<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

                        Commission file number 0-19872


                       WALKER INTERACTIVE SYSTEMS, INC.
                       --------------------------------
            (Exact name of registrant as specified in its charter)


            Delaware                                            95-2862954
            --------                                            ----------
  (State or other jurisdiction                               (I.R.S. Employer
of incorporation or organization)                         Identification Number)



                  303 SECOND STREET, SAN FRANCISCO, CA  94107
                  -------------------------------------------
          (Address of principal executive offices including zip code)



                                (415) 495-8811
                                --------------
              (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 report) and (2) has been subject to such filing
requirements for the past 90 days.

                           Yes    X    No  
                                -----      -----     


There were 14,045,445 Shares of $.001 Par Value Common Stock outstanding as of
November 6, 1998.
<PAGE>
 
                       WALKER INTERACTIVE SYSTEMS, INC.
                                   FORM 10-Q
                                     INDEX
                                        
<TABLE>
<CAPTION>

                        PART I.  FINANCIAL INFORMATION                      Page
                                                                            ----
<S>                                                                         <C> 
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

         Consolidated Balance Sheets as of September 30, 1998 and
           December 31, 1997...............................................   3

         Consolidated Statements of Operations for the three and nine
           months ended September 30, 1998 and 1997........................   4

         Consolidated Statements of Cash Flows for the nine months ended
           September 30, 1998 and 1997.....................................   5

         Notes to Consolidated Financial Statements........................   6

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS.............................................   7

                                   PART II.
                               OTHER INFORMATION


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K..................................  15

SIGNATURES.................................................................  16
</TABLE>

                                       2
<PAGE>
 
ITEM 1.  FINANCIAL STATEMENTS
 
                       WALKER INTERACTIVE SYSTEMS, INC.
                          CONSOLIDATED BALANCE SHEETS
                     (in thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                         SEPTEMBER 30               DECEMBER 31
                                                                             1998                       1997
                                                                       ----------------             -------------
                                                                          (unaudited)
<S>                                                                       <C>                        <C>
                            ASSETS
Current assets:
      Cash and equivalents                                                     $ 11,436                  $  7,646
      Short-term investments                                                      5,151                    13,693
      Accounts receivable, net                                                   28,625                    23,107
      Prepaid expenses                                                            2,296                     2,001
                                                                               --------                  --------
                    Total current assets                                         47,508                    46,447

Long-term investments                                                             2,910                     6,351
Property, net                                                                     4,711                     4,599
Capitalized software, net                                                        17,893                    15,777
Deferred tax assets, net                                                         12,115                    13,632
Other assets                                                                      4,133                     4,528
                                                                               --------                  --------
TOTAL ASSETS                                                                   $ 89,270                  $ 91,334
                                                                               ========                  ========
               LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities:
      Accounts payable & accrued liabilities                                   $ 15,627                  $ 19,201
      Current portion of long-term debt                                              38                        91
      Deferred revenue                                                           13,340                    15,557
                                                                               --------                  --------
                    Total current liabilities                                    29,005                    34,849

Deferred revenue                                                                  2,042                     1,190
Accrued rent                                                                        936                       887
Other long-term obligations                                                       2,643                     2,719
                                                                               --------                  --------
                    Total liabilities                                            34,626                    39,645
                                                                               --------                  --------
Commitments and Contingencies                                                         -                         -

Stockholders' equity:                                                                                                       
      Common stock, $.001 par value: 50,000,000                                  
         shares authorized; issued 14,163,525 shares -  
         September 30, 1998; 13,973,457 shares -                  
         December 31, 1997                                                           14                        14               
      Additional paid-in capital                                                 75,019                    73,622        
      Currency translation adjustments                                              358                       238      
      Unrealized gain on investments                                                 32                         2      
      Accumulated deficit                                                       (19,483)                  (22,187)         
      Treasury stock, at cost                                                    (1,296)                        -      
                                                                               --------                  --------
                    Total stockholders' equity                                   54,644                    51,689           
                                                                               --------                  --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                                       $ 89,270                  $ 91,334 
                                                                               ========                  ========
</TABLE>

See notes to consolidated financial statements                                  

                                       3
<PAGE>
 
                       WALKER INTERACTIVE SYSTEMS, INC.
               CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                   (In thousands, except per share amounts)
<TABLE> 
<CAPTION> 
                                                               THREE MONTHS                        NINE MONTHS
                                                           ENDED SEPTEMBER 30,                  ENDED SEPTEMBER 30,
                                                        1998                 1997                  1998         1997
                                                      ---------           ----------            ----------   ----------
<S>                                                   <C>                 <C>                   <C>          <C>
REVENUES:  
     License                                          $ 3,116               $ 2,129               $15,083     $  9,320
     Maintenance                                        7,857                 6,919                23,184       20,635
     Consulting                                        13,739                 7,219                35,547       19,646
                                                      -------               -------               -------      -------
                     Total revenues                    24,712                16,267                73,814       49,601
                                                             
                                                                                                                   
OPERATING EXPENSES:
 
     Costs of revenues:
       Costs of licenses, maintenance and consulting   10,711                 7,347                30,969       20,523
       Amortization of capitalized software             1,474                 1,192                 3,544        3,533
     Sales and marketing                                5,760                 3,790                17,097       11,577
     Product development                                3,033                 2,411                 9,425        7,395
     General and administrative                         3,496                 1,838                 9,392        6,286
                                                      -------               -------               -------      -------
              Total operating expenses                 24,474                16,578                70,427       49,314
 
