<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, 1998

[ ]  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)

                                 (619) 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 October 31, 1998:  9,614,663
                                                                 --------------
Number of Sequentially Numbered Pages: 18
Exhibit Index at Page 18

<PAGE>

                             ALTRIS SOFTWARE, INC.

                                     INDEX

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

  Item 1. Financial Statements

            Consolidated Balance Sheet                                             3

            Consolidated Statement of Operations                                   4

            Consolidated Statement of Cash Flows                                   5

            Notes to the Consolidated Financial Statements                         6

  Item 2. Management's Discussion and Analysis of Financial Condition and
          Results of Operations                                                   10

PART II. OTHER INFORMATION                                                        16
</TABLE>


                                       2
<PAGE>

                             ALTRIS SOFTWARE, INC.

                           CONSOLIDATED BALANCE SHEET


<TABLE>
<CAPTION>
                                                               September 30, 1998     December 31, 1997
                                                               ------------------     -----------------
                                                                  (unaudited)
<S>                                                              <C>                     <C>
                    ASSETS
Current assets:
  Cash and cash equivalents                                      $ 2,058,000             $ 1,938,000 
  Short term investments                                                   -                 133,000 
  Receivables, net                                                 1,448,000               3,045,000 
  Inventory, net                                                     316,000                 460,000 
  Other current assets                                               294,000                 633,000 
                                                                 -----------             ----------- 
    Total current assets                                           4,116,000               6,209,000 

Property and equipment, net                                        1,728,000               2,270,000 
Computer software, net                                             4,670,000               3,042,000 
Goodwill, net                                                      3,306,000               3,914,000 
Other assets                                                         314,000                 401,000 
                                                                 -----------             ----------- 
                                                                 $14,134,000             $15,836,000 
                                                                 -----------             ----------- 
                                                                 -----------             ----------- 
                                                                                                     
      LIABILITIES AND SHAREHOLDERS' EQUITY                                           
Current liabilities:                                                                                 
  Accounts payable                                               $ 2,961,000             $ 2,928,000 
  Accrued liabilities                                              2,231,000               2,758,000 
  Notes payable                                                      825,000                 730,000 
  Deferred revenue                                                 3,255,000               1,770,000 
                                                                 -----------             ----------- 
    Total current liabilities                                      9,272,000               8,186,000 

Long term notes payable                                              733,000                 274,000 
Deferred revenue, long term portion                                2,368,000                     --  
Other long term liabilities                                          113,000                 173,000 
Subordinated debt, net of discount                                 2,561,000               2,473,000 
                                                                 -----------             ----------- 
    Total liabilities                                             15,047,000              11,106,000 
                                                                 -----------             ----------- 

Commitments:                                                                                         

Mandatorily redeemable convertible preferred stock,                                                  
  $1,000 par value, 3,000 shares authorized; 3,000                                                   
  shares issued and outstanding ($2,898,000 and                                                      
  $2,682,000 total liquidation preference, respectively)           2,898,000               2,682,000 

Shareholders' equity:                                                                                
  Common stock, no par value, 20,000,000 shares authorized;                                          
    9,614,663 and 9,614,663 issued and outstanding,                                                  
    respectively                                                  61,297,000              61,600,000 
  Common stock warrants                                              585,000                 585,000 
  Foreign currency translation adjustment                            (82,000)                 25,000 
  Accumulated deficit                                            (65,611,000)            (60,162,000)
                                                                 -----------             ----------- 
    Total shareholders' equity                                    (3,811,000)             2 ,048,000 
                                                                 -----------             ----------- 
                                                                 $14,134,000             $15,836,000 
                                                                 -----------             ----------- 
                                                                 -----------             ----------- 
</TABLE>

    See accompanying notes to the consolidated financial statements.


                                      3
<PAGE>

                             ALTRIS SOFTWARE, INC.

