<PAGE>

                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
         OF THE SECURITIES EXCHANGE ACT OF 1934


For the Quarterly Period Ended September 30, 1999


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

Commission File Number 0-15935


                              ALTRIS SOFTWARE, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


          CALIFORNIA                                     95-3634089
-------------------------------                       ----------------
(State or other jurisdiction of                       (I.R.S. Employer
 incorporation or organization)                      Identification No.)


                   9339 CARROLL PARK DRIVE, SAN DIEGO, CA 92121
              -----------------------------------------------------
              (Address of principal executive offices and zip code)


                                 (858) 625-3000
              ---------------------------------------------------
              (Registrants 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
                                                      -----   -----


Number of shares of Common Stock outstanding at November 1, 1999:  11,628,163
                                                                 -------------

<PAGE>

                              ALTRIS SOFTWARE, INC.
                              ---------------------

                                      INDEX
                                      -----

<TABLE>
<CAPTION>
                                                                    Page Number
                                                                    -----------
<S>                                                                 <C>
PART I.  FINANCIAL INFORMATION


 Item 1. Financial Statements


              Consolidated Balance Sheets                                  3


              Consolidated Statements of Operations                        4


              Consolidated Statements of Cash Flows                        5


              Condensed Notes to the Consolidated Financial Statements     6


 Item 2. Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                        12



PART II. OTHER INFORMATION                                                18
</TABLE>

                                       2
<PAGE>

                              ALTRIS SOFTWARE, INC.

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                     September 30,         December 31,
                                                                         1999                  1998
                                                                    ---------------      ----------------
                                                                     (Unaudited)
<S>                                                                 <C>                  <C>
                                            ASSETS
Current assets:
   Cash and cash equivalents                                             $  246,000          $    530,000
   Receivables, net                                                         336,000             1,128,000
   Inventory, net                                                            59,000               277,000
   Other current assets                                                     185,000               244,000
                                                                         ----------          ------------
      Total current assets                                                  826,000             2,179,000

Property and equipment, net                                                 495,000             1,565,000
Computer software, net                                                    3,974,000             4,685,000
Goodwill, net                                                                26,000             2,645,000
Other assets                                                                227,000               292,000
Restricted cash                                                             200,000                     -
                                                                         ----------          ------------
      Total assets                                                       $5,748,000          $ 11,366,000
                                                                         ----------          ------------
                                                                         ----------          ------------

                            LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
   Accounts payable                                                      $1,767,000          $  2,779,000
   Accrued liabilities                                                    1,504,000             1,934,000
   Notes payable                                                            599,000               745,000
   Deferred revenue                                                       2,254,000             3,230,000
                                                                         ----------          ------------
      Total current liabilities                                           6,124,000             8,688,000

Long term notes payable                                                     203,000               468,000
Deferred revenue, long term portion                                       1,683,000             2,131,000
Other long term liabilities                                               1,376,000             1,263,000
Subordinated debt, net of discount                                        2,678,000             2,591,000
                                                                         ----------          ------------
      Total liabilities                                                  12,064,000            15,141,000
                                                                         ----------          ------------



Mandatorily  redeemable Series D Cumulative convertible  preferred
   stock, $1,000 par value,  3,000 shares authorized; 3,000 shares
   Issued and outstanding ($3,560,000 total liquidation preference)       3,318,000             3,003,000

Shareholders' deficit:
   Common stock, no par value, 20,000,000 shares authorized;
      11,620,663 and 9,614,663 issued and outstanding, respectively      62,689,000            61,201,000
   Common stock warrants                                                    677,000               585,000
   Accumulated other comprehensive income                                         -               (10,000)
   Accumulated deficit                                                  (73,000,000)          (68,554,000)
                                                                        -----------          ------------
       Total shareholder's deficit                                       (9,634,000)           (6,778,000)
                                                                         ----------          ------------
           Total liabilities and shareholders' deficit                  $ 5,748,000          $ 11,366,000
                                                                        -----------          ------------
                                                                        -----------          ------------
</TABLE>

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


                                       3
<PAGE>

                              ALTRIS SOFTWARE, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                    For the three months                  For the nine months
                                                    ended September 30,                   ended September 30,
                                            ---------------------------------       ---------------------------------
                                                 1999                1998               1999                1998
                                                 ----                ----               ----                ----
<S>                                         <C>                 <C>                 <C>                 <C>
Revenues:
    Licenses                                $      479,000      $     770,000       $   1,633,000       $   3,313,000
    Services and other                           1,080,000          2,379,000           3,833,000           6,371,000
                                            --------------      -------------       -------------         -----------
         Total revenues                          1,559,000          3,149,000           5,466,000           9,684,000
                                            --------------      -------------       -------------       -------------

Cost of revenues:
    Licenses                                       291,000            241,000             881,000             830,000
    Services and other                             669,000          1,406,000           2,471,000           4,706,000
                                            --------------      -------------       -------------       -------------
         Total cost of revenues                    960,000          1,647,000           3,352,000           5,536,000
                                            --------------      -------------       -------------       -------------

Gross profit                                       599,000          1,502,000           2,114,000           4,148,000
                                            --------------      -------------       -------------       -------------


Operating expenses:
    Research and development                       773,000            552,000           2,621,000           1,779,000
    Marketing and sales                            343,000            887,000           1,505,000           3,542,000
    General and administrative                     280,000            890,000           2,169,000           3,807,000
                                            --------------      -------------       -------------       -------------
         Total operating expenses                1,396,000          2,329,000           6,295,000           9,128,000
                                            --------------      -------------       -------------       -------------

Loss from operations                              (797,000)          (827,000)         (4,181,000)         (4,980,000)

Interest and other income                            1,000              5,000             195,000              23,000
Interest and other expense                        (148,000)          (160,000)           (460,000)           (492,000)
                                            --------------      --------------      --------------      --------------

Net loss                                    $     (944,000)     $    (982,000)      $  (4,446,000)      $  (5,449,000)
                                            --------------      --------------      --------------      --------------
                                            --------------      --------------      --------------      --------------

Basic net loss per common share             $         (.09)     $        (.11)      $        (.45)      $        (.60)
                                            --------------      --------------      --------------      --------------
                                            --------------      --------------      --------------      --------------
Diluted net loss per common share           $         (.09)     $        (.11)      $        (.45)      $        (.60)
                                            --------------      --------------      --------------      --------------
                                            --------------      --------------      --------------      --------------

Shares used in computing basic and
  diluted net loss per common share             11,618,000          9,615,000          10,635,000           9,615,000
</TABLE>







