the  Chairman  of the  Parent  and the  remaining  two  trustees  are
directors who do not have a significant financial interest in the Parent, one of
which is the Chairman of SOFTWORKS. The agreement provides that upon a change in
either of the remaining two trustees,  the non-Parent  stockholders have control
of the selection of the successor  director/trustee.  This agreement  remains in
effect until the Parent reduces its ownership to 25% of SOFTWORKS.


Risks and Other Factors

     As a company  that  develops,  markets,  licenses  and supports a family of
enterprise systems management  software products for data and storage management
and  performance  management,  SOFTWORKS  faces  certain  risks.  These  include
dependence on proprietary  technology,  rapid  technological  change,  errors or
failures in its products, dependence on key personnel,  challenges in recruiting
personnel and a highly competitive marketplace.

     As of September 30, 1998, the Parent owned more than 50% of the outstanding
shares of the Company.  The Parent received a going concern opinion with respect
to its audited financial statements for the year ended December 31,  1997. Under
certain  circumstances,  the Parent's  financial  condition  may  influence  its
decisions  as the  controlling  stockholder  of the  Company.  The voting  trust
agreement  noted above gives the majority of trustees  control over  significant
corporate actions,  including certain dispositions or encumbrances of assets and
the payment of dividends.

<PAGE>

2. Significant Accounting Policies

Financial Statement Presentation

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the  reported  amounts of assets and  liabilities,  the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

     These  financial  statements  are  unaudited  and have been prepared by the
Company  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission  regarding  interim  financial  reporting.  Accordingly,  they do not
include all of the  information  and  footnotes  required by generally  accepted
accounting  principles for complete  financial  statements,  and it is suggested
that  these  financial  statements  be read in  conjunction  with the  financial
statements,  and the notes thereto,  included in the Company's  prospectus dated
August  4, 1998 and  subsequent  Forms  10-Q as filed  with the  Securities  and
Exchange  Commission.  In the opinion of management,  the comparative  financial
statements for the fiscal periods  presented herein include all adjustments that
are normal and recurring which are necessary for a fair statement of the results
for the interim periods. The results of operations for the three and nine months
ended September 30, 1998 are not  necessarily  indicative of the results for the
entire year ending December 31, 1998.

Increase in Authorized Shares and Stock Split

     On May 27, 1998,  the Company  restated its  articles of  incorporation  to
increase  the number of  authorized  shares to  2,000,000  preferred  shares and
150,000,000 common shares. Additionally, on May 28, 1998, the Board of Directors
of SOFTWORKS effected a 5,000-for-1 stock split. Further, on June 29,  1998, the
Board of Directors of SOFTWORKS  declared and issued a stock dividend of 583,000
shares of Common  Stock to the Parent.  The effects of the stock split and stock
dividend have been given retroactive  application in the consolidated  financial
statements for all periods presented.

Revenue Recognition

     Revenue  from  the  sale  of  perpetual  and  term  software   licenses  is
recognized,  net  of  provisions  for  returns,  at the  time  of  delivery  and
acceptance  of  software  products  by  the  customer,  when  collectibility  is
probable. The Company provides customers with the option to pay for license fees
in one lump sum or generally in equal annual  installments over extended periods
of time, generally three to five years. In such instances,  the Company does not
consider sales contracts with amounts due for periods greater than one year from
delivery,  fixed and  determinable,  and accordingly  recognizes such amounts as
revenue  when they  become  due.  Maintenance  revenue  that is bundled  with an
initial  license fee is deferred and  recognized  ratably  over the  maintenance
period.  Amounts  deferred  for  maintenance  are  based  on the  fair  value of
equivalent  maintenance  services  sold  separately.  Revenue from  professional
services, such as training and staff augmentation, is recognized as the services
are performed.

     The American  Institute of Certified Public Accountants issued Statement of
Position 97-2 "Software  Revenue  Recognition"  ("SOP 97-2"),  which  superceded
Statement of Position 91-1  "Software  Revenue  Recognition."  SOP 97-2 provides
additional  guidance  with respect to multiple  element  arrangements;  returns,
exchanges, and platform transfer rights;  resellers;  services;  funded software
development arrangements;  and contract accounting.  The Company implemented SOP
97-2 for the year ended December 31, 1997. In March 1998, Statement of Positions
98-4 ("SOP  98-4")  amended a portion of SOP 97-2.  The adoption of SOP 97-2 and
the amendment  contained in SOP 98-4 were not material to the Company's  revenue
recognition policy for software transactions.



