<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON,  D.C.  20549


                                   FORM 10-Q


                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

 For Quarter Ended September 30, 1998           Commission File Number 1-7516

                                  KEANE, INC.
            (Exact name of registrant as specified in its charter)


 MASSACHUSETTS                                                   04-2437166
 (State or other jurisdictions of                         (I.R.S. Employer 
 incorporation or organization)                           Identification Number)
 
 Ten City Square, Boston, Massachusetts                          02129
 (Address of principal executive offices)                     (Zip Code)
 
 Registrant's telephone number, including area code           (617) 241-9200


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
 
Yes  [ X ]     No  [   ]


As of September 30, 1998, the number of issued and outstanding shares of Common
Stock (excluding 305,615 shares held in treasury) and Class B Common Stock were
70,116,474 and 286,296 shares, respectively. 
<PAGE>
 
Keane, Inc. and Subsidiaries
TABLE OF CONTENTS

<TABLE> 
<CAPTION> 
Part I - Financial Information
<S>                                                                       <C>
Consolidated Statements of Income for the three months and            
nine months ended September 30, 1998 and 1997...........................     3
                                                                      
Consolidated Balance Sheets as of September 30, 1998 and              
December 31, 1997.......................................................     4
                                                                      
Consolidated Statements of Cash Flows for the nine months ended       
September 30, 1998 and 1997.............................................     5
                                                                      
Notes to Unaudited Financial Statements.................................     6
                                                                      
Management's Discussion and Analysis of Financial Condition and       
Results of Operations...................................................    10
                                                                      
Part II - Other Information.............................................    19
                                                                      
Signature Page..........................................................    20
                                                                      
Exhibit Index...........................................................    21
 
</TABLE>

                                       2
<PAGE>
 
                         KEANE, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE> 
<CAPTION> 
                                                             (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
                                                             THREE MONTHS ENDED          NINE MONTHS ENDED
                                                                SEPTEMBER 30,              SEPTEMBER 30,
                                                            1998            1997         1998         1997
<S>                                                     <C>             <C>            <C>          <C>
Total revenues                                            $280,540        $180,354     $772,056     $492,895
 
Salaries, wages and other direct costs                     180,638         120,826      500,964      326,380
Selling, general and administrative expenses                50,225          34,785      137,614       97,597
Amortization of goodwill and other intangible                2,069           3,509        5,634       10,527
         assets
 
Merger costs                                                 1,910               0        6,042            0
 
     Operating income                                       45,698         121,802      127,844       58,391
 
Investment income                                            1,046           1,206        3,697        3,091
Interest expense                                               159              51          161          151
Other expenses, net                                            243              82          487          732
 
     Income before income taxes                             46,342          22,307      124,851       60,599
 
Provision for income taxes                                  21,065           9,545       56,283       25,962
 
     Net income                                           $ 25,277        $ 12,762     $ 68,568     $ 34,637
 
Net income per share (basic)                                  $.36            $.18         $.98         $.50
 
Net income per share (diluted)                                $.35            $.18         $.96         $.49
 
Weighted average common shares outstanding (basic)          70,338          69,296       70,046       69,133
 
Weighted average common shares and common share             71,477          70,864       71,383       70,620
 equivalents outstanding (diluted)

</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

                                       3
<PAGE>
 
KEANE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                          (IN THOUSANDS)
                                                SEPTEMBER 30,    DECEMBER 31,
                                                        1998             1997
                                                           (UNAUDITED)
<S>                                             <C>               <C>   
Assets                                                               
Current:                                                             
     Cash and cash equivalents                      $ 42,156         $ 39,723
     Short term investments                            3,245            6,607
     Accounts receivable, net                                        
          Trade                                      244,630          156,036
          Other                                        1,367            2,038
     Prepaid expenses and other current assets        15,945           10,708
                                                    --------         --------
          Total current assets                       307,343          215,112
                                                                     
     Long term investments                            38,937           44,139
     Property and equipment, net                      27,908           23,613
     Intangible assets, net                           37,824           35,825
     Other assets, net                                 9,307            8,916
                                                    --------         --------
                                                    $421,319         $327,605
                                                    ========         ========
Liabilities                                                          
Current:                                                             
     Accounts payable                                 21,292           22,711
     Accrued compensation                             26,441           23,691
     Accrued expenses and other liabilities           27,982           13,091
     Notes payable                                       857            6,827
     Accrued income taxes                             10,973            3,945
     Current capital lease obligations                   901              822
                                                    --------         --------
          Total current liabilities                   88,446           71,087
                                                                     
