<PAGE>
 
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                                UNITED STATES 
                      SECURITIES AND EXCHANGE COMMISSION 
                             Washington,D.C. 20549

                                   FORM 10-K/A

(Mark one)
    
[X] AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995
         

[_] 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 0-25794

                         OPEN ENVIRONMENT CORPORATION
            (Exact name of registrant as specified in its charter)

                 DELAWARE                           04-3168610
       (State or other jurisdiction of             (IRS Employer
        incorporation or organization)         Identification Number)

                      25 Travis Street, Boston, MA 02134
              (Address of principal executive offices) (Zip Code)

                                 (617)562-0900
             (Registrant's telephone number, including area code)

       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 per share

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation 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] Yes [_] No

The aggregate market value of the Common Stock held by non-affiliates of the
registrant on March 1, 1996, based on the closing sale price of the Common Stock
on that date as reported in The Wall Street Journal was approximately
$36,732,000.

The registrant had 7,480,609 shares of Common Stock outstanding as of March 1, 
1996.

                      DOCUMENTS INCORPORATED BY REFERENCE
    
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders held May 10, 1996 are incorporated by reference into Part III
hereof.     

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<PAGE>
 
                                    PART II

          

ITEM 6.  SELECTED FINANCIAL DATA

The following selected consolidated financial data are derived from the
consolidated financial statements of OEC and its subsidiaries for the years
ended December 31, 1995, 1994 and 1993, and for the year ended December 31, 1992
from the tools division of CTG, which have been audited by Ernst & Young LLP,
the Company's independent auditors, except for the financial statements of
Jarrah Technologies, a consolidated subsidiary, for the four years ended
December 31, 1994, which were audited by other auditors.  The data should be
read in conjunction with the consolidated financial statements and related notes
and other financial information included herein.


<TABLE>
<CAPTION>    
                                              1995          1994         1993          1992        1991
                                        -----------------------------------------------------------------
                                          (Restated)     (Restated)
<S>                                      <C>           <C>           <C>         <C>           <C> 
Consolidated Statements of Operations    
 Data 
Revenues                                  $29,881,172   $18,120,904   $13,163,307  $ 4,149,243   $778,341
Purchased research and development          1,372,116
Acquisition and integration costs             678,655
Income (loss) from operations                 159,610       502,205     1,143,670   (1,158,932)    45,196
Net income (loss)                             434,082       350,049       823,028   (1,041,760)    43,463
Net income per common share                      $.05          $.05          $.13         (a)         (a)
     
Consolidated Balance Sheet Data
Cash, cash equivalents and marketable                                                                     
 securities                               $17,690,458    $1,787,707      $918,614       $2,011    $22,071 
Working capital                            22,864,500     1,499,416       161,268       88,536     35,129
Total assets                               36,646,673     9,475,658     4,244,261    1,158,443    139,583
Long-term obligations, net                     27,185       206,089
Series A Convertible Preferred Stock                      5,854,332
Total stockholders' equity (deficiency)    28,717,151    (1,521,430)      976,010      149,807     77,592

(a) As OEC began operations in 1992 as a division of CTG, there were no shares of capital stock 
    outstanding in 1992 or 1991.
</TABLE>     

                                       1
<PAGE>
 
    
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS, AS AMENDED     
    
Restatement of Financial Statements     
    
Prior to the second quarter of 1995, the Company and certain of its customers
entered into non-cancellable letters of understanding ("Non-cancellable LOUs")
whereby the Company's customers agreed to purchase certain software and services
from the Company and which specified a future date at or on which a mutually
acceptable software license and services agreement would be finalized. In eight
instances, the parties agreed to enter into a mutually acceptable software
license and services agreement within a specified period (the "Specified
Period") after the date of execution of such Non-cancellable LOU. At the time of
revenue recognition all products were delivered, the Company believed that
persuasive evidence existed to document an agreement to license the Company's
software by the customer and there were no significant contingencies existing at
the date of revenue recognition. After a review by the staff of the Securities
and Exchange Commission (the "Staff"), the Company has agreed that the
recognition of revenue under such Non-cancellable LOUs should be delayed until
the earlier of the date such software license and services agreements were
executed by the parties (the "L&S Execution Date") or the expiration of the
Specified Period. The length of the Specified Periods ranged from two days to 45
days. The Company has restated its historical financial statements contained in
certain of its reports filed pursuant to the Securities Exchange Act of 1934
with respect to the five Non-cancellable LOUs where the earlier of the L&S
Execution Date or the end of the Specified Period occurred in the quarter
following the date of execution of the Non-cancellable LOU. The changes decrease
revenue and net income reported in the fourth quarter of 1994 and increase
revenue and net income reported in each of the first and second quarters of
1995. There was no change in the aggregate revenue and net income reported over
such three quarter period.    

The following summarizes the effect of the restatement on the consolidated
financial statements of the Company for the periods presented:
<TABLE>    
<CAPTION> 
                                       As Reported         Restated          
                                       -----------        ----------        
<S>                                    <C>                <C> 
Year ended December 31, 1995

Revenues                            $  29,269,812      $  29,881,172
Cost of software, maintenance
  and services                          5,323,524          5,360,206
Selling and marketing expenses         12,828,861         12,883,884
Provisions for income taxes                24,721            159,831
Net income                                 49,537            434,082
Net income per share                         0.01               0.05
Accounts receivable                     7,609,007          7,609,007
Total assets                           36,646,673         36,646,673
Accrued expenses                        2,981,792          2,981,792
Insured taxes payable                     350,000            350,000
Stockholders' equity (deficiency)      28,717,151         28,717,151

<CAPTION> 
                                       As Reported         Restated
                                       -----------         --------
<S>                                   <C>                 <C> 
Year ended December 31, 1994

Revenues                            $  18,732,264      $   18,120,904
Cost of software, maintenance
  and services                          4,301,947           4,265,265
Selling and marketing expenses          6,976,811           6,921,788
Provision for income taxes                259,276             124,166
Net income                                734,594             350,049
Net income per share                         0.11                0.05
Accounts receivable                     4,480,956           3,869,596
Total assets                           10,087,018           9,475,658
Accrued expenses                        1,492,460           1,400,755
Income taxes payable                      404,370             269,260
Stockholders' equity (deficiency)      (1,136,885)         (1,521,430)

<CAPTION>     
                                       As Reported         Restated
                                       ------------        ---------  
Three months ended December 31, 1994
<S>                                    <C>                 <C> 
Revenues                            $   6,095,404       $   5,484,044
Cost of software, maintenance
  and services                          1,366,663           1,329,981
Selling and marketing expenses          2,223,980           2,168,957
Provision for income taxes                151,750              16,640
Net income                                453,996              69,451
Net income per share                          .07                0.01
Accounts receivable                     4,480,956           3,869,596
Total assets                           10,087,018           9,475,658
Accrued expenses                        1,492,460           1,400,755
Income taxes payable                      404,370             269,260
Stockholders' equity (deficiency)      (1,136,885)         (1,521,430)
</TABLE>      
Overview

The Company derives revenues from product license fees and charges for services,
including education and training, on-site technical support and phone-in
customer support (maintenance).  For all periods presented, the Company has
recognized revenue in accordance with Statement of Position 91-1 entitled
"Software Revenue Recognition," ("SOP 91") issued by the American Institute of
Certified Public Accountants.  SOP 91 requires that software license revenues be
recognized upon shipment, provided no significant obligations to the customer
then exist, and that maintenance revenues be recognized ratably over the term of
the maintenance agreement.  Revenues for other services and training are
recognized upon delivery of the service.  The Company's license agreements
generally do not provide a right of return.  Reserves are maintained for
potential credit losses.