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


                                       4
<PAGE>

                              ALTRIS SOFTWARE, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                          For the nine months
                                                                          ended September 30,
                                                                -------------------------------------
                                                                       1999                 1998
                                                                       ----                 ----
<S>                                                             <C>                  <C>
Cash flow from operating activities:
    Net loss                                                    $   (4,446,000)      $   (5,449,000)
    Adjustments to reconcile net loss to net cash
       used in operating activities:
           Depreciation and amortization                             1,667,000            1,712,000
           Loss on disposal of assets                                        -               46,000
           Gain on sale of 60% interest in ASL                        (182,000)                   -
           Change in warrant exercise price                             65,000                    -
           Warrants issued to consultant                                27,000                    -
           Changes in assets and liabilities:
               Receivables, net                                        533,000            1,597,000
               Inventory                                               210,000              144,000
               Other assets                                            106,000              339,000
               Accounts payable                                       (206,000)              33,000
               Accrued liabilities                                     397,000             (527,000)
               Deferred revenue                                       (472,000)           3,853,000
               Other long term liabilities                            (113,000)             (60,000)
                                                                ---------------         ------------
Net cash (used in) provided by operating activities                 (2,188,000)           1,688,000
                                                                ---------------         ------------
Cash flows from investing activities:
    Net proceeds from sale of 60% interest in ASL                      130,000                    -
    Maturity of short term investment                                        -              133,000
    Purchases of property and equipment                                (12,000)             (99,000)
    Purchases of software                                                    -             (158,000)
    Computer software capitalized                                            -           (1,804,000)
                                                                --------------       ---------------

Net cash provided by (used in) investing activities                    118,000           (1,928,000)
                                                                --------------       --------------

Cash flows from financing activities:
    Repayments under notes payable                                    (327,000)            (233,000)
    Net borrowings under revolving loan and bank agreements                                 787,000
    Convertible loan                                                   300,000                    -
    Proceeds from sale of common stock                               1,800,000
    Payment of preferred stock dividends                                     -              (87,000)
    Proceeds from exercise of stock options                              3,000                    -
                                                                --------------       --------------
Net cash provided by financing activities                           (1,776,000)             467,000
                                                                --------------       --------------
Effect of exchange rate changes on cash                                 10,000             (107,000)
                                                                --------------       ---------------
Net increase (decrease) in cash and cash equivalents                  (284,000)             120,000
Cash and cash equivalents at beginning of period                       530,000            1,938,000
                                                                --------------       --------------
Cash and cash equivalents at end of period                       $     246,000       $    2,058,000
                                                                --------------       --------------
                                                                --------------       --------------
Supplemental cash flow information:
    Interest paid                                                $     307,000       $      353,000
                                                                --------------       --------------
                                                                --------------       --------------
Schedule of noncash financing activities:
    Accretion of dividends on mandatorily redeemable
    convertible preferred stock                                  $     315,000       $      216,000
                                                                --------------       --------------
                                                                --------------       --------------
</TABLE>


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


                                       5
<PAGE>

                              ALTRIS SOFTWARE, INC.
            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 1 - LIQUIDITY AND CAPITAL RESOURCES

        Altris Software, Inc. ("the Company") has suffered recurring losses, and
has an accumulated deficit of $73,000,000, a working capital deficit of
$5,298,000 and a deficit in shareholders' equity of $9,634,000 as of September
30, 1999, which raise substantial doubt about the Company's ability to continue
as a going concern. Due to significant losses and decreasing sales, the Company,
in 1998, reduced its payroll cost, its largest cost element. In addition, the
Company has made further reductions of other expenditures, and in the second
quarter of 1999 sold a 60% interest in its United Kingdom operations (see Notes
2 and 3). In the first half of 1999, the Company experienced a reduction in
incoming orders. The Company's ability to continue operations is dependent upon
the generation of new system sales of Altris EB in the near term, which cannot
be assured. Given the substantial uncertainties confronting the Company, there
can be no assurance that sufficient cash flows will be generated by the Company
in the near term to meet its current obligations. Accordingly, the Company is
investigating raising additional cash through debt or equity offerings or other
means. Management believes that such additional cash through the issuance of
debt or equity will be necessary to enable the Company to meet its short-term
needs for working capital. There can be no assurance that additional debt or
equity financing will be available, or that, if available, such financing could
be completed on commercially favorable terms. Failure to obtain additional
financing in the near future can be expected to have a material adverse affect
on the Company's business, results of operations, and financial condition.

NOTE 2 - BASIS OF PRESENTATION

        The information contained in the following Condensed Notes to the
Consolidated Financial Statements is condensed from that which would appear in
the annual consolidated financial statements; accordingly, the consolidated
financial statements included herein should be reviewed in conjunction with the
consolidated financial statements and related notes thereto contained in the
Company's Form 10-K for the year ended December 31, 1998. It should be
understood that the accounting measurements at an interim date inherently
involve greater reliance on estimates than at year-end. The results of
operations for the interim periods presented are not necessarily indicative of
the results expected for the entire year.

        The accompanying consolidated balance sheet of the Company as of
September 30, 1999 and the consolidated statement of operations for the three
and nine months ended September 1999 and 1998 and the consolidated statement
of cash flows for the nine month periods ended September 30, 1999 and 1998
are unaudited. The consolidated financial statements and related notes have
been prepared in accordance with generally accepted accounting principles
applicable to interim periods. In the opinion of management, the consolidated
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the consolidated
financial position, operating results and cash flows for the periods
presented.

        The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. The investment in Altris Software
Ltd. ("ASL"), a U.K. limited company, is accounted for under the equity
method at September 30, 1999. As of September 30, 1999 the net book value of
the investment in ASL is zero (see Note 3). All significant intercompany
balances and transactions have been eliminated. The accompanying consolidated
financial statements include the results of ASL up to March 31, 1999.

NOTE 3 - SPESCOM TRANSACTION

        In May 1999, the Company completed a transaction with Spescom Ltd., a
South African company publicly traded on the Johannesburg Exchange, whereby
Spescom invested $1.8 million for 2 million shares of the Company's common
stock. In addition, as part of the agreement, Spescom paid the Company an
additional $1.0 million and invested $1.2 million directly into ASL for a 60%
ownership of ASL. In conjunction with the agreements the Company contributed
$400,000 into ASL and retained a 40% interest in ASL. The Company also applied
$200,000 of the proceeds from the transaction to fund an escrow account which
will remain in effect until the second anniversary of the closing date for the
purpose of securing any obligations owed by the Company to Spescom under the
agreement, including any liability the Company may have under its

                                       6
<PAGE>

representations and warranties to Spescom in the agreement. The Company recorded
a gain of $182,000, net of expenses on the transaction. The Company also
recorded a deferred gain of $200,000 relating to the funds escrowed. The
deferred gain will be realized to the extent such escrowed funds are returned,
if any, to the Company.

