<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, 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 July 31, 1998:    9,614,663
                                                              -------------

Number of Sequentially Numbered Pages: 17

<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>

                                                      June 30, 1998     December 31, 1997
                                                      -------------     -----------------
                                                       (unaudited)
<S>                                                   <C>               <C>
                                       ASSETS

Current assets:
   Cash and cash equivalents                          $    677,000        $  1,938,000
   Short term investments                                        -             133,000
   Receivables, net                                      1,627,000           3,045,000
   Inventory, net                                          404,000             460,000
   Other current assets                                    488,000             633,000
                                                      ------------        ------------
      Total current assets                               3,196,000           6,209,000

Property and equipment, net                              1,911,000           2,270,000
Computer software, net                                   4,050,000           3,042,000
Goodwill, net                                            3,509,000           3,914,000
Other assets                                               345,000             401,000
                                                      ------------        ------------
                                                      $ 13,011,000        $ 15,836,000
                                                      ------------        ------------
                                                      ------------        ------------


                         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

   Accounts payable                                   $  2,927,000        $  2,928,000
   Accrued liabilities                                   2,310,000           2,758,000
   Notes payable                                           908,000             730,000
   Deferred revenue                                      3,167,000           1,770,000
                                                      ------------        ------------
      Total current liabilities                          9,312,000           8,186,000

Long term notes payable                                    842,000             274,000
Other long term liabilities                                192,000             173,000
Subordinated debt, net of discount                       2,532,000           2,473,000
                                                      ------------        ------------
      Total liabilities                                 12,878,000          11,106,000
                                                      ------------        ------------

Commitments:

Mandatorily redeemable convertible preferred stock, 
   $1,000 par value, 3,000 shares authorized; 3,000 
   shares issued and outstanding ($2,793,000 and 
   $2,682,000 total liquidation preference, 
   respectively)                                         2,793,000           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                     61,402,000          61,600,000
   Common stock warrants                                   585,000             585,000
   Foreign currency translation adjustment                 (18,000)             25,000
   Accumulated deficit                                 (64,629,000)        (60,162,000)
                                                      ------------        ------------
      Total shareholders' equity                        (2,660,000)          2,048,000
                                                      ------------        ------------
                                                      $ 13,011,000        $ 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 six months
                                                    ended June 30,                ended June 30
                                            ----------------------------  ----------------------------
                                                 1998           1997           1998           1997
                                                 ----           ----           ----           ----
<S>                                         <C>            <C>            <C>            <C>
Revenues                                     $ 3,534,000    $ 4,754,000    $ 6,535,000    $ 8,739,000

Cost of revenues                               2,088,000      2,803,000      3,889,000      4,945,000
                                             -----------    -----------    -----------    -----------

Gross profit                                   1,446,000      1,951,000      2,646,000      3,794,000
                                             -----------    -----------    -----------    -----------

Operating expenses:
  Research and development                       608,000      1,030,000      1,351,000      1,946,000
  Marketing and sales                          1,066,000      1,936,000      2,735,000      3,680,000
  General and administrative                   1,154,000        951,000      2,188,000      1,705,000
  Restructuring expense                          149,000              -        525,000              -
  Write-off of certain offering costs                  -        270,000              -        270,000
                                             -----------    -----------    -----------    -----------
     Total operating expenses                  2,977,000      4,187,000      6,799,000      7,601,000
                                             -----------    -----------    -----------    -----------

Loss from operations                          (1,531,000)    (2,236,000)    (4,153,000)    (3,807,000)

Interest and other income                          3,000         30,000         18,000         52,000
Interest and other expense                      (169,000)       (58,000)      (332,000)      (109,000)
                                             -----------    -----------    -----------    -----------

Loss before income taxes                      (1,697,000)    (2,264,000)    (4,467,000)    (3,864,000)

Provision for income taxes                             -              -              -              -
                                             -----------    -----------    -----------    -----------

Net loss                                     $(1,697,000)   $(2,264,000)   $(4,467,000)   $(3,864,000)
                                             -----------    -----------    -----------    -----------
                                             -----------    -----------    -----------    -----------