On August 31, 1995, the Company issued 408,000 shares of Common Stock in
exchange for all outstanding shares of the capital stock of Jarrah Technologies.
The acquisition was accounted for as a pooling of interests and, accordingly,
the accompanying consolidated financial statements have been restated to include
the accounts and operations of Jarrah Technologies for all periods prior to the
acquisition.

    
Prior to 1994, the Company's focus was largely educational in nature. During
1994, the Company began to shift its focus from educational services to software
development and licensing in order to capitalize on the growing demand for its
products and services which had been generated by the Company's education
seminars. In the early stages of this transition, the Company's educational
services provided the Company with name recognition and introductory marketing
opportunities. However, as the Company has transitioned to the business of
developing and licensing software, its business is increasingly based on a
growing installed base, the continued acceptance by that installed base of the
Company's products, increased distribution and marketing channels, and
technological competitiveness, rather than a continued emphasis on educational
services. This evolution has caused the Company to shift the focus of its
education offerings from a marketing to post-sales training and customer
support. As the Company shifted its focus to software development and licensing,
it also expanded its efforts in international markets, including the
establishment of joint ventures in Japan in 1994 and Korea in 1995 and the
acquisition of Jarrah Technologies in 1995. As a result, international sales
increased to $11,952,000 in 1995 from $7,391,000 in 1994.     


                                       2

<PAGE>
 
Results of Operations

The following table sets forth, for the periods indicated, certain operational
data as a percentage of total revenue.

<TABLE>    
<CAPTION>
                                                                          
                                                               Percentage 
                                                                Increase      
                                                          (Decrease) Year to  
                               Year Ended December 31,           Year        
                           ----------------------------------------------------
                                                            1993       1994
                               1993      1994      1995    to 1994    to 1995
                           ----------------------------------------------------
<S>                            <C>       <C>       <C>     <C>        <C>
Revenues:
 License fees                     39%      60%       73%      113%       102%
 Service                           8%      17%       21%      170%       104%
 Education                        53%      23%        6%      (38%)      (56%)
                           ----------------------------------------------------
Total revenues                   100%     100%      100%       38%        65%
 
Cost of revenues:
 Cost of software,
  maintenance and                                                            
  services                        22%      24%       18%       47%        26% 
 Cost of education and            
  training                        20%      11%        5%      (23)%      (24)%
                           ----------------------------------------------------
Total cost of revenues            42%      35%       23%       13%        10%
                           ----------------------------------------------------
Gross profit                      58%      65%       77%       56%        95%
 
Operating expenses:
 Selling and marketing            23%      38%       43%      126%        86%
 General and administrative       13%      13%       12%       35%        57%
 Research and development         13%      11%       14%       24%       105%
 Purchased research and                                                
  development                      0%       0%        5%        *          *
 Acquisition and                                                            
  integration costs                0%       0%        2%        *          *
                           ----------------------------------------------------
Total operating expenses          49%      62%       76%       76%       102%
                           ----------------------------------------------------
Operating income (loss)            9%       3%        1%      (56%)      (68%)
 
 Equity in loss of joint           
  venture                          0%      (1%)      (1%)       *        140%
 Other income                      0%       1%        2%      (25%)      740%
                           ----------------------------------------------------
 Total other income                0%       0%        1%     (125%)    (1652%)
                           ----------------------------------------------------
 
Pre-tax income                     9%       3%        2%      (62%)       25% 
Provision for income taxes         3%       1%        1%      (71%)       29% 
                           ----------------------------------------------------
Net income                         6%       2%        1%      (57%)       24% 
                           ====================================================
</TABLE>     
*  Not applicable

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Total revenues increased 65% to $29,881,000 in 1995 from $18,121,000 in 1994.
The increase in total revenues was largely attributable to software license
fees, which increased 102% to $21,834,000 in 1995 from $10,812,000 in 1994.
Software revenues accounted for 73% of total revenues in 1995 as compared to 60%
of total revenues in 1994.  Also contributing to the increase in total revenues
were increases in maintenance and service fees, which increased 104% to
$6,155,000 in 1995 from $3,017,000 in 1994.  These increases reflect growing
market awareness and acceptance of the Company's products as well as a
broadening of the Company's installed base.

These increases were partially offset by a 56% decrease in education revenues to
$1,893,000 in 1995 from $4,292,000 in 1994.  This decrease is consistent with
the Company's shift away from the use of education to further market awareness
to the use of education as technical training for software licensing.

                                       3
<PAGE>
 
     
Revenues from Jarrah Technologies and other international customers accounted
for $11,952,000, or 40%, of total revenues in 1995, as compared to $7,391,000,
or 41%, in 1994.  This increase is attributable to a combination of direct and
channel sales to international customers as the Company continues to enter
additional markets to expand its operations outside of the United States.  The
Company believes that international sales will continue to represent a
significant portion of the Company's revenues.  However, the percentage of
revenue derived from international sales may fluctuate based on the timing of
orders from international customers and resellers and the addition of new
international customers and resellers.     
    
Total cost of revenues increased 10% to $6,929,000 in 1995 from $6,321,000 in
1994 and gross margins improved to 77% for 1995 from 65% for 1994.  Cost of
software, maintenance and services consists of the product packaging,
duplication, amortization of capitalized software costs, royalties and salaries
and related personnel costs for customer support and on-site technical support
employees.  These improvements reflect the shift from the lower-margin
educational services business (17% gross margin in 1995) to the higher-margin
software and services business (81% gross margin in 1995).      
    
Selling and marketing expenses, consisting primarily of salaries, commissions,
promotional costs and partner referral and marketing fees, increased to
$12,884,000 in 1995 from $6,922,000 in 1994.  Selling and marketing expenses
represented 43% of total revenues for 1995 as compared to 38% in 1994.  This
increase was the result of the hiring of additional personnel and increased
marketing programs as the Company continues to develop its direct sales force,
build its marketing channels and increase its promotional activities to broaden
market awareness. The Company expects to continue to invest a significant amount
of its resources in its selling and marketing efforts.      
    