        In addition, the Company entered into a distribution agreement with ASL
which grants ASL exclusive distribution rights for the Company's products around
the world excluding North and South America and the Caribbean. Under the
distribution agreement, the exclusivity is contingent on ASL meeting certain
minimum royalty commitments beginning in 2002. The agreement provides for a
royalty to the Company on sales of the Company's products by ASL equal to 50% of
the Company's list price for such products. ASL has also entered into a
distribution agreement with Spescom providing that ASL will be Spescom's
exclusive distributor covering the same territory for EMS 2000, Spescom's
configuration management (CM) product. In addition, the agreement provides that
the Company will become Spescom's exclusive distributor of EMS 2000 in North and
South America and the Caribbean.

        In order for the Company to obtain consent to the agreement by the
investor holding the Company's subordinated debenture and the Company's Series D
Convertible Preferred Stock ("the Investor"), the interest rate on the
subordinated debenture was increased from 11.5% to 12% (see Note 6). In
addition, the conversion rate on the convertible preferred stock has been
adjusted from $6.00 per share of common stock to $1.90 and the exercise price on
warrants entitling the Investor to purchase 400,000 shares of the Company's
common stock was also adjusted from $6.00 to $1.90 per share. As a result of the
change in exercise price, the Company recorded an additional expense of $65,000
relating to the Spescom transaction.

        Other terms of the transaction include that Spescom has the right to
appoint one representative on the Company's board of directors. In addition, the
shares of stock representing the Company's 40% interest in ASL have been pledged
to Spescom to secure the obligations of the Company to Spescom, such pledge not
to extend beyond the second anniversary of the closing date.


NOTE 4 - BALANCE SHEET INFORMATION

<TABLE>
<CAPTION>
         RECEIVABLES, NET                           SEPTEMBER 30, 1999      DECEMBER 31, 1998
                                                       (Unaudited)
         <S>                                        <C>                     <C>
         Billed receivables                          $        354,000        $      1,193,000
         Unbilled receivables                                  69,000                 129,000
         Less allowance for doubtful accounts                 (87,000)               (194,000)
                                                     ----------------        ----------------
                                                     $        336,000        $      1,128,000
                                                     ----------------        ----------------
                                                     ----------------        ----------------

         OTHER LONG-TERM LIABILITIES

         Accrued loss on office closure              $         36,000        $         77,000
         Settlement of lawsuits                             1,128,000               1,128,000
         Deferred gain on Spescom transaction                 200,000                       -
         Other                                                 12,000                  58,000
                                                     ----------------        ----------------
                                                     $      1,376,000        $      1,263,000
                                                     ----------------        ----------------
                                                     ----------------        ----------------
</TABLE>


Note 5 - Inventory

        Inventory consists of parts, supplies, and subassemblies primarily used
in maintenance contracts which service the Company's hardware products sold in
prior years. Inventory is stated at the lower of cost or market value. Cost is
determined using the first-in, first-out (FIFO) method. As of September 30, 1999
and December 31, 1998, the Company had a reserve of $861,000 and $651,000,
respectively, to reduce the carrying amount of inventory to its estimated net
realizable value.


                                       7
<PAGE>

NOTE 6 - NOTES PAYABLE AND SUBORDINATED DEBT

        Notes payable and subordinated debt consist of the following:
<TABLE>
<CAPTION>
                                                          September 30,      December 31,
                                                              1999               1998
                                                          ------------       ------------
                                                          (Unaudited)
<S>                                                       <C>                <C>
Revolving loans                                           $   502,000       $   838,000
Convertible loan                                              300,000                 -
Subordinated debt, less discount of $351,000 and
  $409,000, respectively                                    2,678,000         2,591,000
United Kingdom overdraft facility                                   -           375,000
                                                          -----------       -----------
                                                          $ 3,480,000       $ 3,804,000
                                                          -----------       -----------
                                                          -----------       -----------
</TABLE>

        The Company has one revolving loan and security agreement, which
provided for borrowings of up to $1,000,000. The maximum credit available under
the facility declines by $200,000 each year beginning in March 1997. The loan is
payable in monthly installments of $16,667 plus interest equal to the 30-day
Commercial Paper Rate plus 2.95% (7.85% and 8.05% at September 30, 1999 and
December 31, 1998, respectively). At September 30, 1999, $502,000 was
outstanding under this agreement with no additional funds available. At December
31, 1998, $838,000 was outstanding. Total borrowings under the revolving loan
and security agreements are collateralized by the Company's assets. The
revolving loan and security agreement contain certain restrictive covenants
including the maintenance of a minimum ratio of debt to tangible net worth. As
of September 30, 1999, the Company was in violation of such covenants. The
Company obtained a waiver of such violations through March 15, 2000. In May
1999, in order to obtain the consent for the Spescom transaction from the
lender, the Company agreed to reduce the principal balance of the combined
facilities by a total of $150,000 on or before June 30, 1999. The Company has
not made the payment and is in violation of the agreement.

        In September 1999, the Company completed a loan transaction with
Spescom, whereby Spescom agreed to provide to the Company a loan of $500,000
bearing interest at 10% per annum with principal convertible at the option of
Spescom into common stock of the Company at $0.35 per share on or before
January 1, 2000. If not converted, the loan is repayable on February 28,
2000. The first $300,000 of this loan was received in September 1999 and the
remaining $200,000 was received in October 1999.

        In June 1997, the Company issued a five-year, 11.5% subordinated
debenture with quarterly interest payments for gross proceeds of $3,000,000. In
conjunction with the debt, the Company granted warrants (the "Lender Warrants")
to purchase 300,000 shares of the Company's common stock at an exercise price of
$6.00 per share. The warrants are exercisable over a five-year period from the
date of issuance. A portion of the proceeds from the debt has been allocated to
common stock warrants, which were valued at $585,000. In the event the debt is
outstanding at June 2000, and each year thereafter, the Company will grant in
each year additional five-year warrants to purchase 50,000 shares of common
stock at an exercise price of $7.00 per share. A value has not been ascribed to
these contingent warrants. At such time that the warrants are no longer
contingent, a value, if any, will be ascribed. In November 1998, the company
entered into a Security Agreement with the Investor providing the Investor with
a second priority security interest in the inventory, accounts receivable,
general intangibles and certain other assets of the Company. The Investor's
security interest is subordinated to the first priority security interest of the
lender under the Company's revolving credit agreements. In May 1999, the Company
agreed to increase the interest rate on the subordinated debenture from 11.5% to
12% and reduce the exercise price on the Lender Warrants to $1.90 per share (see
Note 3).