                     CONSOLIDATED STATEMENT OF OPERATIONS
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                         For the three months                          For the nine months
                                                          ended September 30,                          ended September 30
                                                   ---------------------------------            ----------------------------------
                                                       1998                  1997                   1998                   1997   
                                                       ----                  ----                   ----                   ----   
<S>                                                <C>                   <C>                    <C>                    <C>        
Revenues                                           $3,149,000            $ 5,041,000            $ 9,684,000            $13,780,000
                                                                                                                                  
Cost of revenues                                    1,647,000              2,097,000              5,536,000              7,042,000
                                                   ----------            -----------            -----------            -----------
Gross profit                                        1,502,000              2,944,000              4,148,000              6,738,000
                                                   ----------            -----------            -----------            -----------
Operating expenses:
  Research and development                            552,000              1,095,000              1,779,000              3,041,000
  Marketing and sales                                 887,000              2,310,000              3,542,000              5,990,000
  General and administrative                          805,000                951,000              3,197,000              2,656,000
  Restructuring expense                                85,000                      -                610,000                      -
  Write-off of certain offering costs                       -                      -                      -                270,000
                                                   ----------            -----------            -----------            -----------
    Total operating expenses                        2,329,000              4,356,000              9,128,000             11,957,000
                                                   ----------            -----------            -----------            -----------
Loss from operations                                 (827,000)            (1,412,000)            (4,980,000)            (5,219,000)
                                                                                                                                  
Interest and other income                               5,000                 41,000                 23,000                 93,000
Interest and other expense                           (160,000)              (159,000)              (492,000)              (268,000)
                                                   ----------            -----------            -----------            -----------
Loss before income taxes                             (982,000)            (1,530,000)            (5,449,000)            (5,394,000)
                                                                                                                                  
Provision for income taxes                                  -                      -                      -                      -
                                                   ----------            -----------            -----------            -----------
Net loss                                           $ (982,000)           $(1,530,000)           $(5,449,000)           $(5,394,000)
                                                   ----------            -----------            -----------            -----------
                                                   ----------            -----------            -----------            -----------

Basic net loss per common share                    $     (.11)           $      (.17)           $      (.60)           $      (.57)
                                                   ----------            -----------            -----------            -----------
                                                   ----------            -----------            -----------            -----------

Diluted net loss per common share                  $     (.11)           $      (.17)           $      (.60)           $      (.57)
                                                   ----------            -----------            -----------            -----------
                                                   ----------            -----------            -----------            -----------
Shares used in computing basic and
  diluted net loss per common share                 9,615,000              9,587,000              9,615,000              9,575,000
</TABLE>

         See accompanying notes to the consolidated financial statements


                                      4
<PAGE>

                            ALTRIS SOFTWARE, INC.

                    CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (Unaudited)
<TABLE>
<CAPTION>
                                                                                 For the nine months
                                                                                   ended September 30,
                                                                          ----------------------------------
                                                                             1998                  1997     
                                                                             ----                  ----     
<S>                                                                       <C>                   <C>         
Cash flow from operating activities:                                                                        
  Net loss                                                                $(5,449,000)          $(5,394,000)
Adjustments to reconcile net loss to net cash                                                               
    used in operating activities:                                                                           
  Depreciation and amortization                                             1,712,000             1,754,000 
  Loss on disposal of assets                                                   46,000                     - 
  Changes in assets and liabilities:                                                                        
     Receivables, net                                                       1,597,000             1,121,000 
     Inventory                                                                144,000                43,000 
     Other assets                                                             339,000               208,000 
     Accounts payable                                                          33,000               414,000 
     Accrued liabilities                                                     (527,000)             (800,000)
     Deferred revenue                                                       3,853,000               433,000 
     Other long term liabilities                                              (60,000)             (558,000)
                                                                          -----------           ----------- 
Net cash provided by (used in) operating activities                         1,688,000            (2,779,000)
                                                                          -----------           ----------- 
Cash flows from investing activities:                                                                       
  Sale or maturity of short term investments                                  133,000               153,000 
  Purchases of short term investments                                               -            (1,499,000)
  Purchases of property and equipment                                         (99,000)             (579,000)
  Purchases of software                                                      (158,000)              (41,000)
  Computer software capitalized                                            (1,804,000)           (1,146,000)
                                                                          -----------           ----------- 
Net cash used in investing activities                                      (1,928,000)           (3,112,000)
                                                                          -----------           ----------- 
Cash flows from financing activities:                                                                       
  Repayments under notes payable                                             (233,000)           (2,243,000)
  Net borrowings under revolving loan and bank agreements                     787,000             1,121,000 
  Payment of preferred stock dividends                                        (87,000)              (61,000)
  Net proceeds from issuance of preferred stock                                     -             2,653,000 
  Net proceeds from issuance of subordinated debt and warrants                      -             3,000,000 
  Cash payments for debt issuance costs                                             -              (347,000)
  Proceeds from exercise of stock options                                           -               186,000 
                                                                          -----------           ----------- 
Net cash provided by financing activities                                     467,000             4,309,000 
                                                                          -----------           ----------- 
Effect of exchange rate changes on cash                                      (107,000)               70,000 
                                                                          -----------           ----------- 
Net increase (decrease) in cash and cash equivalents                          120,000            (1,512,000)
                                                                                                            