     Long-term portion of capital lease obligations    1,564            1,379
     Notes payable                                        58              365
                                                                     
Stockholders' Equity                                                 
     Common Stock                                      7,043            6,935
     Class B Common Stock                                 29               29
     Additional paid-in capital                      105,457           97,933
     Foreign currency translation                       (516)            (372)
     Retained earnings                               221,651          152,662
     Less treasury stock                              (2,413)          (2,413)
                                                    --------         --------
          Total stockholders' equity                 331,251          254,774
                                                    --------         --------
                                                    $421,319         $327,605
                                                    ========         ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

                                       4
<PAGE>
 
KEANE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
                                                                              (IN THOUSANDS)
                                                                             NINE MONTHS ENDED
                                                                               SEPTEMBER 30,
                                                                         1998                 1997
<S>                                                                  <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES: 
Net income                                                             $ 68,568             $ 34,637
Adjustments to reconcile net income to                               
     net cash provided by (used for) operating activities            
       Depreciation and amortization                                     16,689               16,744
       Accrued interest on long term debt                                 -----                  148
       Deferred income taxes                                             (6,418)                (192)
       Provision for doubtful accounts                                    3,913                1,544
       (Gain) loss on disposal of fixed assets                              (80)                 (32)
     Changes in assets and liabilities, net of acquisitions:         
       Increase in accounts receivable                                  (89,316)             (53,570)
       (Increase) decrease in prepaid expenses and other assets           1,299               (4,713)
       Increase in income taxes payable                                   7,028                  293
       Increase in accounts payable,                                 
        accrued expenses, and other current liabilities                  14,847               11,438
                                                                       --------             --------
     NET CASH PROVIDED BY OPERATING ACTIVITIES                           16,530                6,297
                                                                     
CASH FLOWS FROM INVESTING ACTIVITIES:                                
     Purchase of investments                                            (43,545)             (40,773)
     Sale of investments                                                 52,109               22,828
     Purchase of property and equipment                                 (14,118)             (13,216)
     Proceeds from sale of assets                                           307                  133
     Payment for acquisitions                                            (9,150)               -----
     Proceeds from sale of business unit                                  -----                  400
                                                                       --------             --------
     NET CASH USED FOR INVESTING ACTIVITIES                             (14,397)             (30,628)
                                                                     
CASH FLOWS FROM FINANCING ACTIVITIES:                                
     Borrowings under notes payable and long-term debt                      150                -----
     Payments under long-term debt                                       (7,482)              (3,963)
     Proceeds from issuance of common stock                               7,632                2,956
                                                                       --------             --------
     NET CASH PROVIDED BY(USED FOR) FINANCING ACTIVITIES                    300               (1,007)
                                                                       --------             --------
                                                                     
Net increase (decrease) in cash and cash equivalents                      2,433              (25,338)
Cash and cash equivalents, beginning of period                           39,723               43,287
                                                                       --------             --------
Cash and cash equivalents, end of period                               $ 42,156             $ 17,949
                                                                       ========             ========
 
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

                                       5
<PAGE>
 
KEANE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS

Note 1.   The accompanying unaudited consolidated financial statements have been
          prepared in accordance with the accounting policies described in the
          Company's Annual Report on Form 10-K for the year ended December 31,
          1997 (the "Annual Report") and should be read in conjunction with the
          disclosures therein. All financial figures are in thousands of
          dollars, except per share amounts. Prior period amounts have been
          restated to conform to current year presentation.

          In the opinion of management, these interim financial statements
          reflect all adjustments, consisting of normal recurring accruals,
          necessary to present fairly the financial position, results of
          operations and cash flows for the periods presented. Interim results
          are not necessarily indicative of results for the full year.

Note 2.   Computation of earnings per share for the three months and nine months
          ending September 30, 1998 and 1997. In the period ending September 30,
          1998 there were 426,250 of anti-dilutive options.

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED            NINE MONTHS ENDED
                                                    SEPTEMBER 30,                 SEPTEMBER 30,
                                                 1998           1997           1998           1997
<S>                                           <C>            <C>            <C>            <C>
Net income                                     $25,277        $12,762        $68,568        $34,637
 
Weighted average number of common               70,338         69,296         70,046         69,133
 shares outstanding used in calculation
 of basic earnings per share
 
Incremental shares from the assumed              1,139          1,568          1,337          1,487
 exercise of dilutive stock options
 
Weighted average number of common               71,477         70,864         71,383         70,620
 shares outstanding used in
 calculation of diluted earnings per
 share
 