        In October 1998, ASL renewed an overdraft facility with a bank. Interest
is calculated at 3.0% per annum over the bank's base rate of 9.5% at December
31, 1998. At December 31, 1998, $375,000 was outstanding under the facility
which was collateralized by the property and assets of ASL, including a
(pound)100,000 certificate on deposit. As a result of the Spescom transaction,
the indebtedness on this facility is no longer included in the Company's
liabilities. In addition, the Company's guarantee in connection with the
facility has been assumed by Spescom.


                                       8
<PAGE>

NOTE 7 - CONVERTIBLE PREFERRED STOCK

        In June 1997, the Company issued 3,000 shares of its Series D
Convertible Preferred Stock ("the Series D Preferred Stock") for gross proceeds
of $3,000,000. The Series D Preferred Stock bears a dividend of 11.5% per annum
and is convertible into the Company's common stock at a price of $6.00 per share
subject to reset, as defined in the preferred stock agreement. Since March 1998
the Company has been in default of certain covenants under the Preferred Stock
Agreement, resulting in a dividend rate increase to 14% per annum. In addition,
if the Company fails to pay dividends on six consecutive dividend payment dates,
or the aggregate amount of unpaid dividends equals or exceeds $172.50 per share,
then the Investor shall be entitled to nominate an additional director to the
Company's board. In May 1999, the Company agreed to reduce the conversion price
on the Series D Preferred Stock to $1.90 per share (see Note 3).

        The Company may redeem the Series D Convertible Preferred Stock at its
option after June 1999 if an average trading price for the common stock equals
or exceeds $9.50 per share or after June 2002, irrespective of the trading
price. The Series D Preferred Stock redemption price per share is equal to the
sum of $1,000, plus all accrued and unpaid dividends and interest on such unpaid
dividends at an annual rate of 11.5% (increased to 14% as a result of the event
of default). If the number of shares issuable upon conversion of the Series D
Preferred Stock, when added to all other shares of common stock issued upon
conversion of the Series D Preferred Stock and any shares of common stock issued
or issuable upon the exercise of the warrants would exceed 1,906,692 shares of
common stock (the "Issuable Maximum"), then the Company shall be obligated to
effect the conversion of only such portion of the Series D Preferred Stock
resulting in the issuance of shares of common stock up to the Issuable Maximum,
and the remaining portion of the Series D Preferred Stock shall be redeemed by
the Company for cash in accordance with the procedures set forth in the
Certificate of Determination. In the event of mandatory redemption, when the
number of shares exceeds the Issuable Maximum, the redemption price per share is
equal to the redemption price under the optional redemption feature, plus the
appreciation in the value of the Company's common stock and conversion price on
the date of redemption.

        In connection with the issuance of the Series D Preferred Stock, the
Company has agreed to grant warrants to purchase the following number of shares
of its common stock if the Series D Preferred Stock remains outstanding on each
of the following dates: (i) on June 27, 2000 for 50,000 shares, at an exercise
price of $7.00 per share, if the Series D Preferred Stock has not been redeemed
or converted in full on or prior to June 27, 2000 (the "2000 Contingent
Warrant") (ii) on June 27, 2001 for 50,000 shares, at an exercise price of $7.00
per share, if the Series D Preferred Stock has not been redeemed or converted in
full on or prior to June 27, 2001 (the "2001 Contingent Warrant"); (iii) on July
17, 2002 for 250,000 shares, at an exercise price equal to the trading price per
share on the issuance date of the warrant, if the Series D Preferred Stock has
not been redeemed or converted in full on or prior to July 17, 2002; and (iv) on
June 27, 2003 for 250,000 shares, at an exercise price equal to the trading
price per share on the issuance date of the warrant, if the Series D Preferred
Stock has not been redeemed or converted in full on or prior to June 27, 2003.
Such warrants are exercisable over a five-year period from the date of grant. A
value has not been ascribed to these contingent warrants. At such time that the
warrants are no longer contingent, a value will be ascribed, if any. In
connection with the debt (see Note 6) and Series D Convertible Preferred Stock
issuance, the Company paid $120,000 to a director of the Company for his service
related to the offering. In May 1999, the Company agreed to reduce the exercise
price of the 2000 Contingent Warrant and 2001 Contingent Warrant to $1.90 per
share (see Note 3).

        Each share of Series D Preferred Stock is entitled to one vote on all
matters submitted to the holders of the common stock. In the event of
liquidation of the Company, the Series D Preferred Stockholders will receive in
preference to the common stockholders an amount equal to $1,000 per share plus
accrued but unpaid dividends and interest on all such dividends at an annual
rate of 11.5% (increased to 14% as a result of the event of default). In 1998,
dividends of $87,000 were paid on the Series D Preferred Stock and as of
September 30, 1999 accumulated unpaid dividends amounted to $665,000.


                                       9
<PAGE>

NOTE 8 - RECONCILIATION OF NET LOSS AND SHARES USED IN PER SHARE COMPUTATIONS:

        Basic net loss per common share is computed as net loss plus accretion
of dividends on mandatorily redeemable convertible preferred stock divided by
the weighted average number of common shares outstanding during the period.
Diluted net loss per common share is computed as net loss divided by the
weighted average number of common shares and potential common shares, using the
treasury stock method, outstanding during the period and assumes conversion into
common stock at the beginning of each period of all outstanding shares of
convertible preferred stock. Computations of basic and diluted earnings per
share do not give effect to individual potential common stock instruments for
any period in which their inclusion would be anti-dilutive.

<TABLE>
<CAPTION>
                                                           For the three months            For the nine months
                                                            ended September 30,             ended September 30,
                                                      ----------------------------    -------------------------------
                                                            1999           1998            1999              1998
                                                            ----           ----            ----              ----
<S>                                                   <C>            <C>             <C>                <C>
Net Loss Used:
     Net loss                                            $(944,000)     $(982,000)     $(4,446,000)      $(5,449,000)
     Accretion of dividends on mandatorily
         redeemable convertible preferred stock           (105,000)      (105,000)        (315,000)         (303,000)
                                                      ------------   ------------    -------------      ------------
     Net loss used in computing basic and
     diluted net loss per share                        $(1,049,000)   $(1,087,000)     $(4,761,000)      $(5,752,000)
                                                      ------------   ------------    -------------      ------------
                                                      ------------   ------------    -------------      ------------

Shares Used:
     Weighted average common shares outstanding
     used in computing basic and diluted net loss
     per common share                                   11,618,000      9,615,000       10,635,000         9,615,000
                                                      ------------   ------------    -------------      ------------
                                                      ------------   ------------    -------------      ------------
</TABLE>

NOTE 9 - SEGMENT AND GEOGRAPHIC INFORMATION

        The Company has one business segment which consists of the development
and sale of a suite of client/server document management software products. No
customer accounted for over 10% of the Company's total revenues for the three
and nine months ended September 30, 1999.