Basic net loss per common share              $      (.19)   $      (.24)   $      (.49)   $      (.40)
                                             -----------    -----------    -----------    -----------
                                             -----------    -----------    -----------    -----------

Diluted net loss per common share            $      (.19)   $      (.24)   $      (.49)   $      (.40)
                                             -----------    -----------    -----------    -----------
                                             -----------    -----------    -----------    -----------

Shares used in computing basic and
  diluted net loss per common share            9,615,000      9,574,000      9,615,000      9,570,000

</TABLE>

See accompanying notes to the consolidated financial statements


                                      4

<PAGE>

                            ALTRIS SOFTWARE, INC.

                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (Unaudited)

<TABLE>
<CAPTION>

                                                                         For the six months
                                                                           ended June 30,
                                                                     ---------------------------
                                                                          1998           1997
                                                                          ----           ----
<S>                                                                  <C>            <C>
Cash flow from operating activities:
   Net loss                                                          $(4,467,000)   $(3,864,000)
Adjustments to reconcile net loss to net cash
     used in operating activities:
   Depreciation and amortization                                       1,189,000      1,137,000
   Loss on disposal of assets                                             46,000              -
   Changes in assets and liabilities:
      Receivables, net                                                 1,418,000      1,420,000
      Inventory                                                           56,000         61,000
      Other assets                                                       151,000         60,000
      Accounts payable                                                    (1,000)     1,479,000
      Accrued liabilities                                               (448,000)       (73,000)
      Deferred revenue                                                 1,397,000       (210,000)
      Other long term liabilities                                         19,000       (507,000)
                                                                     -----------    -----------
Net cash used in operating activities                                   (640,000)      (497,000)
                                                                     -----------    -----------

Cash flows from investing activities:
   Sale of short term investment                                               -         85,000
   Maturity of short term investment                                     133,000              -
   Purchases of property and equipment                                   (81,000)      (303,000)
   Purchases of software                                                (158,000)       (41,000)
   Computer software capitalized                                      (1,131,000)      (746,000)
                                                                     -----------    -----------
Net cash used in investing activities                                 (1,237,000)    (1,005,000)
                                                                     -----------    -----------

Cash flows from financing activities:
   Repayments under notes payable                                       (133,000)      (257,000)
   Net borrowings under revolving loan and bank agreements               879,000        805,000
   Payment of preferred stock dividends                                  (87,000)             -
   Net proceeds from issuance of preferred stock                               -      2,686,000
   Net proceeds from issuance of subordinated debt and warrants                -      3,000,000
   Cash payments for debt issuance costs                                       -       (314,000)
   Proceeds from exercise of stock options                                     -         56,000
                                                                     -----------    -----------
Net cash provided by financing activities                                659,000      5,976,000
                                                                     -----------    -----------

Effect of exchange rate changes on cash                                  (43,000)        22,000
                                                                     -----------    -----------

Net decrease in cash and cash equivalents                             (1,261,000)     4,496,000

Cash and cash equivalents at beginning of period                       1,938,000      2,200,000
                                                                     -----------    -----------

Cash and cash equivalents at end of period                           $   677,000    $ 6,696,000
                                                                     -----------    -----------
                                                                     -----------    -----------

Supplemental cash flow information:
   Interest paid                                                     $   232,000    $    85,000
                                                                     -----------    -----------
                                                                     -----------    -----------

Schedule of noncash financing activities:
   Accretion of dividends on mandatorily redeemable 
   convertible preferred stock                                       $   111,000    $         -
                                                                     -----------    -----------
                                                                     -----------    -----------

</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 June 30, 1998 and the consolidated statement of operations and
of cash flows for the three and six month periods ended June 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.


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 - RECEIVABLES

<TABLE>
<CAPTION>
                                        June 30, 1998       December 31, 1997
                                        -------------       -----------------
<S>                                     <C>                 <C>
Billed receivables                       $ 1,589,000          $ 3,111,000
Unbilled receivables                         223,000              219,000
Less allowance for doubtful accounts        (185,000)            (285,000)
                                         -----------          -----------
                                         $ 1,627,000          $ 3,045,000
                                         -----------          -----------
                                         -----------          -----------
</TABLE>


NOTE 4 - 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, 1998 and
December 31, 1997, the Company's reserve against excess quantities totaled
$571,000 and $511,000, respectively.


