<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 June 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 July 31, 1999: 11,618,163
                                                              ---------------

Number of Sequentially Numbered Pages: 18

<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                                                             17
</TABLE>


                                       2
<PAGE>

                             ALTRIS SOFTWARE, INC.

                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                              June 30 1999             December 31, 1998
                                                                            ------------------       -----------------------
                                                                               (Unaudited)
<S>                                                                         <C>                      <C>
                                                       ASSETS
Current assets:
   Cash and cash equivalents                                                     $    422,000                  $    530,000
   Receivables, net                                                                   560,000                     1,128,000
   Inventory, net                                                                     153,000                       277,000
   Other current assets                                                               160,000                       244,000
                                                                                 ------------                  ------------
      Total current assets                                                          1,295,000                     2,179,000

Property and equipment, net                                                           566,000                     1,565,000
Computer software, net                                                              4,239,000                     4,685,000
Goodwill, net                                                                          51,000                     2,645,000
Other assets                                                                          249,000                       292,000
Restricted cash                                                                       200,000                             -
                                                                                 ------------                  ------------
      Total assets                                                               $  6,600,000                   $11,366,000
                                                                                 ------------                  ------------
                                                                                 ------------                  ------------

                                        LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
   Accounts payable                                                              $  1,541,000                  $  2,779,000
   Accrued liabilities                                                              1,520,000                     1,934,000
   Notes payable                                                                      417,000                       745,000
   Deferred revenue                                                                 2,452,000                     3,230,000
                                                                                 ------------                  ------------
      Total current liabilities                                                     5,930,000                     8,688,000

Long term notes payable                                                               219,000                       468,000
Deferred revenue, long term portion                                                 1,823,000                     2,131,000
Other long term liabilities                                                         1,353,000                     1,263,000
Subordinated debt, net of discount                                                  2,649,000                     2,591,000
                                                                                 ------------                  ------------
      Total liabilities                                                            11,974,000                    15,141,000
                                                                                 ------------                  ------------


Mandatorily redeemable convertible preferred stock, $1,000 par value, 3,000
   shares authorized; 3,000 shares Issued and outstanding ($3,560,000 total
   liquidation preference)                                                          3,213,000                     3,003,000

Shareholders' deficit:
   Common stock, no par value, 20,000,000 shares authorized;
      11,616,913 and 9,614,663 issued and outstanding, respectively                62,792,000                    61,201,000
   Common stock warrants                                                              677,000                       585,000
   Accumulated other comprehensive income                                                   -                       (10,000)
   Accumulated deficit                                                            (72,056,000)                  (68,554,000)
                                                                                 ------------                  ------------
      Total shareholders' deficit                                                  (8,587,000)                   (6,778,000)
                                                                                 ------------                  ------------
           Total liabilities and shareholders' deficit                           $  6,600,000                  $ 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 six months
                                                      Ended June 30,                            Ended June 30
                                            ---------------------------------       ---------------------------------
                                                 1999                1998               1999                1998
                                                 ----                ----               ----                ----
<S>                                         <C>                 <C>                 <C>                 <C>
Revenues:
    Licenses                                $      382,000      $   1,169,000       $   1,154,000       $   2,060,000
    Services and other                           1,140,000          2,365,000           2,753,000           4,475,000
                                            --------------      -------------       -------------       -------------
         Total revenues                          1,522,000          3,534,000           3,907,000           6,535,000
                                            --------------      -------------       -------------       -------------

Cost of revenues:
    Licenses                                       285,000            295,000             590,000             589,000
    Services and other                             735,000          1,793,000           1,802,000           3,300,000
                                            --------------      -------------       -------------       -------------
         Total cost of revenues                  1,020,000          2,088,000           2,392,000           3,889,000
                                            --------------      -------------       -------------       -------------

Gross profit                                       502,000          1,446,000           1,515,000           2,646,000
                                            --------------      -------------       -------------       -------------

Operating expenses:
    Research and development                       837,000            608,000           1,848,000           1,351,000
    Marketing and sales                            397,000          1,066,000           1,162,000           2,735,000
    General and administrative                     443,000          1,303,000           1,890,000           2,713,000
                                            --------------      -------------       -------------       -------------
         Total operating expenses                1,677,000          2,977,000           4,900,000           6,799,000
                                            --------------      -------------       -------------       -------------

Loss from operations                            (1,175,000)        (1,531,000)         (3,385,000)         (4,153,000)

Interest and other income                         186,000               3,000             195,000              18,000
Interest and other expense                       (149,000)           (169,000)           (312,000)           (332,000)
                                            --------------      --------------      --------------      --------------