        Revenues for the three and nine months ended September 30, 1999 and 1998
by customer location are as follows:
<TABLE>
<CAPTION>
                                                           For the three months            For the nine months
                                                            ended September 30,             ended September 30,
                                                      ----------------------------    -------------------------------
                                                            1999           1998            1999           1998
                                                            ----           ----            ----           ----
         <S>                                          <C>              <C>            <C>               <C>
         United States                                $ 1,407,000      $1,844,000     $ 4,467,000       $5,940,000
         Europe, primarily United Kingdom                  54,000        1,051000         797,000        3,502,000
         Other International                               98,000         254,000         202,000          242,000
                                                      -----------      ----------     -----------      -----------
                                                      $ 1,559,000      $3,149,000     $ 5,466,000       $9,684,000
                                                      -----------      ----------     -----------      -----------
                                                      -----------      ----------     -----------      -----------
</TABLE>

        Information by geographic location for the three and nine months ended
September 30, 1999 and 1998 follows:

<TABLE>
<CAPTION>
                                                                  Three months ended September 30, 1999
                                  ---------------------------------------------------------------------------------

                                     United                                Corporate
                                     States          Europe         Research & Development         Consolidated
                                  -----------       ---------       ----------------------         ------------

<S>                               <C>              <C>              <C>                            <C>
Net sales                         $ 1,559,000      $        -           $          -                $1,559,000
Operating loss                        (24,000)              -               (773,000)                 (797,000)
Identifiable assets                 5,748,000               -                      -                 5,748,000
</TABLE>


                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                                  Three months ended September 30, 1998
                                  ---------------------------------------------------------------------------------

                                     United                                Corporate
                                     States          Europe         Research & Development     Consolidated
                                  -----------       ---------       ----------------------     ------------
<S>                               <C>              <C>              <C>                        <C>
Net sales                         $ 1,844,000      $ 1,305,000           $          -            $3,149,000
Operating Income (loss)               (92,000)        (183,000)              (552,000)             (827,000)
Identifiable assets                 8,639,000        5,494,000                      -            14,134,000
</TABLE>

<TABLE>
<CAPTION>
                                                                  Nine months ended September 30, 1999
                                  ---------------------------------------------------------------------------------

                                     United                                Corporate
                                     States          Europe         Research & Development     Consolidated
                                  -----------       ---------       ----------------------     ------------
<S>                               <C>              <C>              <C>                        <C>
Net sales                         $ 4,360,000      $  1,106,000         $           -            $5,466,000
Operating loss                     (1,229,000)         (331,000)           (2,621,000)           (4,181,000)
Identifiable assets                 5,748,000                 -                     -             5,748,000
</TABLE>

<TABLE>
<CAPTION>
                                                                  Nine months ended September 30, 1998
                                  ---------------------------------------------------------------------------------

                                     United                                Corporate
                                     States          Europe         Research & Development     Consolidated
                                  -----------       ---------       ----------------------     ------------
<S>                               <C>              <C>              <C>                        <C>
Net sales                         $ 5,940,000      $3,744,000           $           -             $9,684,000
Operating loss                     (2,241,000)       (960,000)             (1,779,000)            (4,980,000)
Identifiable assets                 8,639,000       5,494,000                       -             14,134,000
</TABLE>

        A majority of the European revenue, net sales and operating loss and all
of the European identifiable assets are attributable to ASL operations prior to
the Spescom transaction (see Notes 2 and 3).

        Research and development is performed both in the United States and
Europe for the benefit of the entire Company and has not been separately
allocated to geographic regions.

NOTE 10 - LITIGATION

        On July 30, 1999, the United States District Court for the Southern
District of California approved the settlement of certain securities class
action lawsuits against the Company. The settlement provides for the dismissal
and release of all claims in these cases in exchange for (a) payment of
$2,500,000 by the Company's insurance carrier to the class of plaintiffs, (b)
issuance by the Company of 2,304,271 shares of its common stock to the
plaintiffs, which is equal to twenty percent of the sum of (i) the number of
shares of common stock currently outstanding and (ii) the maximum number of
shares issuable upon conversion of the Series D Preferred Stock, and (c)
cooperation by the Company with plaintiffs' counsel by providing certain
documents and information regarding the claims asserted in the class actions.
The Company recorded expense of $1,128,000 in connection with this settlement in
1998 based on the average closing market price the week preceding the execution
of the memorandum of understanding for the settlement times the number of shares
of the Company's common stock to be issued in the settlement.

        In addition, as a part of the settlement in these class actions, the
Company's former Chairman of the Board, President, and Chief Executive Officer,
Jay V. Tanna, has agreed to forego any claim for unpaid compensation of $131,000
under the Separation Agreement and Release of Claims that Mr. Tanna and the
Company entered into on April 1, 1998, and to surrender his 35,000 shares of
common stock in the Company. Mr. Tanna and the Company also have entered into a
Settlement Agreement and Mutual Release resolving all claims and disputes with
one another, with the exception of certain existing indemnification obligations
under Altris' bylaws, California law, and the indemnity agreement between the
Company and Mr. Tanna related to his services as a director and officer of the
Company.

        In addition to the securities actions described above, the Company is
involved from time to time in litigation arising in the normal course of
business. The Company believes that any liability with respect to such


                                       11
<PAGE>

routine litigation, individually or in the aggregate, is not likely to be
material to the Company's consolidated financial position or results of
operations.


                                       12
<PAGE>

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


THREE AND NINE MONTHS  ENDED  SEPTEMBER  30, 1999  COMPARED  WITH THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1998.

        This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or anticipated results, including those set forth under
"Certain Factors That May Affect Future Results" below and elsewhere in, or
incorporated by reference into, this report.

Revenues

        Revenues for the three and nine months ended September 30, 1999 were
$1,559,000 and $5,466,000, respectively, as compared to $3,149,000 and
$9,684,000 for the three and nine months ended September 30, 1998.

        For the three months ended September 30, 1999 revenues consisted of
$479,000 (31%) in software licenses and $1,080,000 (69%) related to services and
other revenue. This compares to software license revenues of $770,000 (24%) and
services and other revenue of $2,379,000 (76%) for the three months ended
September 30, 1998. For the nine months ended September 30, 1999 revenues
consisted of $1,633,000 (30%) in software licenses and $3,833,000 (70%) related
to services and other revenues. This compares to $3,313,000 (34%) in software
licenses and $6,371,000 (66%) related to services and other revenue for the nine
months ended September 30,1998.