General and administrative expenses, consisting primarily of corporate, finance,
management information systems ("MIS"), legal and auditing expenses, increased
57% to $3,602,000 in 1995 from $2,300,000 in 1994.  The increase is largely
attributable to the addition of infrastructure to support international
expansion, as well as to increases in general corporate expenses related to OEC
being a publicly-traded company.      

Research and development expenses, consisting primarily of salaries and other
employee-related costs, increased 105% to $4,256,000 in 1995 from $2,076,000 in
1994.  This increase reflects a significant increase in the number of employees
in the research and development department.  Software development costs
capitalized in accordance with Statement of Financial Accounting Standards No.
86 ("FAS 86") for 1995 amounted to $726,000, while amortization of previously
capitalized software amounted to $353,000, as compared to capitalizations of
$445,000 and amortization expense of $202,000 for 1994.  The increase in
software development costs capitalized under FAS 86 for 1995 is due to the
development of the Company's Entera Version 3.0 product, which was released in
1995.  The Company expects to continue to increase its research and development
expenditures to keep pace with the technological demands of the marketplace.
    
Total operating expenses increased to 76% of revenues in 1995 because the
Company's increase in revenues in that year was lower than anticipated and
because the Company continued to invest in selling and marketing, as well as
research and development activities, in view of the fact it considers such
investments critical to its continued growth and profitability.      

    
In connection with the acquisition of Jarrah Technologies, the Company recorded
acquisition and integration costs of $679,000 ($441,000 net of tax) in the third
quarter of 1995. Charges included professional fees and charges for regulatory
and filing matters ($265,000), travel costs ($222,000), marketing and
collaterals ($139,000), lease termination costs and miscellaneous other costs
($53,000). Substantially all of these charges were incurred prior to September
30, 1995, and as of December 31, 1995, $60,000 of these charges, related to
certain legal fees, were unpaid and were classified as accrued expenses.
Additionally, the Company acquired two technologies which were not at the point
of technological feasibility at the time of acquisition and had no alternative
future uses and, accordingly, the costs of these acquisitions, $1,372,000
($892,000 net of tax), were charged to operations as a purchased research and
development in the fourth quarter of 1995. The Company has determined that a
considerable amount of work needs to be done in the areas of completing
functionality, porting, testing and packaging these technologies into
commercially viable products. The Company estimates that the internal
development costs necessary to complete the development of the technologies will
amount to approximately $250,000 over the next twelve to eighteen months.     

                                       4
<PAGE>
 
During the third quarter, the Company sold a portion of its interest in its
Japanese joint venture to its joint venture partner.  The interest was sold for
an amount which approximated the Company's original cost basis.  The transaction
resulted in the Company now owning 19.5% of the joint venture and, accordingly,
accounting for the joint venture under the equity method has been discontinued.
The Company will continue to recognize royalty revenue from the joint venture,
but will no longer recognize any share of the joint venture's operating income
or loss.  The Company made net investments in and advances to the joint venture
of $242,000 in 1995.

Other income, consisting primarily of investment income and other miscellaneous
income, offset by interest expense, increased to $701,000 in 1995 from $83,000
in 1994.  These increases reflect the investment of the net proceeds from the
initial public offering of Common Stock in April 1995.
    
The Company's effective tax rate of 27% in 1995 and 26% in 1994 is lower than
the statutory rate of 34% due to research & development credits.     

Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
    
Total revenues increased 38% to $18,121,000 in 1994 from $13,163,000 in 1993.
Software license fees increased 113% to $10,812,000 in 1994 from $5,073,000 in
1993.  The principal reasons for the increase in software license fees were
increased market acceptance of the Company's products, demand for software
upgrades resulting from the release of the Company's Version 2.0 software
product in July 1994 and increased license fees to the Company's existing
customers.      

Maintenance and services fees increased 170% to $3,017,000 in 1994 from
$1,118,000 in 1993.  The increase was principally attributable to increased
volume of on-site technical support services and increased maintenance fees due
to the broadening of the Company's installed base.

Education and training revenues decreased 38% to $4,292,000 in 1994 from
$6,972,000 in 1993.  The decrease was largely attributable to the Company's
shift away from educational programs emphasizing broad-based market awareness to
technical training and programs in support of software licensing.  This change
of focus resulted in a decreased number of instructor-led education offerings.
    
Total cost of revenues increased 13% to $6,321,000 in 1994 from $5,585,000 in
1993 but decreased as a percentage of total revenues to 35% in 1994 from 42% in
1993.  Costs of software, maintenance and services increased 47% to $4,265,000
in 1994 from $2,909,000 in 1993.  The increase was attributable primarily to an
increase in the number of personnel in the on-site technical support area, an
increase in the amount of software, related amortization charges and royalties.
     
Cost of education and training revenues decreased 23% to $2,056,000 in 1994 from
$2,675,000 in 1993 and decreased as a percentage of total revenues to 11% in
1994 from 20% in 1993.  The decrease was due to the decreased level of education
activity.
    
Selling and marketing expenses increased 126% to $6,922,000 in 1994 from
$3,057,000 in 1993.  The increase was due principally to an increase in the
number of sales and marketing personnel, an increase in promotional and
advertising activities and an increase in sales commissions as a result of
increasing sales levels.  Marketing fees paid to a major hardware vendor partner
decreased due to the renegotiation of the agreement, which resulted in the
elimination of the fees as of August 1, 1994.      

General and administrative expense increased 35% to $2,300,000 in 1994 from
$1,699,000 in 1993, but decreased as a percentage of total revenue to 12% in
1994 from 13% in 1993.  The increase was primarily due to the increase in
personnel in the corporate, finance and MIS areas.

                                       5
<PAGE>
 
Research and development expenses increased 24% to $2,076,000 in 1994 from
$1,679,000 in 1993.  The increase represented costs associated with an increase
in personnel offset by the capitalization of $445,000 in software costs in 1994
in accordance with FAS 86.  The Company capitalized $190,000 in software costs
in 1993.  The amortization of software costs ($202,000 in 1994 and $5,000 in
1993) is included in cost of software, maintenance and services.

The equity in loss of joint venture represented the Company's 50% share of the
net loss of its Japanese joint venture.  The Company made investments in and
advances to the joint venture of $499,000 in 1994, representing aggregate
investments of $197,000 plus approximately $302,000 of advances held in escrow
for the purpose of meeting the Company's 50% share of future capital commitments
to the joint venture.

Other income decreased 25% to $83,000 in 1994 from $111,000 in 1993 due
principally to increased interest on borrowings and a decrease in commissions
from hotels due to the decrease in education programs run at the Company's
facility in Boston.

The Company's effective tax rate decreased to 26% in 1994 from 34% in 1993 due
to an increase in available research and development credits.