                                      6

<PAGE>

NOTE 5 - 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 June 30, 1998 and 9.25% at December 31, 1997).  The facility is for $625,000
and is payable on demand.  At June 30, 1998 and December 31, 1997, $507,000 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 June 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 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 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 June 30, 1998, $1,243,000 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% (8.47% and
8.80% at June 30, 1998 and 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 6 - 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.  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 


                                      7

<PAGE>

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, 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 5) 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).

NOTE 7 - RECONCILIATION OF NET LOSS AND SHARES USED IN PER SHARE COMPUTATIONS:

<TABLE>
<CAPTION>
                                                 For the three months           For the six months
                                                    ended June 30,                ended June 30
                                            ----------------------------  ----------------------------
                                                 1998           1997           1998           1997
                                                 ----           ----           ----           ----
<S>                                         <C>            <C>            <C>            <C>
Net Loss Used:
   Net loss                                  $(1,697,000)   $(2,264,000)   $(4,467,000)   $(3,864,000)
   Accretion of dividends
      on mandatorily redeemable
      convertible preferred stock               (105,000)             -       (198,000)             -
                                             -----------    -----------    -----------    -----------
   Net loss used in computing basic
      and diluted net loss per share         $(1,802,000)   $(2,264,000)   $(4,665,000)   $(3,864,000)

Shares Used:
   Weighted average common shares
      outstanding used in computing
      basic and diluted net loss per
      common share                             9,615,000      9,574,000      9,615,000      9,570,000
                                             -----------    -----------    -----------    -----------
                                             -----------    -----------    -----------    -----------
</TABLE>


                                      8

<PAGE>

NOTE 8 - LITIGATION

     During March 1998 through May 1998, six complaints alleging violations of
the federal securities laws were filed against the Company and certain of its
present and former officers and directors.  The complaints are class actions
filed by individuals who allege that they purchased the Company's common stock
during specified periods.  The complaints allege that the Company and the
individual defendants issued false and misleading statements in the Company's
filings with the Securities and Exchange Commission and other public statements.
Management is unable to determine whether the outcome of these complaints 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 SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE AND SIX MONTHS
ENDED JUNE 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 six months ended June 30, 1998 were $3,534,000
and $6,535,000, respectively, as compared to $4,754,000 and $8,739,000 for the
three and six months ended June 30, 1997.  The decrease of 26% and 25%,
respectively, in revenues for the three and six months ended June 30, 1998, is
primarily due to a decline in sales of new large systems.

     For the three and six months ended June 30, 1998, revenues consisted of
$1,531,000 (43%) and $2,534,000 (39%), respectively, in new system revenues and
$2,003,000 (57%) and $4,001,000 (61%), respectively, related to system
enhancements, expansion and maintenance.  This compares to $2,861,000 (60%) and
$4,810,000 (55%), respectively, in new system revenues and $1,893,000 (40%) and
$3,929,000 (45%), respectively, related to system enhancements, expansion and
maintenance, for the three and six months ended June 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 six months ended 
June 30, 1997 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 
three and six months ended June 30, 1998 as compared to the same period in 
1997.  The increase in revenues generated from system enhancements, expansion 
and maintenance in the second quarter 1998 is the result of existing 
customers upgrading and expanding current systems.