Operating income (loss)                                   238                  (311)                3,387          287
      Interest income, net                                250                   451                   834        1,445
                                                      -------               -------               -------      -------
Income before income taxes                                488                   140                 4,221        1,732
      Income tax expense                                  173                    48                 1,517          605
                                                      -------               -------               -------      -------
NET INCOME                                            $   315               $    92               $ 2,704      $ 1,127
                                                      =======               =======               =======      =======
BASIC NET INCOME PER SHARE                            $  0.02               $  0.01               $  0.19      $  0.09
                                                      =======               =======               =======      =======
 
Shares used in computing
     basic net income per share                        14,042                13,328                13,998       13,238
                                                      =======               =======               =======      =======
 
DILUTED NET INCOME PER SHARE                          $  0.02               $  0.01               $  0.18      $  0.08
                                                      =======               =======               =======      =======
 
Shares used in computing
     diluted net income per share                      14,973                14,622                14,881       14,329
                                                      =======               =======               =======      =======
</TABLE> 
 
See notes to consolidated financial statements

                                       4
<PAGE>
 
                       WALKER INTERACTIVE SYSTEMS, INC.
               CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                (in thousands)

<TABLE> 
<CAPTION> 
                                                                              NINE MONTHS ENDED
                                                                                 SEPTEMBER 30,
                                                                            1998                 1997
                                                                       --------------        -------------
 <S>                                                                   <C>                   <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
       Net income                                                         $ 2,704               $  1,127
       Adjustments to reconcile net income to net cash
              provided (used) by operating activities:
          Depreciation and amortization                                     5,351                  5,496
          Tax benefit of nonqualified stock options                           218                    259
                      
       Changes in operating assets and liabilities:
          Accounts receivable, net                                         (5,518)                (3,909)
          Prepaid expenses                                                   (295)                  (794)
          Accounts payable & accrued liabilities                           (2,175)                (1,385)
          Deferred tax assets                                               1,517                    615
          Deferred revenue                                                 (1,365)                (1,970)
          Other                                                               558                    170
                                                                         --------               --------
       Net cash provided (used) by operations                                 995                   (391)
                                                                         --------               --------
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
       Proceeds from employee stock purchase plan
        issuances and stock options exercised                               1,997                  1,630
       Treasury stock acquired                                             (2,114)                (1,104)
       Capital lease and loan payments                                        (59)                    13
       Repayment of borrowings                                             (1,422)                     -
                                                                         --------               --------
Net cash provided (used) by financing activities                           (1,598)                   539
                                                                         --------               --------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
       Purchases of short- and long-term investments                       (3,706)               (26,491)
       Maturities of short-term investments                                10,200                 11,500
       Sales of short-term investments                                      5,510                 20,373
       Purchases of property                                               (1,962)                (1,614)
       Additions to capitalized software                                   (5,659)                (5,796)
       Other                                                                   10                    160
                                                                         --------               --------
Net cash provided (used) by investing activities                            4,393                 (1,868)
                                                                         --------               --------
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                        3,790                 (1,720)
 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                             7,646                 13,475
                                                                         --------               --------
 
CASH AND CASH EQUIVALENTS - END OF PERIOD                                 $11,436               $ 11,755
                                                                         ========               ========
</TABLE> 
 
See notes to consolidated financial statements

                                       5
<PAGE>
 
                       WALKER INTERACTIVE SYSTEMS, INC.
                                        
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1. SIGNIFICANT ACCOUNTING POLICIES
   -------------------------------

     BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements have been
     prepared in accordance with generally accepted accounting principles for
     interim financial statements and include all adjustments (consisting only
     of normal recurring adjustments) which the Company considers necessary for
     a fair presentation of the financial position, operating results and cash
     flows for those periods. Results for the interim periods are not
     necessarily indicative of the results for the entire year. These
     consolidated financial statements and any notes thereto, should be read in
     conjunction with the audited consolidated financial statements included in
     the Walker Interactive Systems, Inc. Annual Report on Form 10-K for the
     year ended December 31, 1997.

     RECLASSIFICATIONS

     Certain previously reported amounts have been reclassified to conform with
     the current presentation format.

2. ACQUISITION OF REVERE, INC
   --------------------------

     On December 2, 1997, the Company acquired all the outstanding share capital
     of Revere, Inc. ("Revere") in exchange for $7.7 million of the Company's
     common stock (634,022 shares) and $0.6 million for various transaction
     related costs and fees. An additional earnout of up to $2.0 million is
     payable based upon the achievement of certain 1998 performance targets.
     Associated with the transaction's closing total purchase price of $8.3
     million, the Company allocated $4.1 million to goodwill, $4.6 million was
     allocated to in-process research and development and the remaining amounts
     allocated primarily to working capital. The amount of the purchase price
     allocated to in-process research and development was charged to the
     Company's operations, because technological feasibility had not been
     established and no alternative future uses existed at the acquisition date.
     The acquisition was accounted for as a purchase transaction. The goodwill
     will be ratably charged to operations over six years. The results of
     operations of Revere are included in the consolidated statements of
     operations for the three and nine months ended September 30, 1998.