Cash and cash equivalents at beginning of period                            1,938,000             2,200,000 
                                                                          -----------           ----------- 
Cash and cash equivalents at end of period                                $ 2,058,000           $   688,000 
                                                                          -----------           ----------- 
                                                                          -----------           ----------- 
Supplemental cash flow information:                                                                         
  Interest paid                                                           $   353,000           $   189,000 
                                                                          -----------           ----------- 
                                                                          -----------           ----------- 
Schedule of noncash financing activities:                                                                   
  Accretion of dividends on mandatorily redeemable                                                          
  convertible preferred stock                                             $   216,000           $    29,000 
                                                                          -----------           ----------- 
                                                                          -----------           ----------- 
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                      5
<PAGE>


                            ALTRIS SOFTWARE, INC.

               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                 (Unaudited)

NOTE 1 - BASIS OF PRESENTATION

     The accompanying consolidated balance sheet of Altris Software, Inc. 
(the "Company") as of September 30, 1998 and the consolidated statement of 
operations and of cash flows for the three and nine month periods ended 
September 30, 1998 and 1997 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. All significant intercompany 
balances and transactions have been eliminated.

     The results for the three and six months ended June 30, 1998, as 
previously reported, included $124,000 in research and development expense 
and $80,000 in marketing and sales expense that has since been reclassified 
as general and administrative expense. The results for the nine months ended 
September 30, 1998 have been adjusted to reflect this reclassification of 
expenses.

NOTE 2 - NET INCOME PER SHARE

     The Company adopted Statement of Financial Accounting Standard No. 128 
("FAS 128"), "Earnings per Share," for fiscal 1997 and retroactively restated 
all prior periods to conform with FAS 128 as required. Basic net income per 
common share is computed as net income less accretion of dividends on 
mandatorily redeemable convertible preferred stock divided by the weighted 
average number of common shares outstanding during the period. Diluted net 
income per common share is computed as net income 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.

NOTE 3 - SALE OF RIPS AND LICENSE OF CERTAIN OTHER SOFTWARE

     On September 21, 1998 the Company entered into an agreement with 
Structural Dynamics Research Corporation ("SDRC") to sell its Rapid 
Information Presentation Services ("RIPS") product including source code and 
to license certain other software including portions of the Company's 
document management products, Enabler and EB-TM-. Under the agreement SDRC 
has a royalty free, fully paid right to sublicense these portions of Enabler 
and EB when sold with SDRC's Metaphase document management product. The total 
consideration was $3,125,000 less $750,000 that had been paid to Altris by 
SDRC under a Marketing Services and Integration Agreement ("Marketing 
Agreement") dated December 31, 1997. Under the Marketing Agreement the 
Company had recognized revenue of $363,000 in 1998. Upon closing, the 
Marketing Agreement was terminated. In regard to the sale of RIPS and 
sublicense of Enabler and EB along with future versions or successors 
thereof, the Company has deferred recognition of $2,763,000 in revenue. The 
revenue is expected to be recognized over the estimated economic life of the 
products to SDRC.


                                      6
<PAGE>

NOTE 4 - RECEIVABLES


<TABLE>
<CAPTION>
                                          September 30, 1998    December 31, 1997
                                          ------------------    -----------------
<S>                                           <C>                   <C>
Billed receivables                            $ 1,418,000           $ 3,111,000 
Unbilled receivables                              231,000               219,000 
Less allowance for doubtful accounts             (201,000)             (285,000)
                                              -----------           ----------- 
                                              $ 1,448,000           $ 3,045,000 
                                              -----------           ----------- 
                                              -----------           ----------- 
</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, 1998 and December 31, 1997, the Company's reserve against 
excess quantities totaled $601,000 and $511,000, respectively.

