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                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
                            ------------------------
                                   FORM 10-K
 
       FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
(MARK ONE)
 
  /X/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934
 
                    FOR THE FISCAL YEAR ENDED MARCH 31, 1998
                                       OR
 
  / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934
 
         FOR THE TRANSITION PERIOD FROM               TO
 
                        COMMISSION FILE NUMBER: 0-27838
                            ------------------------
                              FORTE SOFTWARE, INC.
 
             (Exact name of registrant as specified in its charter)
 
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<S>                          <C>                       <C>
         DELAWARE                                                 94-3131872
      (State or other                 [LOGO]           (I.R.S. Employer identification
      jurisdiction of                                                No.)
     incorporation or
       organization)
</TABLE>
 
                1800 HARRISON STREET, OAKLAND, CALIFORNIA 94612
             (Address of principal executive offices and Zip Code)
 
       Registrant's telephone number, including area code: (510) 869-3400
        Securities registered pursuant to Section 12(b) of the Act: None
          Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value
                        Preferred Share Purchase Rights
                            ------------------------
 
    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 / /
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
 
    The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on May 31,
1998 as reported on the Nasdaq National Market System, was approximately
$86,922,345. Shares of Common Stock held by each officer and director and by
each person who owns 5 percent or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes. As of May 31, 1998 the Registrant had outstanding 19,716,873 shares of
Common Stock.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
    Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on August 19, 1998 are incorporated by
reference in Part III of this Form 10-K to the extent stated herein.
 
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                              FORTE SOFTWARE, INC.
                            1998 REPORT ON FORM 10-K
                               TABLE OF CONTENTS
 
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<CAPTION>
PART I
<S>        <C>                                                                                 <C>
Item 1.    Business..........................................................................          3
Item 2.    Properties........................................................................         26
Item 3.    Legal Proceedings.................................................................         26
Item 4.    Submission of Matters to a Vote of Security Holders...............................         26
 
PART II
Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters.............         27
Item 6.    Selected Financial Data...........................................................         27
           Management's Discussion and Analysis of Financial Condition and Results of
Item 7.      Operations......................................................................         29
Item 8.    Financial Statements and Supplementary Data.......................................         36
           Changes In and Disagreements with Accountants on Accounting and Financial
Item 9.      Disclosure......................................................................         36
 
PART III
Item 10.   Directors and Executive Officers of Registrant....................................         37
Item 11.   Executive Compensation............................................................         37
Item 12.   Security Ownership of Certain Beneficial Owners and Management....................         37
Item 13.   Certain Relationships and Related Transactions....................................         37
 
PART IV
Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K...................         38
Signatures...................................................................................         40
</TABLE>
 
                                       2
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                                     PART I
 
    THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WHICH
REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL
PERFORMANCE. IN THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVES," "EXPECTS,"
"INTENDS," "FUTURE," AND OTHER SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES, INCLUDING THOSE DISCUSSED IN "BUSINESS RISKS" BELOW AND IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR THOSE ANTICIPATED.
 
ITEM 1. BUSINESS
 
INTRODUCTION
 
    Forte Software, Inc. (the "Company") designs, develops, markets and supports
Forte, a software application development, deployment and management environment
for distributed enterprise applications, and related products. Forte was
designed to enable organizations to create applications with powerful
functionality that support up to hundreds or thousands of concurrent users with
high levels of reliability, performance and manageability. Forte reduces
complexity for developers by providing automatic application partitioning,
object-oriented, component-based development and independence from specific
hardware platforms, operating systems and databases. Forte's multi-tier
architecture increases developer productivity, business flexibility and the
efficient use of computing resources. Forte allows organizations to use
information technology ("IT") more strategically and improve their ability to
compete in today's business environment.
 
    Forte is marketed and sold through the Company's direct sales force,
distributors, system integrators and value added resellers in all major markets.
Forte has been adopted by customers in a wide variety of industries, including
banking, consumer/retail, education, energy, finance, government, healthcare/
pharmaceuticals, insurance, manufacturing, media, technology and
telecommunications.
 
INDUSTRY BACKGROUND
 
BUSINESS NEED FOR MORE POWERFUL APPLICATIONS
 
    In today's increasingly competitive global markets, businesses must rapidly
and continuously improve their operations. The strategic use of information
technology is often critical to making such improvements. Information systems
that automate simple tasks are no longer sufficient, as business entities are
demanding applications with increased levels of functionality to automate
complete business processes spanning across entire enterprises.
 
    The growing demand for more powerful, flexible and useable computer
applications presents major challenges to corporate IT organizations. These
organizations have historically not been able to keep up with the demand for
computer applications, and for the past several years they have been asked to
provide applications that are more powerful, easier to implement and use, and
more readily adaptable to rapidly changing business requirements. This challenge
has grown more complex recently with increased corporate use of the Internet for
many basic business functions. To meet these challenges, new application
development techniques and technologies are required.
 
PREVALENCE OF DISTRIBUTED COMPUTING
 
    While demand for more powerful applications has continued to grow, a
paradigm shift in computing architectures has continued at the same time, with
the proliferation of inexpensive PCs, the growth of the relational database
management system ("RDBMS") market, and the demand by end users for more
responsive information systems with access to enterprise-wide data and
applications. Many organizations began by shifting from mainframe or other
host-based environments to a two-tier model of computing.
 
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Traditionally, most organizations have processed their distributed business
critical applications in mainframe or other host-based computing environments.
These environments offer high levels of reliability, centralized management and
control, and scaleability for large numbers of concurrent users running
transaction-intensive applications. However, mainframe and other host-based
systems are inflexible, require lengthy development and maintenance cycles, and
are closely linked with rigid, character-based user interfaces. Partially as a
result of these limitations, much new application development began shifting to
client/server environments.
 
    The growth of the Internet as a means of delivering information and
conducting business has also begun to influence computing architectures. The
Internet has validated the multi-tier distributed computing model of desktop
applications communicating with application servers that talk with databases.
The PC, as the client, provides an easy-to-use interface which can include the
Internet or an intranet, and the RDBMS, as a database server, provides simple
and flexible information storage. Today, organizations want to combine the
usability and flexibility of the client/server and the Internet with the
robustness of the mainframe model, to create a new generation of distributed,
component-based applications.
 
CHALLENGES OF IMPLEMENTING DISTRIBUTED APPLICATIONS
 
    Many organizations that have attempted to build distributed applications
have concluded that many client/server tools do not provide sufficient
performance and manageability for business critical applications with large
numbers of concurrent users or high transaction volumes, and are not suitable
for Internet use. Performance and manageability are limited because all the
application logic resides on the client. Performance is compromised because this
architecture requires large amounts of data to be sent over the network from the
server to the client for such business needs as investment portfolio analysis or
complex order processing. A more efficient approach would be to perform the
analysis on the server where the data is located so that only the results of the
analysis would be sent over the network. Manageability is limited because
application updates need to be deployed on each client PC rather than on a
single server.
 
    To overcome these and other limitations, many organizations have sought to
augment these tools with complex server programming in C or C++ and stored
procedures in relational databases, along with the integration of transaction
processing monitors or other "middleware" to connect the clients and servers.
Some users seeking robust, scaleable Internet applications have also utilized
newer Web-based tools and application servers with such server programming and
middleware. Such approaches, however, introduce substantial complexity and
require technical expertise in a myriad of hardware, software, database,
networking and other technologies. Even where such expertise does exist
in-house, or where it can be obtained through a system integrator, the
complexity, cost and effort of building and maintaining applications with
several different tools is often prohibitive.
 
MARKET OPPORTUNITY
 
    The Company believes that (1) a comprehensive, integrated and distributed
application development, deployment and management environment is required for
the widespread adoption of the distributed computing model, and (2) in
particular, such an environment is required to simplify the development and
deployment of robust, scaleable Internet applications. To be successful, such an
environment must:
 
    - Reduce complexity--Allow programmers to focus on the business rules rather
      than the complex technical details involved in building and maintaining
      distributed applications.
 
    - Enable advanced applications--Enable programmers to rapidly create and
      easily modify applications with more powerful functionality to meet more
      demanding business requirements.
 
    - Provide distributed application support--Enable high levels of
      reliability, performance and manageability for deployed Internet and
      non-Internet applications.
 
                                       4
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    An application environment that addresses these requirements will enable
businesses to more effectively address the challenges and rapidly changing
requirements of today's competitive environment.
 
THE FORTE SOLUTION
 
    The Company was founded with the belief that the implementation of
distributed applications requires dramatically different approaches from those
offered by previously available technologies. As a result, the Company designed
and developed Forte, an application development, deployment and management
environment that enables organizations to effectively create distributed
applications. Applications built with Forte can provide new and advanced
functionality to enable a more competitive use of information technology, can be
easily modified as business requirements or the technical infrastructure evolve,
and can provide the high levels of reliability, performance and manageability
required for distributed applications. Forte offers the following features and
benefits:
 
REDUCED COMPLEXITY
 
    APPLICATION PARTITIONING.  With Forte, programmers develop an application as
if it were to run on a single system even though it may be deployed on multiple
hardware platforms, operating systems, RDBMSs and networks. Following
development, Forte automatically PARTITIONS, or splits apart, the application,
placing the appropriate application logic on the appropriate system. By using
application partitioning to automate the distribution of application logic,
Forte significantly reduces the complexity of creating distributed applications.
 
    By correctly partitioning an application, Forte can substantially reduce
network traffic, enabling applications to run faster and scale better.
Partitioning also improves the management of applications because business rules
can be enforced centrally on a server rather than on each user's desktop
computer. This allows organizations to update business rules in one place,
simplifying change management and ensuring consistency.
 
    TECHNOLOGY INDEPENDENCE.  Forte allows organizations to develop applications
that are independent of specific hardware, software, networking and other system
components. Decisions regarding the selection of such components do not have to
be finalized until deployment. Technology independence also allows customers to
add or replace hardware or software to take advantage of emerging technologies
without having to rewrite their applications. To enable these capabilities,
Forte supports popular hardware platforms, operating systems, RDBMSs, networking
equipment and other connectivity software.
 
    OBJECT-ORIENTED DEVELOPMENT.  Forte's fully object-oriented development
environment makes it easier to model the business, simplifies ongoing
application maintenance and allows organizations to reuse application functions.
With Forte, developers build high-level objects, commonly referred to as
application services, that represent business processes such as a credit check
function. This close mapping between the business and the application
architecture enables IT personnel to more easily design, maintain and reuse
application services. Forte's easy to learn development language allows
programmers to focus on the business logic rather than complex technical
details.
 
ADVANCED APPLICATIONS
 
    MULTI-TIER DISTRIBUTED ARCHITECTURE.  Forte enables advanced applications to
be built as a set of components. Small development teams can be assigned to
develop each component, and the Forte environment will assure that the
components work together in a multi-tier architecture. Client components request
actions from application services that, in turn, access one or more data
sources. Shared application services are installed on one or more servers so
they can be accessed simultaneously by multiple users. Once a shared service is
developed and deployed, it can be reused in different applications. Shared
application services enhance developer productivity through reuse, ease of
maintenance provided by the
 
                                       5
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modular architecture and increased consistency created by providing the same
view of the business to multiple applications.
 
    BUSINESS EVENT NOTIFICATION.  Forte incorporates an event model by which any
component of an application can notify any other component of significant
business occurrences that might call for immediate action by users and/or
application services. By immediately and automatically responding to important
events, businesses can rapidly resolve problems or take advantage of new
opportunities.
 
DISTRIBUTED APPLICATION SUPPORT FOR INTERNET AND NON-INTERNET APPLICATIONS
 
    PERFORMANCE.  Forte achieves high levels of performance for large numbers of
concurrent users. In addition to application partitioning, which reduces network
traffic, Forte employs various other techniques to improve performance, such as
multi-threading server requests to increase server throughput, compiling code to
improve server response time, caching system information to reduce network
traffic and replicating application services to handle a greater load.
 
    RELIABILITY.  Forte employs a number of technologies to provide high levels
of reliability and eliminate single points of failure. For example, if a server
or network fails, backup servers can be specified to automatically assume the
workload. In addition, Forte incorporates transaction support to provide
application consistency in case a transaction is aborted.
 
    MANAGEABILITY.  Forte incorporates many management capabilities for the
deployment of distributed applications. Forte provides a performance monitor to
report on key performance statistics, a configuration manager to insure that all
the distributed components of an application are at a compatible level, an
environment console to manage the environment and an interface to third-party
systems management tools such as the Tivoli Management Environment. These
management capabilities are critical to the successful implementation of
distributed applications.
 
STRATEGY
 
    The Company's objective is to establish Forte as the standard environment
for the development, deployment and management of distributed applications. The
Company's strategy incorporates the following key elements:
 
    EXPAND GLOBAL SALES CAPABILITIES.  The Company intends to expand its
domestic and international sales capabilities by increasing the direct sales
organization in major markets and continuing to leverage distributors in other
selected markets. The Company has direct operations in Australia, Belgium,
Canada, France, Germany, Netherlands, Switzerland, the United Kingdom and the
U.S.
 
    LEVERAGE THIRD-PARTY RELATIONSHIPS.  The Company seeks to promote the
widespread adoption of Forte through the establishment of close relationships
with systems integrators, value-added resellers, and development partners. As
noted above, an increasing share of Forte's customers and prospects enlist the
assistance of these partners in implementing distributed applications. To date,
the Company has established and actively maintains many relationships with such
third parties and intends to establish additional relationships. The Company has
established a Partner Group within its sales organization dedicated to this
objective.
 
    PROMOTE SUCCESSFUL CUSTOMER IMPLEMENTATION.  The Company's success is
dependent upon its customers' successful implementation of distributed
applications using Forte. As a result, the Company actively advises on customer
development and deployment efforts. The Company assigns an account management
team, provides extensive introductory and advanced training courses, offers
advanced consulting services and provides extensive post-sale support to
customer accounts.
 
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    EXTEND TECHNOLOGICAL LEADERSHIP.  The Company pioneered the use of
application partitioning and shared application services for multi-tier,
distributed applications. The Company has extended this technology, along with
production workflow capabilities, to the Internet in order to support
browser-based access to mission-critical business functions written in Forte.
The Company intends to commit substantial resources to extend its technology in
the areas of open language support, open component support and open
communications. The Company is currently pursuing a number of development
initiatives which are intended to allow development and deployment of Forte
applications using HTML, Java, components, and the mainframe.
 
    THE FOREGOING STATEMENTS REGARDING THE COMPANY'S STRATEGY, EXPECTATIONS AND
INTENTIONS ARE FORWARD-LOOKING STATEMENTS, AND ACTUAL RESULTS MAY VARY
SUBSTANTIALLY DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THE DEVELOPMENT OF
EMERGING MARKETS FOR DISTRIBUTED APPLICATION DEVELOPMENT SOFTWARE, COMPETITION,
TECHNOLOGICAL CHANGE, CHANGING CUSTOMER NEEDS, EVOLVING INDUSTRY STANDARDS, ANY
PRODUCT DEVELOPMENT DELAYS, AND THE ABILITY OF THE COMPANY TO MANAGE ANY FUTURE
GROWTH AND NEW DISTRIBUTION CHANNELS. THERE CAN BE NO ASSURANCE THAT ANY NEW
PRODUCTS WILL BE COMPLETED IN A TIMELY BASIS OR THAT MARKETS WILL DEVELOP FOR
SUCH PRODUCTS. SEE THE "BUSINESS RISKS" SECTION BELOW.
 
PRODUCTS
 
    Forte is a collection of products used for the development, deployment and
management of distributed applications. Forte includes tools for developing
applications that are independent of any vendor-specific deployment environment,
generating systems for specific hardware platforms and supporting distributed
deployments.
 
FORTE APPLICATION ENVIRONMENT
 
    The Forte Application Environment is comprised of three separate facilities
for application definition, system generation, and deployment.
 
    Developers define the application's functionality using an integrated set of
object-oriented software tools including a graphical user interface ("GUI")
designer, an object-oriented fourth generation language ("4GL"), a comprehensive
set of class libraries, a repository to support team development, and interfaces
with external systems such as legacy applications and electronic data feeds.
 
    For system generation, Forte partitions the application into a specific
deployment environment. Forte provides a tool for defining the hardware in the
environment. Using this environment information, Forte automatically maps the
application to a specific set of hardware platforms, automatically deploys the
code to these platforms and establishes efficient communications among the Forte
components.
 
    For deployment, Forte supports a robust distributed execution environment,
including a scaleable communications infrastructure, fail-over, load balancing,
parallel processing, and an application management console for managing the
deployed application.
 
    On the desktop, Forte supports Windows, Windows NT, Macintosh, Motif,
Netscape Navigator and Microsoft Explorer. Forte supports the leading open
systems server platforms including Data General AViiON, Digital Alpha Open VMS
and UNIX, Digital VAX Open VMS, HP 9000, IBM RS/6000, Sequent Symmetry, Sun
SPARC, and Windows NT. Forte also supports the leading RDBMSs including
DB2/6000, Informix, Ingres, Microsoft SQL Server, Oracle, Rdb and Sybase as well
as the Microsoft ODBC interface.
 
    In August 1997, the Company began shipping Forte Release 3.0, which adds
integration with Java, desktop and mainframe platforms, as well as new features
to improve the management and performance of distributed applications.
 
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FORTE EXPRESS
 
    In March 1996, the Company began shipping Forte Express, an optional
application generator designed for use with Forte. Forte Express can
significantly reduce development time by automatically generating a three-tier
application. Forte Express developers use simple models and a drag-and-drop
development style to create client user interface components that are portable
across multiple platforms, a framework for implementing business policies as
shared Forte services and database access. The default user interface window
definitions generated by Forte Express include window layouts, menus and buttons
and can be later modified in Forte. Any customizations are preserved if the
application is later modified in Forte Express.
 
FORTE WEBENTERPRISE
 
    In June 1996, the Company shipped the Forte Web SDK, and in December 1997
the Company began shipping the follow-on product, Forte WebEnterprise, which
enables World Wide Web ("Web") access to the Forte environment. Forte
WebEnterprise enables Web browsers to function as Forte clients with full access
to the Forte environment. Forte WebEnterprise provides organizations with the
facilities they need to rapidly deploy Web-accessible, business-critical
applications, such as order processing, without duplicating existing systems.
The product supports major Internet standards including IIOP, Java, HTTP, CGI,
NSAPI, and ISAPI, across multiple operating systems, platforms and databases.
 
FORTE CONDUCTOR
 
    In September 1997, the Company began shipping Forte Conductor, a production
workflow environment for automating mission-critical business processes. With
Forte Conductor, developers use an intuitive graphical process designer to
define business processes which, in turn, are managed at runtime by a
distributed, fault-tolerant workflow engine. Forte Conductor also provides an
easy way to track and analyze the status of work in progress. Forte Conductor
can be used with Forte and/or non-Forte applications.
 
    The Company licenses its software for both development and deployment.
Development license fees are based upon the number of developers and the
complexity of the development environment. Forte deployment licenses are based
upon the number of concurrent users, and the number of servers that will be
running Forte components. Similarly, Forte Conductor deployment licenses are
based on the number of deployment sessions, and the number of engines that will
be running Forte Conductor components. A Forte core system, with a U.S. list
price of $75,000, includes five developer licenses, ten concurrent user
licenses, and support for a single GUI, server and RDBMS. A Forte Conductor core
system, when purchased with Forte, carries a U.S. list price of $50,000 and
includes five developers and a development engine. A typical initial direct sale
to an end-user customer ranges from $200,000 to $300,000. This includes separate
pricing for development and initial deployment licenses, maintenance, training
and consulting services.
 