3. EARNINGS PER SHARE
   ------------------

     The Company calculates basic earnings per share ("EPS") and diluted EPS in
     accordance with Statement of Financial Accounting Standards ("SFAS") No.
     128, "Earnings per Share". Basic EPS is computed by dividing net income
     (loss) by the weighted average number of common shares outstanding for that
     period. Diluted EPS takes into account the effect of dilutive instruments,
     such as stock options, and uses the average share price for the period in
     determining the number of incremental shares that are to be added to the
     weighted average number of shares outstanding.

     The following is a summary of the calculation of the number of shares used
     in calculating basic and diluted EPS (in thousands):

<TABLE>
<CAPTION>
                                          THREE MONTHS            NINE MONTHS
                                       ENDED SEPTEMBER 30,     ENDED SEPTEMBER 30,
                                         1998       1997         1998       1997
                                       --------   --------     --------   --------
<S>                                    <C>        <C>          <C>        <C>
Shares used to compute basic EPS         14,042     13,328       13,998     13,238
Add:
Effect of dilutive securities               931      1,294          883      1,091
                                       --------   --------     --------   --------
Shares used to compute diluted EPS       14,973     14,622       14,881     14,329
                                       ========   ========     ========   ========
</TABLE>

                                       6
<PAGE>
 
                       WALKER INTERACTIVE SYSTEMS, INC.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

The report on this Form 10-Q contains forward-looking statements, including
statements related to industry trends and demand for mainframe products, cash
commitments, working capital requirements and possible expansion in
international markets. Discussions containing such forward-looking statements
may be found in the material set forth in this section, generally and
specifically herein under the captions "Liquidity and Capital Resources", "Year
2000 Readiness" and "Additional Risk Factors." Actual events or results may
differ materially from those discussed herein. The Company disclaims any
obligation to update these forward-looking statements as a result of subsequent
events. The risk factors on pages 3 through 3, among others, should be
considered in evaluating the Company's prospects and future financial
performance.

Walker Interactive Systems, Inc. (hereinafter "Walker" or the "Company") was
incorporated in California in 1973 and reincorporated in Delaware in March 1992.
Walker designs, develops, markets and supports, on a worldwide basis, a family
of enterprise client/server financial application software products that enable
large and medium-sized organizations, higher education institutions, and
federal, state, and government agencies to accelerate time-to-benefit, lower
cost of ownership and reduce information systems risks stemming from changes in
information technology and/or business processes or structure.

Walker designs its software products specifically for the client/server and
network computing models and believes that its architecture is among the most
scalable and adaptable available for enterprise-level financial applications
software. The Company's strategy is to offer comprehensive enterprise financial
solutions to a variety of industries utilizing its best-of-breed software
products. Walker's internet/intranet-enabled applications support and enhance
enterprise-wide financial processes, including planning, budgeting, forecasting,
consolidation and performance management. The Company's software products
utilize the Microsoft Windows operating systems on the desktop, and industry-
leading relational database management systems including IBM's DB2, Oracle and
Microsoft SQL/Server.

The Tamaris product line represents the Company's core suite of business and
financial solutions utilizing the power of the enterprise server, while the
Aptos suite of financial applications provides a client/server architecture that
runs on UNIX and Windows NT servers. The Company also develops and markets
Horizon best-of-breed analytic applications which provide financial reporting,
budgeting and financial consolidation solutions for large and mid-sized
organizations. The Horizon analytic applications can be used with the Tamaris
and Aptos products or in conjunction with leading Enterprise Resource Planning
("ERP") applications. In addition, Walker's IMMPOWER product line provides best-
of-breed Enterprise Asset Management solutions for capital intensive industries.

The Company's software products include productivity tools that allow the
Company's applications to be extensively customized to fit the customer's
particular requirements. The Company complements its software products by
providing specialized consulting services to assist customers with
customization, implementation, migration, Year 2000 consulting and best practice
solutions.

The Company derives its revenues primarily from software licenses, software
maintenance and professional consulting services. The Company's Tamaris, Horizon
and IMMPOWER product lines are licensed to large and mid-size businesses and
governmental organizations worldwide. The Company's Aptos products are marketed
primarily in the United Kingdom and are licensed to mid-sized organizations. The
Company's products and services are marketed primarily through its sales forces
located in the United States, United Kingdom and Asia Pacific. The Company
licenses software products directly to customers and occasionally to
distributors for resale.

ACQUISITION OF REVERE, INC.
---------------------------

On December 2, 1997, the Company acquired all the outstanding share capital of
Revere, Inc. ("Revere") in exchange for $7.7 million of the Company's common
stock (634,022 shares) and $0.6 million for various transaction related costs
and fees. An additional earnout of up to $2.0 million is payable based upon the
achievement of certain 1998 performance targets. Associated with the
transaction's closing total purchase price of $8.3 million, the Company
allocated $4.1 million to goodwill, $4.6 million was allocated to in-process
research and development and the remaining amounts allocated primarily to
working capital. The amount of the purchase price

                                       7
<PAGE>
 
allocated to in-process research and development was charged to the Company's
operations, because technological feasibility had not been established and no
alternative future uses existed at the acquisition date. The acquisition was
accounted for as a purchase transaction. The goodwill will be ratably charged to
operations over six years. The results of operations of Revere are included in
the consolidated statement of operations for the three and nine month periods
ended September 30, 1998. Therefore, period to period comparisons may not
meaningfully depict trends or changes in operating results.

