<PAGE>
                                    UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
                               ______________________
                                          
                                     FORM 10-Q
                                          
                                          
[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                                    Act of 1934
                    For the quarterly period ended June 30, 1998
                                          
                                         or
                                          
      [ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
                                      Exchange
                                    Act of 1934

           For the transition period from ______________ to ______________
                                          
                          Commission File Number:  0-25526
                                          
                                C-ATS SOFTWARE INC.
               (Exact name of registrant as specified in its charter)



                     DELAWARE                          77-0185283
          (State or other jurisdiction of           (I.R.S. Employer
           incorporation or organization)         Identification Number)

        1870 EMBARCADERO ROAD, PALO ALTO, CA             94303
      (Address of principal executive offices)         (Zip Code)

                                     650-321-3000
                 (Registrant's 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.   [X (1)]  Yes  [X (2)]  No

     Number of shares outstanding of the issuer's common stock, $0.001 par value
as of JUNE 30, 1998:  6,865,385

                                      -1-
<PAGE>

                                C-ATS SOFTWARE INC.
                                          
                                          
                                       INDEX
                                          
                                          
                                          
PART I.   FINANCIAL INFORMATION

Item 1.   Interim Financial Statements

          Condensed Consolidated Balance Sheets                             3

          Condensed Consolidated Statements of Operations                   4

          Condensed Consolidated Statements of Cash Flows                   5

          Notes to Interim Condensed Consolidated Financial Statements    6-7


Item 2.   Management's Discussion and Analysis of Financial Condition    8-12
          and Results of Operations



PART II.  OTHER INFORMATION

Item 4.   Submission of Matters to a Vote of Security Holders              13


Item 6.   Exhibits and Reports on Form 8-K                                 13


SIGNATURES                                                                 13

          Index to Exhibit                                                 14

          Exhibit 27 EDGAR Requirements for the Format and 
          Input of Financial Schedules                                     15

                                      -2-
<PAGE>
                                          
                                C-ATS SOFTWARE INC.
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (In thousands)
<TABLE>
<CAPTION>
                                                     JUNE 30,     DECEMBER 31,
                                                       1998           1997
                                                   -----------    -----------
                                                   (UNAUDITED)
<S>                                                <C>            <C>
                  ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                       $ 3,444        $ 3,707
     Short-term investments                           17,533         16,446
     Accounts receivable, net                          2,680          5,100
     Prepaid expenses                                    478            271
     Deferred income taxes                             2,583          2,607
                                                     -------        -------
          Total current assets                        26,718         28,131
                                                     -------        -------
PROPERTY AND EQUIPMENT:
     Equipment                                         2,953          2,809
     Leasehold improvements                              125            125
     Furniture and fixtures                              405            403
                                                     -------        -------
                                                       3,483          3,337
     Accumulated depreciation                         (2,716)        (2,486)
                                                     -------        -------
          Net property and equipment                     767            851
                                                     -------        -------
Purchased software, at cost                            1,550          1,516
     Accumulated amortization                         (1,007)          (879)
                                                     -------        -------
          Net purchased software                         543            637
                                                     -------        -------
Income tax refund receivable - long term                 686            686
Other assets                                             314            335
                                                     -------        -------
                                                     $29,028        $30,640
                                                     -------        -------
                                                     -------        -------

          LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                                $   621        $   390
     Accrued liabilities                                 364            674
     Accrued compensation                              1,281          1,604
     Accrued taxes payable                               315            281
     Deferred revenue                                  6,276          8,007
                                                     -------        -------
          Total current liabilities                    8,857         10,956
                                                     -------        -------
STOCKHOLDERS' EQUITY:  

     Common stock                                          7              7
     Additional paid in capital                       23,474         23,282
     Accumulated translation adjustment                  (47)           228
     Retained earnings (deficit)                      (3,263)        (3,833)
                                                     -------        -------
          Total stockholders' equity                  20,171         19,684
                                                     -------        -------
                                                     $29,028        $30,640
                                                     -------        -------
                                                     -------        -------
</TABLE>