        For the three and nine months ended September 30, 1999, software
licenses revenues decreased from the comparable period in the year prior by
$291,000 and $1,680,000, respectively, while revenues generated from services
decreased by $1,299,000 and by $2,538,000, respectively. This reduction is
attributable in part to the consummation of the Spescom transaction. As of April
1, 1999, operations of ASL have been excluded from the consolidated results as a
result of the Spescom transaction (see Note 3 of the Condensed Notes to the
Consolidated Financial Statements). Additionally, management believes that the
Company's inability to provide the Altris EB product as originally planned in
1997, which was to address the needs of new customers for additional features
and functionality, coupled with customers' uncertainty regarding the financial
condition of the Company, was the principal cause for the decline in software
licenses, services and other revenues. In addition, management believes that
future purchasing patterns of customers and potential customers have been
affected by Year 2000 issues, with many companies expending significant
resources to correct their software systems for Year 2000 compliance. Management
believes that these expenditures have reduced funds available to purchase
software products such as those offered by the Company.

        A small number of customers have typically accounted for a large
percentage of the Company's annual revenue, although no customer accounted for
more than 10% of total revenue for the three and nine months ended September 30,
1999 or 1998. One consequence of this dependence has been that revenue can
fluctuate significantly on a quarterly basis. The Company's reliance on
relatively few customers could have a material adverse effect on the results of
its operations on a quarterly basis. Additionally, a significant portion of the
Company's revenues has historically been derived from the sale of systems to new
customers.



Cost of Revenues

        Cost of license revenues consists of costs associated with reselling
third-party software products and amortization of internal software development
costs. Gross profit as a percentage of license revenues was 39% and 46% for
the three and nine months ended September 30, 1999 compared to 69% and 75% for
the three and nine months ended September 30, 1998. The decrease in the gross
profit margin from licenses was due principally to increased amortization of
software development costs in 1999 compared to 1998, due to the Company's
release of its EB product in 1999, while revenues decreased.


                                       13
<PAGE>

        Cost of services and other revenues consists primarily of
personnel-related costs in providing consulting services, training to
customers and support. It also includes costs associated with reselling
third-party hardware and maintenance. Gross profit as a percentage of
services and other revenue was 38% and 36%, respectively, for the three and
nine months ended September 30, 1999 compared to 41% and 26%, respectively
for the three and nine months ended September 30, 1998. The decrease in gross
profit as a percentage of services and other revenues for the comparable
three months ended September 30 is due to the Company having recording an
additional reserve to reduce the carrying amount of inventory to its
estimated net realizable value. For the comparable nine months, the increase
in the gross profit margin from services and other revenue was due
principally to decreased personnel costs associated with consulting services
and support.

        The Company's software and services are sold at a significantly higher
margin than third party products which are resold at a lower gross profit
percentage in order for the Company to remain competitive in the marketplace for
such third party products. Gross profit percentages can fluctuate quarterly
based on the revenue mix of Company software, services and third party software
or hardware.

Operating Expenses

        Research and development expense for the three and nine months ended
September 30, 1999 was $773,000 and $2,621,000, respectively, as compared to
$552,000 and $1,779,000 for the same periods in the prior year. Research and
development expense can vary year to year based on the amount of engineering
service contract work required for customers versus purely internal development
projects. It may also vary based on internal development projects in which
technological feasibility and marketability of a product are established. These
costs are capitalized as incurred and then amortized when the product is
available for general release to customers. The increase in research and
development for the three and nine months ended September 30, 1999 was due
primarily to the fact that prior to release of the Company's EB product in 1999,
the associated development costs were capitalized, whereas development costs in
1999 have been expensed. This increase in development expense was offset
partially by a reduction in personnel costs.

        Marketing and sales expense for the three and nine months ended
September 30, 1999 was $343,000 and $1,505,000, respectively, as compared to
$887,000 and $3,542,000 for the three and nine months ended September 30,
1998. The decrease is primarily due to lower personnel and associated costs.
In addition, as a result of the delay in releasing Altris EB, the Company
reduced marketing and promotional costs in the first half of 1999 compared to
the same period a year ago. Additionally, commencing as of April 1, 1999,
marketing and sales expense has not included ASL's expenses.

        General and administrative expense was $280,000 and $2,169,000,
respectively, for the three and nine months ended September 30, 1999 as
compared to $890,000 and $3,807,000 for the three and nine months ended
September 30, 1998. The decrease in the general and administrative expense in
the third quarter of 1999, is due to the Company recorded a credit of
$157,000 for the release of any claim for unpaid compensation to the
Company's former President and CEO and the surrender of his 35,000 shares of
common stock in the Company. The decrease also was due to decreased legal and
accounting fees for the three and nine months ended September 30, 1999.
Additionally, the Company received $222,000 from its insurance carrier for
legal fees incurred in connection with shareholder suits which was recognized
in the second quarter of 1999. In 1998, general and administrative costs
included higher legal, accounting and consulting costs associated with the
Company's restatement of its financial statements for fiscal year 1996 and
the three interim quarters in 1997. Also, commencing as of April 1, 1999,
general and administrative expense has not included ASL's expenses.

        Interest and other income was $1,000 and $195,000 for the three and nine
months ended September 30, 1999 as compared to $5,000 and $23,000 for the same
period a year ago. The increase in the nine months total is primarily due to a
gain recorded on the Spescom transaction in the second quarter 1999 (see Note 3
of the Condensed Notes to the Consolidated Financial Statements).

        Interest and other expense was $148,000 and $460,000, respectively, for
the three and nine months ended September 30, 1998 versus $160,000 and $492,000
for the three and nine months ended September 30, 1998. The decrease was due to
a lower debt balance at September 30, 1999 versus the same period in 1998.


                                       14
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

        At September 30, 1999, the Company's cash and cash equivalents
totaled $246,000 as compared to $530,000 at December 31, 1998, and its
current ratio was .13 to 1. The Company has two revolving credit facilities.
At September 30, 1999, $502,000 was outstanding on the revolving loan
agreements with no additional funds available under the facilities (see Note
6 of the Condensed Notes to the Consolidated Financial Statements).

        As a result of misapplications in its revenue recognition policies,
the Company, in 1998, restated its previously presented interim financial
information and annual financial statements for 1996 and the interim
information for the first three quarters of 1997. The restatement triggered
events of default under each of the Company's revolving loan agreements and
under the Subordinated Debenture issued to the investor. The lenders under
such agreements and the Subordinated Debenture agreed to waive such events of
default. The lender under the revolving loan agreements ("the Lender") has
also waived compliance with certain financial covenants through March 15,
2000. In May 1999, in order to obtain the consent for the Spescom transaction
from the Lender, the Company agreed to reduce the principal balance of the
revolving loan agreements by a total of $150,000 on or before June 30, 1999.
The Company has not made the payment and is in violation of the agreement.
There can be no assurances that the Company will be able to secure from its
lenders a further waiver of such default or any other events of default,
including any events of default occurring after March 15, 2000 under the
financial covenants of the revolving loan agreements. If such events of
default are not waived, the Company may be required to repay the full amount
of its outstanding indebtedness under the revolving credit agreements. The
Company's existing payment default and any future defaults in the payment of
such indebtedness or in the performance of other covenants under the
agreements related to such indebtedness, whether occurring prior to or after
March 15, 2000, could also result in the Company being required to repay the
full amount of such indebtedness. The repayment of such indebtedness would
require additional debt or equity financing. There can be no assurances that
any such financing would be available.