RESULTS OF OPERATIONS
---------------------

The following results of operations for three and nine months ended September
30, 1998 include the operations of Revere, unless otherwise specified.

REVENUES.  The Company recorded total revenues of $24.7 million and $73.8
million during the three and nine months ended September 30, 1998, respectively.
The increase in total revenues of $8.4 million and $24.2 million over the three
and nine months ended September 30, 1997, respectively, is primarily due to
increases in worldwide license and consulting revenues.

License revenues increased $1.0 million or 46 percent and $5.8 million or 62
percent to $3.1 million and $15.1 million for the three and nine months ended
September 30, 1998, respectively. The increase in license revenues is partly
attributable to license revenues generated from Revere operations during the
first nine months of 1998. The remaining increase in license revenues is
primarily attributable to increases in license revenues generated by the
Company's Horizon and Aptos product lines. The Company believes that the
increase in Horizon and Aptos license revenues during the first nine months of
1998 is attributable to increased sales and marketing efforts and enhanced
product offerings.

Maintenance revenues increased 14 percent to $7.9 million for the three months
ended September 30, 1998 and increased 12 percent to $23.2 million for the nine
months ended September 30, 1998. The increase is primarily attributable to
maintenance revenues from Revere operations. The remaining increase in
maintenance revenues is primarily attributable to growth in license sales during
1998.

Consulting revenues increased $6.5 million or 90 percent and $15.9 million or 81
percent to $13.7 million and $35.5 million, respectively, for the three and nine
months ended September 30, 1998, respectively. Consulting revenues are generated
from new and existing customers for services related to training,
implementation, customization, migration, enhancement, Year 2000 readiness
engagements, best practice consulting engagements and other special projects.
The Company generates a majority of its consulting revenues from implementation
related projects. The increase in consulting revenues during the third quarter
and first nine months of 1998 is partly attributable to consulting revenues
generated from Revere operations. The remaining increase in 1998 consulting
revenues is primarily due to revenues generated from Year 2000 readiness
engagements, best practice consulting engagements, and implementation related
projects associated with the Company's Tamaris, Aptos and Horizon product lines.

COSTS OF LICENSES, MAINTENANCE AND CONSULTING.  Costs of licenses, maintenance
and consulting represented 43 percent and 45 percent of total revenues for the
three months ended September 30, 1998 and 1997, respectively. Excluding the
operations of Revere, the costs of licenses, maintenance and consulting
represented 42 percent and 45 percent of total revenues for the three months
ended September 30, 1998 and 1997, respectively. The decrease is primarily
attributable to an increase in revenue, in absolute dollars and as a percent of
total consulting business, which was derived from Year 2000 readiness and best
practice consulting engagements, which have higher profit margins.

For the nine months ended September 30, 1998 and 1997, the costs of licenses,
maintenance and consulting represented 42 percent and 41 percent of total
revenues, respectively. The increase in 1998 is primarily attributable to lower
profit margins in North America associated with a fixed fee consulting
engagement partially offset by relatively higher profit margins recognized on
Year 2000 readiness and best practice consulting engagements. The remaining
increases are attributable to higher fees associated with the use of third party
technology associated with the increase in license revenue and an increase in
consulting headcount due to the increased volume of consulting engagements.

AMORTIZATION OF CAPITALIZED SOFTWARE.  Amortization of capitalized software
represented 6 percent and 5 percent of total revenues for the three and nine
months ended September 30, 1998, respectively, as compared to 7 percent of total
revenues for the same periods in 1997. The decrease in 1998 is attributable to
the completion of

                                       8
<PAGE>
 
amortization for several products at the beginning of the fourth quarter of 1997
partially offset by amortization from recent product releases.

SALES AND MARKETING.  In absolute dollars, sales and marketing expenses
increased 52 percent to $5.8 million for the three months ended September 30,
1998 and increased 48 percent to $17.1 million for the nine months ended
September 30, 1998. The increase in absolute dollars is primarily attributable
to Revere operations, higher commissions and travel expenses associated with the
increase in license revenues and increased costs associated with marketing
promotions. As a percentage of total revenues, sales and marketing expenses were
23 percent for the three and nine months ended September 30, 1998 and 1997.

PRODUCT DEVELOPMENT.  Product development related expenses, excluding
amortization of capitalized software, are detailed as follows (in thousands):

<TABLE>
<CAPTION>
                                            THREE MONTHS            NINE MONTHS
                                        ENDED SEPTEMBER 30,     ENDED SEPTEMBER 30,
                                          1998       1997         1998       1997
                                        --------   --------     --------   --------
<S>                                     <C>        <C>          <C>        <C>
Product development costs including
 additions to capitalized software
 (gross)                                $  4,984   $  4,344     $ 15,095   $ 13,191
Less:
   Additions to capitalized software      (1,951)    (1,933)      (5,670)    (5,796)
                                        --------   --------     --------   --------
Product development expenses            $  3,033   $  2,411     $  9,425   $  7,395
                                        ========   ========     ========   ========
</TABLE>
                                                                               
The increase in 1998 gross product development expenses is primarily due to
expenses generated by Revere operations. Further contributing to the increase in
gross expenses are the Company's continued efforts to broaden its existing
product offerings by further developing acquired technologies, incorporating
third party technologies in new products and enhancing existing products. As a
percentage of gross product development expenses, additions to capitalized
software were 39 percent and 44 percent for the three months ended September 30,
1998 and 1997, respectively. For the nine months ended September 30, 1998 and
1997, additions to capitalized software represented 38 percent and 44 percent of
gross development expenses, respectively. Historical additions to capitalized
software, in absolute dollars and as a percentage of gross product development
costs, are not a reliable indicator of additions to capitalized software in
absolute dollars and as a percentage of gross product development costs that
will be recognized in the future.