Earnings per share
 
             Basic                             $   .36        $   .18        $   .98        $   .50
                                               =======        =======        =======        =======
 
             Diluted                           $   .35        $   .18        $   .96        $   .49
                                               =======        =======        =======        =======
</TABLE>

                                       6
<PAGE>
 
KEANE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
 
Note 3.   Intangible assets consist of the following: 

                                                 9/30/98       12/31/97
<S>                                            <C>           <C>
Goodwill                                        $ 23,283      $  23,283
Noncompetition agreements                          2,268         22,203
Customer-based intangibles                        44,501         37,915
Software                                           5,618          8,089
Other                                                273          1,208
                                                --------      ---------
                                                  75,943         92,698
Less accumulated amortization                     38,119         56,873
                                                --------      ---------
                                                $ 37,824      $  35,825
                                                ========      =========
</TABLE>
                                                                                

Note 4.   On August 4, 1998, the Company acquired the issued and outstanding
          capital stock of Icom Systems Limited ("Icom"), parent company of Icom
          Solutions Limited, a privately-held provider of information technology
          business solutions in Birmingham, England, and issued or reserved for
          issuance approximately 894,500 shares of Keane common stock in
          connection with the acquisition, 835,545 of which were issued in
          exchange for shares of Icom capital stock which Keane acquired at the
          closing of the transaction, and up to approximately 58,955 of which
          will be issuable upon the exercise of options to acquire shares of
          Keane common stock that Keane issued in exchange for certain options
          to acquire shares of Icom capital stock held by the Icom
          optionholders. The Icom transaction has been accounted for as a
          pooling-of-interests. Accordingly, all financial data contained herein
          include the accounts of Icom for all periods presented.

          During the quarter ended September 30, 1998, the Company incurred a
          $1.9 million charge to operations to reflect investment banking,
          legal, accounting and other professional fees associated with the Icom
          transaction.

          Revenue and net income of the combined entities for the six-month
          period prior to the merger and the corresponding period in the prior
          year are presented in the following table. Prior to the acquisition,
          there were no intercompany transactions between the two companies.

                                       7
<PAGE>
 
KEANE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                SIX MONTHS ENDED
                                      JUNE 30, 1998           JUNE 30, 1997
<S>                                   <C>                     <C>
Revenue                              
     Keane, Inc.                         $465,655                $299,795
     Icom Systems Ltd.                     25,861                  12,746
                                         --------                --------
Combined revenue                         $491,516                $312,541
                                         ========                ========
                                 
Net income                       
     Keane, Inc.                         $ 41,594                $ 21,450
     Icom Systems Ltd.                      1,697                     425
                                         --------                --------
Combined net income                      $ 43,291                $ 21,875
                                         ========                ========
</TABLE>
                                                                                

          On June 1, 1998, the Company completed its acquisition of Bricker &
          Associates, Inc. ("Bricker"), an operations improvement consulting
          firm, under an Agreement and Plan of Merger by and among the Company,
          Beta Acquisition Corp. and Bricker, whereby the Company agreed to
          acquire all of the outstanding capital stock and options of Bricker in
          exchange for approximately 2.3 million shares of Keane, Inc. common
          stock (the "merger"). The merger has been accounted for as a pooling-
          of-interests. Accordingly, all financial data contained herein include
          the accounts of Bricker for all periods presented.

          During the quarter ended June 30, 1998, the Company incurred a $4.1
          million charge to operations to reflect investment banking, legal,
          accounting and other professional fees associated with the Bricker
          transaction.

          Revenue and net income of the combined entities for the three-month
          period prior to the merger and the corresponding period in the prior
          year are presented in the following table. Prior to the merger, there
          were no intercompany transactions between the two companies.

                                       8
<PAGE>
 
KEANE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED
                                       MARCH 31, 1998          MARCH 31, 1997
<S>                                    <C>                     <C>
Revenue                              
     Keane, Inc.                          $209,162                $141,110
     Bricker & Associates, Inc.              5,800                   3,191
                                          --------                --------
Combined revenue                          $214,962                $144,301
                                          ========                ========
                                        
Net income                              
     Keane, Inc.                          $ 19,080                $  9,848
     Bricker & Associates, Inc.              1,846                     168
                                          --------                --------
Combined net income                       $ 20,926                $ 10,016
                                          ========                ========
</TABLE>
                                                                               
          On April 30, 1998, the Company purchased substantially all of the
          assets of Salt Lake City-based GSE Erudite Software, Inc., a
          subsidiary of GSE Systems, Inc. for approximately $9.8 million. The
          pro forma results of the combined company through March 31, 1998 are
          not included because the dollar amounts are immaterial.