Liquidity and Capital Resources

    
As of December 31, 1995, the Company's cash and cash equivalents increased to
$7,012,000 from $1,693,000 at December 31, 1994, and the Company also held
marketable securities amounting to $10,678,000 at December 31, 1995.  The
increase in cash and cash equivalents and marketable securities was primarily
the result of the initial public offering of Common Stock in April 1995.  The 
Company has the positive intent and ability to hold its investment securities to
maturity.  Sales of marketable securities as disclosed in the Statements of Cash
Flows represent cash received on maturity of the Company's held-to-maturity 
securities.        

Prior to the initial public offering, the Company had financed operations
through operating cash flow, a bank line of credit and private sales of equity
securities.  Operations in 1993 and most of 1994 were financed through operating
cash flow.  The Company completed a two-step private equity placement in
November 1994 pursuant to which it issued bridge notes in the amount of
$3,500,000 and issued Series A Convertible Preferred Stock in the amount of
$6,000,000.  A portion of the proceeds from the Series A Convertible Preferred
Stock financing was used to repay the bridge notes.

In the first quarter of 1995, the Company renegotiated its bank line of credit
which has a demand line of credit of $2,000,000 and a revolving equipment line
of $1,000,000.  Availability under the demand line of credit is based on a
percentage of qualified accounts receivable.  Borrowings outstanding on January
1, 1996 under the revolving equipment line converted to a two-year term note.
Interest on the demand line of credit accrues at the prime rate, and interest on
the revolving equipment line accrues at prime plus one-quarter of one percent.
As of December 31, 1995, aggregate borrowings under the line of credit amounted
to $1,510,000, which were principally used to finance a portion of the
$2,702,000 in property and equipment additions due to the hiring of additional
personnel, the acquisition of new computer equipment and regional office
buildouts.

While the Company believes that the net proceeds from the initial public
offering, borrowings under its line of credit and cash flow from operations will
be adequate to meet its planned capital requirements for 1996, acquisition
opportunities could require the Company to seek additional capital prior to such
time.  There is no assurance that, if the Company seeks additional financing,
such financing will be available upon acceptable terms, if at all.

Dividends paid in 1995 and 1993 were paid out of Jarrah Technologies prior to
its acquisition by the Company.  The Company does not expect to declare or pay
dividends to stockholders in the foreseeable future.

                                       6
<PAGE>

     
Certain Factors That May Affect Future Results     

    
In view of its transition from educational services to
software development and licensing, the Company believes that period-to-period
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance.       
    
This Annual Report on Form 10-K contains forward-looking statements that involve
a number of risks and uncertainties.  There are a number of factors that could
cause the Company's actual results to differ materially from those forecast or
projected in such forward-looking statements, including those discussed below.
Investors are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof.     
    
A number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, general economic conditions, the
Company's continued ability to develop and introduce innovative products, the
introduction of new products by competitors, pricing practices of competitors
and the Company's ability to control costs.     
    
The Company's software is designed principally for use by large organizations
developing software applications in a client/server or other distributed
computing environment. The Company's future financial performance will depend in
large part on growth in the number of organizations adopting client/server
software environments and the number of applications developed for use in those
environments. There can be no assurance that this market will grow or that the
Company will be able to respond effectively to the evolving requirements of this
market.     

         

A substantial percentage of the Company's sales of products and services were
initially attributable to activities or referrals by CTG or other entities
affiliated with John J. Donovan, Sr., the Company's Chairman of the Board.  The
Company established its own independent marketing organization in 1993 because
it believed that in order to achieve its business objectives it had to expand
its sales and marketing efforts.  The Company's products have a long sales cycle
and the Company believes that they are best marketed and sold through a series
of regional sales offices, as well as hardware vendors, business partners and
strategic alliances.  If the Company is unable to successfully implement its
expanded sales and marketing efforts, its results of operations could be
materially and adversely affected.

The software application development market is extremely competitive.  Certain
current and potential competitors of the Company are more established, benefit
from greater market recognition and have substantially greater financial,
technological and marketing resources than the Company.  There can be no
assurance that either existing or future competitors will not develop products
that are superior to the Company's products or that achieve greater market
acceptance.  The Company's future success will depend in large part upon its
ability to attract new customers, license additional products and deliver
product enhancements and services to existing customers.  There can be no
assurance that future competition will not have a material adverse effect on the
Company's results of operations.

The Company does not typically carry a material backlog of unfilled orders as
software products are generally shipped within a short period after receipt of
the order.  Quarterly revenues and operating results therefore depend primarily
on the volume and timing of orders received during the quarter, which are
difficult to forecast.  The Company has often recognized a substantial portion
of its revenues in the last month of each quarter.  A significant portion of the
Company's operating expenses are committed in advance, since personnel levels
and other expenses are based on anticipated revenues.  As a substantial portion
of the Company's revenues may not be generated until the end of each quarter,
the Company may not be able to reduce spending in response to sales shortfalls
or delays and this may result in an immediate material adverse impact on the
Company's business, operating results and financial condition.  There can be no
assurance that the Company will be successful in improving its profitability or
avoiding losses in any future period.
    
International revenues represented approximately 40% of the Company's revenues
for fiscal 1995. There can be no assurance that the Company will be able to
maintain or increase international sales of its products or that the Company's
international distribution channels will be able to adequately service and
support the Company's products. International sales are subject to certain
risks, including unexpected changes in regulatory requirements and tariffs,
difficulties in staffing and managing foreign operations, longer payment cycles,
greater difficulty in accounts receivable collection and potentially adverse tax
consequences. Gains and losses on the conversion to U.S. dollars of receivables
and payables arising from international operations could in the future
contribute to fluctuations in the Company's results of operations and
fluctuations in exchange rates could affect demand for the Company's products.
Sales by the Company's Japanese joint venture are denominated in yen, and are
therefore subject to exchange rate variations which could impact the Company's
financial results in the future and affect the level of royalties received by
the Company on such reserves. See Note 13 to Notes To Consolidated Financial
Statements included herein.     

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Financial Statements and Schedule included in Item 8.

<TABLE>     
 
    <S>                                                             <C>
    Report of Ernst & Young LLP, Independent Auditors                   8
 
    Reports of William Buck, Chartered Accountants                      9

    Consolidated Balance Sheets at December 31, 1995 and 1994          11 
      (restated)

    Consolidated Statements of Income for the years ended                
      December 31, 1995, 1994 and 1993 (restated)                      12
                                                                         
    Consolidated Statements of Stockholders' Equity (Deficiency)         
      for the years ended December 31, 1995, 1994 and 1993             13
      (restated)

    Consolidated Statements of Cash Flows for the years ended            
      December 31, 1995, 1994 and 1993 (restated)                      14
                                                                         
    Notes to Consolidated Financial Statements (restated)           15-26
                                                                         
    Schedule II-Valuation and Qualifying Accounts                      29

</TABLE>      
 
    Schedules other than that listed above have been omitted because they are
    not applicable, not required, or the information required is included in the
    financial statements or notes thereto.