NOTE 6 - NOTES PAYABLE AND SUBORDINATED DEBT

     The Company's United Kingdom subsidiary has an overdraft facility with a 
bank with interest calculated at 2.0% per annum over the bank's base rate 
(9.5% at September 30, 1998 and 9.25% at December 31, 1997). The facility is 
for $425,000 (L250,000) and is payable on demand. At September 30, 1998 and 
December 31, 1997, $425,000 and $430,000, respectively, was outstanding. The 
property and assets of the Company's United Kingdom subsidiary secure 
repayment of the borrowings under the facility. The Company has executed a 
guarantee in connection with the facility. In October 1998, the Company and 
the bank agreed to extend the facility through January 15, 1999 for $425,000 
(L250,000) at 3% per annum over the bank's base rate.

     In September 1997, the Company issued a five-year, 11.5% subordinated 
debenture ("the Subordinated Debenture") with quarterly interest payments for 
gross proceeds of $3,000,000. In conjunction with the debt, the Company 
granted warrants to purchase 300,000 shares of the Company's common stock at 
an exercise price of $6.00 per share which are exercisable over a five year 
period from the date of issuance. The warrants were valued at $585,000 and a 
portion of the proceeds from the debt has been allocated to common stock 
warrants. In September 1998, the Company agreed to grant to the holder of the 
Subordinated Debenture a security interest, second in priority to the 
Company's senior secured debt in substantially all of the Company's assets. 
In addition, the Company agreed to pay interest on a monthly rather than 
quarterly basis.

     In the event the debt is outstanding at September 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 will be 
ascribed, if any. As of December 31, 1997 the Company was in violation of 
certain covenants contained in the subordinated debenture agreement. The 
Company obtained a waiver of such violations in May 1998, which extends for 
one year from the date of the waiver.

     In March 1997, the Company borrowed $300,000 from an officer of the 
Company. The terms of the agreement were for a maximum of a three month 
period with a 12% per annum interest rate. The entire balance and accrued 
interest was paid in July 1997.

     The Company has two revolving loan and security agreements, each 
providing for borrowings of up to $1,000,000. The maximum credit available 
under each facility declines by $200,000 each year in March and September 
beginning in 1997 and 1996, respectively. Each loan is payable in monthly 
installments of $16,667. At September 30, 1998, $1,133,000 was outstanding 
with no additional funds available on the facility. At December 31, 1997, 
$574,000 was outstanding and $793,000 was unused on these facilities. Total 
borrowings under the revolving loan and security agreements are 
collateralized by the Company's assets and interest is equal to the 30-day 
Commercial Paper Rate plus 2.95% (8.46% and 8.80% at September 30, 1998 and 


                                     7
<PAGE>

December 31, 1997, respectively). The revolving loan and security agreements 
contain certain restrictive covenants including the maintenance of a minimum 
ratio of debt to tangible net worth. As of December 31, 1997 the Company was 
in violation of such covenants. The Company obtained a waiver of such 
violations existing on and prior to December 31, 1997. In addition, the 
lender has also waived the debt to tangible net worth covenant through May 
1999.

NOTE 7 - 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 on June 27, 1999 to the average closing 
price of the common stock on the 20 trading days immediately prior to June 
27, 1999 if such average is less than $6.00 per share). Commencing in March 
1998 the Company has been in default of certain covenants, resulting in a 
dividend rate increase to 14% per annum.

     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, 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 for the Series D Preferred 
Stock. In the event of mandatory redemption, 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) 50,000 shares, at an exercise 
price of $7.00 per share, on June 27, 2000 if the Series D Preferred Stock 
has not been redeemed or converted in full on or prior to June 27, 2000; (ii) 
50,000 shares, at an exercise price of $7.00 per share, on June 27, 2001 if 
the Series D Preferred Stock has not been redeemed or converted in full on or 
prior to June 27, 2001; (iii) 250,000 shares, at an exercise price equal to 
the trading price per share at the issuance of the warrant, on July 17, 2002 
if the Series D Preferred Stock has not been redeemed or converted in full on 
or prior to July 17, 2002; and (iv) 250,000 shares, at an exercise price 
equal to the trading price per share at the issuance of the warrant, on June 
27, 2003 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.

     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).