GENERAL AND ADMINISTRATIVE.  General and administrative expenses were $3.5
million and $1.8 million for the three months ended September 30, 1998 and 1997,
respectively. For the nine months ended September 30, 1998 and 1997, general and
administrative expenses were $9.4 million and $6.3 million, respectively. The
increases are primarily due to expenses from Revere operations. Further
contributing to the increase in 1998 general and administrative expenses were
increased facility costs associated with rental increases and additional
headcount.

INCOME TAX EXPENSE.  Income tax expense is recorded each quarter based on the
Company's estimated effective income tax rate for the year. The Company
estimates that the 1998 effective income tax rate will be 36 percent.

                                       9
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Cash flows from financing activities used cash of $1.6 million in the first nine
months of 1998 and provided cash of $0.5 million in the same period in 1997. The
increase in cash used during 1998 is primarily a result of $1.4 million used to
repay an outstanding line of credit assumed during the acquisition of Revere in
December 1997. The Company further used $2.1 million during the first nine
months of 1998 for the repurchase of its common stock, offset by $2.0 million
provided by employee stock purchase plan issuances and exercises of stock
options.

The Company has a line of credit in the amount of $3.0 million, secured by
marketable securities. The line of credit expires on August 31, 1999. The
Company has never borrowed against this line of credit.

In October 1998, the Company's board of directors authorized a stock repurchase
program not to exceed $7.5 million over a 12-month period. As of September 30,
1998, the Company's principal sources of liquidity included cash, cash
equivalents and short- and long-term investments aggregating $19.5 million. The
following sentence is a forward looking statement. The Company believes that its
principal sources of liquidity, together with funds expected to be generated
from operations, will satisfy the Company's currently anticipated working
capital and capital expenditure requirements for at least the next twelve
months.

YEAR 2000 READINESS
-------------------

The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Company's computer
equipment and software and devices with imbedded technology that are time-
sensitive may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operation, including, among other things, a temporary inability
to process transactions, send invoices or engage in normal business activities.

The Company has completed an assessment to determine the effect that the Year
2000 issue will have on it. The Company believes that its current commercial
application software products generally offered for license by the Company to
end-user customers are Year 2000 ready. However, certain versions of these
products currently installed at customers' sites will require upgrading or other
modifications to become Year 2000 ready. The Company has identified those
affected customers who are on the Company's warranty maintenance program, has
contacted those customers and is assisting those customers to assess their
readiness. The Company is making available to those customers a Year 2000 ready
release of its software and will assist such customers to become Year 2000
ready. The following sentence is a forward-looking statement. The Company
believes that the costs associated with making certain versions of the Company's
products Year 2000 ready will not be material to the Company's business, results
of operations or financial condition.

The Company has completed an assessment of its computer equipment and software,
including information technology systems, such as accounting, data processing
and telephone/PBX systems, and non-information technology systems, such as fax
machines and alarm systems, to determine if they are Year 2000 ready. The
following three sentences are forward-looking statements. The Company believes
that certain of its non-critical computer equipment and software will require
replacement or modification, at a total cost which is not material to the
Company's results of operations or financial condition. The Company believes
that even if such replacements or modifications were not completed, the Year
2000 issue would not have a material adverse effect on the Company's business,
results of operations or financial condition. In addition, even if the
Company's vendors or suppliers fail to become Year 2000 ready in a timely
manner, the Company believes that such failure would not have a material
adverse effect on the Company's business, results of operations or financial
condition.

The costs and impact of the Year 2000 issue are based upon management's best
estimates, which were derived using numerous assumptions regarding future
events, including the continued availability of certain resources, the
functioning of its products in accordance with specifications and other factors.
There can be no assurance that these estimates will prove to be accurate and
actual results could differ from those currently anticipated. Specific factors
that could cause such material differences include, but are not limited to, the
availability and cost of personnel trained in Year 2000 issues and the
functioning of the Company's products in accordance with specifications. In
addition, variability of definitions of "Year 2000 ready" and the number of
products that the Company has sold, may lead to claims whose impact on the
Company is not currently estimable. No assurance can be given that the aggregate
cost of defending and resolving such claims, if any, would not materially
adversely affect the Company's business, results of operations or financial
condition.

                                       10
<PAGE>
 
ADDITIONAL RISK FACTORS
-----------------------

The Company operates in a rapidly changing environment that involves numerous
risks and uncertainties which could have a material adverse effect on the
Company. The following discussion details some, but not all, of these risks and
uncertainties.