TECHNOLOGY
 
APPLICATION PARTITIONING
 
    In order to partition an application, Forte analyzes the application
definition that is stored in the development repository and maps it into a
specific target deployment environment using a description of each machine that
is also stored in the repository. The partitioning process involves splitting
apart the application and targeting the presentation components for the
available clients and shared business logic for the available servers.
Application components that access an external resource, such as an RDBMS, are
placed on the machine where the external resource resides. The partitioning
process also involves converting the environment-neutral definition of each
component into an environment-specific implementation. This produces GUI/browser
screens for each desktop machine by using that client's native toolkit
 
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and converts RDBMS-neutral database access commands into efficient instructions
for accessing a specific target RDBMS. Once a partitioning scheme is selected,
Forte moves the application components from the repository to the appropriate
machines in the environment. This distribution of application code is done at
the 4GL level (often called dynamic partitioning), allowing developers to easily
test the application after it has been partitioned, while still providing the
option to subsequently generate C++ code that can be compiled into machine code
(often called static partitioning) for optimizing deployment performance. Forte
also enables developers to easily modify the default partitioning scheme using
simple drag-and-drop commands on a map that displays the components comprising
each partition and the location of each partition.
 
SHARED APPLICATION SERVICES
 
    Two enabling technologies permit a single copy of an application service to
be simultaneously accessible by multiple clients in a multi-tier application
architecture. First, Forte multi-threads connections by multiple users, queues
requests and efficiently manages the processing of the queue. Second, Forte
provides concurrency control to keep users from interfering with each other's
work. In addition, Forte assists with managing the shared application services
by providing configuration management, system monitoring and operational
controls.
 
BUSINESS EVENT NOTIFICATION
 
    Forte uses asynchronous events to notify an application component of
significant business occurrences that might call for immediate action by users
and/or application services. Forte supports a publish-and-subscribe event model.
When a Forte application component is interested in a particular event, it
registers its interest with a simple statement. When the event occurs, Forte
automatically sends a notification of the event to all components that have
registered an interest in that event. This event model obviates the need for
polling and, in contrast to the broadcast event model, it only sends the event
notification to those components that are interested in processing the event,
thereby reducing network traffic. Forte's asynchronous communication support
includes a multi-threading model to enable Forte application components to
process the arrival of an event even if it is processing another application
task at the time.
 
INTEGRATION
 
    For desktop integration, Forte users can leverage work in other personal
productivity applications by using Microsoft Active X/DCOM to both import and
export information. For example, users can enter data in a Forte application and
have it automatically update a spreadsheet. Forte offers integration options via
Java Beans or CORBA/IIOP whereby external clients and servers can interoperate
with Forte services. Forte can both call external programs and be called by
external programs. Forte also provides several options for integrating with
mainframes using third-party tools. In addition to these automated interfaces,
Forte facilitates external integration through a general purpose wrappering
facility. This can be used to encapsulate an external service, such as a
real-time data feed or an existing application, and treat it as a Forte
component. These capabilities allow organizations to assemble new applications
from existing Forte and non-Forte components, thereby leveraging other IT
investments.
 
REPLICATION
 
    For increased reliability and performance, Forte can replicate application
services onto multiple servers and use them for either fail-over or
load-balancing. In fail-over mode, Forte will automatically redirect requests to
the backup server whenever the primary application service is unavailable. In
load-balancing mode, Forte can allocate service requests across multiple copies
of an application service as a way to increase scaleability.
 
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SUPPORT FOR TRANSACTIONS
 
    Forte incorporates transaction support within the application. This can be
used to automate the synchronization of the client component, the application
service components and the data management component of an application. By
automating transaction consistency across all components of a multi-tier
application, Forte simplifies the work of developers and provides for greater
reliability of the application.
 
RAPID APPLICATION DEVELOPMENT AND OPTIONAL CODE GENERATION
 
    By separating the development process from deployment, Forte can support
both rapid application development ("RAD") via an interpretive development
environment and optimal deployment performance via the generation of C++ code,
which is compiled into machine code. During development, Forte supports an
interpretive environment in which the Forte 4GL source code is compiled into an
intermediate pseudo-code that runs with the Forte interpreter. This approach is
similar to most RAD tools that allow developers to rapidly test and view code
without having to go through a lengthy compile and link cycle. When Forte
partitions the application, it partitions at the pseudo-code level, thereby
allowing the developer to test the distributed application quickly. If the
application needs to be repartitioned frequently, it can be deployed using the
pseudo-code. For deployments that call for maximum runtime performance, Forte
generates C++ code that is subsequently compiled using the native C++ compiler
on each target computer. This option is available on a partition by partition
basis.
 
CUSTOMERS AND MARKETS
 
    The Company's targeted end-user customers include organizations that utilize
sophisticated, distributed information systems with numerous users and diverse,
heterogeneous operating systems and databases. As of March 31, 1998, over 310
end-user customers have licensed Forte, including Andersen Windows, Bank of
America, Barclays, BellSouth Communication Systems, Blue Cross Blue Shield of
Texas, British Telecom, British Steel, Corning, EDS, Eli Lilly, Fox, Inc.,
General Motors Acceptance Corp., Goodyear, Hewlett-Packard Company, Home Box
Office, Kawasaki Steel, Lufthansa Systems, Marriott International, Mitsui Trust
Bank, Merrill Lynch Canada, Montreal Exchange, Online Resources &
Communications, Pacific Bell Information Services, Pacific Gas & Electric
Company, Paging Network, Philip Morris, Purolator, Reuters, Telecom Italia
Mobile, Thomas Cook, TransCanada Pipelines, USAA, U.S. West Communications,
World Bank and Xerox.
 
    No customer accounted for more than ten percent of the Company's total
revenues for the fiscal years ended March 31, 1996 or 1998. However, revenues
from U.S West Communications, Inc. accounted for approximately 12 percent of
total revenue in fiscal year 1997.
 
SALES AND MARKETING
 
    Forte markets its software and services through its direct sales
organization, complimented by third-party sales and referral channels including
international distributors, system integrators and value added resellers.
 
    DIRECT SALES.  As of March 31, 1998, the Company's direct sales force
included 63 sales representatives located throughout the United States and in
international sales offices in Australia, Belgium, Canada, Germany, France,
Holland, Switzerland, and the United Kingdom. The Company intends to expand its
overseas direct sales and support organizations but at a slower growth rate than
in prior years.(See "Management's Discussion and Analysis of Financial Condition
and Results of Operations").
 
    The Company uses a consultative sales model for selling to major accounts.
This model entails the collaboration of technical and sales personnel to
formulate proposals that address the specific requirements of the customer. Due
to the importance of business-critical distributed applications, the Company
 
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focuses its initial sales efforts on senior IT department personnel and other
members of the customer's management team.
 
    THIRD-PARTY CHANNELS.  A key element in Forte's sales and marketing strategy
is the continued expansion of third-party relationships to increase market
awareness and acceptance of Forte. The goal is to deliver complete customer
solutions; therefore, Forte partners with industry-leading companies.
 
    Delivering complete customer solutions requires a broad range of
capabilities. Forte's partners help satisfy these needs by providing territorial
sales focus, on-going development of Forte products, integration with
complementary products, availability of pre-packaged vertical solutions or
pre-built pieces of code, or additional Forte-knowledgeable resources.
 
    DISTRIBUTORS.  As of March 31, 1998, the Company was also represented by 20
international distributors (covering 25 countries), which principally operate in
markets where the Company does not have a direct sales organization. The Company
has also licensed Digital Equipment Corporation ("Digital") to resell Forte on a
worldwide basis.
 
    VALUE-ADDED RESELLERS.  Value-Added Resellers leverage Forte technology by
delivering packaged business applications usually targeted at vertical markets.
These packaged solutions are a good fit for customers looking for robust,
function-rich systems who do not want to develop the entire systems themselves.
Customers are able to enjoy the benefits of Forte's technology and have an
off-the-shelf solution at the same time.
 
    Forte's products have several advantages as a solution for value-added
resellers. These advantages allow resellers to focus on the business
functionality and needs of the vertical market they want to address, regardless
of the technical issues associated with building their application for a variety
of different systems. Forte's platform and technology independence lets the
customer choose vertical applications which best fit their needs instead of
choosing applications because they can run in their existing IS infrastructure.
A larger potential customer base is available to resellers for this same reason.
 
    As of March 31, 1998, the Company has licensed Forte to over 70 value-added
resellers, including Asyst Software, Bellcore, Chordiant Software, Descartes
Systems, EXE Technologies, Home Account Network, Metrix, Pan Credit, and QAD.
 
    SYSTEMS INTEGRATORS AND CONSULTANTS.  Participants in the Company's
Consulting Partner program represent a ready pool of trained and experienced
Forte systems integrators, developers and consultants. These companies deliver a
broad range of services to Forte customers, including development and
implementation of custom Forte-based applications, and delivery of turnkey
integrated systems. Industry analyst data and the Company's own experience
indicate that a growing share of the Company's target market relies on systems
integrators for the design, development and implementation of enterprise and
departmental IS initiatives. The Company's consultants often advise these
partners at the customer sites on how to best design and build Forte
applications. The resulting applications satisfy each customer's unique business
requirements.
 
    As of March 31, 1998, the Company had enlisted over 75 Consulting Partners,
including Andersen Consulting, CSC, Digital, EDS, IBM, KPMG Peat Marwick,
Lockheed/Martin IMS, Price Waterhouse, SAIC, and Siemens.
 
                                       11
<PAGE>
TECHNOLOGY PARTNERS
 
    DEVELOPMENT PARTNERS.  Several leading multi-national companies have worked
closely with Forte to help develop and extend the Company's technology. Apple
Computer Systems, Inc., Data General Corp., Digital Equipment Corp., IBM Corp.,
Mitsubishi, and Sequent Computer Systems, Inc. have all sponsored major joint
engineering activities with Forte. Many of these relationships date from the
Company's early days and demonstrate confirmation and adoption of its technology
capabilities and direction.
 
    The Company has a license and development agreement with Digital, under
which Digital is granted a worldwide, non-exclusive, royalty-bearing license to
distribute Forte, to modify and integrate Forte into Digital products, and to
use Forte source code for development, maintenance and support.
 
    The Company also has a license and development agreement with Sirius Inc., a
wholly-owned subsidiary of the Mitsubishi Corporation ("Sirius"), under which
Sirius serves as the exclusive Japan-based distributor of Forte solely within
Japan and is granted the right to use Forte source code to develop and maintain
a Japanese version of Forte.
 
    In May 1997, the Company entered into an agreement with IBM for assistance
in the development of Forte for OS/390, an extension of Forte to the mainframe
environment. This product, which remains under development, is intended to
enable customers to deploy Forte applications on IBM S/390 servers and integrate
such applications with existing S/390 data and resources.
 
    INTEGRATION WITH COMPLIMENTARY TECHNOLOGIES.  Forte has also forged strong
relationships with industry-leading companies whose products complement the
Forte product set. These relationships further simplify the complexities of
distributed application development. These partners help implement Forte's
vision of open integration by allowing customers to choose products which best
fit their particular needs.
 
    This array of complementary products provide new, unique functionality as
well as capabilities which supplement and deepen features already in the Forte
product set. Through these relationships, Forte customers have a wide range of
choices of databases, object oriented CASE tools, middleware, report writers,
security tools, system management tools, and testing tools.
 
    COMPONENT PROVIDERS.  Component Providers use Forte to deliver pre-built
pieces of applications. The use of components for application development is
growing rapidly since purchasing components can be an easier and less expensive
solution than building them from scratch. While not complete systems, these
pre-built subassemblies help speed the development process for Forte customers
since developers do not have to start from scratch. These robust components,
which are easily built in Forte or other tools, are then integrated into Forte
applications.
 
CUSTOMER SERVICE AND SUPPORT
 
    The Company believes that a high level of customer support is important to
the successful marketing and sale of Forte. Substantially all of the Company's
customers purchase maintenance and support contracts, which typically have
twelve-month terms and entitle the customers to upgrades, if and when available,
and technical support. In addition, the Company offers introductory and advanced
classes and training programs available at the Company's headquarters, local
training centers and customer sites. Telephone hotline support is complemented
by a bulletin board system that provides a repository for technical tips and
skills. Users of Forte can also attend an annual user group conference where
knowledge of Forte skills and solutions is exchanged.
 
    The Company's consulting organization provides a full range of consulting
services to customers developing and deploying distributed applications with
Forte. Such consulting services are offered to promote the successful
development and deployment of applications built with Forte, and include
prototyping assistance, mentoring and technology transfer, Forte methods,
analysis and design assistance and performance tuning. Fees charged for
consulting services vary depending on the nature and quantity of services to be
performed. Multi-day consulting workshops are also offered on selected topics of
key interest to customers. The Company believes that the availability of
effective consulting services is an important factor in achieving widespread
market acceptance.
 
                                       12
<PAGE>
PRODUCT DEVELOPMENT
 
    The Company believes that its future success will depend in large part on
its ability to enhance Forte, develop new products, maintain technological
leadership and satisfy an evolving range of customer requirements for a
distributed application environment. The Company's product development
organization is responsible for product architecture, core technology and
functionality, product testing, user interface development and expanding the
ability of Forte to operate with the leading hardware platforms, operating
systems, relational database management systems and networking and communication
protocols. This organization is also responsible for new product development.
 
    Since inception, the Company has made substantial investments in product
development and related activities. Forte has been developed primarily by the
Company's internal development staff and, in some instances, with the assistance
of external consultants. Certain technologies have been acquired and integrated
into Forte through licensing arrangements.
 
    As of March 31, 1998, the Company's product development organization
consisted of 93 employees. In the fiscal years ended March 31, 1998, 1997 and
1996, product development expenses were $15.0 million, $10.6 million and $8.1
million, respectively. To date, the Company has not capitalized any software
development costs and does not anticipate capitalizing any software development
costs in connection with future releases of Forte or other products. See Note 1
of Notes to Consolidated Financial Statements.
 
    The Company expects to continue to devote substantial resources to its
product development activities, with particular focus in the areas of open
language support, open component support and open communications. The Company
also plans continued support of existing and emerging hardware platforms,
operating systems, relational database management systems and networking
communication protocols. The Company is currently pursuing a number of
development initiatives which are intended to allow development and deployment
of Forte applications using HTML, Java, components, and the mainframe.
 
COMPETITION
 
    The market for distributed software used in the development, deployment and
management of distributed applications is intensely competitive and
characterized by rapidly changing technology, evolving industry standards,
frequent new product introductions and rapidly changing customer requirements.
Distributed applications that can be developed and deployed using the Company's
Forte environment can also be implemented by integrating a combination of
application development tools and more powerful server programming techniques
such as stored procedures in relational databases and C or C++ programming,
along with networking and database middleware to connect the various components.
As such, the Company effectively experiences its primary competition from
potential customers' decisions to pursue this type of approach as opposed to
utilizing an application environment such as Forte. As a result, the Company
must continuously educate existing and prospective customers, and third-party
systems integrators on whom prospective customers are increasingly relying for
expertise, on the advantages of the Company's products over the approach of
integrating a combination of products. There can be no assurance that these
customers, potential customers or systems integrators will perceive sufficient
value in the Company's products to justify purchasing or recommending Forte
products.
 
    The Company has also experienced and expects to continue to experience
increased competition from a number of vendors that market software products
specifically targeted for building distributed applications. Actual and
potential competitors include: providers of application development software,
such as Compuware/Uniface, Dynasty Technologies, Inc., IBM, Microsoft
Corporation, NAT Systems, Inc., Oracle Corporation, Seer Technologies, Inc.,
Sterling Software, Inc., and the Powersoft unit of Sybase, Inc.; web-based
development tools targeting production enterprise Internet applications;
middleware companies advocating a middleware-centric approach to building
enterprise applications; developers of packaged applications and application
components, templates and frameworks; and integration software vendors.
 
    Many of these competing vendors have or will have significantly greater
financial, technical, marketing and other resources than the Company, and may be
able to respond more quickly to new or emerging
 
                                       13
<PAGE>
technologies. Also, many current and potential competitors have greater name
recognition and more extensive customer bases that could be leveraged, thereby
gaining market share to the Company's detriment. The Company expects to face
additional competition as other established and emerging companies enter the
distributed application development market and new products and technologies are
introduced. Increased competition could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share, any of which
could materially and adversely affect the Company's business, operating results
and financial condition. In addition, current and potential competitors may make
strategic acquisitions or establish cooperative relationships among themselves
or with third-parties, thereby increasing the ability of their products to
address the needs of the Company's prospective customers. Accordingly, it is
possible that new competitors or alliances among current and new competitors may
emerge and rapidly gain significant market share. Such competition could
materially and adversely affect the Company's ability to sell additional
licenses and maintenance and support renewals on terms favorable to the Company.
Further, competitive pressures could require the Company to reduce the price of
Forte licenses and related products and services, which could materially and
adversely affect the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
would have a material adverse effect upon the Company's business, operating
results and financial condition.
 
    The principal competitive factors affecting the market for Forte are ease of
application development, deployment and management functionality and features,
product architecture, product performance, reliability and scaleability, product
quality, price and customer support. The Company believes it presently competes
favorably with respect to each of these factors. However, the Company's market
is still evolving and there can be no assurance that the Company will be able to
compete successfully against current and future competitors and the failure to
do so successfully will have a material adverse effect upon the Company's
business, operating results and financial condition.
 
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
 
    The Company relies primarily on a combination of patent, copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company also believes that
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are essential to establishing and maintaining a
technology leadership position. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. The Company currently has one issued
United States patent that expires in 2012 and corresponding patent applications
pending in Canada, Australia, Japan and several member countries within the
European Patent Organization. There can be no assurance that the Company's
patent will not be invalidated, circumvented or challenged, that the rights
granted thereunder will provide competitive advantages to the Company or that
any of the Company's pending or future patent applications, whether or not being
currently challenged by applicable governmental patent examiners, will be issued
with the scope of the claims sought by the Company, if at all. Furthermore,
there can be no assurance that others will not develop technologies that are
similar or superior to the Company's technology or design around the patents
owned by the Company. The Company has obtained registration of the FORTE
trademark in two countries and has trademark registration applications pending
in numerous additional countries. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights as fully as do the laws of the United States. There
can be no assurance that the Company's means of protecting its proprietary
rights in the United States or abroad will be adequate or that competition will
not independently develop similar technology. The Company has
 
                                       14
<PAGE>
entered into source code escrow agreements with a limited number of its
customers and resellers requiring release of source code in certain
circumstances. Such agreements generally provide that such parties will have a
limited, non-exclusive right to use such code in the event that there is a
bankruptcy proceeding by or against the Company, if the Company ceases to do
business or if the Company fails to meet its support obligations. In addition,
Digital and Sirius each currently possesses copies of Forte source code for
certain limited purposes, subject to the terms of separate written agreements
each company has entered into with the Company. Digital has an option to
purchase a non-exclusive, fully-paid license of the Forte source code. Digital's
option becomes exercisable if the Company is acquired and the acquiror fails to
agree to assume the Company's contractual obligations to Digital. The provision
of source code may increase the likelihood of misappropriation by third-parties.
 
    The Company is not aware that it is infringing any proprietary rights of
third-parties. There can be no assurance, however, that third parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to license the infringed or similar
technology, the Company's business, operating results and financial condition
would be materially and adversely affected.
 
    The Company relies upon certain software that it licenses from
third-parties, including software that is integrated with the Company's
internally developed software and used in Forte to perform key functions. There
can be no assurance that these third-party software licenses will continue to be
available to the Company on commercially reasonable terms. The loss of, or
inability to maintain, any such software licenses could result in shipment
delays or reductions until equivalent software could be developed, identified,
licensed and integrated which would materially and adversely affect the
Company's business, operating results and financial condition.
 