Note 5.   On October 9, 1998 the Company acquired all of the outstanding capital
          stock of Fourth Tier, Inc., a privately-held provider of enterprise
          relationship management consulting services based in Los Angeles,
          California, in exchange for approximately 915,571 shares of Keane,
          Inc. common stock. The acquisition will be accounted for as a pooling
          of interests.

                                       9
<PAGE>
 
KEANE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements.  For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements.  Without
limiting the foregoing, the words "believes," "anticipates," "plans," "expects,"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements.  These factors include, without limitation, those set forth below
under the caption "Certain Factors That May Affect Future Results."

Results of Operations
---------------------

The Company's revenue for the third quarter of 1998 was $280.5 million, a 
55.5% increase from $180.4 million in the third quarter of 1997. Revenue for the
first nine months of 1998 were $772.1 million, a 56.6% increase from $492.9
million in the first nine months of 1997. The increase in revenue resulted
primarily from strong growth in the Company's year 2000 compliance and
supplemental staffing services. Year 2000 revenue for the third quarter of 1998
was $102.4 million, a 134.3% increase from $43.7 million in the third quarter of
1997. Year 2000 revenue for the first nine months of 1998 was $268.9 million, a
200.8% increase from $89.4 million for the first nine months of 1997.
Application outsourcing revenue increased 38.8% to $38.6 million in the third
quarter of 1998, as compared to $27.8 million in the third quarter of 1997.
Application outsourcing revenue increased 58.5% to $111.4 million for the first
nine months of 1998, as compared to $70.3 million for the first nine months of
1997. Helpdesk revenue increased 8.7% to $11.2 million in the third quarter of
1998, compared to $10.3 million in the same period last year. Helpdesk revenue
increased 28.2% to $35.9 million in the first nine months of 1998, as compared
to $28.0 million for the first nine months of 1997. Application development
revenue for the third quarter of 1998 was $23.6 million, a 13.5% increase from
$20.8 million in the third quarter of 1997. Application development revenue for
the first nine months of 1998 was $63.6 million, a 2.2% increase from 
$62.2 million during the same period last year. IT consulting services revenue
for the third quarter of 1998 was $14.1 million, a 62.1% increase from 
$8.7 million for the same period last year. IT consulting services revenue for
the first nine months of 1998 was $39.6 million, a 67.1% increase from 
$23.7 million for the same period last year. Revenue from supplemental staffing
increased 39.5% to $78.8 million for the third quarter of 1998, as compared to
$56.5 million for the third quarter of 1997. Revenue from supplemental staffing
increased 15.9% to $216.2 million for the first nine months of 1998, as compared
to $186.5 million for the first nine months of 1997. Revenue from the Company's
Healthcare Services Division increased by 24.3% to $9.2 million in the third
quarter of 1998, as compared to $7.4 million for the third quarter of 1997.
Revenue from the Company's Healthcare Services Division increased by 30.7% to
$28.5 million in the first nine months of 1998, as compared to $21.8 million in
the first nine months of 1997. All other services revenue for the 

                                       10
<PAGE>
 
third quarter of 1998 totaled $2.6 million, down $2.5 million from the same
period last year. All other services revenue for the first nine months of 1998
totaled $8.0 million, down $2.9 million from the same period last year.

Salaries, wages and other direct costs for the third quarter of 1998 were 
$180.6 million, or 64.4% of revenue, compared to $120.8 million, or 67.0% of
revenue, during the same period last year. Salaries, wages and other direct
costs for the first nine months of 1998 were $501.0 million, or 64.9% of
revenue, compared to $326.4 million, or 66.2% of revenue, during the same period
last year. This decrease as a percentage of revenue was primarily attributable
to an increase in higher margin strategic services business. This business
comprised approximately $178.7 million, or 63.7% of the Company's revenue in the
third quarter of 1998 compared to approximately $101.0 million, or 56.0% for the
same period last year and approximately $469.7 million, or 60.8% of the
Company's revenue for the first nine months of 1998 compared to $236.1 million,
or 47.9% for the same period last year.

Selling, general and administrative expenses (SG&A) for the third quarter of
1998 were $50.2 million, or 17.9% of revenue, compared to $34.8 million, or
19.3% of revenue, for the same period last year. SG&A expenses for the first
nine months of 1998 were $137.6 million, or 17.8% of revenue, compared to 
$97.6 million, or 19.8% of revenue, for the same period last year. The decrease
in SG&A as a percentage of revenue was primarily attributable to the economies
of scale associated with increased revenue that did not require a proportionate
increase in SG&A and to a large extent to an increase in the number of large
contracts in which the Company is engaged, which allows associated overhead
services to be delivered more cost effectively.