FLUCTUATION IN OPERATING RESULTS.  The Company's operating results fluctuate as
a result of a variety of factors including: (i) the execution of new license
agreements; (ii) the shipment of software products; (iii) customer acceptance
criteria for services performed; (iv) completion of milestone or other
significant development requirements pursuant to the Company's license
agreements; (v) the financial terms of consulting agreements and the inclusion
of fixed as opposed to variable pricing; (vi) third-party royalty payments for
licensed software; (vii) the demand for the Company's products and services;
(viii) changes in the Company's product mix; (ix) the development and launch of
new products, and the life cycles of the Company's existing products; (x)
research and development expenditures required to update and expand the
Company's product portfolio and related third-party consulting costs; (xi) sales
and marketing expenses generally related to the entry into new markets with new
or existing products and maintenance of market share in existing markets; (xii)
acquisitions and the integration and development of acquired entities or
products; (xiii) competitive conditions in the industry and (xiv) general
economic conditions. As a result, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and should
not be relied upon as indications of future performance.

The Company's quarterly operating results are particularly dependent on the
number of license agreement bookings executed in each quarter. The amount of
quarterly bookings has varied substantially from quarter to quarter due to a
variety of reasons including: (i) a high proportion of license agreements are
negotiated during the latter part of each quarter which may not be completed
before the quarter end; (ii) the sales cycles for some of the Company's products
are relatively long due to the Company's focus on "enterprise solutions" as
opposed to individual products, which adds complexity to the customer's
selection, negotiation and approval process; (iii) the amount related to each
booking may vary significantly due to the need for different solutions for
different customers; (iv) procurement procedures may vary from customer to
customer, which may affect the timing of the bookings; (v) the period for a
customer to complete product evaluations and to complete any subsequent purchase
approval may be delayed due to resource limitations; and (vi) economic,
political and industrial conditions can adversely affect business opportunities
without notice. In addition, bookings that are executed during a particular
quarter may not be recognized as revenue during such quarter because such
bookings may not have met the Company's revenue recognition criteria. No
assurance can be given that the Company will be able to effect new bookings in
accordance with historical results or management's expectations, and the
inability of the Company to do so could have a material adverse effect on the
Company's operating results.

While the Company typically sells its software under a standard license
agreement, license agreements associated with large enterprise solutions often
require the negotiation of terms and conditions that differ substantially from
the Company's standard license agreement terms. The negotiation of these
agreements may extend the sales cycle. In certain circumstances, the Company may
not obtain terms and conditions that permit the recognition of revenue upon
shipment of the licensed product or under the percentage of completion method of
contract accounting rules. Accordingly, revenue may not be recognized despite
the shipment of a product because specified milestones have not been met or
because applicable services have not been completed.

The Company in the past has and in the future expects to enter into fixed price
consulting agreements, particularly in response to increased competition in the
industry. The Company has recognized lower profit margins on certain fixed-price
service agreements when compared to variable agreements. No assurance can be
given that the Company will be able to conclude fixed-price agreements on terms
that will allow the Company to retain its historical operating margins.

The Company has historically generated a majority of its consulting revenue from
pre- and post-implementation services. Recently, the Company has provided
services which include, but are not limited to, Year 2000 readiness engagements,
best practice solution engagements and other hardware and software solutions.
The Company intends to continue its pursuit of consulting engagements for which
the Company believes it is qualified. There can be no assurances that these
engagements will result in profit margins equal to or greater than those
engagements that are specific to a customer's product implementation.
Furthermore, there can be no assurances that consulting revenue generated from
non-implementation related projects will continue in the future.

                                       11
<PAGE>
 
Employee and facility related expenditures comprise a significant portion of the
Company's operating costs and expenses, and are therefore relatively fixed over
the short term. In addition, the Company's expense levels are based, in
significant part, on the Company's forecasted revenue. If revenue levels fall
below expectations, net income is likely to be adversely affected. There can be
no assurance that the Company will be able to maintain or to continue its
current level of profitability on a quarterly or annual basis in the future. Any
of the foregoing factors could cause the Company's future operating results to
fall below the expectations of public securities market analysts, which could
have an adverse effect on the trading price of the Company's common stock. See
"Volatility of Stock Price."

RELIANCE ON THIRD PARTY TECHNOLOGY.  The Company generates revenue from
internally developed software products, some of which utilize technology
licensed from third parties. The Company expects to continue utilizing third
party technology and may enter into agreements with additional business
partners. If sales of software utilizing third party technology increase
disproportionately, gross margins may be below historical levels due to third
party royalty obligations. There can be no assurances that the third parties
will renew existing agreements with the Company or will not require financial
conditions which are unfavorable to the Company. Furthermore, there can be no
assurances that existing third party agreements will not be terminated.

INDUSTRY.  Certain software companies, including the Company, have experienced
significant economic downturns as a result of technological shifts and
competitive pressures. These downturns are characterized by decreased product
demand, price erosion, work slowdowns and layoffs. The Company's operations may,
in the future, experience substantial fluctuations from period to period as a
consequence of such industry patterns and general economic and political
conditions which could affect the timing of orders from customers. There can be
no assurance that such factors will not have a materially adverse effect on the
Company's business, operating results or financial condition.