EMPLOYEES
 
    As of March 31, 1998, the Company had a total of 445 employees, including 93
in product development, 53 in technical support, 251 in sales and marketing and
related customer support services and 48 in administration. Of these employees,
325 were located in the United States, 102 were located in Europe, 11 were
located in Australia and 7 were located in Canada. None of the Company's
employees are represented by a collective bargaining agreement, and the Company
has never experienced any work stoppage. The Company considers its relations
with its employees to be good.
 
    The Company's success depends to a significant degree upon the continuing
contributions of its key management, sales, marketing, customer support and
product development personnel. The loss of key management or technical personnel
could adversely affect the Company. The Company believes that its future success
will depend in large part upon its ability to attract and retain highly-skilled
managerial, sales, customer support and product development personnel. The
Company has at times experienced and continues to experience difficulty in
recruiting and retaining qualified personnel. Competition for qualified software
development, sales and other personnel is intense, and there can be no assurance
that the Company will be successful in attracting and retaining such personnel.
In addition, the Company intends to continue to expand its international direct
sales force. There can be no assurance that the Company can retain its existing
sales personnel or that it can attract, assimilate and retain additional highly
qualified sales personnel in the future. Competitors and others have in the past
and may in the future attempt to recruit the Company's employees. Failure to
attract and retain key personnel could have a material adverse effect on the
Company's business, operating results and financial condition.
 
                                       15
<PAGE>
EXECUTIVE OFFICERS
 
    The executive officers and directors of the company, and their ages as of
May 31, 1998, are as follows:
 
<TABLE>
<CAPTION>
NAME                                         AGE                                   POSITION
---------------------------------------      ---      -------------------------------------------------------------------
<S>                                      <C>          <C>
Martin J. Sprinzen.....................          49   President, Chief Executive Officer and Chairman of the Board of
                                                        Directors
Michael Hedger.........................          46   Executive Vice President, Worldwide Field Operations
Paul Butterworth.......................          47   Senior Vice President and Chief System Architect
Bob L. Corey...........................          46   Senior Vice President, Finance & Administration, Chief Financial
                                                        Officer and Secretary
David Taber............................          42   Senior Vice President, Marketing
James Wambach..........................          44   Senior Vice President, Sales-North America
Christos M. Cotsakos...................          49   Director
Thomas A. Jermoluk.....................          41   Director
William H. Younger, Jr.................          48   Director
</TABLE>
 
    MARTIN J. SPRINZEN co-founded the Company in February 1991 and has served as
its President, Chief Executive Officer and Chairman of the Board of Directors
since inception. Mr. Sprinzen also served as the Company's Secretary from
inception to January 1996. From May 1988 to November 1990, Mr. Sprinzen was
employed by Ingres Corp., an RDBMS company, as Executive Vice President,
International Operations. From October 1986 to May 1988, Mr. Sprinzen was
President and Chief Executive Officer of NASTEC, Corp., a computer-aided
software engineering company. From July 1984 to October 1986, Mr. Sprinzen was
employed by Ingres Corp. as Vice President, Engineering. From December 1979 to
June 1984, Mr. Sprinzen was employed by Candle Corp., a mainframe software
management tools company, where his last position was Vice President,
Technology. Mr. Sprinzen holds a B.S. degree in electrical engineering from The
Cooper Union.
 
    MICHAEL HEDGER has served as Executive Vice President, Worldwide Field
Operations since April 1998. From September 1995 to March 1998 Mr. Hedger served
as Senior Vice President, European Operations, and Managing Director-U.K. where
he had served since September 1995. From September 1994 to May 1995, Mr. Hedger
was employed by Oracle Corporation, a database software company, where his last
position was Vice President, Marketing Operations for Europe, the Middle East
and Africa. From May 1989 to July 1994, Mr. Hedger was employed by The ASK
Group, Inc., a database tools and applications company, most recently as
Managing Director of the UK subsidiary and Northern Europe. Mr. Hedger holds a
degree in business studies from Sheffield Polytechnic and a post-graduate degree
in marketing studies from Kingston Polytechnic.
 
    PAUL BUTTERWORTH has served as Senior Vice President and Chief System
Architect of the Company since March 1991. From September 1990 to March 1991,
Mr. Butterworth was employed by Servio Corp., a manufacturer of object-oriented
database management systems, most recently as Vice President, Engineering. From
September 1980 to September 1990, Mr. Butterworth was employed by Ingres Corp.
where he served as Vice President, Engineering, and Chief Scientist. Mr.
Butterworth holds a B.S. degree and an M.S. degree in information and computer
science from the University of California, Irvine.
 
    BOB L COREY, was appointed Senior Vice President of Finance and
Administration and Chief Financial Officer in May 1998. Prior to joining Forte,
Mr. Corey was Executive Vice President and Chief Financial Officer of SyQuest
Technology Inc., a provider of removable storage solutions, from July 1997 to
April 1998. Prior to that Mr. Corey was Vice President and Chief Financial
Officer of Primavera Systems, a provider of project management software and
services for PC's from April 1996 to July 1997. From March 1993 to March 1996,
Mr. Corey was Executive Vice President and Chief Financial Officer of MTI
Technology Inc., a provider of storage solutions. Earlier in his career, Mr.
Corey was Vice President and Controller for Ashton Tate, a provider of software
solutions for PC's. Mr. Corey holds a B.A. in business administration from
California State University at Fullerton. Mr. Corey joined Arthur Andersen & Co.
after completing college where he earned his certificate as a Certified Public
Accountant.
 
                                       16
<PAGE>
    DAVID TABER has served as Senior Vice President of Marketing since September
1997. Prior to joining Forte, Mr. Taber was Vice President, Worldwide Marketing
for ILOG, a provider of C++ business application components from May 1996 to
September 1997. Previously from October 1994 to May 1996, Mr. Taber was Group
Director of Strategic Marketing for Sybase Inc., a database software company,
where he was responsible for Internet marketing, competitive marketing,
corporate pricing, and industry analyst relations. From January 1988 to October
1994, Mr. Taber held several marketing positions with Sun Microsystems. Mr.
Taber earned an M.B.A. from the University of California Berkeley and a B.A.
degree from the University of California Santa Cruz.
 
    JAMES WAMBACH has served as Vice President of Sales--North America since
December 1996. From January 1990 to December 1996, Mr. Wambach was employed by
Sybase, Inc. Most recently he was Vice President and General Manager for the
Alliance Solutions Division. Previously at Sybase, Mr. Wambach held the
positions of Regional Sales Director and area Vice President. During his 20 year
sales career, Mr. Wambach was Vice President of U.S. Sales and Support for
Authorware, a vendor of multimedia business solutions, a Regional Sales Manager
for Oracle Corporation; and held various sales and management positions with D&B
Computing Services. Mr. Wambach holds a B.S. degree in business administration
from Ohio State University.
 
    CHRISTOS M. COTSAKOS has been a director of the Company since October 1996.
Mr. Cotsakos joined E*TRADE Group, Inc., a leading branded provider of online
investing services, in March 1996 as President, Chief Executive Officer and
director. Prior to his recruitment to E*TRADE, he served as President, Co-Chief
Executive Officer, Chief Operating Officer and director of A. C. Nielsen, Inc.
from March 1995 to January 1996; and held various senior executive positions at
A. C. Nielsen from March 1992 to March 1995. Mr. Cotsakos joined A. C. Nielsen
after 19 years with the Federal Express Corporation from 1973 to 1992, where he
held a number of senior executive positions both in the United States and
Europe. Mr. Cotsakos serves as a director of National Processing, Inc., a
provider of transaction processing services and customized processing software;
Omega Research, a leading provider of real-time investment analysis software for
the Windows operating system; and of various boards of privately-held technology
companies. Mr. Cotsakos was named by FORBES ASAP as one of the "Thirty Who
Matter" in the new technology elite in October 1996. COMMUNICATIONS WEEK named
Mr. Cotsakos as one of the ten leaders receiving its 1997 Visionary Awards;
INSTITUTIONAL INVESTOR named him as one of the financial online elite in
September 1997; and TICKER MAGAZINE named Mr. Cotsakos as one of the Power Fifty
in June 1998. A decorated Vietnam Veteran, Mr. Cotsakos received a BA (cum
laude) from William Paterson College, an MBA (summa cum laude) from Pepperdine
University (he is a life member of Pepperdine Association) and is currently in
his fourth year of pursuing a PhD in the field of economics at the Management
School, University of London.
 
    THOMAS A. JERMOLUK has been a director of the Company since February 1996.
Mr. Jermoluk currently serves as President, Chief Executive Officer and as
Chairman of the board of directors of @Home, Inc., a distributor of high-speed
interactive services to residences and businesses using the cable industry's
hybrid-fiber coaxial infrastructure and its own network architecture. From 1986
to 1996, Mr. Jermoluk was employed by Silicon Graphics, Inc., a manufacturer of
high performance visual computing systems, as President and a member of its
board of directors from 1994 to 1996, and as Chief Operating Officer from 1992
to 1996. Mr. Jermoluk's other positions at Silicon Graphics included Executive
Vice President from 1991 to 1992 and Vice President/General Manager, Advanced
Systems Division, from 1988 to 1991. Mr. Jermoluk holds a B.S. degree in
computer science/electrical engineering and an M.S. degree in computer science
from Virginia Tech.
 
    WILLIAM H. YOUNGER, JR., has been a director of the Company since February
1991. Mr. Younger has been a Managing Director of Sutter Hill Ventures, a
venture capital firm, since 1981. Mr. Younger currently serves as a director of
Celeritek, Inc, Information Advantage Inc. and Oasis Healthcare Holdings Corp.
Mr. Younger holds a B.S.E.E. degree from the University of Michigan and an
M.B.A. from Stanford University.
 
                                       17
<PAGE>
                                 BUSINESS RISKS
 
    IN EVALUATING THE COMPANY'S BUSINESS, READERS SHOULD CAREFULLY CONSIDER THE
BUSINESS RISKS DISCUSSED IN THIS SECTION IN ADDITION TO THE OTHER INFORMATION
PRESENTED IN THIS ANNUAL REPORT ON FORM 10-K. THIS ANNUAL REPORT ON FORM 10-K
CONTAINS FORWARD-LOOKING STATEMENTS WHICH REFLECT THE COMPANY'S CURRENT VIEWS
WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. IN THIS REPORT, THE
WORDS "ANTICIPATE," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE," AND OTHER
SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE
DISCUSSED BELOW, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR THOSE ANTICIPATED.
 
    LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES.  The Company was
founded in February 1991 and first shipped product in August 1994. After
achieving profitability from December 1995 through March 31, 1997, the Company
incurred net losses for each quarter in fiscal year 1998. At March 31, 1998, the
Company had an accumulated deficit of $29.7 million. A substantial portion of
the accumulated deficit is due to the deployment of significant resources to the
Company's product development, sales and marketing organizations. The Company
expects to continue to devote substantial resources in these areas and as a
result will need to significantly increase revenues to return to profitability.
There can be no assurance that any of the Company's business strategies will be
successful or the Company will be profitable in any future quarter or period.
 
    POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; UNCERTAINTY OF FUTURE
OPERATING RESULTS; SEASONALITY; EXPECTED LOSS IN QUARTER ENDING JUNE 30,
1998.  The Company's quarterly operating results have varied significantly in
the past and are likely to vary significantly in the future, depending on
factors such as the size and timing of significant orders and their fulfillment,
demand for the Company's products, changes in pricing policies by the Company or
its competitors, the number, timing and significance of product enhancements and
new product announcements by the Company and its competitors, the ability of the
Company to develop, introduce and market new and enhanced versions of the
Company's products on a timely basis, the rate of adoption and use of the
Company's products by third-party system integrators and value added resellers,
changes in the level of operating expenses, changes in the Company's sales
incentive plans, budgeting cycles of its customers, customer order deferrals due
to intervening information technology projects of a higher priority such as, the
Year 2000 Problem, or in anticipation of enhancements or new products offered by
the Company or its competitors or other causes, the cancellation of licenses
during the warranty period or nonrenewal of maintenance agreements, product life
cycles, software bugs and other product quality problems, personnel changes,
changes in the Company's strategy, the level of international expansion,
seasonal trends and general domestic and international economic and political
conditions, among others. A significant portion of the Company's revenues have
been, and the Company believes will continue to be, derived from a limited
number of orders placed by large organizations, and the timing of such orders
and their fulfillment has caused and could continue to cause material
fluctuations in the Company's operating results, particularly on a quarterly
basis. In addition, competition for sales personnel is intense, and there can be
no assurance that the Company can retain its existing sales personnel or that it
can attract, assimilate and retain highly qualified sales personnel in the
future. The timing of the Company's hiring of new sales personnel and the rate
at which new sales people become productive could also cause material
fluctuations in the Company's quarterly operating results. Due to the foregoing
factors, quarterly revenues and operating results are difficult to forecast.
Revenues are also difficult to forecast because the market for distributed
enterprise application development software is rapidly evolving, and the
Company's sales cycle, from initial evaluation to purchase and the provision of
support services, is lengthy and varies substantially from customer to customer.
Product orders are typically shipped shortly after receipt, and consequently,
order backlog at the beginning of any quarter has in the past represented only a
small portion of that quarter's revenues. As a result, license revenues in any
quarter are substantially dependent on orders booked and shipped in that
quarter. Due to all of the foregoing, revenues for any future quarter are not
predictable with any significant degree of accuracy. Accordingly, the Company
believes that period-to-period comparisons of its operating results are not
necessarily meaningful and
 
                                       18
<PAGE>
should not be relied upon as indications of future performance. The prior
revenue growth experienced by the Company should not be considered indicative of
future revenue growth, if any, or of future operating results. Failure by the
Company, for any reason, to increase revenues would have a material adverse
effect on the Company's business, operating results and financial condition.
 
    To achieve its quarterly revenue objectives, the Company is dependent upon
obtaining orders in any given quarter for shipment in that quarter. Furthermore,
the Company has often recognized a substantial portion of its revenues in the
last month, or even weeks or days, of a quarter. The Company's expense levels
are based, in significant part, on the Company's expectations as to future
revenues and are therefore relatively fixed in the short term. If revenue levels
fall below expectations, net income is likely to be disproportionately adversely
affected because a proportionately smaller amount of the Company's expenses
varies with its revenues. There can be no assurance that the Company will be
able to return to profitability on a quarterly or annual basis in the future.
Due to all the foregoing factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially and adversely affected.
 
    The operating results of many software companies reflect seasonal trends,
and the Company expects to be affected by such trends in the future. Due to the
market slowdown and other factors discussed above in the "Results of Operations"
section of the Management's Discussion and Analysis of Financial Condition and
Results of Operations, the Company expects to incur a net loss for the quarter
ended June 30, 1998. The Company believes that it is likely that it will
experience lower revenues in its quarters ending June 30 as a result of efforts
by its direct sales organization to meet the March 31 fiscal year-end sales
quotas. Since international operations constitute a significant percentage of
the Company's total revenues, the Company anticipates that it may also
experience relatively weaker demand in the quarters ending September 30 as a
result of reduced sales activity in Europe during the summer months. Due to the
foregoing reasons, the Company could incur losses in the quarter ended September
30, 1998.
 
    PRODUCT CONCENTRATION; IMPACT OF MARKET FACTORS.  All of the Company's
revenues have been attributable to sales of Forte and related products and
services. The Company currently expects Forte and related products and services
to account for all or substantially all of the Company's future revenues. As a
result, factors adversely affecting the pricing of or demand for Forte and
related products, such as competition or technological change, could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company's future financial performance will depend, in
significant part, on the successful development, introduction and customer
acceptance of new and enhanced versions of Forte and related products. There can
be no assurance that the Company will continue to be successful in marketing the
Forte product, related products or other products. The Company's prior revenue
growth should not be considered indicative of future revenue growth, as there
can be no assurance that the market for Forte and related products, or the
market for products used in the development, deployment and management of
distributed applications, will continue to grow. Recently, industry analysts and
competitors have noted that market demand in the enterprise application
development sector appears to be slowing, and predicted that the prior success
achieved by that sector may not continue in future periods, due to a variety of
factors including but not limited to (1) a diversion of customer resources from
enterprise application development to the Year 2000 Problem and other higher
priority information technology projects, (2) a general shortage of qualified
programmers and a shift of available programming resources from corporate users
to systems integrators, (3) market confusion caused by the complex and rapidly
changing mix of alternative technologies for enterprise application development,
and (4) the increased availability and popularity of packaged software
applications. Additionally, recent instability in the economies and financial
markets in the Asia-Pacific region, which had previously been regarded as a
potentially strong source of revenue growth for enterprise software vendors, has
introduced additional uncertainty concerning the sector. If the market for Forte
and related products or enterprise application development products used in the
development, deployment and management of distributed applications
 
                                       19
<PAGE>
fails to grow, or grows more slowly than the Company currently anticipates, the
Company's business, operating results and financial condition would be
materially and adversely affected.
 
    DEPENDENCE ON KEY PERSONNEL.  The Company's success depends to a significant
degree upon the continuing contributions of its key management, sales,
marketing, software development and customer support personnel, and its ability
to attract and retain such highly-skilled personnel. The loss of key personnel
could materially and adversely affect the Company. Competition for qualified
personnel is intense, particularly in the sales and software development areas,
and there can be no assurance that the Company can retain its existing personnel
or that it can attract, assimilate and retain additional highly qualified
personnel in the future. The timing of the Company's hiring of new sales
personnel and the rate at which new sales people become productive could also
cause material fluctuations in the Company's quarterly operating results. The
Company has at times experienced and continues to experience difficulty in
recruiting and retaining qualified personnel. The Company experienced
significant turnover in its North America sales organization during the first
nine months of fiscal year 1998. Competitors and others have in the past and may
in the future attempt to recruit the Company's employees. Failure to attract and
retain key personnel could have a material adverse effect on the Company's
business, operating results and financial condition.
 
    RISKS ASSOCIATED WITH EXPANDING DISTRIBUTION.  To date, the Company has sold
its products through its direct and indirect sales force, systems integrators,
distributors and value added resellers. The Company's customers and potential
customers often rely on third-party system integrators and value added resellers
to develop and deploy distributed applications. The Company's ability to achieve
significant revenue growth in the future will depend in large part on its
success in recruiting, training and retaining sufficient sales personnel and
establishing and maintaining relationships with distributors, resellers and
systems integrators. Although the Company is currently investing, and plans to
continue to invest significant resources to maintain and selectively expand its
sales force and to develop relationships with third-party distributors,
resellers and systems integrators, the Company has at times experienced and
continues to experience difficulty in recruiting and retaining qualified sales
personnel and in establishing necessary third-party relationships. There can be
no assurance that the Company will be able to successfully hire, train and
retain needed sales personnel or develop and maintain sufficient third-party
relationships, or that such efforts will result in an increase in revenues. Any
failure by the Company to maintain a sufficiently large and trained sales force
and continue to establish other distribution channels would materially and
adversely affect the Company's business, operating results and financial
condition.
 
    COMPETITION.  The market for distributed software used in the development,
deployment and management of distributed applications is intensely competitive
and characterized by rapidly changing technology, evolving industry standards,
frequent new product introductions and rapidly changing customer requirements.
Distributed applications that can be developed and deployed using the Company's
Forte environment can also be implemented by integrating a combination of
application development tools and more powerful server programming techniques
such as stored procedures in relational databases and C or C++ programming,
along with networking and database middleware to connect the various components.
As such, the Company effectively experiences its primary competition from
potential customers' decisions to pursue this type of approach as opposed to
utilizing an application environment such as Forte. As a result, the Company
must continuously educate existing and prospective customers, and third-party
systems integrators on whom prospective customers are increasingly relying for
expertise, on the advantages of the Company's products over the approach of
integrating a combination of products. There can be no assurance that these
customers, potential customers or systems integrators will perceive sufficient
value in the Company's products to justify purchasing or recommending them.
 