Amortization of goodwill and other intangible assets for the third quarter of
1998 totaled $2.1 million, or .7% of revenue, compared to $3.5 million, or 
1.9% of revenue, for the same period last year. Amortization of goodwill and
capitalized acquisition costs for the first nine months of 1998 were 
$5.6 million, or .7% of revenue, compared to $10.5 million, or 2.1% of revenue,
for the same period last year. The decrease in amortization is primarily
attributable to certain intangible assets being fully amortized at year end
1997.

The Company incurred one time charges of $4.1 million in the second quarter of
1998 and $1.9 million in the third quarter of 1998 for professional fees
associated with the acquisitions of Bricker & Associates, Inc. and Icom Systems
Limited, respectively. Both acquisitions have been accounted for as pooling of
interests.

The Company recognized investment income of $1.0 million in the third quarter of
1998 and $3.7 million in the first nine months of 1998, compared to $1.2 million
and $3.1 million, respectively, for the comparable periods last year.

                                       11
<PAGE>
 
The Company's pre-tax income for the third quarter of 1998 was $46.3 million, or
16.5% of revenue, compared to $22.3 million, or 12.4% of revenue, for the same
period last year.  Pre-tax income for the first nine months of 1998 was 
$124.9 million, or 16.2% of revenue, compared to $60.6 million, or 12.3% of
revenue, for the same period last year.

The Company's effective tax rate for the third quarter of 1998 was 45.5%,
compared to 42.8% for the same period last year. The Company's effective tax
rate for the first nine months of 1998 was 45.1%, compared to 42.8% for the same
period last year. The increase in the tax rate was primarily due to the one time
merger costs associated with the acquisitions of Bricker and Icom, which are not
tax deductible.

Net income and earnings per share basic and diluted for the third quarter of
1998 were $25.3 million, $.36 per share and $.35 per share, respectively,
compared to $12.8 million, $.18 per share and $.18 per share, respectively, for
the same period last year.  Net income and earnings per share basic and diluted
for the nine months ended September 30, 1998 were $68.6 million, $.98 per share
and $.96 per share, respectively, compared to $34.6 million, $.50 per share and
$.49 per share, respectively, for the same period last year.


Liquidity and Capital Resources
-------------------------------

The Company ended the third quarter of 1998 with cash, cash equivalents and
marketable securities totaling approximately $84.3 million, compared to the year
end balance of $90.5 million.  The decrease is attributable to the increase in
accounts receivable due to the Company's revenue growth and the purchase of
property and equipment, offset by increases in accrued expenses and other
current liabilities. The Company's debt, including accrued interest, at the end
of the third quarter was $3.4 million, which consists primarily of a $1.0
million, 6% interest bearing note related to the acquisition of GSE Erudite
Software on April 30, 1998 and $2.1 million associated with capitalized
equipment leases of Icom Systems Limited in the United Kingdom. The Company
maintains and has available a $20 million unsecured demand line of credit split
equally between two major Boston banks.

Based on the Company's current operating plan, it believes that its cash, cash
equivalents, marketable securities, cash flows from operations, and its current
available line of credit will be sufficient to meet its current working capital
requirements during at least the next twelve months.

Year 2000 Issues
----------------

Overview
--------

The "Year 2000" issue is the result of computer programs being written using two
digits rather than four to define the applicable year.  Keane's computer
equipment and software and devices 

                                       12
<PAGE>
 
with embedded technology that are time sensitive may recognize "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of Keane's operations, including, among
other things, a temporary inability to perform mission critical functions like
billing and time reporting. As a result, software and computer systems may need
to be upgraded or replaced in order to ensure that they accept four digit date
codes.

State of Readiness
------------------

Company Services and Products.  Keane's Information Services Division ("ISD"),
-----------------------------                                                 
which represented approximately 95% of the Company's total revenue in 1997,
generally delivers services and not products to its customers. The Company 
believes that the services provided by its ISD professionals to its customers 
are provided in a Year 2000 compliant manner.

Keane's Healthcare Services Division ("HSD") develops, markets and sells
software products.  Certain of HSD's products are not fully Year 2000 operable.
HSD has advised its customer base for these products that it does not intend to
offer Year 2000 compliant versions of these products and has encouraged them to
migrate to new products offered by HSD that are Year 2000 ready.  The Company
anticipates that some customers will choose not to migrate to these products and
will therefore terminate their relationship with Keane's HSD.  The exact amount
of anticipated lost customers has not been determined.  The Company believes 
that the revenue lost as a result of these events will be immaterial to its 
overall operations.