<PAGE>

Cash Equivalents

     The  Company  considers  all highly  liquid  instruments  with an  original
maturity of three months or less at the time of purchase to be cash equivalents.

Income Taxes

     The  Company  accounts  for  income  taxes  under  Statement  of  Financial
Accounting  Standards  No. 109,  "Accounting for Income Taxes" ("SFAS No. 109").
SFAS No. 109  requires the  determination of deferred tax assets and liabilities
based on the differences between the financial statement and income tax bases of
assets and liabilities,  using enacted tax rates. SFAS No. 109 requires that the
net deferred tax asset is to be adjusted by a valuation allowance,  if, based on
the weight of available  evidence,  it is more likely than not that some portion
or all of the net deferred tax asset will not be realized.

Basic and Diluted Net Income (Loss) Per Share

     In March 1997, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement  No.  128,  "Earnings  Per Share"  ("SFAS No.  128").  SFAS No. 128 is
effective for financial  statements issued for periods ending after December 15,
1997 and has been implemented for all periods  presented.  SFAS No. 128 requires
dual  presentation of basic and diluted  earnings per share.  Basic earnings per
share  includes no  dilution  and is  computed  by  dividing  net income  (loss)
available to common stockholders by the weighted average number of common shares
outstanding  for the period.  Diluted  earnings per share includes the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock.  As of September  30,1998,  total
stock  options  granted were 3.6 million of 3.7 million  authorized.  Due to the
anti-dilutive  nature of the  options  for all  periods  presented,  there is no
effect on the  calculation of weighted  average shares for diluted  earnings per
share.  As a result,  the basic  and  diluted  earnings  per share  amounts  are
identical.

     Basic and diluted net earnings per share is also  computed  pursuant to SEC
Staff  Accounting  Bulletin No. 98  ("SAB 98").  SAB 98 requires that all equity
instruments issued at nominal prices,  prior to the effective date of an initial
public offering,  be included in the calculation of basic and diluted net income
(loss) per share as if they were outstanding for all periods presented.  To date
the Company has not had any issuances or grants at nominal prices.

Foreign Currency

     The functional currency for all of the Company's international subsidiaries
is the  subsidiary's  local currency.  Assets and  liabilities of  international
subsidiaries are translated into  U.S. dollars at period-end  exchange rates and
revenue and expense  accounts and cash flows are translated at average  exchange
rates  during  the  period.  Gains and losses  resulting  from  translation  are
recorded as accumulated  other  comprehensive  income in  stockholders'  equity.
Transaction  gains and losses are recognized in the  consolidated  statements of
operations as incurred.  The Company does not engage in any hedging  activities.
As a result, there is no guarantee that fluctuations in exchange rates might not
have a material adverse effect on the Company's financial results.

Fair Value of Financial Instruments

     The carrying  value of current assets and current  liabilities  approximate
their  fair  value  because  of  the  relatively   short   maturities  of  these
instruments.

<PAGE>

3. Geographic Information:

     The Company is primarily  engaged in a single line of business.  Geographic
data is summarized  between the United States and  International.  International
consists of operations through the Company's  international  subsidiaries in the
United Kingdom, France, Brazil, Australia, Spain, Germany, and Italy, as well as
sales generated through international distributors primarily in Europe and Asia.
Geographic data is presented in accordance with SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related  Information" for all periods presented as
follows (in thousands):

<TABLE>
<CAPTION>
                                          Three Months Ended             Nine Months Ended
                                             September 30,                  September 30,
                                    -----------------------------   ----------------------------
                                       1998             1997           1998             1997
                                    ------------     ------------   -----------      -----------
<S>                                   <C>             <C>            <C>              <C>      
Revenue:
 United States                        $   8,827       $    5,709     $  21,139        $  14,517
 International                            2,420            1,195         5,758            3,320
                                    ============     ============   ===========      ===========
 Total                                $  11,247       $    6,904     $  26,897        $  17,837
                                    ============     ============   ===========      ===========

Operating Income (Loss):
 United States                        $   1,395       $      503     $   1,475        $     455
 International                             (227)            (169)         (944)            (553)
                                    ============     ============   ===========      ===========
 Total                                $   1,168       $      334     $     531        $     (98)
                                    ============     ============   ===========      ===========