                                      -3-
<PAGE>

                                C-ATS SOFTWARE INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                       (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                      Quarter ended June 30,       Six months ended June 30,
                                                        1998           1997           1998           1997
                                                     ---------      ---------      ---------      ---------
                                                    (UNAUDITED)    (UNAUDITED)    (UNAUDITED)    (UNAUDITED)
<S>                                                 <C>            <C>            <C>            <C>
Revenues:
  License revenue                                     $4,398         $4,302         $9,837         $8,540
  Service and other revenue                              792            244          1,088            498
                                                      ------         ------         ------         ------
     Total revenues                                    5,190          4,546         10,925          9,038

Costs and expenses:
  Cost of revenues                                        43             71            110            164
  Research & development                               1,558          1,643          3,285          3,226
  Sales & marketing                                    2,906          2,821          5,750          5,424
  General & administrative                               657            713          1,418          1,405
                                                      ------         ------         ------         ------
     Total costs & expenses                            5,164          5,248         10,563         10,219
                                                      ------         ------         ------         ------
Operating income (loss)                                   26           (702)           362         (1,181)
Interest & other income                                  272            233            528            469
                                                      ------         ------         ------         ------
Income (loss) before provision for income taxes          298           (469)           890           (712)
Provision for income taxes                               234              0            320              0
                                                      ------         ------         ------         ------
Net income (loss)                                     $   64         $ (469)        $  570         $ (712)
                                                      ------         ------         ------         ------
                                                      ------         ------         ------         ------
Net income (loss) per share:
     basic                                            $ 0.01         $(0.07)        $ 0.08         $(0.11)
                                                      ------         ------         ------         ------
                                                      ------         ------         ------         ------
     diluted                                          $ 0.01         $(0.07)        $ 0.08         $(0.11)
                                                      ------         ------         ------         ------
                                                      ------         ------         ------         ------
Weighted average common shares outstanding:
     basic                                             6,863          6,714          6,855          6,695
                                                      ------         ------         ------         ------
                                                      ------         ------         ------         ------
     diluted                                           7,303          6,714          7,188          6,695
                                                      ------         ------         ------         ------
                                                      ------         ------         ------         ------
</TABLE>

                                      -4-
<PAGE>

                                C-ATS SOFTWARE INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (In thousands)
<TABLE>
<CAPTION>
                                                                Six Months Ended 
                                                             June 30,       June 30,
                                                               1998           1997
                                                             ---------      ---------
                                                            (UNAUDITED)    (UNAUDITED)
<S>                                                         <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                           $  570         $ (712)
  Adjustments to reconcile net loss to net cash                
        provided (used) by operating activities:               
                                                               
     Depreciation and amortization                               358            434
     Changes in operating assets and liabilities:              
       (Increase) decrease in accounts receivable              2,420          1,764
       (Increase) decrease in prepaid expenses                 
       (Increase) decrease in deferred income taxes             (207)          (267)
                                                                  24           (259)
       (Increase) decrease in other assets                        21             (3)
       Increase (decrease) in accounts payable                   231           (183)
       Increase (decrease) in accrued liabilities               (310)           (81)
       Increase (decrease) in accrued compensation              (323)           (81)
       Increase (decrease) in accrued taxes payable               34              0
       Increase (decrease) in deferred revenue                (1,731)          (452)
                                                              ------         ------
     Net cash provided by operating activities                 1,087            160
                                                              ------         ------
CASH FLOWS FROM INVESTING ACTIVITIES:                        
  Net sale (purchase) of short term investments               (1,087)        (4,301)
                                                              ------         ------
  Purchase of property and equipment                            (180)          (228)
                                                              ------         ------
     Net cash used in investing activities                    (1,267)        (4,529)
                                                              ------         ------
                                                             
CASH FLOWS FROM FINANCING ACTIVITIES:                        
  Proceeds from issuance of common stock                         192             91
                                                              ------         ------
     Net cash provided by financing activities                   192             91
                                                              ------         ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                      
  AND CASH EQUIVALENTS                                          (275)          (126)
                                                              ------         ------
NET DECREASE IN CASH AND CASH EQUIVALENTS                       (263)        (4,404)
CASH AND CASH EQUIVALENTS AT BEGINNING OF                          
  PERIOD                                                       3,707          7,041
                                                              ------         ------
CASH AND CASH EQUIVALENTS AT END OF  PERIOD                   $3,444         $2,637
                                                              ------         ------
                                                              ------         ------
</TABLE>