                                       7
<PAGE>
 
     
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS     

The Board of Directors
Open Environment Corporation and subsidiaries

We have audited the accompanying consolidated balance sheets of Open Environment
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity (deficiency), and cash
flows for each of the three years in the period ended December 31, 1995.  Our
audits also included the financial statement schedule listed in the Index at
Item 14(a).  The financial statements and schedule are the responsibility of the
Company's management.  Our responsibility is to express an opinion on the
financial statements and schedule based on our audits.

    
We did not audit the 1994 and 1993 financial statements of Jarrah Technologies
Pty. Limited, a wholly-owned subsidiary, which statements reflect total assets
constituting 16% in 1994 and total revenues constituting 25% in 1994 and 25% in
1993 of the related consolidated totals.  These statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to data included for Jarrah Technologies Pty. Limited for 1994 and 1993,
is based solely on the reports of the other auditors.     

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 (including the conversion of the financial statements of Jarrah
Technologies Pty. Limited to U.S. generally accepted accounting principles) 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 and the reports of other auditors 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 Open
Environment Corporation and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.  Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.


                                                      
                                                  /s/ Ernst & Young LLP     

    
Boston, Massachusetts
March 27, 1996, except as to
the fourth paragraph of 
Note 1, as to which the 
date is October 4, 1996      

                                      8
<PAGE>
 
                                 WILLIAM BUCK
                            CHARTERED ACCOUNTANTS

                        REPORT OF INDEPENDENT AUDITORS

       Report to the Board of Directors of Open Environment Corporation

Audit Scope
    
We have audited the financial statements of Jarrah Technologies Pty. Limited for
the year ending December 31, 1994. These financial statements were the
responsibility of the management of Jarrah Technologies Pty. Limited. Our
responsibility was to express an opinion on these financial statements, which
were prepared in accordance with Australian Accounting Standards, based on our
audit.    
    
We conducted our audit in accordance with Auditing Standards in Australia which
do not differ in any significant respect from the General Standards and
Standards of Field Work contained in the Generally Accepted Auditing Standards
in the United States of America. We have not, and do not offer an opinion on
compliance with United States reporting standards as they apply to adherence
with generally accepted accounting principles in the United States.    
    
Those auditing standards required that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements, prepared in 
accordance with Australian Accounting Standards, were free from 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.     
    
Our audit scope included ensuring that the financial statements complied with
Australian Accounting Standards. The Australian financial statements, which
formed the basis of our audit opinion, were subsequently adjusted by Open
Environment Corporation to comply with generally accepted accounting principles
in the United States of America and included in the consolidated financial
statements of Open Environment Corporation and subsidiaries which was reported
on by Ernst & Young LLP.    

Unqualified Audit Opinion

In our opinion the financial statements referred to above present fairly, and in
all material respects, the state of affairs of Jarrah Technologies Pty. Limited 
at December 31, 1994 and the results of operations and cash flows for the year 
then ended.

                                                              William Buck & Co.
                                                           Chartered Accountants
    
                                                             /s/ NT Hatzistergos
     
                                                                 NT Hatzistergos
                                                                         Partner

Sydney, Australia
September 3, 1996

                                      9
<PAGE>
                                
                                 WILLIAM BUCK
                            CHARTERED ACCOUNTANTS      


                        REPORT OF INDEPENDENT AUDITORS

       Report to the Board of Directors of Open Environment Corporation

Audit Scope
    
We have audited the financial statements of Jarrah Technologies Pty. Limited for
the year ending December 31, 1993. These financial statements were the
responsibility of the management of Jarrah Technologies Pty. Limited. Our
responsibility was to express an opinion on these financial statements, which
were prepared in accordance with Australian Accounting Standards, based on our
audit.    
    
We conducted our audit in accordance with Auditings Standards in Australia which
do not differ in any significant respect from the General Standards and
Standards of Field Work contained in the Generally Accepted Auditing Standards
in the United States of America. We have not, and do not offer an opinion on
compliance with United States reporting standards, as they apply to adherence
with generally accepted accounting principles in the United States.    
    
Those auditing standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements, prepared in
accordance with Australian Accounting Standards, were free from 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.     
    
Our audit scope included ensuring that the financial statements complied with
Australian Accounting Standards. The Austrian financial statements, which formed
the basis of our audit opinion, were subsequently adjusted by Open Environment
Corporation to comply with generally accepted accounting principles in the
United States of America and included in the consolidated financial statements
of Open Environment Corporation and subsidiaries which was reported on by Ernst
& Young LLP.    

Unqualified Audit Opinion
    
In our opinion the financial statements referred to above present fairly, and in
all material respects, the state of affairs of Jarrah Technologies Pty. Limited 
at December 31, 1993 and the results of operations and cash flows for the year 
then ended.     


                                                           William Buck & Co.
                                                        Chartered Accountants

                                                          /s/ NT Hatzistergos

Sydney, Australia                                             NT Hatzistergos  
September 3, 1996                                                     Partner


                                      10
<PAGE>
 
                 OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
    
                                                                      As of December 31,    
                                                                      1995          1994    
                                                                -----------------------------
                                                                   (Restated)     (Restated) 
<S>                                                               <C>           <C>         
ASSETS                                                                                      
Current assets:                                                                             
 Cash and cash equivalents                                        $ 7,012,333   $ 1,693,118 
 Marketable securities                                             10,678,125        94,589 
 Accounts receivable, net of allowance                                                      
  of $573,856 and $100,871 in 1995 and                                                      
  1994, respectively                                                7,609,007     3,869,596 
 Due from related parties                                           2,362,752               
 Prepaid expenses and other current                                                         
  assets                                                            1,411,340       328,978 
 Due from joint ventures                                            1,428,090       221,043 
 Deferred income taxes                                                265,190        56,490 
                                                                -----------------------------
 Total current assets                                              30,766,837     6,263,814 
Property and equipment, net                                         3,214,341     2,049,392 
Capitalized software costs, net of                                                          
 accumulated amortization of $559,204                                                       
 and $206,860 in 1995 and 1994,                                                             
 respectively                                                         800,206       427,879 
Investment in and advances to joint                                                         
 ventures                                                             858,123       387,862 
Deferred income taxes                                                 547,184       137,362 
Other assets                                                          459,982       209,349 
                                                                -----------------------------
                                                                  $36,646,673   $ 9,475,658 
                                                                =============================
                                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY                                                        
 (DEFICIENCY)                                                                               
Current liabilities:                                                                        
 Notes payable                                                    $ 1,545,684               
 Accounts payable                                                   1,162,088   $ 1,427,715 
 Accrued expenses                                                   2,981,792     1,400,755 
 Advance billings and customer deposits                               629,734       640,833 
 Deferred maintenance revenue                                       1,054,135       780,345 
 Income taxes payable                                                 350,000       269,260 
 Current portion of obligations under                                                       
  capital leases                                                      178,904       245,489 
                                                                -----------------------------
   Total current liabilities                                        7,902,337     4,764,397 
Deferred income taxes                                                               172,270 
Obligations under capital leases, less                                                      
 current portion                                                       27,185       206,089 
Series A Convertible Preferred Stock,                                                       
 $1.00 par value; 1,428,571 shares                                                          
 authorized, issued and outstanding in                                                      
 1994, liquidation value of $6,000,000;                                                     
 none issued and outstanding in 1995                                              5,854,332 
Stockholders' equity (deficiency):                                                          
 Preferred Stock, $.01 par value;                                                           
  authorized 1,000,000 shares; none                                                         
  issued and outstanding                                                                    
 Common Stock, $.01 par value;                                                              
  authorized 30,000,000 shares; issued                                                      
  8,050,475 and 5,175,433 shares;                                                           
  outstanding 7,467,141 and 4,592,100                                                       
  shares in 1995 and 1994, respectively                                80,505        51,754 
 Additional paid-in capital                                        30,694,500       777,126 
 Retained earnings                                                  1,442,146     1,149,690 
 Less Treasury Stock, 583,333 of common                                                      
  shares at cost                                                   (3,500,000)   (3,500,000) 
                                                                -----------------------------
 Total stockholders' equity (deficiency)                           28,717,151    (1,521,430)
                                                                -----------------------------
                                                                  $36,646,673   $ 9,475,658 
                                                                =============================
</TABLE>
                            See accompanying notes.
     