Net loss                                    $  (1,138,000)      $  (1,697,000)      $  (3,502,000)      $  (4,467,000)
                                            --------------      --------------      --------------      --------------
                                            --------------      --------------      --------------      --------------
Basic net loss per common share             $        (.11)      $        (.19)      $        (.32)      $        (.49)
                                            --------------      --------------      --------------      --------------
                                            --------------      --------------      --------------      --------------
Diluted net loss per common share           $        (.11)      $        (.19)      $        (.32)      $        (.49)
                                            --------------      --------------      --------------      --------------
                                            --------------      --------------      --------------      --------------

Shares used in computing basic and
    diluted net loss per common share           11,616,000          9,615,000          11,616,000           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 six months
                                                                                            ended June 30,
                                                                                ------------------------------------
                                                                                      1999                 1998
                                                                                      ----                 ----
<S>                                                                             <C>                  <C>
Cash flow from operating activities:
    Net loss                                                                    $   (3,502,000)      $   (4,467,000)
    Adjustments to reconcile net loss to net cash
       used in operating activities:
           Depreciation and amortization                                             1,547,000            1,189,000
           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                                                        309,000            1,418,000
               Inventory                                                               116,000               56,000
               Other assets                                                             38,000              151,000
               Accounts payable                                                       (432,000)              (1,000)
               Accrued liabilities                                                     413,000             (448,000)
               Deferred revenue                                                       (134,000)           1,397,000
               Other long term liabilities                                            (110,000)              19,000
                                                                                --------------       --------------
Net cash used in operating activities                                               (1,845,000)            (640,000)
                                                                                --------------       --------------

Cash flows from investing activities:
    Maturity of short term investment                                                        -              133,000
    Purchases of property and equipment                                                (11,000)             (81,000)
    Purchases of software                                                                    -             (158,000)
    Computer software capitalized                                                            -           (1,131,000)
    Net proceeds from sale of 60% interest in ASL                                    1,930,000                    -
                                                                                --------------       --------------
Net cash provided by (used in) investing activities                                  1,919,000           (1,237,000)
                                                                                --------------       --------------

Cash flows from financing activities:
    Repayments under notes payable                                                    (193,000)            (133,000)
    Net borrowings under revolving loan and bank agreements                                  -              879,000
    Payment of preferred stock dividends                                                     -              (87,000)
    Proceeds from exercise of stock options                                              1,000                    -
                                                                                --------------       --------------
Net cash (used in) provided by financing activities                                   (192,000)             659,000
                                                                                --------------       --------------
Effect of exchange rate changes on cash                                                 10,000              (43,000)
                                                                                --------------       ---------------
Net decrease in cash and cash equivalents                                             (108,000)          (1,261,000)
Cash and cash equivalents at beginning of period                                       530,000            1,938,000
                                                                                --------------       --------------
Cash and cash equivalents at end of period                                      $      422,000       $      677,000
                                                                                --------------       --------------
                                                                                --------------       --------------
Supplemental cash flow information:
    Interest paid                                                               $      213,000       $      232,000
                                                                                --------------       --------------
                                                                                --------------       --------------
Schedule of noncash financing activities:
    Accretion of dividends on mandatorily redeemable
    convertible preferred stock                                                 $      210,000       $      111,000
                                                                                --------------       --------------
                                                                                --------------       --------------

</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 $72,056,000, a working capital deficit of
$4,485,000 and a deficit in shareholders' equity of $8,587,000 as of June 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 has 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 offering 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 June
30, 1999 and the consolidated statement of operations and of cash flows for the
six month periods ended June 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.
As of June 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


                                       6
<PAGE>

its 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                             June 30, 1999                     December 31, 1998
         ----------------                             -------------                     -----------------
                                                       (Unaudited)
         <S>                                         <C>                                <C>
         Billed receivables                          $        584,000                   $      1,193,000
         Unbilled receivables                                  66,000                            129,000
         Less allowance for doubtful accounts                 (90,000)                          (194,000)
                                                     ----------------                   ----------------
                                                     $        560,000                   $      1,128,000
                                                     ----------------                   ----------------
                                                     ----------------                   ----------------

<CAPTION>
         Other long-term liabilities
         ---------------------------
         <S>                                         <C>                                <C>
         Accrued loss on office closure              $          6,000                   $         77,000
         Settlement of lawsuits                             1,128,000                          1,128,000
         Deferred gain on Spescom transaction                 200,000                                  -
         Other                                                 19,000                             58,000
                                                     ----------------                   ----------------
                                                     $      1,353,000                   $      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 June 30, 1999 and
December 31, 1998, the Company had a reserve of $791,000 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>
                                                                              June 30,          December 31,
                                                                                1999                1998
                                                                           -----------          ------------
                                                                           (Unaudited)
<S>                                                                        <C>                  <C>
Revolving loans                                                            $   636,000          $   838,000
Subordinated debt, less discount of $351,000 and
  $409,000, respectively                                                     2,649,000            2,591,000
United Kingdom overdraft facility                                                    -              375,000
                                                                           -----------          -----------
                                                                           $ 3,285,000          $ 3,804,000
                                                                           -----------          -----------
                                                                           -----------          -----------
</TABLE>