                                      8
<PAGE>

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

<TABLE>
<CAPTION>
                                                      For the three months             For the nine months
                                                       ended September 30,             ended September 30,
                                                  ----------------------------      ------------------------------
                                                      1998           1997               1998             1997     
                                                      ----           ----               ----             ----     
<S>                                               <C>              <C>               <C>              <C>         
Net Loss Used:
  Net loss                                        $  (982,000)     $(1,530,000)      $(5,449,000)     $(5,394,000)
  Accretion of dividends
    on mandatorily redeemable
    convertible preferred stock                      (105,000)         (90,000)         (303,000)         (90,000)
                                                  -----------      -----------       -----------      -----------
  Net loss used in computing
    basic and diluted net loss per share          $(1,087,000)     $(1,620,000)      $(5,752,000)     $(5,484,000)
                                                  -----------      -----------       -----------      -----------
                                                  -----------      -----------       -----------      -----------
Shares Used:
  Weighted average common shares
    outstanding used in computing
    basic and diluted net loss
    per common share                                9,615,000        9,587,000         9,615,000        9,575,000
                                                  -----------      -----------       -----------      -----------
                                                  -----------      -----------       -----------      -----------
</TABLE>

NOTE 9 - LITIGATION

     During March 1998 through May 1998, six class action complaints alleging 
violations of the federal securities laws were filed against the Company. On 
September 11, 1998, the court entered an order consolidating these cases, 
appointing lead plaintiffs and approving plaintiffs' selection of lead 
counsel. On October 29, 1998, the lead plaintiffs filed a Consolidated 
Amended Class Action Complaint For Violation Of The Federal Securities Laws 
And The California Corporations Code. The consolidated amended complaint 
asserts claims for violations of the Securities Exchange Act and the 
California Corporations Code against the Company, certain of its present 
officers and directors, and Price Waterhouse LLP on behalf of persons who 
purchased the Company's stock between April 17, 1996 and March 11, 1998. The 
consolidated amended complaint alleges that the Company and the other 
defendants issued false and misleading statements in the Company's filings 
with the Securities and Exchange Commission and in other public statements. 
The Company's response to the consolidated amended complaint is scheduled to 
be filed on December 16, 1998. Management is unable to determine whether the 
outcome of this litigation will have a material impact on its financial 
position, results of operations and cash flows.


                                      9
<PAGE>

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

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE AND NINE 
MONTHS ENDED SEPTEMBER 30, 1997.

     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, 1998 were 
$3,149,000 and $9,684,000, respectively, as compared to $5,041,000 and 
$13,780,000 for the three and nine months ended September 30, 1997. The 
decrease of 38% and 30%, respectively, in revenues for the three and nine 
months ended September 30, 1998, is primarily due to a decline in sales of 
new large systems.

     For the three and nine months ended September 30, 1998, revenues 
consisted of $779,000 (25%) and $3,313,000 (34%), respectively, in new system 
revenues and $2,370,000 (75%) and $6,371,000 (66%), respectively, related to 
system enhancements, expansion and maintenance. This compares to $2,483,000 
(49%) and $7,293,000 (53%), respectively, in new system revenues and 
$2,558,000 (51%) and $6,487,000 (47%), respectively, related to system 
enhancements, expansion and maintenance, for the three and nine months ended 
September 30, 1997. System enhancements are changes to a system previously 
installed by the Company in order to, among other things, accommodate more 
documents or users, interface with different peripheral devices, update the 
system with recently developed improvements (including improvements which 
increase the speed of the system) or implement other changes in response to 
the customer's general data processing environment.

     The decrease in new system revenues for the three and nine months ended 
September 30, 1998 is the result of the Company devoting substantial sales 
and marketing efforts in 1997 to its anticipated Altris EB-TM- product. The 
availability of EB has been substantially delayed as a result of 
unanticipated problems in the performance of the product. Management believes 
that the Company's inability to provide the Altris EB product, which was to 
address the needs of new customers for additional features and functionality, 
was the principal cause for the decline in revenues for the nine months ended 
September 30, 1998 as compared to the same period in 1997. The Company now 
expects to release in late January 1999 a version of Altris EB for early 
shipment for integration into the operating environments of a limited number 
of Altris customers and partners.  General distribution of the product is 
expected to follow later in the quarter.