                                      11
<PAGE>
 
                 OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>    
<CAPTION>
                                                  Year Ended December 31,
                                              1995          1994          1993
                                        -------------------------------------------
                                           (Restated)    (Restated)
<S>                                       <C>           <C>           <C>
Revenues:
 License fees                             $21,833,688   $10,812,321   $ 5,073,229
 Maintenance and service fees               6,154,658     3,016,979     1,117,631
 Education and training                     1,892,826     4,291,604     6,972,447
                                        -------------------------------------------
   Total revenues                          29,881,172    18,120,904    13,163,307
 
Operating expenses:
 Cost of software, maintenance and                                                
  services                                  5,360,206     4,265,265     2,909,482 
 Cost of education and training             1,568,609     2,056,214     2,675,252
 Selling and marketing                     12,883,884     6,921,788     3,056,515
 General and administrative                 3,601,860     2,299,878     1,699,209
 Research and development                   4,256,232     2,075,554     1,679,179
 Purchased research and development         1,372,116
 Acquisition and integration costs            678,655
                                        -------------------------------------------
   Total operating expenses                29,721,562    17,618,699    12,019,637
                                        -------------------------------------------
 
Operating income (loss)                       159,610       502,205     1,143,670
 Equity in loss of joint venture             (267,037)     (111,434)
 Interest income                              756,895
 Interest expense                            (158,931)      (50,136)       (8,853)
 Other income                                 103,376       133,580       119,994
                                        -------------------------------------------
Income before income taxes                    593,913       474,215     1,254,811
Provision for income taxes                    159,831       124,166       431,783
                                        -------------------------------------------
Net income                                $   434,082   $   350,049   $   823,028
                                        ===========================================
 
Net income per share                            $.05          $.05          $.13
                                        ===========================================
 
Weighted average number of common
 shares outstanding                         8,038,592     6,414,506     6,557,778
                                        ===========================================
</TABLE>     
                            See accompanying notes.

                                      12
<PAGE>
 
                 OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

<TABLE>    
<CAPTION>
 
                                 Common Stock                                                    Treasury Stock
                            ----------------------                                           -----------------------
                                                                      Notes
                                                     Additional     Receivable
                                            Par        Paid In         From          Retained
                               Shares      Value       Capital      Stockholder      Earnings    Shares     Cost            Total
                            -------------------------------------------------------------------------------------------------------
 <S>                          <C>         <C>        <C>              <C>             <C>        <C>      <C>              <C>
 Balance at January 1, 1993   5,028,000   $50,280      $203,570       $(72,000)       $44,639                              $226,489
 Interest on notes receivable                                           (5,482)                                              (5,482)
 Net income                                                                           823,028                               823,028
 Cash dividends ($.01 per                                                                                                
  share)                                                                              (68,026)                              (68,026)
                            --------------------------------------------------------------------------------------------------------
 Balance at December 31,                                                                                                 
  1993                        5,028,000    50,280       203,570        (77,482)       799,641                               976,009
 Issuance of Common Stock       122,500     1,225       488,775                                                             490,000
 Repurchase of Common Stock                                                                     583,333  $(3,500,000)    (3,500,000)
 Stock options exercised         24,933       249        84,781                                                              85,030
 Payment of notes                                                                                                                   
  receivable                                                            77,482                                               77,482 
 Net income, restated                                                                 350,049                               350,049
                           --------------------------------------------------------------------------------------------------------
 Balance at December 31,                                       
  1994, restated              5,175,433    51,754       777,126                     1,149,690   583,333   (3,500,000)    (1,521,430)
 Initial public offering
  of Common Stock             1,700,000    17,000    22,862,473                                                          22,879,473
 Conversion of Preferred
  Stock                         999,998    10,000     5,844,332                                                           5,854,332
 Stock options exercised        167,450     1,675       708,496                                                             710,171
 Tax benefit from exercise
  of stock options                                      413,394                                                             413,394
 Shares issued under stock
  purchase plan                   7,594        76        88,679                                                              88,755
 Net income, restated                                                                 434,082                               434,082
 Cash dividends ($.02 per
  share)                                                                             (141,626)                             (141,626)
                           --------------------------------------------------------------------------------------------------------
 Balance at December 31,
  1995, restated               8,050,475   $80,505   $30,694,500                    $1,442,146   583,333  ($3,500,000)   $28,717,151
                           ========================================================================================================
</TABLE>     
                            See accompanying notes.