Identifiable Assets:
 United States                        $  39,478       $   26,878     $  39,478        $  26,878
 International                            6,517            1,820         6,517            1,820
                                    ============     ============   ===========      ===========
 Total                                $  45,995       $   28,698     $  45,995        $  28,698
                                    ============     ============   ===========      ===========
</TABLE>

<PAGE>


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

     Forward-Looking   Statements.  All  statements  other  than  statements  of
historical  fact  included  in  this  Form  10-Q  including  without  limitation
statements under,  "Management's  Discussion and Analysis of Financial Condition
and Results of Operations" regarding the Company's financial position,  business
strategy and the plans and  objectives  of the Company's  management  for future
operations, are forward-looking  statements.  When used in this Form 10-Q, words
such as  "anticipate,"  "believe,"  "estimate,"  "expect,"  "intend" and similar
expressions,  as  they  relate  to  the  Company  or  its  management,  identify
forward-looking  statements.  Such  forward-looking  statements are based on the
beliefs  of the  Company's  management,  as  well  as  assumptions  made  by and
information  currently  available to the Company's  management.  Actual  results
could  differ  materially  from  those   contemplated  by  the   forward-looking
statements  as a  result  of  certain  factors  including  but not  limited  to,
fluctuations in future operating results, technological changes or difficulties,
management of future growth, expansion of international operations,  the risk of
errors or failures in the Company's software products, dependence on proprietary
technology,  competitive factors, risks associated with potential  acquisitions,
the ability to recruit  personnel,  the dependence on key personnel,  control of
the Company by the Parent, and management's discretion in the application of the
offering proceeds. Such statements reflect the current views of the Company with
respect to future events and are subject to these and other risks, uncertainties
and  assumptions  relating  to the  operations,  results of  operations,  growth
strategy  and  liquidity  of  the  Company.  All  subsequent  written  and  oral
forward-looking  statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this paragraph.

                                    Overview

     The Company develops, markets, licenses and supports a family of enterprise
systems  management  software  products  for data  and  storage  management  and
performance  management.  The  Company's  offerings are grouped into four market
segments ("Arenas"):  performance  management  ("Performance  Arena");  data and
storage  management  ("DataStor  Arena");  Year 2000  ("Year 2000  Arena");  and
professional  services  ("Services  Arena").  The  Company  derives  its revenue
primarily  from the licensing of its computer  software  programs,  the sales of
software maintenance services,  and from professional services involving product
implementation and staff augmentation services.

     The  Company's  revenue  consists of revenue  from  licensing  its software
products, revenue from the maintenance and support of its software products and,
commencing  in the third  quarter of 1997,  revenue from  professional  services
relating to information  technology  ("IT")  consulting and staff  augmentation.
Generally,  the  Company  is  required  by  its  license  agreement  to  provide
maintenance  and  enhancements  during  the  maintenance  period.  "Maintenance"
includes  diagnosis  and  correction  of errors in the  current  version  of the
product  and  telephone  consultation  to  discuss  general  support  questions.
"Enhancements" include upgrades to the products as they become available and new
releases of products,  except for those which are sold as charged options to the
Company's  general  customer base.  Substantially  all of the Company's  license
agreements are perpetual.

     Maintenance  agreements  are  typically  for a term of one year  and  renew
automatically  upon the payment by the  customer of an annual  maintenance  fee.
Maintenance  revenue also includes  maintenance  services for an initial  period
that is included in the initial  charge when the Company  licenses  its software
products under a long-term agreement. Thereafter on each anniversary date of the
license,  the  customer  may elect to renew its  maintenance  contract  with the
Company. Customers may also elect to purchase advance maintenance at the time of
product licensing for maintenance periods beyond the first year.

<PAGE>


                                Operating Results

     The  following  table  sets  forth  for  the  periods   indicated   certain
consolidated  statement of  operations  data  expressed as a percentage of total
revenue.