INTERNATIONAL.  The Company plans to increase its presence in international
markets including, but not limited to, marketing the Tamaris and Aptos product
lines in additional countries. Risks associated with such pursuits include, but
are not limited to, the following: changing market demands, economic and
political conditions in foreign markets, foreign exchange fluctuations, longer
collections cycles, difficulty in managing a geographically dispersed
organization, and changes in international tax laws. The downturn in the Asia
Pacific and Russia business climate will have an adverse effect on some market
opportunities. Operating results are likely to be adversely affected if the
Company's expansion into international markets is not successful.

COMPETITION.  The business and financial applications software market for large
and complex organizations is intensely competitive. The Company's principal
competitors with Tamaris solutions are Dun & Bradstreet Software Services, Inc.
(mainframe applications now owned by Geac Computer Corporation Limited), SAP AG,
Oracle and PeopleSoft, Inc. With Aptos solutions, the Company faces competition
from The BAAN Company N.V., Oracle Corporation, Lawson Software, Inc., Platinum
Software, Inc., Systems Union Group Ltd and Agresso AS. With the Horizon suite
of products, the Company faces competition from Hyperion Software, Longview and
Oracle Corporation. With the IMMPOWER suite of products, the Company faces
competition from Datastream Systems, Inc., Indus International, Inc., Marcam
Solutions, Inc., Mincom Pty Ltd., Product Software & Development, Inc. and SAP
AG.

The Company also competes to a lesser extent with other independent software
application vendors. Many of the Company's current and potential competitors
have substantially greater financial, technical, marketing and sales resources
than the Company. Some of these competitors also offer business application
products not offered by the Company, primarily in the areas of human resources
and manufacturing. However, Walker remains one of the few companies committed to
providing and enhancing applications for the mainframe environment. Many of the
competitors listed above compete with Walker by offering UNIX-based
applications.

The Company encounters competition from a broader range of firms in the market
for professional services. These competitors include the consulting divisions of
the major accounting firms which possess greater resources than the Company and
small independent firms which compete primarily on the basis of price of
services provided.

The principal competitive factors in the market for business and financial
applications software and services include product functionality, flexibility,
portability, integration, reliability, performance, product availability, speed
of implementation, quality of customer support and user documentation, vendor
reputation, experience, financial stability, cost effectiveness and price. The
Company believes that it competes favorably with respect to these factors. There
can be no assurance, however, that the Company will be able to compete
successfully in the future.

                                       12
<PAGE>
 
RAPID TECHNOLOGICAL CHANGE. The software industry is characterized by rapid
technological change. The pace of change has accelerated due to advances in
mainframe and client/server technology and the growth in internet, intranet and
extranet utilization. The Company expects to evaluate potential opportunities
and may invest in those which are compatible with the Company's strategic
direction. However, there can be no assurance that any such investments will be
profitable. Furthermore, the Company's products are designed primarily for use
with certain mainframe and client/server systems. The introduction of products
embodying new technologies and the emergence of new industry standards can
render existing products obsolete. Accordingly, the Company's future success
depends in part upon its ability to continue to enhance its current products and
to develop and introduce new products that respond to evolving customer
requirements and keep pace with technological development and emerging industry
standards, such as new operating systems, hardware platforms, interfaces and
third party applications software. There can be no assurances that the Company
will be successful in developing and marketing product enhancements or new
products that respond to technological change, changes in customer requirements
or emerging industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of such products and enhancements or that any new
products or enhancements that it may introduce will achieve market acceptance.

PRODUCT DEVELOPMENT.  The Company's continued success is dependent on its
continued ability to introduce, develop and market new and enhanced versions of
its software products, although there can be no assurance that such ability can
be maintained. The Company plans to continue its investment in product
development in future periods. However, there can be no assurance that revenues
will be sufficient to support the future product development which is required
for the Company to be competitive. Although the Company may be able to release
new products in addition to enhancements to existing products, there can be no
assurance that the Company's new or upgraded products will be accepted, will not
be delayed or canceled, or will not contain errors or "bugs" that could affect
the performance of the product or cause damage to users' data.

PROPRIETARY RIGHTS.  The Company regards its products as proprietary. Through
its license agreements with customers and its internal security systems,
confidentiality procedures and employee agreements, the Company has taken steps
to maintain the trade secrecy of its products. However, there can be no
assurances that misappropriation will not occur. In addition, the laws of some
countries do not protect the Company's proprietary rights to the same extent as
do the laws of the United States. There can be no assurance that the
confidentiality of any proprietary information will provide any meaningful
competitive advantage. The Company has no patents relating to its products. The
Company believes that, because of the rapid pace of technological change in the
computer software industry, that trade secrets are less significant than factors
such as the knowledge, ability and experience of the Company's employees,
frequent product enhancements and the timeliness and quality of support
services. There can be no assurance that the Company's current efforts to retain
its products as proprietary will be adequate.

Although the Company believes that its products do not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future
with respect to current or future products or that any such assertions may not
require the Company to enter into royalty arrangements or result in costly
litigation.

PRODUCT LIABILITY.  The Company's license agreements with its customers contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in such license agreements may not be enforced as a result
of international, federal, state and local laws or ordinances or unfavorable
judicial decisions. The license and support of the Company's software for use in
mission critical applications creates the risk of product liability claims
against the Company. Damage liability or injunctive relief resulting from such a
claim could cause a materially adverse impact on the Company's business,
operating results and financial condition.