                                      13
<PAGE>
 
                 OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>    
<CAPTION>
                                                  Year Ended December 31,
                                         1995          1994          1993
                                      ------------------------------------------
                                      (Restated)    (Restated)
<S>                                      <C>           <C>           <C>
Operating activities
Net income                            $  434,082       $350,049      $823,028
Adjustments to reconcile net income
 to net cash provided by (used in)
 operating activities:
 Depreciation                          1,524,976        689,172       210,607
 Amortization of capitalized 
  software costs                         353,385        201,641         5,219
 Provision for bad debts                 472,985         26,371        74,500
 Interest accrued on notes receivable                                          
  from stockholders                                                    (5,482) 
 Equity in loss of joint venture         267,037        111,434
 Deferred income taxes                  (790,628)        (7,131)       (8,780)
 Changes in operating assets and
  liabilities:
   Accounts receivable                (4,236,544)    (1,606,481)   (2,245,133)
   Due from related parties           (2,362,752)  
   Prepaid and other current   
    assets                            (1,084,621)      (115,013)      (26,645)
   Due from joint ventures            (1,207,047)      (221,043)
   Other assets                         (250,403)      (200,935)       (8,414)
   Accounts payable and accrued                    
    expenses                           1,353,440      1,228,076     1,400,264
   Customer deposits                      (1,993)      (176,617)      796,912
   Deferred revenue                      277,246        356,931       248,717
   Income taxes payable                   91,495        (87,937)      329,592
   Due to related party                     (445)      (154,184)      168,586
                                      ------------------------------------------
Net cash provided by (used in)          
 operating activities                 (5,159,787)       394,333     1,762,971 
                                      ------------------------------------------
                             
Investing activities         
Purchase of marketable securities    (42,494,016)       (52,893)
Proceeds from maturities
  of marketable securities            31,906,169
Investment in and advances to joint                              
 ventures                               (737,224)      (536,171) 
Purchase of property and equipment    (2,702,460)    (1,537,590)     (762,365)
Additions to capitalized software 
 costs                                  (725,602)      (445,093)     (189,646)
                                     ------------------------------------------ 
Net cash used in investing 
 activities                          (14,753,133)    (2,571,747)     (952,011)
                                     ------------------------------------------ 
                             
Financing activities
Notes receivable from stockholders                       77,482
Net proceeds of notes payable to 
 bank                                  1,545,684
Repayment of capital lease 
 obligations                            (245,489)      (112,776)
Net proceeds from issuance of 
 Common Stock                         22,879,473        490,000       168,002
Proceeds from issuance of 
 Preferred Stock, net                                 5,854,332
Purchase of Treasury Stock                           (3,500,000)
Dividends paid                          (141,626)                     (68,026)
Exercise of stock options              1,123,565         85,030
Issuance of Common Stock under 
 stock purchase plan                      88,755
                                      ------------------------------------------
Net cash provided by financing                                                
 activities                           25,250,362      2,894,068        99,976 
                                      ------------------------------------------
Effect of exchange rates on cash         (18,227)        58,055         5,669
                                      ------------------------------------------
Net increase in cash and cash                                                 
 equivalents                           5,319,215        774,709       916,605 
Cash and cash equivalents at 
 beginning of year                     1,693,118        918,409         1,804
                                      ------------------------------------------
Cash and cash equivalents at end 
 of year                              $7,012,333     $1,693,118      $918,409
                                      ==========================================
</TABLE>     
                            See accompanying notes.

                                      14
<PAGE>

                 OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1995
    
1.  Basis of Presentation and Significant Accounting Policies     

         

Business

The Company was incorporated in Delaware on September 18, 1992 to pursue
opportunities in the open client/server software and education markets.  The
Company currently provides education services and sells open client/server
software tools globally.  Operations commenced on January 1, 1993 with the
purchase and license of certain assets from CTG.  During 1992, certain aspects
of the Company existed as the tools division of CTG, providing educational
services and selling software tools globally.

The environment of rapid technological change and intense competition which is
characteristic of the software development industry results in frequent new
products and evolving industry standards.  The Company's continued success
depends on its ability to enhance current products and develop new products on a
timely basis which keep pace with the changes in technology, evolving industry
standards and increasingly sophisticated customer needs.

The Company currently derives a significant portion of its revenue from licenses
of its Entera product line and related products and services.  As a result, any
factor adversely affecting sales of Entera would have a material adverse effect
on the Company.
    
Restatement of Financial Statements     
    
Prior to the second quarter of 1995, the Company and certain of its customers
entered into non-cancellable letters of understanding ("Non-cancellable LOUs")
whereby the Company's customers agreed to purchase certain software and services
from the Company and which specified a future date at or on which a mutually
acceptable software license and services agreement would be finalized. In eight
instances, the parties agreed to enter into a mutually acceptable software
license and services agreement within a specified period (the "Specified
Period") after the date of execution of such Non-cancellable LOU. At the time of
revenue recognition all products were delivered, the Company believed that
persuasive evidence existed to document an agreement to license the Company's
software by the customer and there were no significant contingencies existing at
the date of revenue recognition. After a review by the staff of the Securities
and Exchange Commission (the "Staff"), the Company has agreed that the
recognition of revenue under such Non-cancellable LOUs should be delayed until
the earlier of the date such software license and services agreements were
executed by the parties (the "L&S Execution Date") or the expiration of the
Specified Period. The length of the Specified Periods ranged from two days to 45
days. The Company has restated its historical financial statements contained in
certain of its reports filed pursuant to the Securities Exchange Act of 1934
with respect to the five Non-cancellable LOUs where the earlier of the L&S
Execution Date or the end of the Specified Period occurred in the quarter
following the date of execution of the Non-cancellable LOU. The changes decrease
revenue and net income reported in the fourth quarter of 1994 and increase
revenue and net income reported in each of the first and second quarters of
1995. There was no change in the aggregate revenue and net income reported over
such three quarter period.    

The following summarizes the effect of the restatement on the consolidated 
financial statements of the Company for the periods presented:

<TABLE>     
<CAPTION> 
                                       As Reported              Restated
                                       -----------              --------
<S>                                    <C>                      <C> 
Year ended December 31, 1995

Revenues                            $  29,269,812            $  29,881,172
Cost of software, maintenance
  and services                          5,323,524                5,360,206
Selling and marketing expenses         12,828,861               12,883,884
Provision for income taxes                 24,721                  159,831
Net income                                 49,537                  434,082
Net income per share                         0.01                     0.05
Accounts receivable                     7,609,007                7,609,007
Total assets                           36,646,673               36,646,673
Accrued expenses                        2,981,792                2,981,792
Income taxes payable                      350,000                  350,000
Stockholders' equity (deficiency)      28,717,151               28,717,151

<CAPTION> 
                                       As Reported              Restated
                                       -----------              --------
<S>                                   <C>                      <C> 
Year ended December 31, 1994                                 
                                                             
Revenues                            $  18,732,264            $  18,120,904
Cost of software, maintenance                 
  and services                          4,301,947                4,265,265
Selling and marketing expenses          6,976,811                6,921,788
Provision for income taxes                259,276                  124,166
Net income                                734,594                  350,049
Net income per share                         0.11                     0.05
Accounts receivable                     4,480,956                3,869,596
Total assets                           10,087,018                9,475,658
Accrued expenses                        1,492,460                1,400,755
Income taxes payable                      404,370                  269,260
Stockholders' equity (deficiency)      (1,136,885)              (1,521,430)

<CAPTION> 
                                       As Reported              Restated
                                       -----------              --------
<S>                                    <C>                      <C> 
Three months ended December 31, 1994

Revenues                            $   6,095,404            $   5,484,044
Cost of software, maintenance            
  and services                          1,366,663                1,329,981
Selling and marketing expenses          2,223,980                2,168,957
Provision for income taxes                151,750                   16,640
Net income                                453,996                   69,451
Net income per share                         0.07                     0.01
Accounts receivable                     4,480,956                3,869,596
Total assets                           10,087,018                9,475,658
Accrued expenses                        1,492,460                1,400,755
Income taxes payable                      404,370                  269,260
Stockholders' equity (deficiency)      (1,136,885)              (1,521,430)
</TABLE>      

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly-owned foreign subsidiaries.  All intercompany accounts and
transactions have been eliminated in consolidation.

