<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 September 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 SEPTEMBER 30, 1998:  7,013,905 


                                       -1-
<PAGE>
                                 C*ATS SOFTWARE INC.
                                          
                                          
                                       INDEX
<TABLE>
<S>       <C>                                                              <C>
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

</TABLE>
                                       -2-
<PAGE>
                                C*ATS SOFTWARE INC.
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (In thousands)
<TABLE>
<CAPTION>
                                                     SEPTEMBER 30,   DECEMBER 31,
                                                         1998           1997
                                                     -------------   ------------
                 ASSETS                              (UNAUDITED)
<S>                                                  <C>             <C>
CURRENT ASSETS:
   Cash and cash equivalents                         $   2,670       $  3,707
   Short-term investments                               17,737         16,446
   Accounts receivable, net                              3,490          5,100
   Prepaid expenses                                        446            271
   Deferred income taxes                                 2,583          2,607
                                                     ---------      ---------
      Total current assets                              26,926         28,131
                                                     ---------      ---------

PROPERTY AND EQUIPMENT:
   Equipment                                             2,909          2,809
   Leasehold improvements                                  121            125
   Furniture and fixtures                                  361            403
                                                     ---------      ---------
                                                         3,391          3,337
   Accumulated depreciation                             (2,648)        (2,486)
                                                     ---------      ---------
      Net property and equipment                           743            851
                                                     ---------      ---------
Purchased software, at cost                              1,546          1,516
   Accumulated amortization                             (1,071)          (879)
                                                     ---------      ---------
      Net purchased software                               475            637
                                                     ---------      ---------
Income tax refund receivable                               686            686
Other assets                                               323            335
                                                     ---------      ---------
                                                     $  29,153      $  30,640
                                                     ---------      ---------
                                                     ---------      ---------

          LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable                                  $     629      $     390
   Accrued liabilities                                     444            674
   Accrued compensation                                  1,322          1,604
   Accrued taxes payable                                   241            281
   Deferred revenue                                      7,145          8,007
                                                     ---------      ---------
      Total current liabilities                          9,781         10,956
                                                     ---------      ---------

STOCKHOLDERS' EQUITY:
   Common stock                                              7              7
   Additional paid in capital                           23,762         23,282
   Accumulated comprehensive income                         39            228
   Accumulated deficit                                  (4,436)        (3,833)
                                                     ---------      ---------
      Total stockholders' equity                        19,372         19,684
                                                     ---------      ---------
                                                     $  29,153      $  30,640
                                                     ---------      ---------
                                                     ---------      ---------
</TABLE>
                                       -3-
<PAGE>
                                C*ATS SOFTWARE INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                       (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                    Quarter ended September 30,   Nine months ended September 30,
                                                    ---------------------------   -------------------------------
                                                         1998           1997          1998           1997
                                                         ----           ----          ----           ----
                                                      (UNAUDITED)    (UNAUDITED)   (UNAUDITED)    (UNAUDITED)
<S>                                                   <C>            <C>           <C>            <C>
Revenues:
   License revenue                                    $  3,436       $  4,311      $  13,274      $  12,851
   Service and other revenue                               749            350          1,837            848
                                                      --------       --------      ---------      ---------
      Total revenues                                     4,185          4,661         15,111         13,699
                                                      --------       --------      ---------      ---------

Costs and expenses:
   Cost of revenues                                         90             72            200            236
   Research & development                                1,512          1,904          4,797          5,130
   Sales & marketing                                     3,197          2,931          8,948          8,355
   General & administrative                                665            829          2,082          2,234
   In process R&D and
   one time project costs                                    0            585              0            585
                                                      --------       --------      ---------      ---------
      Total costs & expenses                             5,464          6,321         16,027         16,540
                                                      --------       --------      ---------      ---------
Operating loss                                          (1,279)        (1,660)          (916)        (2,841)
Interest & other income                                    255            248            783            717
                                                      --------       --------      ---------      ---------
Loss before provision
   for income taxes                                     (1,024)        (1,412)          (133)        (2,124)
Provision for income taxes                                 151              0            471              0
                                                      --------       --------      ---------      ---------
Net loss                                              $ (1,175)      $ (1,412)     $    (604)     $  (2,124)
                                                      --------       --------      ---------      ---------
                                                      --------       --------      ---------      ---------