<TABLE>
<CAPTION>
                                                   Three Months Ended                  Nine Months Ended
                                                      September 30,                     September 30,
                                               ---------------------------       ---------------------------
                                                  1998            1997              1998            1997
                                               -----------     -----------       -----------     -----------
                                               (UNAUDITED)      (UNAUDITED)      (UNAUDITED)     (UNAUDITED)
<S>                                              <C>             <C>               <C>           <C>    
Revenue:
Software licenses                                 72.7%           62.0%             66.7%           58.2%
Maintenance                                       23.2%           37.3%             29.0%           41.5%
Professional services                              4.1%            0.7%              4.3%            0.3%
                                               -----------     -----------       -----------     -----------

           Total revenue                         100.0%          100.0%            100.0%          100.0%

Cost of Revenue (exclusive of
amortization and depreciation shown
separately below):
Software licenses                                  3.8%            2.3%              3.9%            2.1%
Maintenance                                       14.9%           19.6%             18.3%           21.6%
Professional services                              2.2%            0.6%              2.5%            0.2%
                                               -----------     -----------       -----------     -----------

       Total cost of revenue                      20.9%           22.5%             24.7%           23.9%
                                               -----------     -----------       -----------     -----------

Gross margin                                      79.1%           77.5%             75.3%           76.1%

                                               -----------     -----------       -----------     -----------
Operating expenses:
Sales and marketing                               46.1%           47.0%             48.7%           49.6%
General and administrative                         9.6%            8.6%             12.8%           11.6%
Amortization and depreciation                      5.5%            7.2%              6.1%            7.7%
Research and development                           7.6%            9.9%              5.7%            7.7%
                                               -----------     -----------       -----------     -----------
      Total operating expenses                    68.8%           72.7%             73.3%           76.6%
                                               -----------     -----------       -----------     -----------
Operating income (loss)                           10.3%            4.8%              2.0%           -0.5%

Other expenses                                    -0.7%            0.0%             -1.0%            0.0%
                                               -----------     -----------       -----------     -----------
Income (loss) from operations before
income taxes                                       9.6%            4.8%              1.0%           -0.5%

Provision for income taxes                         4.8%            3.0%              1.9%            0.8%
                                               -----------     -----------       -----------     -----------
Net income (loss)                                  4.8%            1.8%             -0.9%           -1.3%
                                               ===========     ===========       ===========     ===========
</TABLE>

<PAGE>
                                             

THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997

     Revenue.  Total  revenue  for the three  months  ended  September  30, 1998
increased by 62.9% to $11.2 million from $6.9 million for the three months ended
September  30, 1997.  License  revenue for the three months ended  September 30,
1998  increased  90.9% to $8.2 million  from $4.3 million for the quarter  ended
September  30, 1997.  Revenue from product  licenses in the  Company's  DataStor
Arena  that  includes  its  multi-platform   data  storage  management  product,
CenterStage,  increased  68.9% for the three  months ended  September  30, 1998.
Revenue from  product  licenses in the  Company's  Performance  Arena  increased
116.3% for the three  months  ended  September  30,  1998.  Maintenance  revenue
increased  1.6% to $2.62  million for the three months ended  September 30, 1998
from $2.57 million for the three months ended  September 30, 1997.  Professional
services,  which commenced operations in the third quarter of 1997,  contributed
$456,000 to total revenue for the period ended September 30, 1998. International
revenue,   consisting  of  the  Company's   licensing  from  its   international
operations,  comprised  of foreign  subsidiaries,  distributors,  and  marketing
agents,  increased  102.5% to $2.4 million for the three months ended  September
30, 1998 from $1.2 million for the three months ended  September  30, 1997. As a
percentage of total revenue,  international  revenue  increased to 21.5% for the
quarter ended  September 30, 1998 from 17.3% for the quarter ended September 30,
1997.  The increase was primarily  the result of increased  product sales in the
UK, Australia and Brazil.

     Cost of  Revenue.  Included  in the cost of  revenue  are cost of  software
license revenue,  cost of maintenance revenue, and cost of professional services
revenue.  Cost of software  license revenue  includes  royalties paid to Company
developers  and to third parties.  Cost of software  license  revenue  increased
164.6%  to  $426,000,  or 3.8% of total  revenue,  for the  three  months  ended
September 30, 1998 from $161,000, or 2.3% of total revenue, for the three months
ended  September  30, 1997.  This  increase  was  primarily  attributable  to an
increase  in  royalties  as a result of  increased  sales of  products.  Cost of
maintenance  revenue increased 23.6% to $1.7 million, or 14.9% of total revenue,
for the three months ended  September  30, 1998 from $1.4  million,  or 19.6% of
total revenue,  for the three months ended  September 30, 1997. This increase is
attributable to an increasing  customer base of maintenance  contracts.  Cost of
professional service revenue, which consists primarily of salaries and expenses,
commenced operations in the third quarter of 1997 and was $244,000 for the three
months ended September 30, 1998.