         The Company has two revolving loan and security agreements, each
provided for borrowings of up to $1,000,000. The maximum credit available under
each facility declines by $200,000 each year beginning in March 1997 and
September 1996, respectively. Each 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 June 30, 1999 and December 31, 1998, respectively). At June
30, 1999, $636,000 was outstanding under these two agreements 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 agreements contain
certain restrictive covenants including the maintenance of a minimum ratio of
debt to tangible net worth. As of June 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 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
liablities. In addition, the Company's guarantee in connection with the facility
has been assumed by Spescom.

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


                                       8
<PAGE>

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 June
30, 1999 accumulated unpaid dividends amounted to $560,000.

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.


                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                                   For the three months                     For the six months
                                                                       ended June 30,                          ended June 30,
                                                            ---------------------------------      -------------------------------
                                                                 1999               1998                1999              1998
                                                                 ----               ----                ----              ----
<S>                                                          <C>                <C>                <C>               <C>
Net Loss Used:

     Net loss                                                 $(1,138,000)       $(1,697,000)       $(3,502,000)      $(4,467,000)
     Accretion of dividends on mandatorily
         redeemable convertible preferred stock                  (105,000)          (105,000)          (210,000)         (198,000)
                                                              -----------        -----------        -----------       -----------
     Net loss used in computing basic and
     diluted net loss per share                               $(1,243,000)       $(1,802,000)       $(3,712,000)      $(4,665,000)
                                                              -----------        -----------        -----------       -----------
                                                              -----------        -----------        -----------       -----------
Shares Used:

     Weighted average common shares outstanding
     used in computing basic and diluted net loss
     per common share                                          11,616,000          9,615,000         11,616,000         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 six months ended June 30, 1999.

         Revenues for the three and six months ended June 30, 1999 and 1998 by
customer location are as follows:

<TABLE>
<CAPTION>
                                                                   For the three months                     For the six months
                                                                       ended June 30,                          ended June 30,
                                                            --------------------------------      --------------------------------
                                                                 1999              1998                1999              1998
                                                                 ----              ----                ----              ----
<S>                                                         <C>               <C>                 <C>               <C>
         United States                                      $ 1,442,000       $  2,109,000        $ 3,057,000       $   3,891,000
         Europe, primarily United Kingdom                        53,000          1,171,000            743,000           2,268,000
         Other International                                     27,000            254,000            107,000             376,000
                                                            -----------       ------------        -----------       -------------
                                                            -----------       ------------        -----------       -------------
                                                            $ 1,522,000       $  3,534,000        $ 3,907,000       $   6,535,000
</TABLE>
         Information by geographic location for the three and six months ended
June 30, 1999 and 1998 follows:
<TABLE>
<CAPTION>
                                                            Three months ended June 30, 1999
                               ------------------------------------------------------------------------------------
                                  United                                  Corporate
                                  States             Europe        Research & Development              Consolidated
                               -------------      ------------     ----------------------              ------------
<S>                            <C>                <C>              <C>                                 <C>
Net sales                      $   1,522,000      $          -                                         $  1,522,000
Operating loss                      (338,000)                -           $   (837,000)                   (1,175,000)
Identifiable assets                6,600,000                 -                                            6,600,000

<CAPTION>
                                                            Three months ended June 30, 1998
                               ------------------------------------------------------------------------------------
                                    United                                Corporate
                                    States          Europe         Research & Development              Consolidated
                               -------------      ------------     ----------------------              ------------
<S>                            <C>                <C>              <C>                                 <C>
Net sales                      $   2,229,000      $  1,305,000                                         $  3,534,000
Operating Income (loss)               20,000           584,000           $(2,135,000)                    (1,531,000)
Identifiable assets                7,292,000         5,719,000                                           13,011,000
</TABLE>


                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                              Six months ended June 30, 1999
                               ------------------------------------------------------------------------------------
                                    United                                Corporate
                                    States          Europe         Research & Development              Consolidated
                               -------------      ------------     ----------------------              ------------
<S>                            <C>                <C>              <C>                                 <C>
Net sales                      $   2,801,000      $  1,106,000                                         $  3,907,000
Operating loss                      (865,000)         (672,000)          $(1,848,000)                    (3,385,000)
Identifiable assets                6,600,000                                                              6,600,000

<CAPTION>
                                                              Six months ended June 30, 1998
                               ------------------------------------------------------------------------------------
                                    United                                Corporate
                                    States          Europe         Research & Development              Consolidated
                               -------------      ------------     ----------------------              ------------
<S>                            <C>                <C>              <C>                                 <C>
Net sales                      $   4,145,000      $  2,390,000                                         $  6,535,000
Operating loss                      (945,000)         (331,000)          $(2,877,000)                    (4,153,000)
Identifiable assets                7,292,000         5,719,000                                           13,011,000
</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 routine
litigation, individually or in the aggregate, is not likely to be material to
the Company's consolidated financial position or results of operations.