        At September 30, 1999, cash used in operating activities totaled
$2,188,000, respectively, while cash provided by investing and financing
activities totaled $118,000 and $1,776,000, respectively. Cash provided by
financing activities was generated from the sale of common stock to Spescom.
For the nine months ended September 30, 1998, cash provided by operating and
financing activities totaled $1,688,000 and $467,000, respectively, while
cash used in investing activities totaled $1,928,000.

        In September 1999, Altris completed a loan transaction with Spescom,
whereby Spescom agreed to provide to the Company a loan of $500,000 bearing
interest at 10% per annum with principal convertible at the option of Spescom
into common stock of the Company at $0.35 per share on or before January 1,
2000. The first $300,000 of this loan was received in September 1999 and the
remaining $200,000 was received in October 1999.

        In the first half of 1999, the Company experienced a reduction in
incoming orders. The Company's ability to continue operations is dependent upon
the generation of new systems sales of Altris EB in the near term, which cannot
be assured. Given the substantial uncertainties confronting the Company, there
can be no assurances that sufficient cash flows will be generated by the Company
in the near term to meet its current obligations. Accordingly, the Company is
continuing to investigate raising additional cash through a debt or equity
offering or other means. Management believes that such additional cash through
the issuance of debt or other means will be necessary to enable the Company to
meet its short term needs for working capital. There can be no assurances that
additional debt or equity financing will be available, or that, if available,
such financing could be completed on commercially favorable terms. Failure to
obtain additional financing in the near future, can be expected to have a
material adverse effect on the Company's business, results of operations, and
financial condition and could impact the Company's ability to continue as a
going concern.

Net Operating Loss Tax Carryforwards

        As of December 31, 1998, the Company had a net operating loss
carryforward ("NOL") for federal and state income tax purposes of $42,000,000
and $9,429,000, respectively which expires over the years 1999 through 2018. In
addition, the Company generated but has not used research and investment tax
credits for federal income tax purposes of approximately $500,000, which will
substantially expire in the years 2000 through 2005. Under the Internal Revenue
Code of 1986, as amended (the "Code"), the Company generally


                                       15
<PAGE>

would be entitled to reduce its future Federal income tax liabilities by
carrying unused NOL forward for a period of 15 years to offset future taxable
income earned, and by carrying unused tax credits forward for a period of 15
years to offset future income taxes. However, the Company's ability to utilize
any NOL and credit carryforwards in future years may be restricted in the event
the Company undergoes an "ownership change," generally defined as a more than 50
percentage point change of ownership by one or more statutorily defined
"5-percent stockholders" of a corporation, as a result of future issuances or
transfers of equity securities of the Company within a three-year testing
period. In the event of an ownership change, the amount of NOL attributable to
the period prior to the ownership change that may be used to offset taxable
income in any year thereafter generally may not exceed the fair market value of
the Company immediately before the ownership change (subject to certain
adjustments) multiplied by the applicable long-term, tax-exempt rate announced
by the Internal Revenue Service in effect for the date of the ownership change.
A further limitation would apply to restrict the amount of credit carryforwards
that might be used in any year after the ownership change. As a result of these
limitations, in the event of an ownership change, the Company's ability to use
its NOL and credit carryforwards in future years may be delayed and, to the
extent the carryforward amounts cannot be fully utilized under these limitations
within the carryforward periods, these carryforwards will be lost. Accordingly,
the Company may be required to pay more Federal income taxes or to pay such
taxes sooner than if the use of its NOL and credit carryforwards were not
restricted.
        Over the past five years, the Company has issued equity securities in
connection with the Spescom transaction, the private placement in June 1997, the
Trimco acquisition in December 1995 and through traditional stock option grants
to employees. Although there was no "ownership change" to date, this activity
increases the potential for an "ownership change" for income tax purposes.
        In connection with the acquisition of Optigraphics, the Company acquired
Optigraphics' net operating losses which are limited to offset against that
entity's future taxable income, subject to annual limitations.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Uncertain Impact of Restatement of Financial Statements

        As a result of the misapplications in its revenue recognition policies,
the Company in 1998 restated its previously presented interim financial
information and annual financial statements for 1996 and the interim information
for the first three quarters of 1997. In connection with the misapplications,
conditions which collectively represented material weaknesses in the Company's
internal accounting controls were identified. These conditions included a lack
of (i) sufficient oversight by the Company in regard to revenue recognition
practices of the Company's U.K. subsidiary, (ii) adherence to existing internal
controls and (iii) an adequate internal control structure in the Company's U.K.
subsidiary.

        To address the material weaknesses represented by these conditions, the
Company adopted a plan to strengthen the Company's internal accounting controls.
This plan included updating the Company's revenue recognition policies regarding
accounting and reporting for its customer contracts and contracts with Value
Added Resellers (VARs). The Company has implemented these policies.

        The report of the Company's independent accountants, Grant Thornton LLP,
on the Company's Consolidated Financial Statements as of and for the year ended
December 31, 1998 includes an explanatory paragraph regarding the Company's
ability to continue as a going concern. See "Report of Independent Certified
Public Accountants" accompanying the Consolidated Financial Statements. The
Company's restatement of its financial statements, de-listing of the Company's
Common Stock from the Nasdaq National Market as a result of the Company's
failure to meet certain listing requirements, corporate actions to restructure
operations and reduce operating expenses, and customer uncertainty regarding the
Company's financial condition have had, and are likely to have in the future, a
material adverse effect on the Company and its ability to sell its products in
future.

Foreign Currency

        The Company's geographic markets are primarily in the United States and
Europe, with sales in other parts of the world. For the nine months ended
September 30, 1999, revenue from the United States, Europe and other locations
in the world were 82%, 15% and 4%, respectively. This compares to 61%, 36% and
3%, respectively for the same period in 1998. The European currencies have been
relatively stable against the U.S. dollar for the past several years. As a
result, foreign currency fluctuations have not had a significant impact on the
Company's revenues or results of operations. The Company has recently increased
its sales efforts in


                                       16
<PAGE>

international markets outside Europe, including Asia and Latin America, whose
currencies have tended to fluctuate more relative to the U.S. dollar. In
addition, the current continued weakness in Asian currencies may result in
reduced revenues from the countries affected by this condition. Changes in
foreign currency rates, the condition of local economies, and the general
volatility of software markets may result in higher or lower proportion of
foreign revenues in the future. Although the Company's operating and pricing
strategies take into account changes in exchange rates over time, there can be
no assurance that future fluctuations in the value of foreign currencies will
not have a material adverse effect on the Company's business, operating results
and financial condition.