     Sales and Marketing Expense.  Sales and marketing expenses include salaries
and related costs,  commissions,  travel,  facilities  and computers,  pre-sales
support,  communications  costs, trade shows and other promotional  expenses for
the Company's direct sales organization and marketing staff. Sales and marketing
expenses  increased  59.6% to $5.2 million for the three months ended  September
30, 1998 from $3.2 million for the three months ended  September 30, 1997.  This
increase was attributable  primarily to increased  commission expenses resulting
from increased sales, and increased personnel costs resulting from growth in the
Company's sales  organization.  As a percentage of revenue,  sales and marketing
expenses  decreased to 46.1% for the three months ended  September 30, 1998 from
47.0% for the three months ended  September 30, 1997.  The Company  expects that
sales and marketing expenditures will increase in terms of absolute dollars, and
may  decrease as a  percentage  of  revenue,  during the  remainder  of 1998 and
thereafter.  The  increase  in  absolute  dollars is  expected to be incurred as
additional  personnel  are hired,  field  offices  are  opened  and  promotional
expenditures  increase to allow the Company to increase  its market  penetration
and to pursue new market opportunities.

     General and Administrative  Expense.  General and  administrative  expenses
include   administrative   salaries  and  related  benefits,   management  fees,
recruiting  and  relocation  expenses,  as well as legal,  accounting  and other
professional fees.  General and administrative  expenses increased 85.5% to $1.1
million for the three  months  ended  September  30, 1998 from  $586,000 for the
three  months   ended   September   30,  1997.   The  increase  in  general  and
administrative  expenses was  principally  due to an increase in staffing levels
and  administrative  personnel  necessary to support the Company's  growth. As a
percentage of revenue, this expense increased to 9.6% for the three months ended
September 30, 1998 from 8.6% for the three months ended  September 30, 1997. The
Company expects that general and  administrative  expenditures  will increase in
absolute  dollars and may decrease as a percentage of total revenue  during 1998
and thereafter.  The increase in absolute dollars is expected to be required for
the  expansion of the  Company's  administrative  staff and internal  systems to
support expanding operations and the costs of operating as a public company.

<PAGE>

     Amortization  and  Depreciation  Expense.   Amortization  and  depreciation
expenses  increased  23.2% to $616,000 for the three months ended  September 30,
1998 from $500,000 for the three months ended September 30, 1997.

     Research and Development Expense. Research and development expenses include
compensation  and related  costs for the  personnel  involved  in the  Company's
research and development  efforts.  Research and development  expenses increased
24.5% to $850,000 for the three months ended  September  30, 1998 from  $683,000
for the three months ended September 30, 1997.

     Provision  for Income Taxes.  The  provision for income taxes  increased to
$547,000  for the three months ended  September  30, 1998 from  $207,000 for the
three months ended September 30, 1997. For the period ending September 30, 1997,
the Company  reported its  financial  results on a  consolidated  basis with the
Parent and did not file separate tax returns.

NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED 
SEPTEMBER 30, 1997

     Revenue. Total revenue increased 50.8% to $26.9 million for the nine months
ended  September 30, 1998 from $17.8 million for the nine months ended September
30, 1997.  License revenue  increased 72.7% to $17.9 million for the nine months
ended  September 30, 1998 from $10.4 million for the nine months ended September
30, 1997. Maintenance revenue increased 5.2% to $7.8 million for the nine months
ended  September 30, 1998 from $7.4 million for the nine months ended  September
30, 1997. Professional services, which commenced operations in the third quarter
of 1997,  contributed  $1.2  million to total  revenue for the nine month period
ended September 30, 1998.

     Cost of  Revenue.  Included  in the cost of  revenue  are cost of  software
license revenue,  cost of maintenance revenue, and cost of professional services
revenue.  Cost of software  license revenue  includes  royalties paid to Company
developers  and to a third party under a licensing  agreement.  Cost of software
license revenue increased 181.6% to $1.1 million, or 3.9% of total revenue,  for
the nine  months  ended  September  30,  1998  from  $376,000,  or 2.1% of total
revenue,  for the nine months  ended  September  30,  1997.  This  increase  was
primarily  attributable  to the  royalties  paid as a  result  of a third  party
agreement  that  commenced  in July  1997,  as well as an  increase  in  royalty
payments resulting from increased software license revenue.  Cost of maintenance
revenue increased 28.0% to $4.9 million, or 18.3% of total revenue, for the nine
months ended  September 30, 1998 from $3.9 million,  or 21.6% of total  revenue,
for the nine months ended  September  30, 1997.  Cost of  professional  services
revenue, which consists primarily of salaries and expenses, commenced operations
in the  third  quarter  of 1997  and was  $665,000  for the  nine  months  ended
September 30, 1998.