                                       -5-
<PAGE>

                                C-ATS SOFTWARE INC.
            NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (unaudited)

1.   NATURE OF OPERATIONS:

     C-ATS Software Inc. (the "Company") was organized in 1988 as a successor to
a partnership formed in 1986.  The Company develops and markets client/server
software for financial risk management.  The majority of the Company's current
clients are domestic and international financial institutions.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

     The accompanying condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission.  Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading.  The interim
financial statements are unaudited, but reflect all adjustments (consisting of
only normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation.  The financial statements should be read in
conjunction with the Company's financial statements and footnotes as presented
in the Company's Annual Report filed under SEC Form 10-K.

REVENUE RECOGNITION

     The Company has adopted the AICPA Statement of Position 97-2 "Software
Revenue Recognition", effective in the first quarter of 1998.

     Historically, the Company has licensed its products to end users under
annual license agreements which included rights to maintenance support services
and product upgrades.  Such license revenues are recognized ratably over the
twelve month contract period.  The Company still offers such license agreements
on a renewal basis.

     Beginning in the fourth quarter of 1997 the Company began offering multi-
year (typically five year) term licenses for its CARMA software.  Maintenance
support services and product upgrades are priced separately and available for an
additional fee.  License revenue under these arrangements is recognized upon
execution of a license agreement and shipment of the product if the fee is fixed
and determinable, the arrangement does not include significant customization of
the software, and collectibility of the license fee is probable.  Maintenance
and service revenues consist of fees that are charged separately from product
licenses.  Maintenance revenue consists of fees for on going support 

                                       -6-
<PAGE>

and product updates and is recognized ratably over the term of the contract.
Service revenue consists of training and consulting services and is recognized
upon the completion of the related activity.

EARNINGS PER SHARE

     In 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share."  SFAS No.
128 requires the replacement of previously reported primary and fully diluted
earnings per share required by Accounting Principles Board Opinion No. 15 with
basic earnings per share and diluted earnings per share.  The calculation of
basic earnings per share excludes any dilutive effect of stock options, while
diluted earnings per share includes the dilutive effect of stock options.  Per
share amounts for the quarter ended June 30, 1997 have been restated to conform
to the requirements of SFAS No. 128.

REPORTING COMPREHENSIVE INCOME

     In 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive Income",
which established standards for reporting and displaying comprehensive income
and its components in a financial statement that is displayed with the same
prominence as other financial statements.  There are no material items of
comprehensive income for the quarters ended June 30, 1998 and June 30, 1997.

BUSINESS SEGMENT REPORTING

     In 1998 the Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", which establishes requirements for
reporting reportable segments based upon the "management approach" for segments
which are discretely reported.  Similar segments may be aggregated.  The company
does not currently report on discrete business segments.  The adoption of SFAS
131 has no material impact on the Company.

                                       -7-
<PAGE>

                           C-ATS SOFTWARE INC.
                                          
                  MANAGEMENT'S DISCUSSION AND ANALYSIS 
            OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING 
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND 
UNCERTAINTIES.  THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM 
THOSE DISCUSSED HEREIN.  FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH 
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION, 
AS WELL AS IN THE SECTION "RISK FACTORS" AND "BUSINESS" IN THE COMPANY'S 
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997.

     READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-
LOOKING STATEMENTS WHICH REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF THE DATE 
HEREOF.  THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS 
OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO 
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE 
OCCURRENCE OF UNANTICIPATED EVENTS.