     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, 1998 or 1997. 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

     Gross profit as a percentage of revenues was 48% and 43% for the three 
and nine months ended September 30, 1998, compared to 58% and 49% for the 
same periods a year ago. The decrease in gross profit margin for the three 
and nine months ended September 30, 1998 was due primarily to a reduction in 
revenues which resulted in fixed costs representing a greater proportion of 
revenues for the three and nine months ended September 30, 1998 compared to 
the same period in 1997. Software license revenue was $931,000 (30%) and 
$2,991,000 (31%) of total revenues for the three and nine months ended 
September 30, 1998, compared to $2,477,000 (49%) and $6,735,000 (49%) of 
total revenues in the same periods in 1997. Hardware sales, which 


                                      10
<PAGE>

have a lower margin than software, were $167,000 (5%) and $567,000 (6%) for 
the three and nine months ended September 30, 1998 compared to $416,000 (8%) 
and $1,340,000 (10%) for the same periods in 1997. Service revenues, which 
include maintenance, training and consulting services, were $2,051,000 (65%) 
and $6,126,000 (63%) for the three and nine months ended September 30, 1998 
compared to $2,148,000 (43%) and $5,705,000 (41%) for the same period in 
1997. 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, 1998 was $552,000 and $1,779,000, respectively, as compared to 
$1,095,000 and $3,041,000 for the same periods in the prior year. The 
decrease in research and development was due to a reduction in personnel. 
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. Technical 
expenses on customer-funded projects are included in cost of revenues, while 
expenses on internal projects are included in research and development 
expense. Technical expenses on customer-funded projects for the three and 
nine months ended September 30, 1998 were $558,000 and $2,064,000, 
respectively, versus $553,000 and $2,205,000, respectively, for the same 
period last year.

     Marketing and sales expense for the three and nine months ended 
September 30, 1998 was $887,000 and $3,542,000, respectively, as compared to 
$2,310,000 and $5,990,000 for the three and nine months ended September 30, 
1997. The decrease is primarily attributable to a reduction in marketing and 
promotional costs incurred along with a reduction in personnel.

     General and administrative expense was $805,000 and $3,197,000, 
respectively, for the three and nine months ended September 30, 1998 as 
compared to $951,000 and $2,656,000 for the three and nine months ended 
September 30, 1997. The decrease in general and administrative expense for 
the three months ended September 30, 1998 was primarily due to a reduction in 
personnel, while the increase for the nine months ended September 30, 1998 
was due primarily to increased legal, accounting and consultancy costs 
associated with the Company's restatement of its financial statements for 
fiscal year 1996 and the three interim quarters in 1997.

     During the three and nine months ended September 30, 1998, the Company 
incurred $85,000 and $610,000, respectively, in restructuring charges 
resulting primarily from severance costs including amounts owed under a 
Separation Agreement between the Company and its former CEO.

     During the second quarter of 1997, the Company wrote-off certain 
offering costs, resulting in a one-time charge to operations in the amount of 
$270,000. The costs that were written-off were not directly related to the 
private placement that occurred during the second quarter of 1997.

     Interest and other income was $5,000 and $23,000 for the three and nine 
months ended September 30, 1998 as compared to $41,000 and $93,000 for the 
same period a year ago. The decrease is primarily due to lower cash balances.

     Interest and other expense was $160,000 and $492,000, respectively, for 
the three and nine months ended September 30, 1998 versus $159,000 and 
$268,000 for the three and nine months ended September 30, 1997. The increase 
was due to a higher debt balance coupled with a higher rate of interest paid 
on the Company's debt at September 30, 1998 versus the same period in 1997.

LIQUIDITY AND CAPITAL RESOURCES


                                      11
<PAGE>

     At September 30, 1998, the Company's cash and cash equivalents totaled 
$2,058,000 as compared to $1,938,000 at December 31, 1997, and its current 
ratio was .4 to 1. The Company's short-term investments totaled $133,000 at 
December 31, 1997. The Company has two revolving credit facilities that 
provide for borrowings of up to $1,133,000. At September 30, 1998, $1,133,000 
was outstanding on the revolving loan agreements with no additional funds 
available on the facilities. In addition, the Company's U.K. subsidiary has 
an overdraft credit facility of $425,000 (L250,000). The outstanding balance 
on this facility is payable on demand of the lender. At September 30, 1998, 
borrowings on this facility were $425,000 (L250,000). The Company has 
guaranteed the borrowings on this facility. In October 1998, the Company and 
the bank agreed to extend the facility through January 15, 1999 for $425,000 
(L250,000) at 3% per annum over the bank's base rate. See Note 6 of the Notes 
to the Consolidated Financial Statements.