    The Company has also experienced and expects to continue to experience
increased competition from a number of vendors that market software products
specifically targeted for building distributed applications. Actual and
potential competitors include: providers of application development software,
such as
 
                                       20
<PAGE>
Compuware/Uniface, Dynasty Technologies, Inc., International Business Machines
Corporation, Microsoft Corporation, NAT Systems, Inc., Oracle Corporation, Seer
Technologies, Inc., Sterling Software, Inc., and the Powersoft unit of Sybase,
Inc.; web-based development tools targeting production enterprise Internet
applications; middleware companies advocating a middleware-centric approach to
building enterprise applications; developers of packaged applications and
application components, templates and frameworks; and integration software
vendors.
 
    Many of these competing vendors have or will have significantly greater
financial, technical, marketing and other resources than the Company, and may be
able to respond more quickly to new or emerging technologies. Also, many current
and potential competitors have greater name recognition and more extensive
customer bases that could be leveraged, thereby gaining market share to the
Company's detriment. The Company expects to face additional competition as other
established and emerging companies enter the distributed application development
market and new products and technologies are introduced. Increased competition
could result in price reductions, fewer customer orders, reduced gross margins
and loss of market share, any of which could materially and adversely affect the
Company's business, operating results and financial condition. In addition,
current and potential competitors may make strategic acquisitions or establish
cooperative relationships among themselves or with third parties, thereby
increasing the ability of their products to address the needs of the Company's
prospective customers. Accordingly, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain
significant market share. Such competition could materially and adversely affect
the Company's ability to sell additional licenses and maintenance and support
renewals on terms favorable to the Company. Further, competitive pressures could
require the Company to reduce the price of Forte licenses and related products
and services, which could materially and adversely affect the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully against current and future
competitors, and the failure to do so would have a material adverse effect upon
the Company's business, operating results and financial condition.
 
    The principal competitive factors affecting the market for Forte are ease of
application development, deployment and management functionality and features,
product architecture, product performance, reliability and scaleability, product
quality, price and customer support. The Company believes it presently competes
favorably with respect to each of these factors. However, the Company's market
is still evolving and there can be no assurance that the Company will be able to
compete successfully against current and future competitors and the failure to
do so successfully will have a material adverse effect upon the Company's
business, operating results and financial condition.
 
    NEW ACCOUNTING STANDARDS. Statement of Position ("SOP") 97-2, "Software
Revenue Recognition," as amended by Statement of Position 98-4, was issued in
October 1997 and addresses software revenue recognition matters. The SOP
supersedes SOP 91-1 and is effective for transactions entered into for fiscal
years beginning after December 15, 1997. The Company is required to adopt this
SOP in its first quarter of fiscal year 1999 and restatement of prior financial
statements is prohibited. Based upon its reading and interpretation of SOP 97-2,
the Company believes its current revenue recognition policies and practices are
materially consistent with the SOP. However, implementation guidelines for this
standard have not yet been issued and a wide range of potential interpretations
are being discussed by the accounting profession. Once available, such
implementation guidance could lead to unanticipated changes in the Company's
current revenue accounting practices, and such changes could materially and
adversely affect the Company's future revenues and operating results.
 
    Such implementation guidance may necessitate substantial changes in the
Company's business practices in order for the Company to continue to recognize a
substantial portion of its license fee revenue upon delivery of its software
products. Such changes may reduce demand, extend sales cycles, increase
administrative costs and otherwise adversely affect operations. In addition, the
Company may be put at a
 
                                       21
<PAGE>
competitive disadvantage relative to foreign based competitors not subject to
U.S. generally accepted accounting principles.
 
    LENGTHY SALES CYCLE.  The Company's products are typically used to develop
applications that are critical to a customer's business and the purchase of the
Company's products is often part of a customer's larger business process
reengineering initiative or implementation of distributed computing. As a
result, the license and implementation of the Company's software products
generally involves a significant commitment of management attention and
resources by prospective customers. Accordingly, the Company's sales process is
often subject to delays associated with a long approval process that typically
accompanies significant initiatives or capital expenditures. In addition, there
are a large number of alternative methods or technologies to develop
applications which can require significant time for potential customers to
evaluate, and implementation of a favorable decision to license the Company's
products may be subject to delay due to higher priority projects such as Year
2000 compliance. For these and other reasons, the sales cycle associated with
the license of the Company's products is often lengthy and subject to a number
of significant delays over which the Company has little or no control. There can
be no assurance that the Company will not experience these and additional delays
in the future. Therefore, the Company believes that its quarterly operating
results are likely to vary significantly in the future.
 
    RISKS ASSOCIATED WITH THE YEAR 2000.  Many currently installed computer
systems and software products are coded to accept only two digit entries in the
date code field. These date code fields will need to accept four digit entries
to distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and/or software used by many companies may need
to be upgraded to comply with such Year 2000 requirements. There are several
aspects to the Year 2000 issue, as follows:
 
    a.  IMPACT ON REVENUE.  The Company believes that the purchasing patterns of
customers and potential customers may be affected by Year 2000 issues in a
variety of ways. Many companies are expending significant resources to correct
or patch their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase enterprise
application software products such as those offered by the Company. Conversely,
Year 2000 issues may cause other companies to accelerate purchases of
application development and deployment software to replace non-Year 2000
compliant applications, causing a short-term increase in demand for the
Company's products. There is no assurance that such increase in demand will be
realized, or that companies will resume application development if and when they
resolve their Year 2000 problems. Either of the foregoing could have a material
adverse effect upon the Company's business, operating results and financial
condition.
 
    b.  YEAR 2000 COMPLIANCE.  The Company believes that its products are fully
Year 2000 compliant. All Forte products use four digit years for all internal
manipulations and representations. In addition, for customers who require the
storage and manipulation of two digit years, the Company's current products
provide the ability to specify a range of years for comparison and calculation.
For example, the customer may specify that the years 0-39 are interpreted as
2000-2039 and the years 40-99 are interpreted as 1940-1999. Using this feature a
customer can save on the amount of data stored and manipulated by Forte. The
Company regularly runs regression tests on its software, including tests for the
above functionality at the Year 2000 rollover. Based on the above, it is not
expected that the Company's products will be adversely affected by date changes
in the year 2000. However there can be no assurance that the Company's products
contain and will contain all features and functionality considered necessary by
customers, distributors, resellers and systems integrators to be Year 2000
compliant.
 
    c.  INTERNAL SYSTEMS.  Although the Company is not aware of any material
operational issues or costs associated with preparing its internal systems for
the Year 2000, there can be no assurance that the Company will not experience
serious unanticipated negative consequences and /or material costs caused by
undetected errors or defects in the technology used in its internal systems,
which include third-party software and hardware technology.
 
                                       22
<PAGE>
    RISK ASSOCIATED WITH NEW VERSIONS AND NEW PRODUCTS; RAPID TECHNOLOGICAL
CHANGE.  The software market in which the Company competes is characterized by
rapid technological change, frequent introductions of new products, changes in
customer demands and evolving industry standards. The introduction of products
embodying new technologies and the emergence of new industry standards can
render existing products obsolete and unmarketable. For example, the Company's
customers have adopted a wide variety of hardware, software, database,
networking and Internet-based platforms, and as a result, to gain broad market
acceptance, the Company has had to support Forte on many of such platforms. The
Company's customers use the Company's proprietary development language to
develop applications using the Company's products, and customers may desire to
utilize other widely-used programming languages to develop Internet-based and
other distributed applications. The Company's future success will depend upon
its ability to address the increasingly sophisticated needs of its customers by
supporting existing and emerging hardware, software, programming language,
database, networking and Internet-based platforms and by developing and
introducing enhancements to Forte, related products and new products on a timely
basis that keep pace with such technological developments and emerging industry
standards and changing customer requirements. There can be no assurance that the
Company will be successful in developing and marketing enhancements to Forte and
related products that respond to technological change, evolving industry
standards or changing customer requirements, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and sale of such enhancements or that such enhancements will
adequately meet the requirements of the marketplace and achieve any significant
degree of market acceptance. The Company has in the past experienced delays in
the release dates of enhancements to Forte. If release dates of any future Forte
enhancements or new products are delayed or if when released they fail to
achieve market acceptance, the Company's business, operating results and
financial condition would be materially and adversely affected. In addition, the
introduction or announcement of new product offerings or enhancements by the
Company or the Company's competitors may cause customers to defer or forgo
purchases of current versions of Forte and related products, which could have a
material adverse effect on the Company's business, operating results and
financial condition.
 
    LIMITED DEPLOYMENT; DEPENDENCE ON SYSTEM INTEGRATORS AND VALUE ADDED
RESELLERS.  The Company first shipped Forte in August 1994. To date, only a
limited number of the Company's customers have completed the development and
deployment of distributed applications using Forte and related products. If any
of the Company's customers are not able to successfully develop and deploy
distributed applications with Forte and related products, the Company's
reputation could be damaged, which could have a material adverse effect on the
Company's business, operating results and financial condition. In addition, the
Company expects that a significant percentage of its future revenues will be
derived from sales to existing customers. If existing customers have difficulty
deploying applications built with Forte and related products or for any other
reason are not satisfied with Forte products, the Company's business, operating
results and financial condition would be materially and adversely affected. The
Company's customers and potential customers often rely on third-party system
integrators and value added resellers to develop and deploy distributed
applications. If the Company is unable to adequately train a sufficient number
of system integrators and value added resellers or if, for any reason, a large
number of such integrators and value added resellers adopt a product or
technology other than Forte, the Company's business, operating results and
financial condition would be materially and adversely affected.
 
    RISK OF SOFTWARE DEFECTS.  Software products as internally complex as Forte
and related products frequently contain errors or defects, especially when first
introduced or when new versions or enhancements are released. The Company
introduced Release 2.0 of Forte in November 1995, Release 3.0 of Forte in August
in 1997 and the initial release of Forte Conductor in September 1997. Despite
extensive product testing by the Company, the Company has discovered software
errors in its releases after their introduction. Although the Company has not
experienced material adverse effects resulting from any such defects or errors
to date, there can be no assurance that, despite testing by the Company and by
current and potential customers, defects and errors will not be found in current
versions, new versions, new product or enhancements to existing products after
commencement of commercial shipments, resulting in loss of
 
                                       23
<PAGE>
revenues or delay in market acceptance, which could have a material adverse
effect upon the Company's business, operating results and financial condition.
 
    PRODUCT LIABILITY.  The Company markets Forte to customers for the
development, deployment and management of distributed applications. The
Company's license agreements with its customers typically 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 the Company's license agreements may not be effective as a result of existing
or future federal, state or local laws or ordinances or unfavorable judicial
decisions. Although the Company has not experienced any product liability claims
to date, the sale and support of Forte by the Company may entail the risk of
such claims, which are likely to be substantial in light of the use of Forte in
business-critical applications. A successful product liability claim brought
against the Company could have a material adverse effect upon the Company's
business, operating results and financial condition.
 
    RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.  Revenues from foreign
subsidiaries and export sales accounted for 45 percent, 36 percent and 26
percent of the Company's total revenues in fiscal years 1998, 1997 and 1996
respectively. The Company currently has international sales offices located in
Australia, Belgium, Canada, France, Germany, Holland, Switzerland, and the
United Kingdom which have generated substantially all direct international
revenues recognized by the Company to date. The Company believes that in order
to increase sales opportunities and regain profitability, it will be required to
continue to expand its international operations. The Company has committed and
continues to commit significant management time and financial resources to
developing direct and indirect international sales and support channels. There
can be no assurance, however, that the Company will be able to maintain or
increase international market demand for Forte and related products. To the
extent that the Company is unable to do so in a timely manner, the Company's
international sales will be limited, and the Company's business, operating
results and financial condition would be materially and adversely affected.
 
    International operations are subject to inherent risks, including the impact
of possible recessionary environments in economies outside the United States,
costs of localizing products for foreign markets, longer accounts receivable
collection periods and greater difficulty in accounts receivable collection,
unexpected changes in regulatory requirements, difficulties and costs of
staffing and managing foreign operations, reduced protection for intellectual
property rights in some countries, potentially adverse tax consequences, and
political and economic instability. There can be no assurance that the Company
or its distributors or resellers will be able to sustain or increase
international revenues from licenses or from maintenance and service, or that
the foregoing factors will not have a material adverse effect on the Company's
future international revenues and, consequently, on the Company's business,
operating results and financial condition. The Company's direct international
revenues are generally denominated in local currencies. The Company does not
currently engage in hedging activities. Revenues generated by the Company's
distributors and resellers are generally paid to the Company in United States
dollars. Although exposure to currency fluctuations to date has been
insignificant, there can be no assurance that fluctuations in currency exchange
rates in the future will not have a material adverse impact on revenues from
international sales and thus the Company's business, operating results and
financial condition.
 
    PROPRIETARY RIGHTS, RISKS OF INFRINGEMENT AND SOURCE CODE RELEASE.  The
Company relies primarily on a combination of patent, copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company also believes that factors such as
the technological and creative skills of its personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are essential to establishing and maintaining a technology
leadership position. The Company seeks to protect its software documentation and
other written materials under trade secret and copyright laws, which afford only
limited protection. The Company currently has one issued United States patent
that expires in 2012 and corresponding patent applications pending in Canada,
Australia, Japan and several member countries within the European
 
                                       24
<PAGE>
Patent Organization. There can be no assurance that the Company's patent will
not be invalidated, circumvented or challenged, that the rights granted
thereunder will provide competitive advantages to the Company or that any of the
Company's pending or future patent applications, whether or not being currently
challenged by applicable governmental patent examiners, will be issued with the
scope of the claims sought by the Company, if at all. Furthermore, there can be
no assurance that others will not develop technologies that are similar or
superior to the Company's technology or design around the patents owned by the
Company. The Company has obtained registration of the FORTE trademark in two
countries and has trademark registration applications pending in numerous
additional countries. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights as fully as do the laws of the United States. There
can be no assurance that the Company's means of protecting its proprietary
rights in the United States or abroad will be adequate or that competition will
not independently develop similar technology. The Company has entered into
source code escrow agreements with a limited number of its customers and
resellers requiring release of source code in certain circumstances. Such
agreements generally provide that such parties will have a limited,
non-exclusive right to use such code in the event that there is a bankruptcy
proceeding by or against the Company, if the Company ceases to do business or if
the Company fails to meet its support obligations. In addition, Digital
Equipment Corporation ("Digital") and Mitsubishi Corporation ("Mitsubishi") each
currently possesses copies of Forte source code for certain limited purposes,
subject to the terms of separate written agreements each company has entered
into with the Company. Digital has an option to purchase a non-exclusive,
fully-paid license of the Forte source code. Digital's option becomes
exercisable if the Company is acquired and the acquiror fails to agree to assume
the Company's contractual obligations to Digital. The provision of source code
may increase the likelihood of misappropriation by third parties.
 
    The Company is not aware that it is infringing any proprietary rights of
third-parties. There can be no assurance, however, that third-parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to license the infringed or similar
technology, the Company's business, operating results and financial condition
would be materially and adversely affected.
 
    The Company relies upon certain software that it licenses from
third-parties, including software that is integrated with the Company's
internally developed software and used in Forte to perform key functions. There
can be no assurance that these third-party software licenses will continue to be
available to the Company on commercially reasonable terms. The loss of, or
inability to maintain, any such software licenses could result in shipment
delays or reductions until equivalent software could be developed, identified,
licensed and integrated which would materially and adversely affect the
Company's business, operating results and financial condition.
 
    VOLATILITY OF STOCK PRICE.  The Company's Common Stock has experienced
significant price volatility and such volatility may occur in the future.
Factors, such as announcements of the introduction of new products by the
Company or its competitors and quarter-to-quarter variations in the Company's
operating results, as well as market conditions in the technology and emerging
growth company sectors, may have a significant impact on the market price of the
Company's Common Stock. Further, the stock market has
 
                                       25
<PAGE>
experienced extreme volatility that has particularly affected the market prices
of equity securities of many high technology companies and that often has been
unrelated or disproportionate to the operating performance of such companies.
These market fluctuations may adversely affect the price of the Common Stock.
 
    EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF RIGHTS PLAN,
CERTIFICATE OF INCORPORATION, DELAWARE LAW AND CERTAIN AGREEMENTS.  The
Company's Board of Directors has the authority to issue up to 5,000,000 shares
of Preferred Stock and to determine the price, rights, preferences, privileges
and restrictions, including voting and conversion rights of such shares, without
any further vote or action by the Company's stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock could have the effect of making it more
difficult for a third-party to acquire a majority of the outstanding voting
stock of the Company. The Company has no current plans to issue shares of
Preferred stock. Further, the Company has adopted a stockholder rights plan
that, in conjunction with certain provisions of the Company's Certificate of
Incorporation and of Delaware law, could delay or make more difficult a merger,
tender offer, or proxy contest involving the Company.
 
ITEM 2. PROPERTIES
 
    The Company's principal administrative, sales, marketing, and product
development facility occupies approximately 68,800 square feet in Oakland,
California pursuant to a lease and sublease which expires June 2000. The Company
previously subleased an additional 60,800 square feet in Oakland which the
Company does not plan to occupy and has subleased to a third-party through June
2000. The Company also leases sales and support offices in Phoenix, AZ, Los
Angeles, CA, San Diego, CA, Englewood, CO, Shelton, CT, Atlanta, GA, Rosemont,
IL, Wakefield, MA, Rockville, MD, Southfield, MI, Minneapolis, MN, Iselin, NJ,
New York, NY, W. Conshohocken, PA, Dallas, TX, Houston, TX and Bellevue, WA. The
Company also maintains international offices in Australia, Belgium, Canada,
France, Germany, Holland, Switzerland, and the United Kingdom. The Company
believes that its existing facilities are adequate for its current needs and
that suitable additional or alternative space will be available in the future on
commercially reasonable terms as needed.
 
ITEM 3. LEGAL PROCEEDINGS
 
    The Company is not aware of any pending or threatened litigation that could
have a material adverse effect upon the Company's business, operating results or
financial condition.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1998.
 
                                       26
<PAGE>
                                    PART II
 
ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS
 
    The Company's Common Stock is traded over-the-counter on the Nasdaq National
Market under the symbol "FRTE." The Company commenced its initial public
offering of Common Stock on March 11, 1996 at a price of $21 per share. The
following table sets forth the high and low closing sale prices for last two
years as reported on the Nasdaq National Market. Such prices represent prices
between dealers and do not include retail mark-ups, mark-downs or commissions
and my not represent actual transactions.
 
<TABLE>
<CAPTION>
                                                                               HIGH        LOW
                                                                             ---------  ---------
<S>                                                                          <C>        <C>
First Quarter of fiscal year 1997..........................................  $   81.75  $   37.75
Second Quarter of fiscal year 1997.........................................  $   56.00  $   27.25
Third Quarter of fiscal year 1997..........................................  $   45.25  $   31.50
Fourth Quarter of fiscal year 1997.........................................  $   38.13  $   21.88
First Quarter of fiscal year 1998..........................................  $   23.38  $    8.25
Second Quarter of fiscal year 1998.........................................  $   16.00  $   10.69
Third Quarter of fiscal year 1998..........................................  $   14.63  $    7.13
Fourth Quarter of fiscal year 1998.........................................  $    7.50  $    5.03
</TABLE>
 
    At May 31, 1998, there were 433 stockholders of record, representing
approximately 9000 shareholder accounts, of the Company's common stock, as shown
in the records of the Company's transfer agent. The Company has not paid any
cash dividends on its capital stock since its inception, and does not expect to
pay cash dividends on its Common Stock in the foreseeable future.
 
ITEM 6.  CONSOLIDATED FINANCIAL DATA
 
    The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in Item 7. The consolidated statement of
operations data for each of the three years in the period ended March 31, 1998
and the consolidated balance sheet data at March 31, 1998 and 1997 are derived
from the audited consolidated financial statements included elsewhere in Item 8.
The consolidated statement of operations data for each of the two years in the
period ended March 31, 1995 and the consolidated balance sheet data at March 31,
1994,
 
                                       27
<PAGE>
1995 and 1996 are derived from audited consolidated financial statements not
included in this Annual Report on Form 10-K.
 