Inflation

        The Company believes that inflation has not had a material effect on its
operations to date. Although the Company enters into fixed-price contracts,
management does not believe that inflation will have a material impact on its
operations for the foreseeable future, as the Company takes into account
expected inflation in its contract proposals and is generally able to project
its costs based on forecasted contract requirements.

Year 2000 Compliance

        Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, many companies' computer systems and/or
software may need to be upgraded or replaced to comply with such "Year 2000"
requirements. Significant uncertainty exists in the software industry concerning
the potential effects associated with such compliance.

        The Company has implemented a program to review the Year 2000 compliance
status of the software and systems used in its internal business processes, to
obtain appropriate assurances of compliance from the manufacturers of these
products and agreement to modify or replace all non-compliant products.
Implementation of software products from third parties, however, will require
the dedication of administrative and management information resources, the
assistance of consulting personnel from third party software vendors and the
training of the Company's personnel using such systems. Based on the information
available to date, the Company believes it will be able to complete its Year
2000 compliance review and make necessary modifications prior to the end of 1999
as a part of the Company Year 2000 compliance program. Nevertheless,
particularly to the extent the Company is relying on the products of other
vendors to resolve Year 2000 issues, there can be no assurances that the Company
will not experience delays in implementing such products. If key systems, or a
significant number of systems were to fail as a result of Year 2000 problems or
the Company were to experience delays implementing Year 2000 compliant software
products, the Company could incur substantial costs and disruption of its
business, which would potentially have a material adverse effect on the
Company's business and results of operations.

        The Company, in its ordinary course of business, tests and evaluates its
own software products. The Company has tested all of its legacy products and
believes that its software products are generally Year 2000 compliant, meaning
that the use or occurrence of dates on or after January 1, 2000 will not
materially affect the performance of the Company's software products with
respect to four digit date dependent data or the ability of such products to
correctly create, store, process and output information related to such date
data. However, some of the Company's customers are running product versions that
are not Year 2000 compliant. The Company has been encouraging these customers to
migrate to current product versions. In addition, there can be no assurances
that the Company's current products do not contain undetected errors or defects
associated with Year 2000 date functions. To the extent the Company's software
products are not fully Year 2000 compliant, there can be no assurance that the
Company's software products contain all necessary software routines and codes
necessary for the accurate calculation, display, storage and manipulation of
data involving dates. In addition, in certain circumstances, the Company has
warranted that the use or occurrence of dates on or after January 1, 2000 will
not adversely affect the performance of the Company's products with respect to
four digit date dependent data or the ability to create, store, process and
output information related to such data. If any of the Company's licensees
experience Year 2000 problems, such licensees could assert claims for damages
against the Company. In addition, some commentators have stated that a
significant amount of litigation will arise out of Year 2000 compliance issues,
and the Company is aware of a growing number of


                                       17
<PAGE>

lawsuits against other software vendors. Because of the unprecedented nature of
such litigation, it is uncertain to what extent the Company may be affected by
it.

        In addition, management believes that future purchasing patterns of
customers and potential customers have been affected by Year 2000 issues, with
many companies expending significant resources to correct their software systems
for Year 2000 compliance. These expenditures have reduced funds available to
purchase software products such as those offered by the Company.


PART II.   OTHER INFORMATION



ITEM 1 - LEGAL PROCEEDINGS

        On July 30, 1999, the United States District Court for the Southern
District of California approved the settlement of certain securities class
action lawsuits against the Company. The settlement provides for the dismissal
and release of all claims in these cases in exchange for (a) payment of
$2,500,000 by the Company's insurance carrier to the class of plaintiffs, (b)
issuance by the Company of 2,304,271 shares of its common stock to the
plaintiffs, which is equal to twenty percent of the sum of (i) the number of
shares of common stock currently outstanding and (ii) the maximum number of
shares issuable upon conversion of the Series D Preferred Stock, and (c)
cooperation by the Company with plaintiffs' counsel by providing certain
documents and information regarding the claims asserted in the class actions.
The Company recorded expense of $1,128,000 in connection with this settlement in
1998 based on the average closing market price the week preceding the execution
of the memorandum of understanding for the settlement times the number of shares
of the Company's common stock to be issued in the settlement.

        In addition, as a part of the settlement in these class actions, the
Company's former Chairman of the Board, President, and Chief Executive Officer,
Jay V. Tanna, has agreed to forego any claim for unpaid compensation of $131,000
under the Separation Agreement and Release of Claims that Mr. Tanna and the
Company entered into on April 1, 1998, and to surrender his 35,000 shares of
common stock in the Company. Mr. Tanna and the Company also have entered into a
Settlement Agreement and Mutual Release resolving all claims and disputes with
one another, with the exception of certain existing indemnification obligations
under Altris' bylaws, California law, and the indemnity agreement between the
Company and Mr. Tanna related to his services as a director and officer of the
Company.

        In addition to the securities actions described above, the Company is
involved from time to time in litigation arising in the normal course of
business. The Company believes that any liability with respect to such routine
litigation, individually or in the aggregate, is not likely to be material to
the Company's consolidated financial position or results of operations.

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

        The Annual Meeting of Shareholders was held October 28, 1999. At the
meeting, the shareholders approved a proposal to amend the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock from
20,000,000 to 30,000,000 shares. The proposal was approved with 7,697,313
proxies voting for, 359,532 voting against, and 40,635 abstaining. The
shareholders also approved a proposal to amend the Company's 1996 Stock
Incentive Plan to increase the aggregate number of shares of Common Stock
reserved for issuance from 925,000 to 1,425,000 shares. The proposal was
approved with 7,604,463 proxies voting for, 443,467 voting against, and 49,550
abstaining.

        In addition, at the meeting, the shareholders approved the election of
the following individuals as directors who will hold office until the next
annual meeting: Roger H. Erickson, Martin P. Atkinson, D. Ross Hamilton, Michael
J. McGovern and Larry D. Unruh.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:

         (a)      Form 8-K/A, dated July 2, 1999


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<PAGE>

                                   SIGNATURES


        Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                              ALTRIS SOFTWARE, INC.




                              By:    /s/John W. Low
                                 -----------------------------------------
                                        John W. Low
                                        Chief Financial Officer



                              Dated:     November  12, 1999
                                    -----------------------------------



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