     Certain events of default under each of the Company's revolving loan 
agreements and under the Subordinated Debenture occurred as a result of a 
restatement of the Company's interim financial information and annual 
financial statements for 1996 and the interim information for the first three 
quarters of 1997 which restatement was announced in May 1998. The lenders 
under such agreements and the Subordinated Debenture have agreed to waive 
such events of default for 1997 in the case of the lender under the Company's 
revolving loan agreements and for a period of one year expiring in May 1999 
in the case of the holder of the Subordinated Debenture. Such lender and 
holder have also waived compliance with certain financial covenants for one 
year expiring in May 1999. At that time the Company anticipates it will be in 
default under its revolving agreements as a result of its continued 
non-compliance with a covenant requiring a minimum ratio of debt to tangible 
net worth. There can be no assurances that the Company will be able to secure 
from its lenders the further waiver of such anticipated event of default or 
any other event of default after May 1999. If such events of default are not 
then waived, the Company may then be required to repay the full amount of its 
outstanding indebtedness under the revolving credit agreements and the 
Subordinated Debenture. 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 May 1999, could also result 
in the Company being required to repay the full amount of such indebtedness. 
In addition, because the overdraft credit facility of the Company's U.K. 
subsidiary is payable upon demand, the Company could be required at any time 
to repay all outstanding borrowings under such facility. The repayment of 
such indebtedness would require additional debt or equity financing. There 
can be no assurances that any such financing would be available.

     For the first nine months of 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. On September 21, 1998 
the Company entered into an agreement with SDRC to sell its RIPS product 
including source code and to license certain other software including 
portions of the Company's document management products, Enabler and EB. The 
transaction provided cash of $2,375,000 to the Company. The Company also 
received cash provided by financing activities through net borrowings under 
the Company's revolving loan and bank agreements. For the first nine months 
of 1997, cash used in operating and investing activities totaled $2,779,000 
and $3,112,000, respectively, while cash provided by financing activities 
totaled $4,309,000.

     Due to significant losses incurred in 1997 and lower forecasted sales, 
the Company has restructured its operations and reduced its payroll cost, the 
largest cost element, by approximately 25% from the level prevailing at the 
end of 1997. In addition, the Company has made further reductions of other 
expenditures. The Company believes that as the result of the reduction of its 
costs through the restructuring of its operations, funds generated from 
operations will be adequate to meet expected short-term needs for working 
capital, subject to continued forbearance from the Company's lenders. 
However, the Company's ability to continue operations without additional 
capital is dependent upon the Company's ability to sustain revenues from its 
existing customer base and to sell new systems. Given the substantial 
uncertainties confronting the Company, there can be no assurance that 
sufficient cash flows will be generated by the Company to avoid the further 
depletion of its working capital. Accordingly, the Company is seeking 
additional equity or debt financing. There can be no assurance that 
additional debt or equity financing will be available, if and when needed, or 
that, if available, such financing could be completed on commercially 
favorable terms. Failure to obtain additional financing, if and when needed, 
could have a material adverse effect on the Company's business, results of 
operations, and financial condition.


                                      12
<PAGE>

Net Operating Loss Tax Carryforwards

     As of December 31, 1997, the Company had a net operating loss 
carryforward ("NOL") for federal and state income tax purposes of $40,549,000 
and $10,239,000, respectively. 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 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 private placement in June 1997, the Trimco acquisition in 
December 1995, the Optigraphics acquisition in September 1993 and through 
traditional stock option grants to employees. Although there has been no 
"ownership change" in 1997, this activity, combined with the liquidity 
available to stockholders, increase the potential for an "ownership change" 
for income tax purposes.

     In connection with the acquisition of Trimco, the Company acquired 
deferred tax assets of approximately $926,000 of which approximately $626,000 
was provided as a valuation allowance. In June 1997, the $300,000 tax asset 
was realized and a reduction to goodwill was recorded. In the event that 
remaining tax benefits acquired in the Trimco acquisition are realized, tax 
benefits will be used first to reduce any remaining goodwill and other 
intangible assets related to the acquisition. Once those assets are reduced 
to zero, the benefit will be included as a reduction of the Company's income 
tax provision.

     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.