RESULTS OF OPERATIONS:

     The following table sets forth for the periods indicated the percentage of 
revenues represented by certain line items in the Company's Consolidated
Statements of Operations:

<TABLE>
<CAPTION>
                                                        Quarter Ended June 30,       Six Months Ended June 30,
                                                        ---------------------        ------------------------
                                                         1998           1997           1998           1997
                                                         ----           ----           ----           ----
                                                     (UNAUDITED)    (UNAUDITED)    (UNAUDITED)    (UNAUDITED)
<S>                                                  <C>            <C>            <C>            <C>
Revenues:
  License revenue                                         85%            95%            90%            94%
  Service and other revenue                               15              5             10              6
                                                         ---            ---            ---            ---
     Total revenues                                      100            100            100            100
                                                         ---            ---            ---            ---
Costs and expenses:
  Cost of revenues                                         1              2              1              2
  Research and development                                30             36             30             36
  Sales and marketing                                     56             62             53             60
  General and Administrative                              12             15             13             15
                                                         ---            ---            ---            ---
Total costs and expenses                                  99            115             97            113
                                                         ---            ---            ---            ---
Operating income (loss)                                    1            (15)             3            (13)
Interest income                                            5              5              5              5
                                                         ---            ---            ---            ---
Income (loss) before provision
(benefit) for income taxes                                 6            (10)             8             (8)
Provision (benefit) for income taxes                       5              0              3              0
                                                         ---            ---            ---            ---
  Net income (loss)                                        1%           (10)%            5%            (8)%
                                                         ---            ---            ---            ---
                                                         ---            ---            ---            ---
</TABLE>

                                       -8-
<PAGE>

REVENUES

     The Company's revenues are primarily a function of the renewal rates for
annual product licenses to existing C-atalyst and CARMA clients, along with new
sales of these products.  Total revenues during the second quarter of 1998
increased to $5.2 million, a 14% increase versus second quarter 1997 revenues of
$4.5 million.  This increase is the result of continued renewal of annual
license agreements, conversion of previous annual license agreements to multi-
year term licenses and new term licensing agreements where license revenues are
recognized up front.  International revenues accounted for 85% of total revenues
in the second quarter of 1998 compared to 87% during the same period in 1997. 
Revenues for the first six months of 1998 increased 21% compared with the same
period in 1997.

     LICENSE.  License revenues of $4.4 million in the second quarter of 1998
were up 2% compared with the second quarter of 1997.  For the first half of 1998
license revenues increased 15% from $8.5 million in the first half of 1997 to
$9.8 million in the first half of 1998.

     SERVICE AND OTHER.  Service and other revenues were approximately $0.8
million in the second quarter of 1998, an increase of 225% compared with the
corresponding quarter in 1997.  This increase is attributable primarily to
increased consulting activities being provided by the C-ATS Consulting group,
and the provision of ongoing maintenance and support activities.  For the first
six months of 1998 these revenues increased from $0.5 million in 1997 to $1.1
million in 1998, an increase of approximately 118%.

COSTS AND EXPENSES

     COST OF REVENUES.  Cost of revenues includes the cost of documentation
materials, royalties and the cost of subcontracted services.  Cost of revenues
remained at approximately $0.1 million in the second quarter of 1998 and 1997.

     RESEARCH AND DEVELOPMENT.  Most of research and development expenditures 
are personnel related.  Total expenditures for research and development 
remained essentially flat at $1.6 million in the second quarter of 1998 
compared with the second quarter of 1997.  New product development continued 
on future releases of both the C-atalyst and CARMA product lines during the 
second quarter of 1998.  The amounts of ongoing software development costs 
which could have been capitalized were immaterial and, therefore, no internal 
software development costs have been capitalized by the Company to date.  The 
Company believes that significant investment for product research and 
development is essential to product and technical leadership, and the Company 
anticipates that it will continue to commit substantial resources to research 
and development in the future.  The Company anticipates continuing research 
and development expenditures at a similar level of activity during the 
remainder of 1998.

     SALES AND MARKETING.  Sales and marketing expenses consist principally of
salary, commissions and facilities-related costs.  Sales and marketing
expenditures increased slightly to $2.9 million in the second quarter of 1998
compared to 1997 expenditure levels of $2.8 million.  The 

                                       -9-
<PAGE>

Company anticipates that sales and marketing expenses will increase in dollar 
amount during the remainder of 1998 as the Company expands its sales and 
service organization to support the expanded distribution and servicing of 
the CARMA products.