Net loss per share:
   basic                                              $  (0.17)      $  (0.21)     $   (0.09)     $   (0.32)
                                                      --------       --------      ---------      ---------
                                                      --------       --------      ---------      ---------
   diluted                                            $  (0.17)      $  (0.21)     $   (0.09)     $   (0.32)
                                                      --------       --------      ---------      ---------
                                                      --------       --------      ---------      ---------
Weighted average common
   shares outstanding:
   basic                                                 6,937          6,766          6,886          6,720
                                                      --------       --------      ---------      ---------
                                                      --------       --------      ---------      ---------
   diluted                                               6,937          6,766          6,886          6,720
                                                      --------       --------      ---------      ---------
                                                      --------       --------      ---------      ---------
</TABLE>
                                       -4-
<PAGE>
                                C*ATS SOFTWARE INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (In thousands)
<TABLE>
<CAPTION>
                                                                Nine Months Ended
                                                                -----------------
                                                          September 30,   September 30,
                                                              1998            1997
                                                          -------------   -------------
                                                           (UNAUDITED)     (UNAUDITED)
<S>                                                       <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                   $(604)       $(2,124)
   Adjustments to reconcile net loss to net cash
      provided (used) by operating activities:

      Depreciation and amortization                             559            623
      Changes in operating assets and liabilities:
         (Increase) decrease in accounts receivable           1,610            597
         (Increase) decrease in prepaid expenses               (175)            56
         (Increase) decrease in tax refunds due                   0         (2,062)
         (Increase) decrease in deferred income taxes            24          1,566
         (Increase) decrease in other assets                     12             12
         Increase (decrease) in accounts payable                239           (169)
         Increase (decrease) in accrued liabilities            (230)           255
         Increase (decrease) in accrued compensation           (282)           108
         Increase (decrease) in accrued taxes payable           (40)             0
         Increase (decrease) in deferred revenue               (862)          (554)
                                                             ------         ------
      Net cash provided (used) by operating activities          251         (1,692)
                                                             ------         ------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net purchase of short term investments                    (1,291)        (1,889)
   Purchase of property and equipment                          (288)          (379)
                                                             ------         ------
      Net cash used in investing activities                  (1,579)        (2,268)
                                                             ------         ------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of common stock                       480            509
                                                             ------         ------
      Net cash provided by financing activities                 480            509
                                                             ------         ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
   AND CASH EQUIVALENTS                                        (189)          (199)
                                                             ------         ------
NET DECREASE IN CASH AND CASH EQUIVALENTS                    (1,037)        (3,650)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
   PERIOD                                                     3,707          7,041
                                                             ------         ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                   $2,670         $3,391
                                                             ------         ------
                                                             ------         ------
</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 (ranging from three to five years) 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 support 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.


                                       -6-
<PAGE>
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 unless the effect is anti-dilutive.  Per share amounts for the 
quarter ended September 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 September 
30, 1998 and September 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              Nine Months Ended 
                                                              September 30,                 September 30,
                                                      --------------------------    --------------------------
                                                          1998           1997           1998           1997
                                                      -----------    -----------    -----------    -----------
                                                      (UNAUDITED)    (UNAUDITED)    (UNAUDITED)    (UNAUDITED)
<S>                                                   <C>            <C>            <C>            <C>
Revenues:
   License revenue                                          82%            92%            88%            94%
   Service and other revenue                                18              8             12              6
                                                          ----           ----           ----           ----
      Total revenues                                       100            100            100            100
                                                          ----           ----           ----           ----
Costs and expenses:
   Cost of revenues                                          2              2              1              2
   Research and development                                 36             41             32             38
   Sales and marketing                                      76             63             59             61
   General and Administrative                               16             18             14             16
   In process R&D and
      one time project costs                                 0             11              0              4
                                                          ----           ----           ----           ----
Total costs and expenses                                   130            135            106            121
                                                          ----           ----           ----           ----
Operating loss                                             (30)           (35)            (6)           (21)
Interest income                                              6              5              5              5
                                                          ----           ----           ----           ----
Loss before provision for
   income taxes                                            (24)           (30)            (1)           (16)
Provision for income taxes                                   4              0              3              0
                                                          ----           ----           ----           ----
   Net loss                                                (28)%         ( 30)%           (4)%          (16)%
                                                          ----           ----           ----           ----
                                                          ----           ----           ----           ----
</TABLE>
                                       -8-
<PAGE>
REVENUES

       The Company's revenues are primarily a function of the renewal rates 
for annual product licenses to existing C*atalyst clients, along with new 
sales of Catalyst and CARMA products. Total revenues during the third quarter 
of 1998 decreased to $4.2 million, a 10% decrease versus third quarter 1997 
revenues of $4.7 million.  This decrease is the result of the long sales 
cycles associated with the CARMA product.  International revenues accounted 
for 85% of total revenues in the third quarter of 1998 compared to 87% during 
the same period in 1997.  Revenues for the first nine months of 1998 
increased 10% compared with the same period in 1997.