     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, 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 41% and 40% for the three and
six months ended June 30, 1998, compared to 41% and 43% for the same periods a
year ago.  The decrease in gross profit margin for the six months ended June 30,
1998 was due primarily to a reduction in revenues which resulted in fixed costs
representing a greater proportion of revenues for the six months ended June 30,
1998 compared to the same period in 1997.  Software license revenue was
$1,169,000 (33%) and $2,060,000 (32%) of total revenues for the three and six
months ended June 30, 1998, compared to $2,124,000 (45%) and $4,258,000 (49%) of
total revenues in the same periods in 1997.  Hardware sales, which have a lower
margin than software, was $339,000 (10%) and $400,000 (6%) for the three and six
months ended June 30, 1998 compared to $668,000 (14%) and $924,000 (10%) for the
same periods in 1997.  Service revenues, which include maintenance, 


                                     10

<PAGE>

training and consulting services, increased to $2,026,000 (57%) and 
$4,075,000 (62%) for the three and six months ended June 30, 1998 from 
$1,962,000 (41%) and $3,557,000 (41%) for the same periods 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 six months ended June 
30, 1998 was $608,000 and $1,351,000, respectively, as compared to $1,030,000 
and $1,946,000 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 quarter were 
$783,000 and $1,506,000, respectively, versus $948,000 and $1,652,000, 
respectively, for the same period last year.

     Marketing and sales expense for the three and six months ended June 30,
1998 was $1,066,000 and $2,735,000, respectively, as compared to $1,936,000 and
$3,680,000 for the three and six months ended June 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 $1,154,000 and $2,188,000,
respectively, for the three and six months ended June 30, 1998 as compared to
$951,000 and $1,705,000 for the three and six months ended June 30, 1997.  The
increase in general and administrative expense 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 six months ended June 30, 1998, the Company incurred
$149,000 and $525,000, 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 $3,000 and $18,000 for the three and six
months ended June 30, 1998 as compared to $30,000 and $52,000 for the same
period a year ago.  The decrease is primarily due to lower cash balances.

     Interest and other expense was $169,000 and $332,000, respectively, for the
three and six months ended June 30, 1998 versus $58,000 and $109,000 for the
three and six months ended June 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
June 30, 1998 versus the same period in 1997.

LIQUIDITY AND CAPITAL RESOURCES

     At June 30, 1998, the Company's cash and cash equivalents totaled $677,000
as compared to $1,938,000 at December 31, 1997, and its current ratio was .5 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 $1,243,000.  At June 30, 1998, $1,243,000 was outstanding on the revolving
loan agreements with no additional funds available on the facility.  In
addition, the Company's U.K. subsidiary has an overdraft credit facility of
$625,000.  The Company has agreed with the lender to reduce the total facility
by approximately $40,000 per month for the next three months.  The outstanding
balance on this facility is payable 


                                     11

<PAGE>

on demand of the lender.  At June 30, 1998, borrowings on this facility were 
$507,000.  The Company has guaranteed the borrowings on this facility.  See 
Note 5 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.
There can be no assurances that the Company will be able to secure from its
lenders a further waiver of any events 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 six months of 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.  For the first
six months of 1997, cash used in operating and investing activities totaled
$497,000 and $1,005,000, respectively, while cash provided by financing
activities totaled $5,976,000.

     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.  However, the Company is investigating raising additional cash
through a debt or equity offering.  The Company believes that as the result of
the reduction of its costs through the restructuring of its operations, the
unused portion of the Company's credit facilities, and funds generated from
operations will be adequate to meet expected short-term needs for working
capital.  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 affect
on the Company's business, results of operations, and financial condition.

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 


                                     12

<PAGE>

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 was no "ownership
change" in 1997, this activity, combined with the liquidity available to
stockholders, increases 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.

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 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 six months ended June
30, 1998, revenue from the United States, Europe and other locations in the
world were 60%, 35% and 5%, respectively.  This compares to 61%, 36% and 3%,
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 


                                     13

<PAGE>

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 June 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.

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

                                     14
<PAGE>

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.


ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

     The Company has defaulted on certain debentures and preferred stock.  See
Notes 5 and 6 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 5 - OTHER INFORMATION

     As of July 20, 1998, shares of the Company's common stock have been 
trading on the OTC Bulletin Board.

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

     (a)  There were no reports on Form 8-K filed for the three months ended
June 30, 1998.


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<PAGE>

                                  SIGNATURES


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


                                       ALTRIS SOFTWARE, INC.




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




                                       Dated:     AUGUST 7, 1998
                                           ------------------------------------


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