     GENERAL AND ADMINISTRATIVE.  General and administrative expenses consist of
personnel costs for finance, contract administration, human resources and
general management and administration, as well as legal, accounting and auditing
expenses.  General and administrative expenses in the second quarter remained
essentially flat at $0.7 million compared with the second quarter of 1997.  The
Company anticipates that general and administrative expenses will remain at
current levels during the remainder of 1998.

INTEREST INCOME

     Interest income is comprised primarily of interest earned on the Company's
cash and short term investment balances.  Interest income remained constant at
$0.2 million during the second quarter of 1998 as compared to the second quarter
of 1997. 

PROVISION FOR INCOME TAXES

     The Company accounts for income taxes using a liability approach under
which deferred income taxes are provided based upon enacted laws and rates
applicable to the periods in which the taxes become payable.  The provision for
income taxes takes into account the effects of foreign income taxes and state
income taxes, offset by utilization of research and development credits and
foreign tax credits in both years.  In the second quarter of 1998 there was a
provision of $0.2 million for taxes.  There was no provision in 1997.

     The Company's tax returns for 1990 through 1993 are being examined by 
the Internal Revenue Service relative to the treatment of foreign withholding 
taxes on the Company's software license revenue under tax treaties in effect 
during those years.  The examination may result in adjustments to previously 
filed tax returns.  The Company is currently undertaking competent authority 
relief, which, if successful, will eliminate any potential double taxation.  
The Company believes that it has reserves sufficient to cover any actual tax 
liabilities as a result of this examination; however, no assurance can be 
given that the reserves will be adequate.

FUTURE OPERATING RESULTS

     The Company has derived a majority of its revenues from the licensing of
software products and services for derivatives risk management.  The market for
derivatives risk management products is highly competitive.  There is no
assurance that competition will not cause the Company to lose market share or
will not affect pricing and margins.  In addition, the Company offers other
products for firm-wide integrated market, credit and liquidity risk management.
The market for these products is at an early stage of development.  Failure of a
significant market for firm-wide integrated market, credit and liquidity risk
management products to develop or, if it does, failure of the Company's products
to achieve broad market acceptance could have a material adverse affect on the
Company's business, operating results and financial condition.

                                       -10-
<PAGE>

     A majority of the Company's revenues are currently derived from annual
renewable license fees.  These annual renewable licenses will continue to be an
important part of the company's revenues.  As such, a significant decline in the
percentage of clients who renew their license or the failure of the Company to
enter into renewable licenses would have a material adverse effect on the
business, operating results and financial condition of the Company.  Beginning
in the fourth quarter of 1997 the Company began offering multi-year (typically
five year) term licenses for its CARMA software.  As a result, the company will
recognize substantial revenues upon delivery of these products.  Failure of the
Company to enter into new license agreements would have a material adverse
effect on the business, operating results and financial condition of the
Company.  Additionally, because of the potential impact of new term licenses on
total revenue recognized there may be volatility of reported revenues based upon
the timing of delivery of the products.

     A significant portion of the Company's revenues are derived from sales to
international clients.  International sales and operations may be limited or
disrupted by the imposition of government controls, export license requirements,
political instability, trade restrictions, changes in tariffs and exchange
rates, difficulties in staffing, coordinating communications, managing
international operations and other factors.  The Company prices its products in
U.S. dollars, but it incurs expenses in local currencies for its overseas
operations.  The Company attempts to reduce its exposure to exchange rate
fluctuations by purchasing foreign currencies periodically in amounts equal to
the operating expenses estimated to be payable in such currencies during the
next several months.  Regulatory compliance requirements differ among foreign
countries and are also different from those established in the United States,
and any inability to obtain necessary foreign regulatory approvals on a timely
basis could have an adverse effect on the Company's international sales, and
thereby on its business, financial condition and results of operations. 
Additionally, the Company's business, financial condition and international
operating results may be adversely affected by fluctuations in currency exchange
rates as well as increases in duty rates, difficulties in obtaining export
licenses, ability to maintain or increase prices and competition.