In addition to its own products, HSD markets certain third party software
products. The Company is seeking assurances from the vendors of these products
that all licensed software is Year 2000 compliant. The Company expects to
receive substantially all of these assurances by the end of 1998.

Company Systems.  Keane has established a Year 2000 task force that has
---------------                                                        
completed its assessment of the Company's Information Technology-related 
("IT-related") systems for the Year 2000 issue. For IT-related systems, the
Company believes that most of the critical systems, including its accounting
software, AS400 applications and payroll systems, are now Year 2000 compliant.
However, Keane's Federal Systems subsidiary uses a software product for its
accounting system that is not Year 2000 compliant. The vendor for this product
has advised the Company that it plans to release a Year 2000 compliant upgrade
for its product in the first quarter of 1999. The Company is in the process of
replacing the billing software used by ISD because the current software product
is not Year 2000 compliant. The cost to replace this software is currently
estimated to be approximately $500,000 and will be capitalized by the Company.
Keane believes that the new software will be operational by the end of the first
quarter of 1999.

Keane's Year 2000 task force is also evaluating the Company's non-IT systems, 
including alarm systems, sprinkler systems, elevators, fax machines and other 
miscellaneous systems that may contain embedded technology, for the Year 2000 
Issue. Keane expects to complete its identification and assessment of Year 2000 
Issues in non-IT systems in 1999 and to establish a remediation plan to 
address any outstanding Year 2000 Issues concerning the Company's non-IT 
systems.

Costs to Address Year 2000 Issues
---------------------------------

Keane anticipates that it will incur direct costs to modify or replace existing
systems used by Keane in the operation of its business to ensure that all
systems will be operable in the Year 2000, including the costs to replace the
Information Services Division billing software described above.  

                                       13
<PAGE>
 
The Company believes that the total amounts spent by it to date and that it
expects to spend in 1999 addressing the Year 2000 issue are not material.

Risks to the Company
--------------------

In the event of a failure of some or all of the Company's IT-related and non-IT
systems on January 1, 2000, the Company's operations may be substantially
curtailed until the Company or its third-party suppliers develop a solution to
address such system's failure.  In such event, the Company may be unable to:
(a) perform billing functions, (b) keep track of time performed on projects for
its clients, (c) access client records, (d) communicate between field offices
and headquarters, (e) operate its Internet site, (f) receive and send email or
(g) prepare its financial statements for the fourth quarter of 1999 or periods
thereafter.

Among the services that Keane provides are assessment, planning,
migration/remediation and testing services for Year 2000 compliance.  Keane has
devoted significant resources to services that address the Year 2000 problem and
believes the market for these services will grow as the year 2000 approaches.
However, the market for Year 2000 services may not continue to develop, and if
such market fails to grow, or grows more slowly than anticipated, it could have
a material adverse effect on Keane's business, financial condition or results of
operations. Although Keane believes that the demand for its services relating to
the Year 2000 problem will continue to exist after the year 2000, this demand
will diminish significantly over time and will eventually disappear.

Keane's services addressing the Year 2000 problem involve key aspects of its
clients' computer systems.  A failure in a client's system could result in a
claim for substantial damages against Keane, regardless of Keane's
responsibility for the failure. Keane could incur substantial costs in
connection with any resulting litigation, regardless of the outcome.

Contingency Plans
-----------------

As described above, the Company has identified potential vulnerabilities
associated with the change of the century.  The Company is devoting resources to
working with providers of systems to the Company to ensure that its business is
not substantially interrupted as a result of the date change.  The Company
currently does not have a contingency plan in the event of a particular system
not being Year 2000 compliant. Such a plan will be developed if it becomes clear
that the company is not going to achieve its scheduled compliance objectives.

Certain Factors That May Affect Future Results
----------------------------------------------

The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Quarterly Report on Form 10-Q and presented elsewhere by management from
time to time.

                                       14
<PAGE>
 
Fluctuations in Operating Results.  Keane has experienced and expects to
continue to experience fluctuations in its quarterly results.  Keane's gross
margins vary based on a variety of factors including employee utilization rates
and the number and type of services performed by Keane during a particular
period.  A variety of factors influence Keane's revenue in a particular quarter,
including:

     .  general economic conditions which may influence investment decisions or
        cause downsizing;

     .  the number and requirements of client engagements;

     .  employee utilization rates;

     .  changes in the rates Keane can charge clients for services;

     .  acquisitions; and

     .  other factors, many of which are beyond Keane's control.