<TABLE>
<CAPTION>
                                                                            YEARS ENDED MARCH 31,
                                                            ------------------------------------------------------
                                                               1998       1997       1996       1995       1994
                                                            ----------  ---------  ---------  ---------  ---------
                                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                         <C>         <C>        <C>        <C>        <C>
Consolidated Statement of Operations Data:
Revenues:
  License.................................................  $   39,825  $  43,595  $  21,357  $   7,974  $      --
  Maintenance and service.................................      31,503     19,456      8,688      2,033         39
                                                            ----------  ---------  ---------  ---------  ---------
    Total revenues........................................      71,328     63,051     30,045     10,007         39
Cost of revenues:
  License.................................................         892        665        456        142         --
  Maintenance and service.................................      18,844     11,796      5,452      2,000         36
                                                            ----------  ---------  ---------  ---------  ---------
    Total cost of revenues................................      19,736     12,461      5,908      2,142         36
                                                            ----------  ---------  ---------  ---------  ---------
Gross profit..............................................      51,592     50,590     24,137      7,865          3
                                                            ----------  ---------  ---------  ---------  ---------
Operating expenses:
  Sales and marketing.....................................      44,862     28,560     15,060      7,869      2,594
  Product development and engineering.....................      14,983     10,611      8,069      5,515      4,679
  General and administrative..............................       7,585      5,119      3,168      1,874        887
                                                            ----------  ---------  ---------  ---------  ---------
    Total operating expenses..............................      67,430     44,290     26,297     15,258      8,160
                                                            ----------  ---------  ---------  ---------  ---------
Income (loss) from operations.............................     (15,838)     6,300     (2,160)    (7,393)    (8,157)
Other income, net.........................................       2,006      1,988        286        147         97
                                                            ----------  ---------  ---------  ---------  ---------
Operating income (loss)...................................     (13,832)     8,288     (1,874)    (7,246)    (8,060)
Provision for income taxes................................         345      1,039        114        104         --
                                                            ----------  ---------  ---------  ---------  ---------
Net income (loss).........................................  $  (14,177) $   7,249  $  (1,988) $  (7,350) $  (8,060)
                                                            ----------  ---------  ---------  ---------  ---------
Pro forma net income (loss) per share Basic...............  $    (0.73) $    0.39  $   (0.12) $   (0.50)
                                                            ----------  ---------  ---------  ---------
Pro forma net income (loss) per share Diluted.............  $    (0.73) $    0.34  $   (0.12) $   (0.50)
                                                            ----------  ---------  ---------  ---------
Shares used in pro forma income (loss) Per share:
      Basic...............................................      19,334     18,458     16,904     14,562
                                                            ----------  ---------  ---------  ---------
      Diluted.............................................      19,334     21,110     16,904     14,562
                                                            ----------  ---------  ---------  ---------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                    MARCH 31,
                                                              -----------------------------------------------------
                                                                1998       1997       1996       1995       1994
                                                              ---------  ---------  ---------  ---------  ---------
                                                                                 (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>        <C>        <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
  Investments...............................................  $  34,160  $  48,257  $  41,317  $  12,775  $   5,937
Working capital.............................................     30,032     43,655     39,714     10,070      3,044
Total assets................................................     63,738     73,749     57,291     18,142      7,131
Capital lease obligations, due after one year...............        123        849      1,714        834        583
Total stockholders' equity..................................     37,310     48,674     40,044      7,449      1,821
</TABLE>
 
                                       28
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 
    THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS INCLUDES A NUMBER OF FORWARD-LOOKING STATEMENTS WHICH REFLECT THE
COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE.
IN THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVES," "EXPECTS," "INTENDS,"
"FUTURE," AND OTHER SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES,
INCLUDING THOSE DISCUSSED BELOW AND IN "BUSINESS RISKS," THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED.
 
OVERVIEW
 
    The Company was founded in February 1991 to design, develop and market a
distributed client/server application development, deployment and management
environment. [To date, all of the Company's revenues have been derived from
licenses of the Company's primary product, Forte and related products as well as
maintenance, training and consulting revenues.] The Company began shipping
Release 1.0 of Forte in August 1994, Release 2.0 in November 1995 and release
3.0 in August 1997. The Company has developed and currently ships three related
products for use with Forte, (1) Forte Conductor, a production workflow
environment for automating mission-critical business processes; (2) Forte
WebEnterprise, which enables the creation, manipulation and reuse of Internet
components with Forte applications; and (3) Forte Express, a visual application
generator. The Company currently expects that revenues from Forte and related
products and services will continue to account for substantially all of the
Company's revenues for fiscal year 1999. As a result, factors adversely
affecting the pricing of or demand for Forte and related products and services
could have a material adverse effect on the Company's business, operating
results and financial condition.
 
    After achieving profitability from December 1995 through March 31, 1997, the
Company incurred net losses for each quarter in fiscal year 1998. At March 31,
1998 the Company had an accumulated deficit of $29.7 million. A substantial
portion of the accumulated deficit is due to the significant commitment of
resources to the Company's product development, sales and marketing
organizations. The Company expects to continue to devote substantial resources
in these areas and as a result will need to significantly increase revenues to
return to profitability. There can be no assurance that any of the Company's
business strategies will be successful or that the Company will be profitable in
any future quarter or period.
 
    The Company's total headcount was 445, 351 and 221 at March 31, 1998, 1997
and 1996, respectively. The growth in headcount is attributable to the Company's
expansion of its direct sales organization, particularly in international
locations, and product development organization. The Company anticipates that
headcount levels in fiscal year 1999 will grow at a much slower rate than in
prior fiscal years.
 
    Forte licenses its software through its direct sales force, distributors,
system integrators, and value added resellers. Revenues from distributors,
integrators and resellers accounted for approximately 35 percent, 20 percent and
18 percent of the Company's total revenues for fiscal years ended 1998, 1997 and
1996, respectively. The Company's ability to achieve significant revenue growth
in the future will depend in large part on its success in recruiting and
training sufficient direct sales personnel and establishing additional
relationships with distributors, resellers and system integrators.
 
RESULTS OF OPERATIONS
 
    REVENUES.  The Company's total revenues consist of license fees for its
Forte Application Environment and related products as well as associated
maintenance and service revenues. The Company licenses software under
non-cancelable license agreements and provides services including maintenance,
training and consulting. License revenues are recognized when a non-cancelable
license agreement has been signed, the product has been shipped, the fees are
fixed and determinable and collectibility is reasonably assured. License revenue
from distributors is generally recognized as sales to end users are reported,
the
 
                                       29
<PAGE>
product is shipped and collectibility is assured. Royalties from Value-Added
Resellers are generally recognized as license revenue when a non-cancelable
reseller agreement is signed, the product is shipped and cash is received. Fees
for services are charged separately from the license of the Company's software
products. Maintenance revenues consist of fees for ongoing support and product
updates and are recognized ratably over the term of the contract, which is
typically twelve months. Revenues from training are recognized upon completion
of the related training class. Consulting revenues are recognized as the
services are performed. Allowances for credit risks and for estimated future
returns are provided for upon product shipment. Returns to date have not been
material. Actual credit losses and returns may differ from the Company's
estimates and such differences could be material to the consolidated financial
statements.
 
    The Company's license agreements typically require the payment of a
nonrefundable, one-time license fee for a license of perpetual term. Customers
make separate payments for annual maintenance and other services. Customers can
terminate the license at any time but do not have a right to a refund of the
fees for licenses or for services that have been performed. The Company can
terminate the license agreement only upon a material breach by the other party,
provided that the breach is not cured within a specified cure period.
 
    The following table indicates revenue by major type and region for the three
fiscal years ended:
 
<TABLE>
<CAPTION>
                                                                                         MARCH 31,
                                                                          ----------------------------------------
                                                                              1998          1997          1996
                                                                          ------------  ------------  ------------
<S>                                                                       <C>           <C>           <C>
License revenues
    United States.......................................................    20,532,000    27,625,000    15,473,000
    International.......................................................    19,293,000    15,970,000     5,884,000
                                                                          ------------  ------------  ------------
    Total...............................................................    39,825,000    43,595,000    21,357,000
Maintenance and Services
    United States.......................................................    18,382,000    12,547,000     6,895,000
    International.......................................................    13,121,000     6,909,000     1,793,000
                                                                          ------------  ------------  ------------
    Total...............................................................    31,503,000    19,456,000     8,688,000
Total Revenues
    United States.......................................................    38,914,000    40,172,000    22,368,000
    International.......................................................    32,414,000    22,879,000     7,677,000
                                                                          ------------  ------------  ------------
    Total...............................................................    71,328,000    63,051,000    30,045,000
                                                                          ------------  ------------  ------------
                                                                          ------------  ------------  ------------
</TABLE>
 
    The Company's fiscal year 1998 total revenues increased by 13 percent to
$71.3 million from $63.1 million in fiscal year 1997. Fiscal year 1998 United
States total revenues decreased by 3 percent to $39.8 million from $40.2 million
in fiscal year 1997. Fiscal year 1998 international revenues increased by 42
percent to $32.4 million from $22.9 million in fiscal year 1997. The fiscal year
1998 decrease in the United States revenue was primarily due to a decrease in
license revenue partially offset by an increase in maintenance and services
revenue. Additionally, fiscal year 1997 United States revenue included an
unusually large follow-on sale to an existing customer of $5.5 million. The
fiscal year 1998 total international revenue increase was due to increases in
license, maintenance and services revenues as the Company continued to expand
its International sales organizations.
 
    The Company's fiscal year 1997 revenues increased by 110 percent to $63.1
million from $30.0 million in fiscal year 1996. Fiscal year 1997 United States
revenues increased by 80 percent to $40.2 million from $22.4 million in fiscal
year 1996. Fiscal year 1997 international revenues increased by 198 percent to
$22.9 million from $7.7 million in fiscal year 1996. These increases reflect
increased market awareness and acceptance of Forte software and related products
and the expansion of the United States and international direct and indirect
sales organizations.
 
                                       30
<PAGE>
    The Company's fiscal year 1998 total license revenue decreased by 9 percent
to $38.9 million from $43.6 million in fiscal year 1997. Fiscal year 1998 United
States license revenue decreased by 26 percent to $20.5 million from $27.6
million in fiscal year 1997; included in fiscal year 1997 license revenue was an
unusually large follow-on sale to an existing customer of $5.2 million. Fiscal
year 1998 international license revenue increased by 21 percent to $19.3 million
from $16.0 million in fiscal year 1997. The Company believes that the fiscal
year 1998 United States license revenue decrease is primarily due to a slowdown
in the overall market for enterprise application development software, and the
extended sales productivity ramp up needed for the Company's new sales
representatives. The Company believes the market slowdown results from several
factors, including but not limited to (1) a diversion of customer resources from
enterprise application development to the Year 2000 Problem, (2) a general
shortage of qualified programmers and a shift of available programming resources
from corporate users to systems integrators, (3) market confusion caused by the
complex and rapidly changing mix of alternative technologies for enterprise
application development, and (4) the increased availability and popularity of
packaged software applications. The Company believes market factors have
resulted in progressively longer and more complex sales cycles for the Company's
products. The Company also experienced significant turnover in its United States
sales organization during fiscal year 1998, while the overall sales organization
headcount grew substantially during fiscal year 1997. In the United States, the
Company experienced lower productivity per sales representative during fiscal
year 1998 as compared to fiscal year 1997. The Company believes that this
reduction in productivity resulted from market factors and lengthening sales
cycles as discussed above, and the overall reduction in Forte-related experience
of the Company's United States sales organization. International license revenue
increased as the Company expanded its international sales organization into
additional markets and developed strong relationships with Strategic Partners.
 
    The Company believes that companies in its target market have significantly
shifted from building internal enterprise applications to using system
integrators to develop and deploy their enterprise applications. Also see
"Dependence on Key Personnel, Product Concentration," "Dependence on Emerging
Market" and "Risks Associated with the Year 2000 Problem," in the section
entitled "Business Risks."
 
    The Company's fiscal year 1997 total license revenue increased by 104
percent to $43.6 million from $21.4 million in fiscal year 1996. Fiscal year
1997 United States license revenue increased by 79 percent to $27.6 million from
$15.5 million in fiscal year 1996. Fiscal year 1997 international revenue
increased by 171 percent to $16.0 million from $5.9 million in fiscal year 1996.
These increases are primarily a result of an increase in the number of licenses
sold reflecting increased market awareness and acceptance of Forte and related
products and significant expansion of the Company's direct sales organization
both in the United States and abroad and increased sales from international
distributors.
 
    The Company's fiscal year 1998 Maintenance and Services revenue increased by
62 percent to $31.5 million from $19.5 million in fiscal year 1997. The
Company's fiscal year1997 maintenance and service revenues increased by 124
percent from $8.7 million in fiscal year 1996. Fiscal year 1998 United States
maintenance and service revenue increased by 47 percent to $18.4 million from
$12.5 million in fiscal year 1997. United States fiscal year 1997 maintenance
and services revenue increased by 82 percent from $6.9 million in fiscal year
1996. Fiscal year 1998 international maintenance and services revenue increased
by 90 percent to $13.1 million from $6.9 million in fiscal year 1997.
International fiscal year 1997 maintenance and services revenues increased by
285 percent from $1.8 million in fiscal year 1996. These increases in total
maintenance and service revenues were primarily a result of the growing
installed base in the Company's software products and the associated increase in
demand for maintenance, training and consulting services. Services revenues as a
percentage of total revenues may vary between periods due to changes in demand
for the Company's services and changes in the rate of growth of license revenue.
 
    International revenues include all revenues other than from the United
States. International revenues includes sales from the Company's direct sales
organizations in Europe and Australia and export sales through distributors and
resellers in Europe, Asia and other areas of the world, as well as international
sales made by the domestic direct sales organization (primarily in Canada).
International sales accounted
 
                                       31
<PAGE>
for 45 percent, 36 percent and 26 percent of total revenues in fiscal years
1998, 1997 and 1996, respectively. Direct sales through the Company's European
and Australian subsidiaries totaled $20.9 million, $13.0 million, and $2.4
million for the years ended March 31, 1998, 1997 and 1996 respectively. The
table below sets forth the Company's export sales data from the U.S. for the
years ended March 31, 1998, 1997 and 1996. See Note 1 of Notes to Consolidated
Financial Statements.
 
<TABLE>
<CAPTION>
                                                              YEARS ENDED MARCH 31
                                                   ------------------------------------------
                                                       1998           1997           1996
                                                   -------------  -------------  ------------
<S>                                                <C>            <C>            <C>
Total Export Revenues............................  $  11,417,000  $   9,911,000  $  5,312,000
Total Direct Revenues............................  $  20,997,000  $  12,968,000  $  2,365,000
                                                   -------------  -------------  ------------
Total International..............................  $  32,414,000  $  22,879,000  $  7,677,000
                                                   -------------  -------------  ------------
                                                   -------------  -------------  ------------
</TABLE>
 
    The increase in international revenues reflects growing direct sales
presence in Europe through the Company's foreign direct sale organization,
partially offset by lower revenues in Asia and Latin America. The economic
crises in Asia has not had a material impact on the Company's revenues. Revenues
from Asian markets have been less then five percent of total revenues for each
of the three years presented. The Company expects that international license and
related maintenance and services revenues will continue to account for a
significant portion of its total revenues in the future. The Company believes
that in order to increase sales opportunities and market share, it will be
required to continue expanding its international sales organizations. The
Company has committed and continues to commit significant management time and
financial resources to developing direct and indirect international sales and
support channels. There can be no assurance, however, that the Company will be
able to maintain or increase international market demand for Forte and related
products. To the extent that the Company is unable to do so in a timely manner,
the Company's international sales will be limited, and the Company's business,
operating results and financial condition would be materially and adversely
affected.
 
COST OF REVENUES
 
    COST OF LICENSE.  Cost of license revenues consists primarily of royalties
paid to third-party vendors, product packaging, documentation and production and
shipping costs. Cost of license revenues was $892,000, $665,000, and $456,000 in
fiscal years 1998, 1997 and 1996, respectively, each representing approximately
2 percent of license revenues for the respective periods. Cost of license
revenues may vary as a percentage of license revenue due to changes in the
Company's royalty obligations to third-party technology providers and the number
of new products and product releases in a given period.
 
    COST OF MAINTENANCE AND SERVICE.  Cost of maintenance and service revenues
consists primarily of personnel-related and facilities costs incurred in
providing customer support, training and consulting services, as well as
third-party costs incurred in providing training and consulting services. Cost
of maintenance and service revenues was $18.8 million, $11.8 million and $5.5
million in fiscal years 1998, 1997 and 1996, respectively, representing 60
percent, 61 percent, and 63 percent of maintenance and service revenues in the
respective periods. The decrease in cost of maintenance and service revenues for
fiscal years 1998 and 1997 as a percentage of maintenance and service revenues
was primarily due to improved economies of scale of the technical support center
and increased productivity from training, support and consulting personnel. The
Company does not expect its cost of maintenance and service revenues to continue
to decrease materially as a percentage of maintenance and service revenues. The
cost of services as a percentage of services revenues may vary between periods
due to the mix of services provided by the Company and the extent to which
external contractors are used to provide those services.
 
OPERATING EXPENSES
 
    SALES AND MARKETING.  Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel, field
office expenses and travel, entertainment and
 
                                       32
<PAGE>
promotional expenses. Sales and marketing expenses increased to $44.9 million in
fiscal year 1998 from $28.6 million in fiscal year 1997 and $15.1 million in
fiscal year 1996. These increases reflect the hiring of additional sales and
marketing personnel, and their related costs, as well as increased costs
associated with expanded promotional activities. Sales and marketing expenses
represented 63 percent, 45 percent and 50 percent of total revenues in fiscal
years 1998, 1997 and 1996, respectively. The decrease in sales and marketing
expenses as a percentage of total revenues for fiscal year 1997 compared to
fiscal year 1996 was primarily due to revenue growth. The fiscal year 1998
increase in sales and marketing expenses as a percentage of total revenues was
primarily due to heavy investment in marketing, pipeline development, sales
organization headcount and training coupled with slower revenue growth in the
United States during fiscal year 1998 compared to fiscal year 1997. The Company
will continue to monitor the level of sales and marketing expenses and expects
that in fiscal year 1999 the sales and marketing expenses will not change
significantly as a percent of total revenues from fiscal year 1998.
 
    PRODUCT DEVELOPMENT.  The Company believes that a significant level of
investment for product development is required to remain competitive in today's
business environment. Product development expenses increased to $15.0 million in
fiscal year 1998 from $10.6 million in fiscal year 1997 and $8.1 million in
fiscal year 1996. These increases were primarily attributable to hiring of
additional product development personnel. Product development expenses
represented 21 percent, 17 percent and 27 percent of total revenues in fiscal
years 1998, 1997 and 1996, respectively. The fiscal year 1997 decrease in
research and development expenses as a percentage of total revenue was primarily
due to revenue growth. The fiscal year 1998 increase in product development
expenses as a percentage of total revenues was primarily due to the Company's
continued investment on significant Internet, Java and mainframe development
activities, the increase in the number of product development personnel, and the
outsourcing of certain development work, coupled with slower revenue growth
compared to fiscal year 1997. The Company anticipates that it will continue to
devote substantial resources to product development and that product development
expenses will increase in dollar amount in the future. All costs incurred in the
research and development of software products and enhancements to existing
software products have been expensed as incurred; accordingly, cost of license
revenues includes no amortization of capitalized software development costs.
 