     Sales and Marketing Expense.  Sales and marketing expenses include salaries
and related costs, commissions, travel, facilities and computers, communications
costs and promotional  expenses for the Company's direct sales  organization and
marketing staff.  Sales and marketing  expenses increased 47.9% to $13.1 million
for the nine months  ended  September  30,  1998 from $8.9  million for the nine
months ended  September 30, 1997.  This increase was  attributable  primarily to
increased  commission  expenses  resulting from increased  sales,  and increased
personnel costs resulting from growth in the Company's sales organization.  As a
percentage of revenue,  sales and marketing  expenses decreased to 48.7% for the
nine  months  ended  September  30,  1998 from 49.6% for the nine  months  ended
September 30, 1997.

     General and Administrative  Expense.  General and  administrative  expenses
include   administrative   salaries  and  related  benefits,   management  fees,
recruiting  and  relocation  expenses,  as well as legal,  accounting  and other
professional fees.  General and administrative  expenses increased 66.8% to $3.4
million for the nine months ended  September  30, 1998 from $2.1 million for the
nine months ended September 30, 1997. The increase in general and administrative
expenses  was  principally  due to an  increase  in finance  and  administrative
personnel  necessary to support the  Company's  growth and the costs  associated
with operating as a public company.  As a percentage of revenue,  these expenses
increased to 12.8% for the nine months ended  September  30, 1998 from 11.6% for
the nine months ended September 30, 1997.
 <PAGE>


     Amortization  and  Depreciation  Expense.   Amortization  and  depreciation
expenses increased 18.1% to $1.6 million for the nine months ended September 30,
1998 from $1.4 million for the nine months ended September 30, 1997.

     Research and Development Expense. Research and development expenses include
salaries and related costs for the personnel  involved in the Company's research
and development efforts. Research and development expenses were $1.5 million for
the nine months  ended  September  30, 1998 and $1.4 million for the nine months
ended September 30, 1997.

     Provision  for Income Taxes.  The  provision for income taxes  increased to
$521,000 for the nine months ended September 30, 1998 from $128,000 for the nine
months ended  September 30, 1997. For the period ending  September 30, 1997, the
Company reported its financial  results on a consolidated  basis with the Parent
and did not file separate tax returns.


LIQUIDITY AND CAPITAL RESOURCES

     The  Company  has  funded  its  operations   through  cash  generated  from
operations and its recent initial public offering. The Company had cash and cash
equivalents  of $6.7 million at September 30, 1998.  At September 30, 1998,  the
balance due to the Parent was $760,000.

     For the nine months ended September 30, 1998 and 1997, net cash provided by
operating activities was $1.0 million and $104,000,  respectively.  For the nine
months ended September 30, 1998 and 1997, net cash used in investing  activities
was $2.3 and $1.8 million  respectively.  The increase in cash used in investing
activities was primarily a result of purchases related to software  development.
For the nine months  ended  September  30, 1998 and 1997,  net cash  provided by
financing activities was $7.5 million and $86,000 respectively.  The increase in
cash  provided by financing  activities  was primarily a result of the Company's
initial public offering.

     The Company's  principal  commitments  as of September  30, 1998  consisted
primarily of (i) leases on its corporate headquarters facilities,  various sales
offices and operating equipment, (ii) employment agreements and (iii) a software
licensing and  distribution  agreement.  There were no material  commitments for
capital  expenditures.  The Company's current cash and cash equivalent balances,
cash flow from its operations,  and the proceeds of its recent public  offering,
are  expected  to  be  sufficient  to  meet  its  working  capital  and  capital
expenditure  needs for at least  the next  12 months.  However,  there can be no
assurance  that the Company will have  sufficient  capital to finance  potential
acquisitions  or other  growth  oriented  activities,  which  could  require the
Company to incur additional debt or obtain other financing.

<PAGE>

RECENT DEVELOPMENTS

     Initial Public  Offering.  On August 4, 1998, the Company  consummated  its
Initial  Public  Offering  ("IPO") of 4,200,000  shares of its Common Stock at a
price of $7.00 per share, of which 1,700,000  shares were issued and sold by the
Company,  1,500,000  shares were sold by the Parent,  and 1,000,000  shares were
sold by another  selling  stockholder.  The net proceeds to the Company from the
IPO were approximately $9.7 million.