                                       11
<PAGE>

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


THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE AND SIX MONTHS
ENDED JUNE 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 six months ended June 30, 1999 were
$1,522,000 and $3,907,000, respectively, as compared to $3,534,000 and
$6,535,000 for the three and six months ended June 30, 1998.

         For the three months ended June 30, 1999 revenues consisted of $382,000
(25%) in software licenses and $1,140,000 (75%) related to services and other
revenue. This compares to software license revenues of $1,169,000 (33%) and
services and other revenue of $2,365,000 (67%) for the three months ended June
30, 1998. For the six months ended June 30, 1999 revenues consisted of
$1,154,000 (30%) in software licenses and $2,753,000 (70%) related to services
and other revenues. This compares to $2,060,000 (32%) in software licenses and
$4,475,000 (68%) related to services and other revenue for the six months ended
June 30 1998.

         For the three and six months ended June 30, 1999, software licenses
revenues decreased $787,000 and $906,000, respectively, while revenues generated
from services decreased $1,225,000 and $1,722,000, 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 six months ended June 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 25% and 49% for the
three and six months ended June 30, 1999 compared to 75% and 71% for the three
and six months ended June 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,
and the decreased revenues.

         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 35% and


                                      12
<PAGE>

33%, respectively, for the three and six months ended June 30, 1999 compared to
24% and 26%, respectively for the three and six months ended June 30, 1998. 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 six months ended
June 30, 1999 was $837,000 and $1,848,000, respectively, as compared to $608,000
and $1,351,000 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 six months ended June 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 six months ended June 30,
1999 was $397,000 and $1,162,000, respectively, as compared to $1,066,000 and
$2,735,000 for the three and six months ended June 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, as of April 1, 1999, marketing and sales expense does not
include ASL's expenses.

         General and administrative expense was $443,000 and $1,890,000,
respectively, for the three and six months ended June 30, 1999 as compared to
$1,303,000 and $2,713,000 for the three and six months ended June 30, 1998. The
decrease in general and administrative expense was due to decreased legal and
accounting fees for the three and six months ended June 30, 1999. Additionally,
the Company received $222,000 from its insurance carrier for legal fees incurred
in connection with shareholder suits. In 1998, general and administrative costs
included increased 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, as of April 1, 1999, general and
administrative expense does not include ASL's expenses.

         Interest and other income was $186,000 and $195,000 for the three and
six months ended June 30, 1999 as compared to $3,000 and $18,000 for the same
period a year ago. The increase 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 $149,000 and $312,000, respectively, for
the three and six months ended June 30, 1998 versus $169,000 and $332,000 for
the three and six months ended June 30, 1998. The decrease was due to a lower
debt balance at June 30, 1999 versus the same period in 1998.

LIQUIDITY AND CAPITAL RESOURCES

         At June 30, 1999, the Company's cash and cash equivalents totaled
$422,000 as compared to $530,000 at December 31, 1998, and its current ratio was
 .2 to 1. The Company has two revolving credit facilities. At June 30, 1999,
$636,000 was outstanding on the revolving loan agreements with no additional
funds available on the facility. 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. The lenders under such agreements and the Subordinated
Debenture agreed to waive such events of default. The lender under the


                                      13
<PAGE>

revolving loan agreement ("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 June 30, 1999, cash used in operating and financing activities
totaled $1,845,000 and $192,000, respectively, while cash provided by investing
activities totaled $1,919,000. Cash provided by investing activities was
generated from the sale of a 60% interest in ASL to Spescom. For the six months
ended June 30, 1998, cash provided by financing activities totaled $659,000
while cash used in operating and investing activities totaled $640,000 and
$1,237,000, respectively. Cash provided by financing activities was from net
borrowings under revolving loan and bank agreements.

         In the first half of 1999, the Company has 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
investigating 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 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.


                                      14
<PAGE>

         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. In the six months ended June 30,
1999, revenue from the United States, Europe and other locations in the world
were 78%, 19% and 3%, respectively. This compares to 60%, 35% and 5%,
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 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.


                                      15
<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, 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 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. 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. The Company is in the process of
completing Year 2000 compliance reviews and upgrades to software or systems
which are deemed critical to the Company's business. The Company expects to
complete this by September 1999. 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 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.


                                      16
<PAGE>

                          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 6 - EXHIBITS AND REPORTS ON FORM 8-K:

         (a)   Form 8-K, dated June 1, 1999

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


                                      17
<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:    August  12, 1999
                                              ---------------------------------


                                      18