EMPLOYEES.  The Company believes that its continued success will depend in large
part upon its ability to attract, train and retain highly-skilled technical,
sales and marketing and managerial personnel. The Company continues to hire a
significant number of sales, marketing, services and technical personnel.
Because of the high level of demand, competition for such personnel is intense
and the Company from time to time experiences difficulty in locating candidates
with appropriate qualifications or within desired geographic locations. Revenue
growth is dependent on the Company's ability to attract, train, retain and
productively manage such personnel.

EXPANSION OF FACILITIES.  Recently, commercial building vacancy rates have
significantly dropped in San Francisco, California, where the Company has its
headquarters.  The Company's San Francisco office lease expires 

                                       13
<PAGE>
 
in 2007. However, the Company may experience difficulty obtaining additional
space if the Company's space requirements in San Francisco significantly exceed
the quantity of space the Company currently has under lease. In addition, the
increased demand for office space has caused commercial rental rates to increase
substantially. Failure to either obtain additional space, or obtain it on
reasonably attractive commercial terms, may inhibit the Company's ability to
grow or otherwise adversely affect the Company's operations and financial
results.

ACQUISITION RELATED RISKS.  The Company has acquired and may continue to acquire
complimentary businesses, products or technology. The process of integrating an
acquired company's business into the Company's operations may result in
unforeseen operating difficulties and expenditures and may require significant
management attention that would otherwise be available for the ongoing
development of the Company's business. There can be no assurance that any
anticipated benefits of an acquisition will be realized. Future acquisitions by
the Company could result in potentially dilutive issuances of equity securities,
the incurrence of debt and contingent liabilities and amortization related to
goodwill and other intangible assets, which could materially affect the
Company's operating results and financial condition. Acquisitions involve
numerous risks, including difficulties in the assimilation of operations,
technologies and products of the acquired company, risks associated with
entering markets in which the Company has no or limited direct prior experience
and the potential loss of key employees of the acquired company.

VOLATILITY OF STOCK PRICE.  High technology companies, including the Company,
frequently experience volatility in their common stock prices. Factors such as
quarterly fluctuations in results of operations, announcements of technological
innovations by the Company or its competitors or the introduction of new
products by the Company or its competitors and macroeconomic conditions in the
computer hardware and software industries generally may have a significant
adverse impact on the market price of the Company's stock. If revenues or
earnings in any quarter fail to meet the expectations of the investment
community, there could be an immediate impact on the Company's stock price. In
addition, the Company has issued shares and stock options which if sold directly
or exercised and sold on the open market in large concentrations, could cause
the Company's stock price to decline in the short term. Recent tax legislation
which lowered tax rates on capital gains could potentially result in increased
sales of all U.S. equity securities including the Company's common stock. Such
sales, if material, could negatively impact the stock price. Furthermore, the
stock market has from time to time experienced extreme price and volume
fluctuations which have particularly affected the market price for many high
technology companies, in some cases unrelated to the operating performance of
those companies. These broad market fluctuations may materially adversely affect
the market price of the stock of the Company.

                                       14
<PAGE>
 
PART II.  OTHER INFORMATION
---------------------------

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits

                 3.2      Bylaws of Registrant, as amended to date.
                10.3      1989 Employee Stock Option Plan, as amended to date.
                10.10     1994 Equity Incentive Plan, as amended to date.
                10.13(a)  Amendment No. 1 (amended and restated) to 1995
                          Executive Employment Agreement between the Registrant
                          and Leonard Y. Liu
                10.14     1995 Non-Statutory Stock Option Plan for Non-Officer
                          Employees, as amended to date.
                10.17     Executive Severance Benefits Agreement entered into by
                          the Registrant and each of Paul Lord and Steve Tsui.
                27.1      Financial Data Schedule (electronic filing only)

         (b)  Reports on Form 8-K

              The Company filed no reports on Form 8-K during the quarter ended
              September 30, 1998.

                                       15
<PAGE>
 
                       WALKER INTERACTIVE SYSTEMS, INC.
                                   FORM 10-Q
                                  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.


                       WALKER INTERACTIVE SYSTEMS, INC.
                       --------------------------------
                                 (Registrant)
                                        



Date:  November 13, 1998            By:  /s/ Barbara M. Hubbard
       ----------------                  --------------------------
                                         Barbara M. Hubbard
                                         Vice President, Finance
                                         (Chief Accounting Officer)

                                       16
<PAGE>

                       WALKER INTERACTIVE SYSTEMS, INC.
                                   FORM 10-Q
                               INDEX TO EXHIBITS

 
   Exhibit Number              Description
--------------------------------------------------------------------------------
    3.2        Bylaws of Registrant, as amended to date.
   10.3        1989 Employee Stock Option Plan, as amended to date.
   10.10       1994 Equity Incentive Plan, as amended to date.
   10.13(a)    Amendment No. 1 (amended and restated) to 1995 Executive
               Employment Agreement between the Registrant and Leonard Y. Liu
   10.14       1995 Non-Statutory Stock Option Plan for Non-Officer Employees,
               as amended to date.
   10.17       Executive Severance Benefits Agreement entered into by the
               Registrant and each of Paul Lord and Steve Tsui.
   27.1        Financial Data Schedule (electronic filing only)

                                      17