     New  Subsidiary  Corporations:  The Company has  established a wholly-owned
subsidiary  in the  Republic  of Germany  (Softworks  Deutschland  GmbH) and has
recruited and trained a portion of its planned sales force, in  contemplation of
operating a direct sales and customer support operation in Germany as of January
1, 1999.

     The Company has created a Foreign Sales Corporation,  within the purview of
the Tax Reform Act of 1984. This subsidiary (SOFTWORKS FSC, INC) is domesticated
in the U.S. Virgin Islands.


YEAR 2000 ISSUES

     Background.   Some  computers,   software,   and  other  equipment  include
programming  code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct  results if "00" is interpreted to mean 1900,  rather
than 2000.  These  problems  are widely  expected to increase in  frequency  and
severity  as the year  2000  approaches,  and are  commonly  referred  to as the
"Millenium Bug" or "Year 2000 Problem".

     Assessment.  The Year 2000 Problem could affect  computers,  software,  and
other equipment used, operated, or maintained by the Company.  Accordingly,  the
Company is reviewing its internal  computer  programs and systems to ensure that
the  programs  and systems will be Year 2000  compliant.  The Company  presently
believes  that its  computer  systems  will be Year 2000  compliant  in a timely
manner.  However,  while the estimated cost of these efforts are not expected to
be material to the Company's overall financial  position,  or any year's results
of operations, there can be no assurance to this effect.

     The Company has obtained certification of its processes to assess Year 2000
Problems from the Information  Technology Association of America (ITAA). Because
the Company's business involves software development, the Company has not sought
further   verification  or  validation  by  independent  third  parties  of  its
corrections of Year 2000 Problems. However, the Company's Year 2000 project team
is reviewing the Company's  project plans and monitoring  progress against those
plans.

     Software Sold to Consumers.  The Company believes that it has substantially
identified  and  resolved  all  potential  Year  2000  Problems  with any of the
software  products it develops and markets.  However,  management  also believes
that it is not possible to determine with complete  certainty that all Year 2000
Problems  affecting the  Company's  software  products  have been  identified or
corrected due to complexity of these  products and the fact that these  products
interact with other third party vendor products and operate on computer  systems
which are not under the Company's control.
 
     Internal  Infrastructure.  The  Company  believes  that  it has  identified
substantially  all of the major computers,  software  applications,  and related
equipment used in connection with its internal operations that must be modified,
upgraded,  or replaced to minimize the  possibility of a material  disruption to
its business. The Company has commenced the process of modifying, upgrading, and
replacing  major systems that have been  identified as adversely  affected,  and
expects to complete this process before the end of 1998.

     Systems Other than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities  equipment,  such as
fax machines, photocopiers, telephone switches, security systems, elevators, and
other common  devices may be affected by the Year 2000  Problem.  The Company is
currently assessing the potential effect of, and costs of remediating,  the Year
2000 Problem on its office and facilities equipment.

<PAGE>

     The  Company  estimates  the total cost to the  Company of  completing  any
required modifications, upgrades, or replacements of these internal systems will
not have a  material  adverse  effect on the  Company's  business  or results of
operations.  This estimate is being  monitored and will be revised as additional
information becomes available.

     Suppliers.  The Company has initiated  communications,  including  surveys,
with third party suppliers of the major computers, software, and other equipment
used,  operated,  or  maintained  by the Company to identify  and, to the extent
possible,  to resolve  issues  involving  the Year 2000  Problem.  However,  the
Company  has  limited  or no  control  over the  actions  of these  third  party
suppliers. Thus, while the Company does not anticipate any significant Year 2000
Problems with these systems, there can be no assurance that these suppliers will
resolve any or all Year 2000 Problems with these systems  before the  occurrence
of a material disruption to the business of the Company or any of its customers.
Any  failure of these third  parties to resolve  Year 2000  problems  with their
systems in a timely manner could have a material adverse effect on the Company's
business, financial condition, and results of operation.