    GENERAL AND ADMINISTRATIVE.  General and administrative expenses increased
to $7.6 million in fiscal year 1998 from $5.1 million in fiscal year 1997 and
from $3.2 million in fiscal year 1996. The increase was primarily due to
increased staffing and associated expenses necessary to manage and support the
Company's increased scale of operations. General and administrative expenses
represented 11 percent, 8 percent and 11 percent of total revenues in fiscal
years 1998, 1997 and 1996, respectively. The fiscal year 1997 decrease in
general and administrative expenses as a percentage of total revenue was
primarily due to revenue growth and improved economies of scale. The fiscal year
1998 increase in general and administration expenses as a percentage of total
revenues was primarily due to slower revenue growth compared to fiscal year
1997, coupled with expansion of the Company's administrative infrastructure. The
Company believes that its general and administrative expenses will increase in
dollar amount in the future as a result of the additions to the Company's
administrative staff to support its anticipated growth in operations.
 
    OTHER INCOME, NET.  Other income, net, represents interest earned by the
Company on its cash and cash equivalents and short-term investments offset by
interest expense on capitalized leases. See Note 6 of Notes to Consolidated
Financial Statements.
 
    PROVISION FOR INCOME TAXES.  There was no provision for federal or state
income taxes for fiscal year 1998 as the Company incurred net operating losses,
and there can be no assurance that the Company will realize the benefit of the
net operating loss carryforwards. The Company recorded foreign income tax
withholdings on certain license fees paid to the Company by foreign licensees.
 
    At March 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $30,000,000 which expire in tax
years 2006 through 2013, a federal research and
 
                                       33
<PAGE>
development tax credit carryforward of approximately $1,700,000 which expires in
tax years 2005 through 2012 and a foreign tax credit carryforward of
approximately $1,300,000 which expires in tax years 1999 through 2002.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    The Company has funded its operations and investments in furniture and
equipment through an initial public offering of common stock on March 11, 1996
with net proceeds of $34.3 million, the private sale of equity securities
totaling approximately $28.3 million, furniture and equipment leases of
approximately $4.1 million and cash advances from development partners. Since
inception, the Company has received $7.3 million from development partners and
as of March 31, 1998, the Company had repaid, through a variety of royalty and
other arrangements, an aggregate of $6.2 million of such advances. Net cash used
in operating activities was $10.9 million in fiscal year 1998, net cash
generated by operating activities was $11.5 million in fiscal year 1997, and net
cash used in operating activities was $3.4 million in fiscal year 1996. For
fiscal years 1996 and 1998, net cash used in operating activities resulted
primarily from net losses and increases in accounts receivable associated with
increases in revenues, partially offset by increases in deferred revenues,
accrued compensation and related expenses. Net cash generated in fiscal year
1997 resulted primarily from net income, depreciation and amortization
adjustments, increases in short term liabilities, somewhat offset by an increase
in accounts receivable. At March 31, 1998, Company's accounts receivable days
sales outstanding ("DSO") increased by 4% to 85 days from 82 days at March 31,
1997. This increase resulted primarily from the timing of payments received. The
Company's DSO could vary significantly on a quarterly or yearly basis.
 
    In fiscal years 1998, 1997 and 1996, the Company's investing activities
consisted primarily of purchases of furniture and equipment and short-term
investments. Capital expenditures, including those under capital leases, totaled
$5.0 million for both fiscal years 1998 and 1997 and $3.4 million in fiscal year
1996 respectively, to acquire furniture and equipment and computer hardware for
the Company's growing employee base. At March 31, 1998 the Company did not have
any material commitments for capital expenditures.
 
    At March 31, 1998, the Company had $34.2 million in cash and cash
equivalents and short term investments and $30 million in working capital. The
Company believes that its existing cash, cash equivalents and short-term
investments will be adequate to meet its cash needs for at least the next 12
months. Thereafter, the Company may require additional funds to support its
working capital requirements or for other purposes and may seek to raise such
additional funds through public or private equity financings or from other
sources. There can be no assurance that additional financing will be available
at all or that, if available, such financing will be obtainable on terms
favorable to the Company and would not be dilutive.
 
                                       34
<PAGE>
QUARTERLY RESULTS
 
    The following tables set forth certain unaudited consolidated statement of
operations data for the eight most recent quarters, as well as such data
expressed as a percentage of the Company's total revenues for the periods
indicated. This data has been derived from unaudited condensed consolidated
financial statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information. Such statement of operations data should be
read in conjunction with the Company's audited consolidated financial statements
and notes thereto. See the section entitled "Business Risks" in Item 1 for risk
factors. The operating results for any quarter are not necessarily indicative of
results for any future period.
 
<TABLE>
<CAPTION>
                                                                          QUARTER ENDED
                              ------------------------------------------------------------------------------------------------------
                               MARCH 31,    DEC. 31,     SEPT. 30,    JUNE 30,     MARCH 31,    DEC. 31,     SEPT. 30,    JUNE 30,
                                 1998         1997         1997         1997         1997         1996         1996         1996
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
                                                               (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                           <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
Consolidated Statement of
  Operations Data:
Revenues:
  License...................   $  12,366    $   9,575    $   9,919    $   7,965    $  13,534    $  12,205    $   9,833    $   8,023
  Maintenance and service...       9,455        7,770        7,569        6,709        6,050        5,368        4,381        3,657
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
    Total revenues..........      21,821       17,345       17,488       14,674       19,584       17,573       14,214       11,680
Cost of revenues:
  License...................         432          220          171           69          171          228          128          138
  Maintenance and service...       5,332        4,874        4,509        4,129        3,665        3,211        2,542        2,378
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
    Total cost of
      revenues..............       5,764        5,094        4,680        4,198        3,836        3,439        2,670        2,516
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Gross profit................      16,057       12,251       12,808       10,476       15,748       14,134       11,544        9,164
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Operating expenses:
  Sales and marketing.......      12,488       12,365       10,752        9,257        8,497        7,697        6,601        5,765
  Product development and
    engineering.............       4,196        4,074        3,667        3,046        2,978        2,784        2,565        2,284
  General and
    administrative..........       2,198        1,933        1,907        1,547        1,342        1,250        1,248        1,279
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
    Total operating
      expenses..............      18,882       18,372       16,326       13,850       12,817       11,731       10,414        9,328
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Income (loss) from
  operations................      (2,825)      (6,121)      (3,518)      (3,374)       2,931        2,403        1,130         (164)
Other income, net...........         476          462          515          553          491          488          520          489
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Income (loss) before income
  taxes.....................      (2,349)      (5,659)      (3,003)      (2,821)       3,422        2,891        1,650          325
Provision for income
  taxes.....................         310          630          (20)        (575)         460          342          205           32
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Net income (loss)...........   $  (2,659)   $  (6,289)   $  (2,983)   $  (2,246)   $   2,962    $   2,549    $   1,445    $     293
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Net income (loss) per
  share--basic..............   $   (0.14)   $   (0.32)   $   (0.15)   $   (0.12)   $    0.16    $    0.14    $    0.08    $    0.02
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Net income (loss) per
  share--diluted............   $   (0.14)   $   (0.32)   $   (0.15)   $   (0.12)   $    0.14    $    0.12    $    0.07    $    0.01
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Shares used in per share
  calculation
  Basic.....................      19,512       19,424       19,296       19,105       18,719       18,452       18,339       18,322
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
  Diluted...................      19,512       19,424       19,296       19,105       21,068       21,156       21,078       21,136
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
 
                                                                AS A PERCENTAGE OF TOTAL REVENUES
Revenues:
  License...................        56.7%        55.2%        56.7%        54.3%        69.1%        69.5%        69.2%        68.7%
  Maintenance and service...        43.3         44.8         43.3         45.7         30.9         30.5         30.8         31.3
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
    Total revenues..........       100.0        100.0        100.0        100.0        100.0        100.0        100.0        100.0
Cost of revenues:
  License...................         2.0          1.3          1.0          0.5          0.9          1.3          0.9          1.2
  Maintenance and service...        24.4         28.1         25.8         28.1         18.7         18.3         17.9         20.4
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
    Total cost of
      revenues..............        26.4         29.4         26.8         28.6         19.6         19.6         18.8         21.5
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Gross profit................        73.6         70.6         73.2         71.4         80.4         80.4         81.2         78.5
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Operating expenses:
  Sales and marketing.......        57.2         71.3         61.5         63.1         43.4         43.8         46.4         49.4
  Product development and
    engineering.............        19.2         23.5         21.0         20.8         15.2         15.8         18.0         19.6
  General and
    administrative..........        10.1         11.1         10.9         10.5          6.9          7.1          8.8         11.0
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
    Total operating
      expenses..............        86.5        105.9         93.4         94.4         65.4         66.8         73.3         79.9
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Income (loss) from
  operations................       (12.9)       (35.3)       (20.2)       (23.0)        15.0         13.7          7.9         (1.4)
Other income, net...........         2.2          2.7          2.9          3.8          2.5          2.8          3.7          4.2
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Income (loss) before income
  taxes.....................       (10.8)       (32.6)       (17.3)       (19.2)        17.5         16.5         11.6          2.8
Provision for income
  taxes.....................         1.4          3.6         (0.1)        (3.9)         2.3          1.9          1.4          0.3
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Net income (loss)...........       (12.2)%      (36.2)%      (17.2)%      (15.3)%       15.1%        14.5%        10.2%         2.5%
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
</TABLE>
 
                                       35
<PAGE>
    Revenues for the quarter ended March 31, 1998 increased 11 percent to $21.8
million from $19.6 million in the quarter ended March 31, 1997. The increase was
primarily related to maintenance and service revenues. License revenues in the
fourth quarter of fiscal year 1998 decreased to $12.4 million (57 percent of
total revenues) from $13.5 million (69 percent of total revenues) in the fourth
quarter of fiscal year 1997. Revenues for the quarter ended March 31, 1997
included a unusually large follow-on sale to an existing customer for $5.5
million. Maintenance and service revenues increased to $9.5 million in the
fourth quarter of fiscal year 1998 from $6.1 million in the fourth quarter of
fiscal year 1997. The increase was primarily a result of the growing installed
base in the Company's software products and the associated increase in demand
for maintenance, training and consulting services. International revenues
increased to $9.9 million, or by approximately 48 percent, in the fourth quarter
of fiscal year 1998 from $6.7 million in the fourth quarter of fiscal year 1997,
primarily as a result of expanded direct and indirect international operations.
 
    Cost of revenues for the fourth quarter of fiscal year 1998 increased to
$5.8 million (26 percent of total revenues) from $3.8 million (20 percent of
total revenues) in the fourth quarter of fiscal year 1997. The increase was
primarily related to maintenance and service revenue being a higher percentage
of total revenues. As a result, there were increases in cost of services
attributable to the hiring of additional consulting, customer service and
training personnel during fiscal year 1998 as well as the addition of facilities
for training and consulting operations.
 
    Sales and marketing expenses increased to $12.5 million for the fourth
quarter of fiscal year 1998 from $8.5 million in the fourth quarter of fiscal
year 1997. The increase was due primarily to costs associated with expanded
domestic and international sales operations. Product development and engineering
and general and administrative expenses increased in dollar amounts primarily
due to increased hiring to support the Company's growth.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    See Item 14(a) for an index to the financial statements and supplementary
financial information which are attached hereto.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
 
    Not applicable.
 
                                       36
<PAGE>
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    Information regarding directors is incorporated herein by reference from the
section entitled "Election of Directors" of the Company's proxy statement to be
filed pursuant to Regulation 14A for its Annual Stockholders Meeting to be held
August 19, 1998.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
    Information regarding directors is incorporated herein by reference from the
section entitled "Executive Compensation" of the Company's proxy statement to be
filed pursuant to Regulation 14A for its Annual Stockholders Meeting to be held
August 19, 1998.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    Information regarding directors is incorporated herein by reference from the
section entitled "Stock Ownership of Certain Beneficial Owners and Management"
of the Company's proxy statement to be filed pursuant to Regulation 14A for its
Annual Stockholders Meeting to be held August 19, 1998.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    Information regarding directors is incorporated herein by reference from the
section entitled "Stock Ownership of Certain Beneficial Owners and Management,"
"Executive Compensation," and "Transactions with Management" of the Company's
proxy statement to be filed pursuant to Regulation 14A for its Annual
Stockholders Meeting to be held August 19, 1998.
 
                                       37
<PAGE>
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
(a) The following documents are filed as part of this Annual Report on Form
    10-K:
 
    1.  CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                     PAGE NUMBER
                                                                                  -----------------
<S>                                                                               <C>
Report of Ernst & Young, LLP, Independent Auditors..............................             41
Consolidated Balance Sheets as of March 31, 1998 and 1997.......................             42
Consolidated Income Statements for each of the three years in the period ended
  March 31, 1998................................................................             43
Consolidated Statements of Stockholders' Equity for each of the three years in
  the period ended March 31, 1998...............................................             44
Consolidated Statements of Cash Flows for each of the three years in the period
  ended March 31, 1998..........................................................             45
Notes to Consolidated Financial Statements......................................             46
</TABLE>
 
2.  Financial Statement Schedule:
 
Schedule II--Valuation and Qualifying Accounts
 
Schedules not listed above have been omitted because the information required to
be set forth therein is not applicable or is shown in the consolidated financial
statements or notes thereto.
 
3.  Exhibits--See Item 14(c) below
 
(b) REPORTS ON FORM 8-K
 
    No reports on Form 8-K have been filed during the quarter ended March 31,
1998.
 
(c) Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT NO.  DESCRIPTION
-----------  ---------------------------------------------------------------------------------------------------------
<S>          <C>
       2.1   Agreement and Plan of Merger dated January 22, 1996, for the reincorporation merger of Forte Software,
             Inc., a California corporation, into Forte Software, Inc., a Delaware corporation (the Registrant).(1)
       3.1   Certificate of Incorporation of Registrant, as amended to date.(1)
       3.2   Bylaws of Registrant.(1)
       4.1   Specimen Common Stock certificate.(1)
       4.3   Amended and Restated Investors' Rights Agreement among Registrant and the Founders and Investors
             specified therein dated as of October 6, 1994.(1)
       4.4   Rights Agreement dated as of May 16, 1997 between the Company and BankBoston, N.A, including the
             Certificate of Designation of Series A Junior Participating Preferred Stock, Form of Right Certificate
             and Summary of Rights to Purchase Preferred Shares attached thereto as Exhibits A, B and C,
             respectively.(4)
       4.5   1997 Stock Plan.
      10.1   Form of Indemnification Agreement entered into by and between Registrant and its officers and
             directors.(1)
      10.2   Registrant's 1991 Equity Incentive Plan.(1)
      10.3   Registrant's 1996 Stock Option Plan.(1)
      10.4   Registrant's Employee Stock Purchase Plan.(1)
      10.5   Loan and Security Agreement by and between Registrant and Silicon Valley Bank dated as of September 20,
             1994, as modified August 1, 1994.(1)
</TABLE>
 
                                       38
<PAGE>
<TABLE>
<S>          <C>
      10.6   Real property lease by and between Registrant and State of California Public Employee's Retirement System
             dated December 1, 1994.(1)
      10.7   Master Lease Agreement and Warrant Agreement by and between Registrant and Comdisco, Inc. dated as of
             December 28, 1992, as modified by subsequent Equipment Schedules and Warrant Agreements dated May 9, 1994
             and February 15, 1995, and Equipment Schedule dated January 17, 1996.(1)
      10.8   Software Agreement between Digital Equipment Corporation and Registrant dated July 21, 1992, as
             amended.(1) (2)
      10.9   Source Code License and Master Distributor Agreement between Registrant and Mitsubishi Corporation dated
             September 26, 1994.(1) (2)
      10.10  Strategic Software Development and Distribution Agreement between Sequent Computer Systems, Inc. and
             Registrant dated August 6, 1992, as amended.(1) (2)
      10.11  Amendment to Real property lease by and between Registrant and State of California Public Employee's
             Retirement System dated December 1, 1994 and amended on January 16, 1997.(5)
      10.12  Real property sublease by and between Registrant and ICF Kaiser Engineers, Inc. dated January 16,
             1997.(5)
      10.13  Stock Option Grant to Thomas A. Jermoluk.(6)
      10.14  Stock Option Grant to Christos M. Cotsakos.(6)
      10.15  Form of Severance Agreement entered into by and between Registrant and its executive officers.
      11.1   Computation of net income (loss) per share.
      16.1   Letter regarding change in certifying accountant(3)
      21.1   Subsidiaries of Registrant.(3)
      23.1   Consent of Ernst & Young, LLP, Independent Auditors.(3)
      23.2   Consent of Counsel. Reference is made to Exhibit 5.1(1)
      27.1   Financial data schedule
      27.2   Financial data schedule
      27.3   Financial data schedule
</TABLE>
 
------------------------
 
(1) Incorporated by reference to the exhibit of the same number filed with
    Registrant's Form S-1 Registration Statement (File No. 333-598).
 
(2) Confidential treatment has been requested with respect to certain portions
    of this exhibit. Omitted portions have been filed separately with the
    Securities and Exchange Commission.
 
(3) Previously filed in the Company's 1996 Report on Form 10-K and has either no
    change from the prior year or is no longer required.
 
(4) Incorporated by reference to the Registrant Form 8-A dated May 1997.
 
(5) Incorporated by reference to the Registrant Form 10-K dated June 1997.
 
(6) Incorporated by reference to the Registrant Form 10-Q dated November 1997.
 
                                       39
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of the Securities Act of 1934, as amended, the
Registrant has duly caused this Report on Form 10-K to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Oakland, State of
California, on this 26th day of June, 1998.
 
<TABLE>
<S>                             <C>  <C>
                                FORTE SOFTWARE, INC.
 
                                By:               /s/ BOB L. COREY
                                     -----------------------------------------
                                                    Bob L. Corey
                                         SENIOR VICE PRESIDENT, FINANCE AND
                                      ADMINISTRATION, CHIEF FINANCIAL OFFICER
                                                   AND SECRETARY
</TABLE>
 
    KNOW BY ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Martin J. Sprinzen and Bob L. Corey, and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Report on Form 10-K, and to
file the same, with all exhibits thereto and all documents connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
 
    Pursuant to the requirements of the Securities Act of 1934, as amended, this
report has been signed by the following persons in the capacities and on the
date indicated.
 
          SIGNATURE                       TITLE                    DATE
------------------------------  --------------------------  -------------------
 
                                President, Chief Executive
    /s/ MARTIN J. SPRINZEN        Officer and Director
------------------------------    (Principal Executive         June 26, 1998
      Martin J. Sprinzen          Officer)
 
                                Senior Vice President,
                                  Finance and
       /s/ BOB L. COREY           Administration, Chief
------------------------------    Financial Officer and        June 26, 1998
         Bob L. Corey             Secretary (Principal
                                  Financial and Accounting
                                  Officer)
 
   /s/ CHRISTOS M. COTSAKOS
------------------------------  Director                       June 26, 1998
     Christos M. Cotsakos
 
    /s/ THOMAS A. JERMOLUK
------------------------------  Director                       June 26, 1998
      Thomas A. Jermoluk
 
 /s/ WILLIAM H. YOUNGER, JR.
------------------------------  Director                       June 26, 1998
   William H. Younger, Jr.
 
                                       40
<PAGE>
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
The Board of Directors and Stockholders
Forte Software, Inc.
 