A significant portion of Keane's expenses do not vary relative to revenue.  As a
result, if revenue in a particular quarter does not meet expectations, Keane's
operating results could be materially adversely affected, which in turn may have
a material adverse impact on the market price of Keane common stock.  In
addition, many of Keane's engagements are terminable without client penalty.  An
unanticipated termination of a major project could result in an increase in
underutilized employees and a decrease in revenue and profits.

Risks Relating to Acquisitions.  In the past five years, Keane has grown
significantly through acquisitions.  Since January 1, 1998, Keane has completed
the acquisitions of Quantum Associates, Inc. d/b/a Omega Systems in Pittsburgh,
Pennsylvania, GSE Erudite Systems in Salt Lake City, Utah, Bricker & Associates,
Inc. in Chicago, Illinois, Icom Systems Limited in Birmingham, England and
Fourth Tier, Inc. in El Segundo, California.  Keane's future growth may be based
in part on selected acquisitions.  At any given time, Keane may be in various
stages of considering such opportunities.  Keane can provide no assurances that
it will be able to find and identify desirable acquisition targets or that it
will be successful in entering into a definitive agreement with any one target.
Also, even if a definitive agreement is reached, there is no assurance that any
future acquisition will be completed.

Keane typically anticipates that each acquisition will bring certain benefits,
such as an increase in revenue.  Prior to completing an acquisition, however, it
is difficult to determine if such benefits can actually be realized.
Accordingly, there is a risk that an acquired company may not achieve an
increase in revenue or other benefits for Keane.  In addition, an acquisition
may result in 

                                       15
<PAGE>
 
unexpected costs and expenses. Any of these events could have a material adverse
effect on Keane's business, financial condition and results of operations.

The process of integrating acquired companies into Keane's existing business may
also result in unforeseen difficulties.  Unforeseen operating difficulties may
absorb significant management attention which Keane might otherwise devote to
its existing business.  Also, the process may require significant financial
resources that Keane might otherwise allocate to other activities, including the
ongoing development or expansion of Keane's existing operations.  Finally,
future acquisition could result in Keane having to incur additional debt and/or
contingent liabilities.  All of these possibilities might have a material
adverse effect on Keane's business, financial condition and result of
operations.

Dependence on Personnel.  Keane believes that its future success will depend in
large part on its ability to continue to attract and retain highly-skilled
technical and management personnel.  The competition for such personnel is
intense.  Keane may not succeed in attracting and retaining the personnel
necessary to develop its business.  If Keane does not, its business, financial
condition and result of operations could be materially adversely affected.

Highly Competitive Market.  The market for Keane's services is highly
competitive.  The technology for custom software services can change rapidly.
The market is fragmented, and no company holds a dominant position.
Consequently, Keane's competition for client assignments and experienced
personnel varies significantly from city to city and by the type of service
provided.  Some of Keane's competitors are larger and have greater technical,
financial and marketing resources and greater name recognition in the markets
they serve than does Keane.  In addition, clients may elect to increase their
internal information systems resources to satisfy their custom software
development needs.

Keane believes that in order to compete successfully in the software services
industry it must be able to:

     .  compete cost-effectively;

     .  develop strong client relationships;

     .  generate recurring revenues;

     .  utilize comprehensive delivery methodologies; and

     .  achieve organizational learning by implementing standard operational
        processes.

In the healthcare software systems market, Keane competes with some companies
that are larger in the healthcare market and have greater financial resources
than Keane.  Keane believes that 

                                       16
<PAGE>
 
significant competitive factors in the healthcare software systems market
include size and demonstrated ability to provide service to targeted healthcare
markets.

Keane may not be able to compete successfully against current or future
competitors.  In addition, competitive pressures faced by Keane may materially
adversely affect its business, financial condition and results of operations.

Year 2000 Compliance; Risks Associated with Provision of Year 2000 Services.
Keane has reviewed its internal computer systems and has identified certain
internal systems that are not year 2000 compatible (i.e., such systems use only
two digits to represent the year in date data fields and, consequently, may not
accurately distinguish between the 20th and 21st centuries or may not function
properly at the turn of the century).  Keane is in the process of correcting
these systems or replacing them with year 2000 compliant systems.  Keane expects
to implement successfully the systems and programming changes necessary to
address year 2000 issues and does not believe that the cost of such actions will
have a material effect on Keane's financial condition or results of operations.
There may, however, be a delay in, or increased costs associated with, the
implementation of these changes.  Keane's inability to implement changes could
have a material adverse effect on Keane's business, financial condition or
results of operations.