       LICENSE.  License revenues of $3.4 million in the third quarter of 
1998 decreased 20% compared with the third quarter of 1997.  For the first 
nine months of 1998 license revenues increased 3% from $12.9 million in the 
first nine months of 1997 to $13.3 million in the first nine months of 1998.

       SERVICE AND OTHER.  Service and other revenues were approximately $0.7 
million in the third quarter of 1998, an increase of 114% compared with the 
corresponding quarter in 1997.  This increase is attributable primarily to 
increased consulting activities being provided by the C*ATS Consulting group 
in support of the CARMA product implementations, and the provision of ongoing 
maintenance and support activities.  For the first nine months of 1998 these 
revenues increased from $0.8 million in 1997 to $1.8 million in 1998, an 
increase of approximately 117%.

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 third quarters of 1998 
and 1997.

       RESEARCH AND DEVELOPMENT.  The majority of research and development 
expenditures are personnel related.  Total expenditures for research and 
development in the third quarter of 1998 was  $1.5 million.  This represents 
a decrease in research and development expenditures from the corresponding 
quarter in 1997.  The majority of the decrease is attributable to a reduction 
in the number of outside consultants and other purchased services in the 
third quarter of 1998.  New product development continued on future releases 
of both the C*atalyst and CARMA product lines during the third 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  to $3.2 million in the third quarter of 1998 compared 
to 1997 expenditure levels of $2.9 million. The Company 


                                       -9-
<PAGE>
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.  Included in sales and marketing expense are costs associated with 
consulting, maintenance and training services.   During the quarter the 
Company completed the consolidation of the Hong Kong office into the Tokyo 
office.  There were no significant costs associated with this consolidation.

       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 
third quarter decreased from $0.8 million in the third quarter of 1997 to 
$0.7 million in the third quarter of 1998.  The 1997 results included costs 
associated with the acquisition of licensing rights to the C*ATS FX product.  
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 third quarter of 1998 as compared to the 
third 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 third 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.

FACTORS WHICH MAY AFFECT 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, 

                                       -10-
<PAGE>
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.

       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 (ranging from three to five years) term licenses for its CARMA 
software.  As a result, the Company may 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.  Based on internal analysis 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.  
However, 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 September 30, 1998 the Company had $20.4 million in cash, cash 
equivalents and short-term investments, and no long term debt.

       Net cash provided by operating activities was approximately $0.3 
million in the first nine months of 1998 compared with $1.7 million used by 
operating activities during the first nine months of 1997. The Company added 
$0.3 million of property and equipment in the first nine months of 1998, a 
decrease from $0.4 million for the same period in 1997.  During the first 
nine months of 1998 the company had net purchases of short term investments 
in the amount of $1.3 million compared with $1.9 million in the first nine 
months of 1997. The Company currently has no significant capital commitments. 

       Financing activities provided cash of $0.5 million in the first nine 
months 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.
<TABLE>
<S>           <C>
Item 4.       SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

              No items were submitted to a vote of security holders during the
              quarter ended September 30, 1998.

Item 6.       EXHIBITS AND REPORTS ON FORM 8-K
              
              On August 26, 1998 the Company filed a Form 8-K announcing the
              resignation of Arthur Andersen LLP and the appointment of KPMG
              Peat Marwick LLP as the Company's auditors.

 *********************************************************************************
</TABLE>
                                     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)
<TABLE>
<S>                                        <C>
 Date:  October 20, 1998                   By:  Rod A. Beckstrom 
                                                -----------------------------
                                                Rod A. Beckstrom
                                                Chief Executive Officer and
                                                Chairman
                                                (Principal Executive Officer)


 Date:  October 20, 1998                   By:  James E. Graber
                                                -----------------------------
                                                James E. Graber
                                                Chief Financial Officer
                                                (Principal Financial and
                                                Principal Accounting Officer)
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                                       -13-
<PAGE>
                                C*ATS SOFTWARE INC.
                                          
                                 INDEX TO EXHIBITS
<TABLE>
<CAPTION>
    EXHIBIT                        
    NUMBER                         EXHIBIT TITLE
    -------                        -------------
    <S>        <C>
      27       Requirements for the Format and Input of Financial
               Data Schedules
</TABLE>