    We have audited the accompanying consolidated balance sheets of Forte
Software, Inc. as of March 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 1998. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Forte Software, Inc. at March 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
 
ERNST & YOUNG
 
Walnut Creek, California
April 20, 1998
 
                                       41
<PAGE>
                              FORTE SOFTWARE, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                                  MARCH 31,
                                                                                            ----------------------
                                                                                               1998        1997
                                                                                            ----------  ----------
<S>                                                                                         <C>         <C>
                                                      ASSETS
 
Current assets:
  Cash and cash equivalents...............................................................  $   13,358  $   35,103
  Short-term investments..................................................................      20,802      13,154
  Accounts receivable, net of allowances of $1,151 ($941 in 1997).........................      20,277      17,750
  Prepaid expenses and other current assets...............................................       1,635       1,003
                                                                                            ----------  ----------
Total current assets......................................................................      56,072      67,010
Equipment and leasehold improvements, net.................................................       7,416       6,489
Other assets..............................................................................         250         250
                                                                                            ----------  ----------
Total assets..............................................................................  $   63,738  $   73,749
                                                                                            ----------  ----------
                                                                                            ----------  ----------
 
                                       LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
  Accounts payable........................................................................       1,530       3,003
  Accrued compensation and related expenses...............................................       7,534       6,191
  Other accrued liabilities...............................................................       3,969       3,999
  Deferred revenue........................................................................      12,312       9,247
  Current portion of capital lease obligations............................................         695         915
                                                                                            ----------  ----------
Total current liabilities.................................................................      26,040      23,355
Capital lease obligations, due after one year.............................................         123         849
Deferred revenue..........................................................................         265         871
Commitments
Stockholders' equity:
  Convertible preferred stock, $.01 par value; 5,000,000 shares authorized, no shares
    issued and outstanding................................................................          --          --
  Common Stock, $.01 par value; 45,000,000 shares authorized; 19,533,124 shares issued and
    outstanding (18,798,100 in 1997)......................................................         195         188
  Additional paid-in capital..............................................................      66,851      64,169
  Accumulated deficit.....................................................................     (29,663)    (15,486)
  Foreign currency translation adjustments................................................         (73)       (197)
                                                                                            ----------  ----------
Total stockholders' equity................................................................      37,310      48,674
                                                                                            ----------  ----------
Total liabilities and stockholders' equity................................................  $   63,738  $   73,749
                                                                                            ----------  ----------
                                                                                            ----------  ----------
</TABLE>
 
                            See accompanying notes.
 
                                       42
<PAGE>
                              FORTE SOFTWARE, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                       YEARS ENDED MARCH 31,
                                                                                  --------------------------------
                                                                                     1998       1997       1996
                                                                                  ----------  ---------  ---------
<S>                                                                               <C>         <C>        <C>
Revenues:
  License fees..................................................................  $   39,825  $  43,595  $  21,357
  Maintenance and services......................................................      31,503     19,456      8,688
                                                                                  ----------  ---------  ---------
  Total revenues................................................................      71,328     63,051     30,045
                                                                                  ----------  ---------  ---------
 
Cost of Revenues
  Cost of license fees..........................................................         892        665        456
  Cost of maintenance and services..............................................      18,844     11,796      5,452
                                                                                  ----------  ---------  ---------
  Total cost of revenues........................................................      19,736     12,461      5,908
                                                                                  ----------  ---------  ---------
  Gross Profit..................................................................      51,592     50,590     24,137
Operating expenses:
  Sales and marketing...........................................................      44,862     28,560     15,060
  Product development and engineering...........................................      14,983     10,611      8,069
  General and administrative....................................................       7,585      5,119      3,168
                                                                                  ----------  ---------  ---------
    Total operating expenses....................................................      67,430     44,290     26,297
                                                                                  ----------  ---------  ---------
Operating income (loss).........................................................     (15,838)     6,300     (2,160)
Interest income.................................................................       2,199      2,232        568
Interest expense and other, net.................................................        (193)      (244)      (282)
                                                                                  ----------  ---------  ---------
Income (loss) before income taxes...............................................     (13,832)     8,288     (1,874)
Provision for income taxes......................................................         345      1,039        114
 
Net income (loss)...............................................................  $  (14,177) $   7,249  $  (1,988)
                                                                                  ----------  ---------  ---------
                                                                                  ----------  ---------  ---------
Net income (loss) per share--basic..............................................  $    (0.73) $    0.39  $   (0.41)
                                                                                  ----------  ---------  ---------
                                                                                  ----------  ---------  ---------
Net income (loss) per share--diluted............................................  $    (0.73) $    0.34  $   (0.41)
                                                                                  ----------  ---------  ---------
                                                                                  ----------  ---------  ---------
Shares used in per share calculation
  Basic.........................................................................      19,334     18,458      4,874
                                                                                  ----------  ---------  ---------
                                                                                  ----------  ---------  ---------
  Diluted.......................................................................      19,334     21,110      4,874
                                                                                  ----------  ---------  ---------
                                                                                  ----------  ---------  ---------
</TABLE>
 
                            See accompanying notes.
 
                                       43
<PAGE>
                              FORTE SOFTWARE, INC.
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                CONVERTIBLE PREFERRED                                                         FOREIGN
                                        STOCK                COMMON STOCK       ADDITIONAL                   CURRENCY
                                ----------------------  ----------------------    PAID-IN    ACCUMULATED    TRANSLATION
                                 SHARES      AMOUNT      SHARES      AMOUNT       CAPITAL      DEFICIT      ADJUSTMENT      TOTAL
                                ---------  -----------  ---------  -----------  -----------  ------------  -------------  ---------
<S>                             <C>        <C>          <C>        <C>          <C>          <C>           <C>            <C>
Balance at March 31, 1995.....     12,030   $     120       3,684   $      37    $  28,015    $  (20,747)    $      24    $   7,449
  Issuance of common stock....         --          --         747           8          334            --            --          342
  Public offering of common
    stock, net of expenses of
    $3,985....................         --          --       1,823          18       34,269            --            --       34,287
  Conversion of preferred
    stock.....................    (12,030)       (120)     12,030         120           --            --            --           --
  Foreign currency translation
    adjustment................         --          --          --          --           --            --           (46)         (46)
  Net loss....................         --          --          --          --           --        (1,988)           --       (1,988)
                                ---------       -----   ---------       -----   -----------  ------------        -----    ---------
Balance at March 31, 1996.....         --          --      18,284         183       62,618       (22,735)          (22)      40,044
  Issuance of common stock....         --          --         514           5        1,551            --            --        1,556
  Foreign currency translation
    adjustment................         --          --          --          --           --            --          (175)        (175)
  Net income..................         --          --          --          --           --         7,249            --        7,249
                                ---------       -----   ---------       -----   -----------  ------------        -----    ---------
Balance at March 31, 1997.....         --          --      18,798         188       64,169       (15,486)         (197)      48,674
  Issuance of common stock....         --          --         735           7        2,682            --            --        2,689
  Foreign currency translation
    adjustment................         --          --          --          --           --            --           124          124
  Net income..................         --          --          --          --           --       (14,177)           --      (14,177)
                                ---------       -----   ---------       -----   -----------  ------------        -----    ---------
  Balance at March 31, 1998...  $      --   $      --      19,533   $     195    $  66,851    $  (29,663)    $     (73)   $  37,310
                                ---------       -----   ---------       -----   -----------  ------------        -----    ---------
                                ---------       -----   ---------       -----   -----------  ------------        -----    ---------
</TABLE>
 
                            See accompanying notes.
 
                                       44
<PAGE>
                              FORTE SOFTWARE, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                                  YEARS ENDED MARCH 31,
                                                                                            ----------------------------------
                                                                                               1998        1997        1996
                                                                                            ----------  ----------  ----------
<S>                                                                                         <C>         <C>         <C>
OPERATING ACTIVITIES
Net income (loss).........................................................................  $  (14,177) $    7,249  $   (1,988)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
  Depreciation and amortization...........................................................       4,026       2,476       1,365
  Changes in operating assets and liabilities:
    Accounts receivable...................................................................      (2,466)     (6,777)     (8,099)
    Prepaid expenses and other assets.....................................................        (632)       (241)       (498)
    Accounts payable......................................................................      (1,412)      1,851         701
    Accrued compensation and related expenses.............................................       1,343       3,310       1,208
    Deferred revenue......................................................................       2,459       2,145       2,051
    Other accrued liabilities.............................................................         (28)      1,470       1,897
                                                                                            ----------  ----------  ----------
Net cash provided by (used in) operating activities.......................................     (10,887)     11,483      (3,363)
 
INVESTING ACTIVITIES
Purchases of equipment and leasehold improvements.........................................      (4,864)     (4,972)     (1,220)
Purchase of short-term investments........................................................     (18,497)    (16,539)     (6,236)
Maturities of short-term investments......................................................      10,850       9,618       2,915
                                                                                            ----------  ----------  ----------
Net cash used in investing activities.....................................................     (12,511)    (11,893)     (4,541)
 
FINANCING ACTIVITIES
Payment on notes payable..................................................................          --          --        (729)
Reduction of capital lease obligations....................................................      (1,036)     (1,124)       (775)
Proceeds from issuance of common stock....................................................       2,689       1,556      34,629
                                                                                            ----------  ----------  ----------
Net cash provided by financing activities.................................................       1,653         432      33,125
                                                                                            ----------  ----------  ----------
Increase (decrease) in cash and cash equivalents..........................................     (21,745)         22      25,221
Cash and cash equivalents at beginning of period..........................................      35,103      35,081       9,860
                                                                                            ----------  ----------  ----------
Cash and cash equivalents at end of period................................................  $   13,358  $   35,103  $   35,081
                                                                                            ----------  ----------  ----------
                                                                                            ----------  ----------  ----------
Supplemental disclosures:
  Interest paid...........................................................................  $      151  $      244  $      287
                                                                                            ----------  ----------  ----------
                                                                                            ----------  ----------  ----------
  Income taxes paid.......................................................................  $      590  $      432  $      118
                                                                                            ----------  ----------  ----------
                                                                                            ----------  ----------  ----------
Supplemental disclosures of noncash investing and financing activities:
Capital lease obligations incurred........................................................  $       --  $       90  $    2,201
                                                                                            ----------  ----------  ----------
                                                                                            ----------  ----------  ----------
</TABLE>
 
                                       45
<PAGE>
                              FORTE SOFTWARE, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    THE COMPANY
 
    Forte Software, Inc. designs, develops, markets and supports Forte, a
software application development, deployment and management environment for
distributed enterprise applications. Forte was designed to enable organizations
to create applications with powerful functionality that support up to hundreds
or thousands of concurrent users with high levels of reliability, performance
and manageability.
 
    Forte is marketed and sold through the Company's direct sales force,
distributors, system integrators and value added resellers in all major markets.
Forte has been adopted by customers in a wide variety of industries, including
banking, consumer, retail, education, energy, finance, government, healthcare/
pharmaceuticals, insurance, manufacturing, media, technology and
telecommunications.
 
    BASIS OF PRESENTATION
 
    The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned foreign subsidiaries. The Company translates
the accounts of its foreign subsidiaries using the local foreign currency as the
functional currency. The assets and liabilities of the foreign subsidiaries are
translated into U.S. dollars using exchange rates at the balance sheet date,
revenues and expenses are translated using the weighted average exchange rate
for the period, and gains and losses from this translation process are credited
or charged to stockholders' equity. Foreign currency transaction gains and
losses have not been material. All significant intercompany accounts and
transactions have been eliminated.
 
    USE OF ESTIMATES
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
 
    CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
 
    Cash equivalents are highly liquid investments with insignificant interest
rate risk and maturities of three months or less at the date of purchase and are
stated at amounts which approximate fair value, based on quoted market prices.
Cash equivalents consist principally of investments in taxable, short-term money
market instruments and commercial paper.
 
    Short-term investments consist principally of short-term corporate
securities and commercial paper with maturities greater than 90 days and are
stated at amounts which approximate fair value.
 
    The Company accounts for its cash equivalents and short-term investments in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Management determines
the appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. At March 31, 1998
and 1997, the
 
                                       46
<PAGE>
                              FORTE SOFTWARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
    CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS (CONTINUED)
Company has classified all of its debt securities as available-for-sale, the
components of which are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                               MARCH 31,
                                                                          --------------------
                                                                            1998       1997
                                                                          ---------  ---------
<S>                                                                       <C>        <C>
Commercial paper........................................................  $  17,324  $  25,432
Corporate securities....................................................     13,146     13,154
State and local municipalities..........................................        800         --
                                                                          ---------  ---------
Total investments.......................................................  $  31,270  $  38,586
                                                                          ---------  ---------
                                                                          ---------  ---------
 
Cash equivalents........................................................  $  10,468  $  25,432
Short-term investments..................................................     20,802     13,154
                                                                          ---------  ---------
Total Investments.......................................................     31,270     38,586
                                                                          ---------  ---------
                                                                          ---------  ---------
Cash....................................................................      2,890      9,671
                                                                          ---------  ---------
Total cash, cash equivalents and short-term investments.................  $  34,160  $  48,257
                                                                          ---------  ---------
                                                                          ---------  ---------
</TABLE>
 
    Unrealized gains and losses at March 31, 1998, 1997 and 1996 and realized
gains and losses for the years then ended were not material. The cost of
securities sold is based on the specific identification method.
 
    At March 31, 1998 and 1997, $9,669,000 and $25,432,000 of debt securities
were included in cash equivalents, and $20,802,000 and $13,154,000 were included
in short-term investments, respectively.
 
    CONCENTRATIONS OF CREDIT RISK AND CREDIT EVALUATIONS
 
    Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
including short-term obligations of the U.S.
 
    Government and its agencies, corporate securities, money market funds and
commercial paper. The Company places its temporary cash investments primarily
with two financial institutions.
 
    The Company licenses its products primarily to companies in North America,
Europe and Japan. The Company performs ongoing credit evaluations of these
customers and generally does not require collateral. Reserves are maintained for
potential credit losses.
 
    MAJOR CUSTOMER
 
    No customer accounted for more than ten percent of the Company's total
revenues for the fiscal years ended March 31, 1998 or 1996. However, revenues
from one customer accounted for approximately twelve percent of total revenues
in fiscal year 1997.
 
                                       47
<PAGE>
                              FORTE SOFTWARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    REVENUE RECOGNITION
 
    The Company licenses software under noncancelable license agreements and
provides services, including maintenance, training and consulting. License fee
revenues are recognized when a noncancelable license agreement has been signed,
the product has been shipped, the fees are fixed and determinable and
collectibility is probable. Fees for services are charged separately from the
license of the Company's software products. Maintenance revenues consist of fees
for ongoing support and product updates and are recognized ratably over the term
of the contract, which is typically 12 months. Revenues from training are
recognized upon completion of the related training class. Consulting revenues
are recognized as the services are performed.
 
    Allowances for credit risks and for estimated future returns are provided
for upon shipment. Returns to date have not been material. Actual credit losses
and returns may differ from the Company's estimates and such differences could
be material to the financial statements.
 
    Deferred revenue includes deferred maintenance revenue, prepaid consulting
and training fees and prepaid license fees from third-party resellers.
 
    INTERNATIONAL OPERATIONS
 
    The Company operates in one industry segment (the development and marketing
of computer software and related services) and markets its products and services
internationally through foreign subsidiaries in Europe and Australia, Digital
Equipment Corporation on a worldwide basis, and other distributors and resellers
located in the United States, Canada, Asia, Europe, South America, South Africa
and Israel. Export sales through distributors, resellers and the domestic direct
sales organization totaled $11,417,000, $9,911,000 and $5,312,000 for the years
ended March 31, 1998, 1997 and 1996, respectively. Sales through the Company's
foreign subsidiaries totaled $20,997,000, $12,967,000 and $2,427,000 for the
years ended March 31, 1998, 1997 and 1996, respectively.
 
    SOFTWARE DEVELOPMENT COSTS
 
    Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." Under the standard,
capitalization of software development costs begins upon the establishment of
technological feasibility, subject to net realizable value considerations. The
Company begins capitalization upon completion of a working model. To date, such
capitalizable costs have not been material. Accordingly, the Company has charged
all such costs to research and development expense. Future capitalized costs, if
any, will be amortized on a straight-line basis over the estimated life of the
products or the ratio of current revenue to the total of current and anticipated
future revenue, whichever expense is greater.
 
    EQUIPMENT AND LEASEHOLD IMPROVEMENTS
 
    Equipment and leasehold improvements are stated at cost and are depreciated
using the straight-line method over the estimated useful lives of the related
assets, which range from three to four years. Leasehold improvements and
equipment under capital leases are amortized using the straight-line method over
the lesser of the lease term or the estimated useful lives.
 
                                       48
<PAGE>
                              FORTE SOFTWARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    INCOME TAXES
 
    The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires the use of the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are measured using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
 
    ACCOUNTING FOR STOCK-BASED COMPENSATION
 
    The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and has adopted the "disclosure only" alternative
described in Statement of Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123").
 
    NET INCOME (LOSS) PER SHARE
 
    In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" (Statement 128"). Statement 128 replaced the calculation of
primary and fully diluted net income (loss) per share with basic and diluted net
income (loss) per share. Unlike primary net income (loss) per share, basic net
income (loss) per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted net income (loss) per share is similar to the
previously reported fully diluted net income (loss) per share. Where
appropriate, net income (loss) per share amounts have been restated to conform
to the requirements of Statement 128.
 
    Basic net income (loss) per share is computed using the weighted average
number of shares of common stock outstanding. Diluted net income (loss) per
share is computed using the weighted average number of common shares and all
dilutive potential common shares outstanding. In loss periods, potentially
outstanding commons shares, such as options and warrants, are excluded from the
calculation of diluted net loss per share as their effect is anti-dilutive.
 
    RECENTLY ISSUED ACCOUNTING STANDARDS
 
    Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as
amended by Statement of Position 98-4, was issued in October 1997 and addresses
software revenue recognition matters. The SOP supersedes SOP 91-1 and is
effective for transactions entered into for fiscal years beginning after
December 15, 1997.
 
    The Company is required to adopt this SOP in its first quarter of fiscal
year 1999 and restatement of prior financial statements is prohibited. Based
upon its reading and interpretation of SOP 97-2, the Company believes its
current revenue recognition policies and practices are materially consistent
with the SOP. However, implementation guidelines for this standard have not yet
been issued and a wide range of potential interpretations are being discussed by
the accounting profession. Once available, such implementation guidance could
lead to unanticipated changes in the Company's current revenue accounting
practices, and such changes could materially and adversely affect the Company's
future revenues and operating results.
 
    In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for the reporting of comprehensive income
and its components in a full set of general-purpose financial
 
                                       49
<PAGE>
                              FORTE SOFTWARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
    RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
statements for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods for comparative purposes is
required. The Company will adopt SFAS 130 in fiscal year 1999 and does not
expect such adoption to have a material effect on the consolidated financial
statements.
 
    In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of An
Enterprise and Related Information" ("SFAS 131"). SFAS 131 revises information
regarding the reporting of operating segments. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company will adopt SFAS 131 in fiscal year 1999 and does not
expect such adoption to have a material effect on the consolidated financial
statements.
 
2.  EQUIPMENT AND LEASEHOLD IMPROVEMENTS
 
    Equipment and leasehold improvements consist of the following (in
thousands):
 
<TABLE>
<CAPTION>
                                                            MARCH 31,
                                                       --------------------      ESTIMATED
                                                         1998       1997       USEFUL LIVES
                                                       ---------  ---------  -----------------
<S>                                                    <C>        <C>        <C>
Equipment under capital leases.......................  $   4,182  $   4,182     36 - 42 months
Equipment............................................      9,798      5,664     36 - 42 months
Leasehold improvements...............................      2,096      1,276          36 months
                                                       ---------  ---------
                                                          16,076     11,122
Less accumulated depreciation and amortization.......     (8,660)    (4,633)
                                                       ---------  ---------
Equipment and leasehold improvements, net............  $   7,416  $   6,489
                                                       ---------  ---------
                                                       ---------  ---------
</TABLE>
 
    Accumulated amortization related to assets under capital leases at March 31,
1998 and 1997 totaled $3,532,000 and $2,649,000 respectively.
 