                                      13
<PAGE>

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Uncertain Impact of Restatement of Financial Statements

     In May 1998 the Company reported restated financial results for 1996 and 
the first three quarters of 1997. See the Company Annual Report on Form 10-K 
for the year ended December 31, 1997 (the "Form 10-K"). In addition, the 
report of the Company's independent accountants, Price Waterhouse LLP, on the 
Company's consolidated financial statements as of and for the year ended 
December 31, 1997 includes an explanatory paragraph regarding the Company's 
ability to continue as a going concern. See "Report of Independent 
Accountants" accompanying the Consolidated Financial Statements in the Form 
10-K. The Company's public announcement of the restatement of its financial 
statements, delays in reporting operating results for the year ended December 
31, 1997 while the restatement was being compiled, delays in reporting first 
quarter of 1998 results, the de-listing of the Company's Common Stock from 
the Nasdaq National Market, corporate actions to restructure operations and 
reduce operating expenses, and customer uncertainty regarding the Company's 
financial condition are likely to have a material adverse effect on the 
Company and its ability to sell its products in the future.

Foreign Currency

     The Company's geographic markets are primarily in the United States and 
Europe, with sales in other parts of the world. In the nine months ended 
September 30, 1998, revenue from the United States, Europe and other 
locations in the world were 61%, 35% and 4%, respectively. This compares to 
59%, 36% and 5%, respectively for the same period in 1997. 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 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.

New Accounting Pronouncements

     In 1997, the American Institute of Certified Public Accountants issued 
Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition" as 
amended by Statement of Position 98-4 ("SOP 98-4"). The Company adopted the 
provisions of SOP 97-2 as of January 1, 1998 and as a result, changed certain 
business practices. SOP 98-4 is effective as of September 30, 1998. The 
adoption has, in certain circumstances, resulted in the deferral of software 
license revenues that would have been recognized upon delivery of the related 
software under preceding accounting standards. At this time the Company 
cannot quantify the effect that SOP 97-2 will have on its operating results, 
financial position or cash flows.

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.


                                      14
<PAGE>

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, in less than two years, 
computer systems and/or software used by many companies may need to be 
upgraded 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 recently commenced a program, to be substantially 
completed by the Fall of 1999, 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. In addition, 
the Company is considering converting certain of its software and systems to 
commercial products that are known to be Year 2000 compliant. Implementation 
of software products of third parties, however, will require the dedication 
of substantial 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. Software or systems which are deemed critical to 
the Company's business are scheduled to be Year 2000 compliant by the end of 
1998. 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 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. 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.

     To date, the Company has not created a separate budget for investigating 
and remedying issues related to Year 2000 compliance whether involving the 
Company's own software products or the software or systems used in its 
internal operations. There can be no assurances that Company resources spent 
on investigating and remedying Year 2000 compliance issues will not have a 
material adverse effect on the Company's business, financial condition and 
results of operations.

     In addition, the purchasing patterns of customers and potential 
customers may be affected by Year 2000 issues. Many companies are expending 
significant resources to correct their current software systems for Year 2000 
compliance. These expenditures may result in reduced funds available to 
purchase software products such as those offered by the Company, which could 
have an adverse effect on the Company's business, results of operations and 
financial condition.


                                      15
<PAGE>

                         PART II. OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

     On July 13, 1998, the Securities and Exchange Commission issued a formal 
order of investigation authorizing its staff to examine the financial 
statements filed in Altris' Forms 10-Q for the first three quarters of 1996 
and 1997, and on the Form 10-K for the year ended December 31, 1996. All of 
the financial statements in question have previously been restated. The 
Company is cooperating fully in this matter.

     See Note 9 of the Consolidated Financial Statements for a description of 
the class action securities litigation for which the Company is a defendant.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

     The Company has defaulted on certain debentures and preferred stock. See 
Notes 6 and 7 of the Consolidated Financial Statements and Part I, Item 2. 
Management's Discussion and Analysis of Financial Condition and Results of 
Operations - Liquidity and Capital Resources.

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

         The Annual Meeting of Shareholders was held August 27, 1998. At the 
meeting, the shareholders 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 625,000 to 925,000 shares. The proposal was 
approved with 7,847,102 proxies voting for, 474,851 voting against, and 
50,640 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)  Exhibits - See Exhibit Index on Page 18.

          (b)  Form 8-K, dated September 21, 1998.



                                      16
<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 16, 1998
                                              ---------------------------------



                                      17
<PAGE>




                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
-------
<S>       <C>
10.23     Overdraft and Other Facilities dated October 19, 1998 Between Altris
          Software Ltd and Lloyds Bank Plc
</TABLE>






                                      18