     The Company's quarterly operating results may fluctuate as a result of a 
variety of factors including the volume and timing of license renewals by 
existing clients, license agreements with new clients, the timing and market 
acceptance of new products or technological advances by the Company or its 
competitors, price levels, and unexpected expenses.  The Company's expense 
levels are based, in part, on expectations of future revenues.  If revenues in
a particular quarter do not meet expectations, operating results could be 
adversely affected.  The Company expects that its operating results will 
fluctuate in the future as a result of these and other factors.  Additionally, 
the Company has accrued a reserve for tax liabilities in connection with an 
Internal Revenue Service examination.  There can be no assurance that such a 
reserve will be adequate to cover any liabilities.  Results of past quarters 
should not be relied on as an indication of future results.

                                       -11-
<PAGE>

UNCERTAINTY OF THE EFFECTS OF THE YEAR 2000 ON COMPUTER PROGRAMS AND SYSTEMS

     Many currently installed computer systems and software programs were
designed to use only a two digit date field.  These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates.  Until the date fields are updated, the systems and programs could fail
or give erroneous results when referencing dates following December 31, 1999.  
Such failure or errors could occur prior to the actual change in century.  The
Company relies on computer applications to manage and monitor its accounting,
sales, development and administrative functions.  In addition, the Company's
customers, suppliers and service providers (particularly financial institutions)
are reliant upon computer applications, some of which may contain software that
may fail as a result of the upcoming change in century, with respect to
functions that materially affect their interactions with the Company.  While the
Company does not believe its products, or its computer systems or applications
currently in use will be adversely affected by the upcoming change in century,
the Company has not completed an assessment as to whether any of its customers,
suppliers or service providers will be so affected.  Failure of the Company's
software or that of its customers, suppliers or service providers could have a
material adverse impact on the Company's business, financial condition and
result of operations.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has funded its operations to date through cash flow from
operations and its initial public offering of stock effective March 20, 1995. 
As of June 30, 1998 the Company had $21.0 million in cash, cash equivalents and
short-term investments, and no long term debt.

     Net cash generated by operating activities totaled $1.1 million in the
first half of 1998, compared with $0.2 million generated by operating activities
during the first half of 1997.  The Company added $0.2 million of property and
equipment in the first half of 1998, the same as the first half of 1997.  During
the first half of 1998 the company had net purchases of short term investments
in the amount of $1.1 million compared with $4.3 million in the first half of
1997.  The Company currently has no significant capital commitments. 

     Financing activities provided cash of $0.2 million in the first half of
1998 resulting from the exercise of stock options and purchases under the
employee stock purchase plan.

     The Company believes that the liquidity provided by existing cash, cash
equivalents and short-term investment balances, and the cash flow expected to be
generated from operations will be adequate to meet the Company's anticipated
cash needs for working capital and capital expenditure requirements for at least
the next twelve months.

                                       -12-
<PAGE>

                                C-ATS SOFTWARE INC.
                                          
Item 4.   SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

          At the Annual Stockholders Meeting held on May 20, 1998 stockholders
          voted and approved the election of six directors of the Company for
          the ensuing year and until their successors are duly elected and
          qualified; and ratified the appointment of Arthur Andersen LLP as
          independent auditors for the fiscal year ending December 31, 1998.

Item 6.   EXHIBITS AND REPORTS ON FORM 8-K
          
          No reports on Form 8-K were filed by the Company during the quarter
          ended June 30, 1998.

*******************************************************************************
                                          
                                     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.


                                                C-ATS Software Inc.
                                                (Registrant)


             Date:  July 21, 1998           By: Rod A. Beckstrom 
                                                -----------------------------
                                                Rod A. Beckstrom
                                                Chief Executive Officer and
                                                Chairman
                                                (Principal Executive Officer)


             Date:  July 21, 1998           By: James E. Graber
                                                -----------------------------
                                                James E. Graber
                                                Chief Financial Officer
                                                (Principal Financial and
                                                Principal Accounting Officer)

                                       -13-
<PAGE>

                                C-ATS SOFTWARE INC.
                                          
                                 INDEX TO EXHIBITS



EXHIBIT                      EXHIBIT TITLE                       PAGE
NUMBER                                                          NUMBER

   27     Requirements for the Format and Input of Financial      15
          Data Schedules


                                       -14-