3. STOCKHOLDERS' EQUITY
 
    INITIAL PUBLIC OFFERING
 
    On March 11, 1996, the Company completed an initial public offering of
1,822,500 shares of common stock at $21.00 per share. The Company received net
proceeds of $34,287,000. In connection with the initial public offering, all
outstanding shares of Series A, B, C and D preferred stock converted into
12,029,883 shares of common stock.
 
    Certain common shares are subject to repurchase rights by the Company in the
event of termination of employment at the price originally paid by the
shareholder. At March 31, 1998, common stock was reserved for issuance as
follows:
 
<TABLE>
<S>                                                                <C>
Stock option plans...............................................  5,189,649
Warrants.........................................................     67,423
Employee stock purchase plan.....................................    393,763
                                                                   ---------
                                                                   5,650,835
</TABLE>
 
                                       50
<PAGE>
                              FORTE SOFTWARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
3. STOCKHOLDERS' EQUITY (CONTINUED)
 
    PREFERRED STOCK PURCHASE RIGHTS
 
    On May 16, 1997, the Board of Directors of the Company declared a dividend
distribution of one Preferred Share Purchase Right on each outstanding share of
its common stock. Each Right will entitle stockholders to buy one one-thousandth
of a share of newly created Series A Junior Participating Preferred Stock of the
Company at an exercise price of $125.00. The Rights will be exercisable if a
person or group hereafter becomes the beneficial owner of 15% or more of the
Common Stock of the Company or announces a tender or exchange offer for 15% or
more of the Common Stock. The Board of Directors will be entitled to redeem the
Rights at one cent per Right at any time before any such person hereafter
becomes the beneficial owner of 15% or more of the outstanding Common Stock.
 
    WARRANTS
 
    In February 1997, 9,163 shares of common stock were issued in connection
with the exercise of warrants by a bank.
 
    As of March 31, 1998, warrants to purchase common stock were outstanding in
connection with an equipment lease agreement as follows: 39,173 shares at an
exercise price of $2.30 per share, 12,500 shares at an exercise price of $4.00
per share, 13,500 shares at an exercise price of $6.67 per share, and 2,250
shares at an exercise price of $6.67 per share. These warrants are exercisable
through 2005.
 
    EMPLOYEE STOCK PURCHASE PLAN
 
    The Employee Stock Purchase Plan (the "Purchase Plan") was adopted in
January 1996. The Company initially authorized 400,000 shares of common stock
under the Purchase Plan of which 238,047 and 68,190 shares were issued during
the years March 31, 1998 and 1997, respectively. At the Company's annual meeting
in August 1997, an additional 300,000 shares were approved and authorized for
issuance under the Plan. Eligible employees may purchase common stock through
payroll deductions, which may not exceed 10% of an employee's compensation. The
price of stock purchased under the Purchase Plan will be 85% of the lower of the
fair market value of the common stock at the beginning of the 24-month offering
period or on the applicable semiannual purchase date. Unless sooner terminated
by the Board, the Purchase Plan shall terminate upon the earliest of (i) the
last business day in October 2006, (ii) the date on which all shares available
for issuance under the Purchase Plan shall have been sold pursuant to purchase
rights exercised under the Purchase Plan or (iii) the date on which all purchase
rights are exercised in connection with certain corporate transactions. The
weighted-average fair value of shares issued under the Purchase Plan during 1998
and 1997 was $5.47 and $6.11 per share, respectively.
 
    STOCK OPTION PLANS
 
    Under the terms of the 1991 Stock Option Plan (the "1991 Plan") eligible key
employees, directors, and consultants can receive options to purchase shares of
the Company's common stock at a price not less than 100% and 85% of the fair
value on the date of the grant for incentive stock options and nonqualified
stock options, respectively. The options granted under the 1991 Plan are
exercisable over a maximum term of ten years from the date of grant and
generally vest over a five-year period. Shares sold under the Plan are subject
to various restrictions as to resale and right of repurchase by the Company.
 
    In January 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan") as the successor to the 1991 Plan. Under the 1996 Plan, eligible key
employees, directors, and consultants can receive
 
                                       51
<PAGE>
                              FORTE SOFTWARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
3. STOCKHOLDERS' EQUITY (CONTINUED)
 
    STOCK OPTION PLANS (CONTINUED)
options to purchase shares of the Company's common stock at a price not less
than 85% of the fair market value on the grant date. The Company authorized
4,860,000 shares of common stock to be issued under the 1996 Plan (including
shares previously authorized under the 1991 Plan), of which 793,135 (including
options incorporated from the 1991 Plan) are available for grant at March 31,
1998.
 
    In 1998 the Company's stockholders approved the adoption of 1997 Stock
Option Plan (the "1997 Plan"). The terms of the 1997 Plan are substantially the
same as the 1996 Plan. The number of shares of common stock initially reserved
for grants under this Plan was 845,914, In February 1998, the Company approved
an additional 700,000 shares for nonstatuatory stock options. At March 31, 1998,
106,799 shares were available for grant. The number of shares available for
grants will automatically increase at April 1, 1998 by 4.5% of the total number
of common shares outstanding as of that date up to a maximum of 1.2 million
shares.
 
    In April 1997, the Company offered employees the option to exchange options
to purchase 612,397 shares of common stock with a weighted average exercise
price of $23.55 for new options with an exercise price of $8.3125 per share. All
options that were exchanged continued to vest under the original terms of the
option grant, except that no options were exercisable for a period of one year
from the exchange date.
 
    A summary of the activity, combined, under the 1996 and 1997 Plans is set
forth below:
 
<TABLE>
<CAPTION>
                                                                                      WEIGHTED
                                                                                       AVERAGE
                                                                                      EXERCISE
                                                                          SHARES        PRICE
                                                                        -----------  -----------
<S>                                                                     <C>          <C>
Outstanding at March 31, 1995.........................................    2,857,817   $    0.41
  Granted.............................................................    1,181,075        6.22
  Exercised...........................................................     (735,353)       0.45
  Cancelled...........................................................     (230,481)       0.96
                                                                        -----------  -----------
Outstanding at March 31, 1996.........................................    3,073,058        2.73
  Granted.............................................................      486,200       31.06
  Exercised...........................................................     (439,278)       0.81
  Cancelled...........................................................     (257,708)       7.69
                                                                        -----------  -----------
Outstanding at March 31, 1997.........................................    2,862,272   $    7.35
  Granted.............................................................    3,041,797        8.00
  Exercised...........................................................     (517,172)       1.09
  Cancelled...........................................................   (1,097,180)      14.66
                                                                        -----------  -----------
Outstanding at March 31, 1988.........................................    4,289,717   $    6.13
                                                                        -----------  -----------
                                                                        -----------  -----------
Vested options at March 31, 1998......................................    1,096,480   $    4.63
                                                                        -----------  -----------
                                                                        -----------  -----------
</TABLE>
 
    At March 31, 1998, 59,543 shares of common stock issued through the exercise
of options were subject to repurchase by the Company and were excluded from the
calculation of earnings per share. The weighted-average fair value of options
granted during 1998, 1997 and 1996 was $5.05, $18.17, and $3.63 and per share,
respectively.
 
                                       52
<PAGE>
                              FORTE SOFTWARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
3. STOCKHOLDERS' EQUITY (CONTINUED)
 
    STOCK OPTION PLANS (CONTINUED)
    The following table summarizes information concerning currently outstanding
and exercisable options:
 
<TABLE>
<CAPTION>
                                        OUTSTANDING
                                ----------------------------        EXERCISABLE
                                   WEIGHTED                   -----------------------
                                    AVERAGE       WEIGHTED                 WEIGHTED
                                   REMAINING       AVERAGE      SHARES      AVERAGE
                     SHARES       CONTRACTUAL     EXERCISE    EXERCISABLE  EXERCISE
EXERCISE PRICE     OUTSTANDING       LIFE           PRICE     AND VESTED     PRICE
-----------------  -----------  ---------------  -----------  ----------  -----------
<S>                <C>          <C>              <C>          <C>         <C>
$0.07 - $3.67       1,271,985           6.62      $    1.22      619,769   $    1.08
$5.00 - $8.31       2,563,172           7.01           7.22      416,668        7.98
$10.00 - $15.06       424,060           8.99          12.17       44,105       11.06
$21.00 - $54.75        30,500           8.35          36.06       15,938       35.05
                   -----------                                ----------
                    4,289,717                                  1,096,480
                   -----------                                ----------
                   -----------                                ----------
</TABLE>
 
    STOCK-BASED COMPENSATION
 
    As permitted under SFAS 123, the Company has elected to continue to follow
APB 25 in accounting for stock-based awards to employees. Under APB 25, the
Company has not recognized any compensation expense with respect to such awards,
since the exercise price of the stock options awarded are equal to the fair
market value of the underlying security on the grant date.
 
    Disclosure of information regarding net income (loss) and net income (loss)
per share is required by SFAS 123 for the Company's awards granted after March
31, 1995 as if the Company had accounted for its stock-based awards to employees
under the fair value method of SFAS 123. The fair value of the Company's
stock-based awards to employees was estimated as of the date of the grant using
a Black-Scholes option pricing model. Limitations on the effectiveness of the
Black-Scholes option valuation model are that it was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable and that the model requires the use of highly
subjective assumptions including expected stock price volatility. Because the
Company's stock-based awards to employees have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards to employees. The Company
has plans which award employees stock including its stock option plans and the
Purchase Plan. Both of these plans are discussed in the note above. The fair
value of the Company's stock-based awards to employees was estimated assuming
the following assumptions for the years ended March 31,:
 
<TABLE>
<CAPTION>
                                                                                             PURCHASE
                                                  STOCK OPTIONS                                PLAN
                                  ----------------------------------------------  ------------------------------
                                       1998            1997            1996            1998            1997
                                  --------------  --------------  --------------  --------------  --------------
<S>                               <C>             <C>             <C>             <C>             <C>
Expected life (in years)........             4.5               5               5             0.5             0.5
Expected volatility.............            0.77            0.62            0.62            0.74            0.75
Risk free interest rate.........     5.2% - 5.4%     6.1% - 6.7%     5.3% - 6.8%     5.2% - 6.1%            6.4%
Expected dividend yield.........           0.00%           0.00%           0.00%           0.00%           0.00%
</TABLE>
 
                                       53
<PAGE>
                              FORTE SOFTWARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
3. STOCKHOLDERS' EQUITY (CONTINUED)
 
    STOCK-BASED COMPENSATION (CONTINUED)
    For disclosure purposes, the adjusted estimated fair value of the Company's
stock-based awards to employees is amortized over the vesting period for options
and the six-month purchase period for stock purchases under the Purchase Plan.
The Company's adjusted information follows (in thousands, except for per share
information):
 
<TABLE>
<CAPTION>
                                                                      YEAR ENDED MARCH 31,
                                                                --------------------------------
                                                                   1998       1997       1996
                                                                ----------  ---------  ---------
<S>                                                             <C>         <C>        <C>
Pro forma net income (loss)...................................  $  (16,305) $   5,258  $  (2,233)
Pro forma net income (loss) per share
  Basic.......................................................  $    (0.84) $    0.28  $   (0.46)
  Diluted.....................................................  $    (0.84) $    0.25  $   (0.46)
</TABLE>
 
    Because SFAS 123 is applicable only to the Company's stock based awards
granted subsequent to March 31, 1995, its adjusted effect will not be fully
reflected until approximately fiscal year 2000. In addition, the effects of
applying FAS 123 for providing pro forma disclosures are not likely to be
representative of the effects on reported net income (loss) for future years.
 
4.  INCOME TAXES
 
    The Company accounts for income taxes pursuant to Statement of Accounting
Standards No. 109, "Accounting for Income Taxes," which uses the liability
method to calculate deferred income taxes. Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets and
liabilities are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                         YEAR ENDED MARCH 31,
                                                                        ----------------------
                                                                           1998        1997
                                                                        ----------  ----------
<S>                                                                     <C>         <C>
Deferred tax assets:
  Net operating loss carryforwards....................................  $   11,030  $    4,785
  Deferred revenue....................................................         319       1,346
  Research and development credit carryforwards.......................       2,495       1,719
  Reserves and other accruals.........................................       1,448       1,719
  Depreciation........................................................       2,099       1,277
  Foreign tax credit carryforwards....................................       1,272         757
  Other...............................................................         128          86
                                                                        ----------  ----------
  Total deferred tax assets...........................................      18,791      11,689
Valuation allowance...................................................     (17,541)    (10,862)
Deferred tax liabilities..............................................      (1,250)       (827)
                                                                        ----------  ----------
Net deferred tax assets...............................................          --          --
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>
 
    Due to uncertainty surrounding the realization of the deferred tax assets, a
valuation allowance has been established to fully offset net deferred tax assets
at year end. The valuation allowance increased $6,679,000 and $1,425,000 in the
years ending March 31, 1998 and 1997, respectively.
 
                                       54
<PAGE>
                              FORTE SOFTWARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
4.  INCOME TAXES (CONTINUED)
    Of the total deferred tax asset valuation allowance at March 31, 1998,
approximately $4,100,000 relates to the exercise of employee stock options for
which any subsequently recognized tax benefits will be credited directly to
stockholders' equity rather than a reduction in the income tax provision.
 
    The current income tax provisions are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                           YEAR ENDED MARCH 31,
                                                                      -------------------------------
                                                                        1998       1997       1996
                                                                      ---------  ---------  ---------
<S>                                                                   <C>        <C>        <C>
Current:
Federal.............................................................  $    (190) $     190  $      --
State...............................................................         20        115         --
Foreign.............................................................        515        734        114
                                                                      ---------  ---------  ---------
                                                                      $     345  $   1,039  $     114
                                                                      ---------  ---------  ---------
                                                                      ---------  ---------  ---------
</TABLE>
 
    The provision for income taxes differed from the amount computed by applying
the statutory federal income tax rate as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                       YEAR ENDED MARCH 31,
                                                                  -------------------------------
                                                                    1998       1997       1996
                                                                  ---------  ---------  ---------
<S>                                                               <C>        <C>        <C>
Tax (credit) at federal statutory rate..........................  $  (4,703) $   2,818  $    (637)
State taxes.....................................................         20        115         --
Foreign taxes...................................................        515        734        114
Utilization of net operating losses.............................         --     (2,896)        --
Net operating losses not benefitted.............................      4,570         --        581
Other items.....................................................        (57)       268         56
                                                                  ---------  ---------  ---------
Income Tax Provision............................................  $     345  $   1,039  $     114
                                                                  ---------  ---------  ---------
                                                                  ---------  ---------  ---------
</TABLE>
 
    At March 31, 1998, the Company had net operating loss carryforward for
federal income tax purposes of approximately $30,000,000 which expire in tax
years 2006 through 2013, a federal research and development tax credit
carryforward of approximately $1,700,000 which expires in tax years 2005 through
2012 and a foreign tax credit carryforward of approximately $1,300,000 which
expires in tax years 1999 through 2002.
 
    Utilization of net operating losses and credits may be subject to annual
limitations due to the ownership change limitations provided by the Internal
Revenue Code of 1986 and similar state provisions. Management does not expect
such limitations, if any, to impact the ultimate utilization of the
carryforwards.
 
                                       55
<PAGE>
                              FORTE SOFTWARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
5.  COMPUTATION OF NET INCOME (LOSS) PER SHARE
 
<TABLE>
<CAPTION>
                                                                                    YEARS ENDED MARCH 31,
                                                                               --------------------------------
                                                                                 1996       1997        1998
                                                                               ---------  ---------  ----------
                                                                               (IN THOUSANDS, EXCEPT PER SHARE
                                                                                            DATA)
<S>                                                                            <C>        <C>        <C>
Denominator:
Denominator for basic net income (loss) per share--weighted average common
 shares outstanding..........................................................      4,874     18,458      19,334
Effect of dilutive securities--
Stock options and warrants (1)...............................................         --      2,652          --
                                                                               ---------  ---------  ----------
Denominator for diluted earnings per share...................................      4,874     21,110      19,334
Net income (loss)............................................................  $  (1,988) $   7,249  $  (14,177)
                                                                               ---------  ---------  ----------
                                                                               ---------  ---------  ----------
Net income (loss) per share--basic...........................................  $   (0.41) $    0.39  $    (0.73)
                                                                               ---------  ---------  ----------
                                                                               ---------  ---------  ----------
Net income (loss) per share--diluted.........................................  $   (0.41) $    0.34  $    (0.73)
                                                                               ---------  ---------  ----------
                                                                               ---------  ---------  ----------
</TABLE>
 
------------------------
 
(1) Excluded as anti-dilutive in loss periods.
 
6.  PROFIT SHARING PLAN
 
    The Company has a retirement plan under Section 401(k) of the Internal
Revenue Code (the "401(k) Plan") for its eligible employees. All employees, as
defined, are eligible to participate after completion of one month of employment
with the Company. Employee contributions to the Plan are subject to certain
statutory limitations. The pre-tax voluntary contributions are limited to 15% of
the aggregate compensation paid to the employee in all the years since
participation in the Plan. The Company's contribution to the 401(k) Plan is
discretionary. The Company has not contributed any amounts to the 401(k) Plan to
date.
 
7.  COMMITMENTS
 
    The Company has entered into operating leases for office space with original
terms ranging from twelve to forty-two months. The facility leases generally
contain renewal options and provisions adjusting the lease payments based upon
changes in operating costs of the buildings.
 
    Capital lease obligations represent the present value of future rental
payments under various lease agreements for equipment. The Company has options
to purchase the leased assets at the end of the lease terms for their fair
market value.
 
                                       56
<PAGE>
                              FORTE SOFTWARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
7.  COMMITMENTS (CONTINUED)
    The future minimum lease payments under all noncancelable leases having
initial terms longer than one year at March 31, 1998 are as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                                                             CAPITAL     OPERATING
                                                                             LEASES       LEASES
                                                                           -----------  -----------
<S>                                                                        <C>          <C>
Years ending March 31:
1999.....................................................................   $     773    $   3,974
2000.....................................................................         132        3,823
2001.....................................................................          --        1,262
2002.....................................................................          --           59
                                                                                -----   -----------
Total minimum lease payments.............................................         905    $   9,118
                                                                                        -----------
                                                                                        -----------
Less interest............................................................          87
                                                                                -----
Present value of minimum lease payments..................................         818
Less current portion.....................................................         695
                                                                                -----
Capital lease obligations, due after one year............................   $     123
                                                                                -----
                                                                                -----
</TABLE>
 
    The Company subleased 60,800 square feet in Oakland, California. to an
third-party. The sublease expires in June 2000. The Company is scheduled to
receive $1,275,000 for the fiscal years ended March 31, 1999 and 2000,
respectively, and $315,000 for the fiscal year ended March 31, 2001.
 
    Rent expense for the years ended March 31, 1998, 1997 and 1996 was
$3,926,000, $2,305,000 and $1,461,000, respectively.
 
                                       57
<PAGE>
                                                                     SCHEDULE II
 
                              FORT SOFTWARE, INC.
                       VALUATION AND QUALIFYING ACCOUNTS
                   YEARS ENDED MARCH 31, 1996, 1997 AND 1998
 
                   ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
 
<TABLE>
<CAPTION>
                                                                               ADDITIONS
                                                                 BALANCE AT   CHARGED TO
                                                                BEGINNING OF   COSTS AND   DEDUCTIONS   BALANCE AT
YEAR ENDED MARCH 31,                                                YEAR       EXPENSES    WRITE-OFFS   END OF YEAR
--------------------------------------------------------------  ------------  -----------  -----------  -----------
<S>                                                             <C>           <C>          <C>          <C>
1996..........................................................      365,000      288,000      122,000      531,000
1997..........................................................      531,000      494,000       84,000      941,000
1998..........................................................      941,000      846,000      636,000    1,151,000
</TABLE>
 
                                       58