     Most Likely  Consequences  of Year 2000  Problems.  The Company  expects to
identify  and resolve all Year 2000  Problems  that could  materially  adversely
affect its business  operations.  However,  management  believes  that it is not
possible  to  determine  with  complete  certainty  that all Year 2000  Problems
affecting the Company have been  identified or corrected.  The number of devices
that could be affected and the  interactions  among these devices are simply too
numerous.  In  addition,  one  cannot  accurately  predict  how many  Year  2000
Problem-related  failures  will occur or the  severity,  duration,  or financial
consequences  of these  perhaps  inevitable  failures.  As a result,  management
expects that the Company could likely suffer the following consequences:

               1.  a  significant  number  of  operational   inconveniences  and
          inefficiencies  for  the  Company  and its  clients  that  may  divert
          management's time and attention and financial and human resources from
          its ordinary business activities; and

               2. a lesser  number of serious  system  failures that may require
          significant  efforts  by the  Company  or its  clients  to  prevent or
          alleviate material business disruptions.

     Contingency Plans. The Company is currently developing contingency plans to
be implemented as part of its efforts to identify and correct Year 2000 Problems
affecting its internal systems.  The Company expects to complete its contingency
plans by the end of 1998.  Depending on the systems affected,  these plans could
include  accelerated  replacement  of affected  equipment or software,  short to
medium-term  use of backup  equipment  and  software,  increased  work hours for
Company  personnel  or use of contract  personnel  to correct on an  accelerated
schedule any Year 2000 Problems that arise or to provide manual  workarounds for
information  systems,  and  similar  approaches.  If the  Company is required to
implement  any of these  contingency  plans,  it could have a  material  adverse
effect on the Company's financial condition and results of operations.

     Based on the activities  described above, the Company does not believe that
the Year 2000  Problem  will have a  material  adverse  effect on the  Company's
business or results of operations.

<PAGE>

     Disclaimer.  The  discussion of the  Company's  efforts,  and  management's
expectations,  relating to Year 2000 compliance are forward-looking  statements.
The  Company's  ability  to  achieve  Year  2000  compliance  and the  level  of
incremental costs associated  therewith,  could be adversely  impacted by, among
other things,  the availability  and cost of programming and testing  resources,
vendors' ability to modify  proprietary  software,  and  unanticipated  problems
identified in the ongoing compliance review.


IMPACT OF EUROPEAN MONETARY UNION

     The European Union is moving towards economic and monetary union in Europe,
with the goal of introducing a single  currency  called the EURO. The Company is
currently   assessing  the  effect  of  the  EURO  conversion  on  its  European
operations.

<PAGE>



                           PART II OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

     The Company is, from time to time,  involved in various  litigation matters
arising in the ordinary  course of its business.  The Company  believes that the
resolution of currently pending legal proceedings,  either individually or taken
as  a  whole,  will  not  have  a  material  adverse  effect  on  the  Company's
consolidated financial position or results of operations.


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 

     Not Applicable


ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

     Not Applicable


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not Applicable


ITEM 5    OTHER INFORMATION

     Not Applicable


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibit  Index

Exibit Number                      Description
---------------------------------------------------------------------

3.1           Certificate of Incorporation of Registrant*
3.2           By-Laws of Registrant*
4.1           Specimen Common Stock Certificate*
10.1          Lease Agreement dated June 14, 1994 between Registrant
              and WHT Reall Estate Limited Partnership*
10.2          First Amendment to Lease Agreement*
10.3          Second Amendment to Lease Agreement*
10.4          1998 Long Term Incentive Plan*
10.5          Employment Agreement between the Registrant and James
              Cannavino*
10.6          Employment Agreement between the Registrant and C.R.
              Kinsey, III*
10.7          Employment Agreement between the Registrant and Judy
              G. Carter*
10.8          Employment Agreement between the Registrant and Lisa
              Welch*
10.9          Employment Agreement between the Registrant and Joseph
              Miksch*
10.10         Employment Agreement between the Registrant and Robert
              McLaughlin*
10.11         Form of Indemnification Agreement between the Company
              and its officers and directors*
10.12         Distribution Agreement dated July 8, 1997 between the
              Registrant and Cognizant Technology Solutions
              Corporation*
27.1          Financial Data Schedule

*  Incorporated by reference to Registration Statement No 333-53939.

(b)      Reports on Form 8-K
                  None.


<PAGE>


                                    SIGNATURE

     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.
 

                                         Softworks, Inc.
Date: November 16, 1998                  By:  /s/  Robert C. McLaughlin
                                         -------------------------------------
                                             Robert C. McLaughlin
                                             Chief Financial Officer