Among the services that Keane provides are assessment, planning,
migration/remediation and testing services for year 2000 compliance.  Keane has
devoted significant resources to services that address the year 2000 problem and
believes the market for these services will grow as the year 2000 approaches.
However, the market for year 2000 services may not continue to develop, and if
such market fails to grow, or grows more slowly than anticipated, it could have
a material adverse effect on Keane's business, financial condition or results of
operations.  Although Keane believes that the demand for its services relating
to the year 2000 problem will continue to exist after the year 2000, this demand
will diminish significantly over time and will eventually disappear.

Keane's services addressing the year 2000 problem involve key aspects of its
clients' computer systems.  A failure in a client's system could result in a
claim for substantial damages against Keane, regardless of Keane's
responsibility for the failure.  Keane could incur substantial costs in
connection with any resulting litigation, regardless of the outcome.

International Operations.  In August 1998, Keane commenced operations in the
United Kingdom with its acquisition of Icom.  Keane's planned international
operations will be subject to political and economic uncertainties, currency
exchange rate fluctuations, foreign exchange restrictions, changes in taxation
and other difficulties in managing operations overseas.  Keane may not be
successful in its international operations.

As a result of these and other factors, the Company's past financial performance
should not be relied on as an indication of future performance. Keane believes
that period to period comparisons 

                                       17
<PAGE>
 
of its financial results are not necessarily meaningful and it expects that
results of operations may fluctuate from period to period in the future.

                                       18
<PAGE>
 
KEANE, INC. AND SUBSIDIARIES

                          Part II - OTHER INFORMATION
--------------------------------------------------------------------------------

Item 2. Changes in Securities and Use of Proceeds
 
        On August 4, 1998, pursuant to a Stock Purchase Agreement by and among
        the Company and the stockholders of Icom Systems Limited, the Company
        issued 835,545 shares of its common stock (the "Shares") to the
        stockholders of Icom (the "Icom Stockholders") in exchange for
        substantially all of the outstanding share capital of Icom. The Shares
        were issued and sold in reliance upon Rule 903 of Regulation S under the
        Securities Act of 1933, as amended ("Regulation S"), to the Icom
        Stockholders, each of whom was deemed not to be a "U.S. person" as
        defined in Regulation S. No underwriters were involved with such
        issuance and sale of the Shares.
        
Item 6. Exhibits and Reports on Form 8-K

        (a)  Exhibits See exhibit index on page 21 for a list of the exhibits
             filed as part of this Quarterly Report on Form 10-Q, which exhibit
             index is incorporated herein by reference.

        (b)  Reports on Form 8-K The Company filed the following current Reports
             on Form 8-K during the three month period ended September 30, 1998:

             Current Report on Form 8-K, dated August 4, 1998, announcing the
             acquisition of Icom Systems Limited.

             Current Report on Form 8-K, dated August 10, 1998, announcing the
             issue of 835,545 shares of the Company's common stock to the
             stockholders of Icom Systems Limited in exchange for substantially
             all of the outstanding share capital of Icom.

             No financial statements were filed with such reports.

                                       19
<PAGE>
 
                                   SIGNATURES
--------------------------------------------------------------------------------

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

                                         KEANE, INC.
                                         (Registrant)



     November 12, 1998              /s/ John F. Keane
Date 
     --------------------------    -----------------------------------      
                                    John F. Keane
                                    President



     November 12, 1998              /s/ Wallace A. Cataldo
Date 
     --------------------------    -----------------------------------
                                    Wallace A. Cataldo
                                    Vice President, Finance

                                       20
<PAGE>
 
                                 EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER                     DESCRIPTION
--------------                     -----------                 
<S>               <C>                                                <C>
                  Restated Financial Data Schedules             
    27            For the three months ended March 31, 1996          Ex 27
    27.1          For the three months ended June 30, 1996           Ex 27-1
    27.2          For the three months ended September 30, 1996      Ex 27-2
    27.3          For the year ended December 31, 1996               Ex 27-3
    27.4          For the three months ended March 31, 1997          Ex 27-4
    27.5          For the three months ended June 30, 1997           Ex 27-5
    27.6          For the three months ended September 30, 1997      Ex 27-6
    27.7          For the year ended December 31, 1997               Ex 27-7
    27.8          For the three months ended March 31, 1998          Ex 27-8
    27.9          For the three months ended June 30, 1998           Ex 27-9
                                                                
                  Financial Data Schedule                       
27.10             For the three months ended September 30, 1998      Ex 27-10
 
</TABLE>