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 and disclosure of
contingent 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.

Revenue Recognition
    
Revenues from the license of software products are recognized upon shipment to
the customer and the agreement as to all material terms of the transaction.
Software products generally are delivered without post sale vendor obligations
and without a significant obligation to the customer. If upon delivery to the
customer, a significant obligation to the customer exists, revenue is deferred
until the obligation is satisfied. The incremental production costs associated
with license revenue such as cost of media, documentation, distribution and
amortization of capitalized software are insignificant in relation to the
related license fees and have been combined with costs of maintenance and
services.      

Fees for software maintenance are recognized ratably over the contract period.
Revenues from educational and other services are recognized as the services are
performed.

                                      15
<PAGE>
 
Advance billings and customer deposits represent amounts advanced by customers
with respect to certain software products and education services.  These amounts
are recognized as revenue upon shipment of the software or fulfillment of the
service.

Cash Equivalents

Cash equivalents consist of highly liquid investments with maturities at date of
purchase of three months or less.

Concentration of Business and Credit Risk

Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of cash, cash equivalents and accounts receivable.
The Company invests its excess cash primarily in high quality securities and
limits the amount of credit exposure to any one financial institution.  This
investment policy limits the Company's exposure to concentration of credit risk
and changes in market conditions.

The Company provides credit in the normal course of business, and, accordingly,
performs ongoing credit evaluations of its customers and maintains allowances
for potential credit losses.  These allowances, when realized, have been within
the range of management's expectations.

Investment Securities

    
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (FAS 115). FAS 115 established the accounting and reporting
requirements for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. All affected investment
securities must be classified as either held-to-maturity, trading or available-
for-sale. Investment securities are deemed to be held-to-maturity when the
Company has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are carried at amortized cost basis. Trading
securities are carried at fair value with unrealized holding gains and losses
reported in the income statement. Available-for-sale securities are carried at
fair value with unrealized holding gains and losses reported as a component of
shareholders' equity. The adoption of FAS 115 had no material impact on the
Company's financial position.         

All of the Company's investments are classified as held-to-maturity at December
31, 1995 and 1994.  The fair market value of these investments at December 31,
1995 and 1994 approximates amortized cost basis.  Based upon contractual
maturities, all of the Company's investments are scheduled to mature in 1996.
The following is a summary of these investments:

<TABLE>
<CAPTION>
                                             1995          1994
                                        ----------------------------
   <S>                                    <C>           <C>
   U.S. Treasury securities and
     obligations of U.S. government 
     agencies                             $12,135,987
   Tax-exempt mutual and money 
     market funds                           1,513,183
   90-day bank notes                        2,136,747   $1,000,000
                                        -----------------------------
                                          $15,785,917   $1,000,000
                                        =============================
</TABLE>

         

Foreign Currency Translation

Assets and liabilities of the Company's foreign subsidiaries are translated at
the rate of exchange in effect at year-end, and revenues and expenses are
translated at the average exchange rates during the year.  Gains and losses from
translation are not material for the years presented.  Foreign currency
transaction gains and losses are included in the accompanying consolidated
statements of income and are not material for the years presented.

                                      16
<PAGE>
 
Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization are
provided by the use of the straight-line method over the following lives:

<TABLE>
   <S>                                 <C>
   Furniture, fixtures and equipment    5 years
   Computer equipment                   3 years
   Purchased computer software          2 years
</TABLE>

Software Development Costs and Research and Development Expenditures

Certain software development costs are capitalized when incurred.
Capitalization of software development costs begins upon the establishment of
technological feasibility.  The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized software development
costs requires considerable judgment by management with respect to certain
external factors, including, but not limited to, technological feasibility,
anticipated future gross revenues, estimated economic life and changes in
software and hardware technologies.

Amortization of capitalized software development costs is provided on a product-
by-product basis at the greater of the amount determined using (a) the ratio of
current gross revenues for a product to the total of current and anticipated
future gross revenues or (b) the straight-line method over a period not to
exceed two years from the time the product is commercially available for
delivery to customers.

All other research and development expenditures are charged as research and
development expense in the period incurred.

Income Taxes

The Company provides for income taxes under the liability method prescribed by
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.  Under this method, deferred income taxes are recognized for the future
tax consequences of differences between the tax and financial accounting of
assets and liabilities at each year end.  Deferred income taxes are based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income.  Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.  Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.

Stock Based Compensation

The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with APB Opinion No.
25, Accounting for Stock Issued to Employees, and intends to continue to do so.
Accordingly, no compensation expense is recognized for the stock option grants.

Net Income Per Share

Net income per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during each period.  Common and
common equivalent shares issued during the twelve-month period prior to the
initial filing date of the proposed public offering have been included in the
calculation as if they were outstanding for all periods presented using the
treasury stock method.  Included in these amounts are Common Stock options and
1,428,571 shares of Series A Convertible Preferred Stock that were converted
into 999,998 shares of Common Stock on April 21, 1995 in connection with the
initial public offering of Common Stock.  Fully diluted and primary earnings per
share data are the same for each period presented.

                                      17
<PAGE>
 
Reclassifications

Certain amounts in 1994 and 1993 have been reclassified to permit comparison.

2.  Acquisitions

On August 31, 1995, the Company issued 408,000 shares of Common Stock in
exchange for all outstanding shares of the capital stock of Jarrah Technologies.
The acquisition was accounted for as a pooling of interests and, accordingly,
the accompanying consolidated financial statements of the Company have been
restated to include the accounts and operations of Jarrah Technologies for all
periods prior to the acquisition.  Separate results of the combining entities
for the years ended December 31, 1995, 1994 and 1993 are as follows:

<TABLE>    
<CAPTION>
                                       1995         1994         1993
                                  ----------------------------------------
                                    (Restated)    (Restated)
 <S>                               <C>           <C>          <C>
 Total revenues:
  Open Environment Corporation     $25,340,434   $13,438,803  $ 9,833,999
  Jarrah Technologies                4,540,738     4,682,101    3,329,308
                                  ----------------------------------------
                                   $29,881,172   $18,120,904  $13,163,307
                                  ========================================
 
 Net income (loss):
  Open Environment Corporation     $   502,281   $    46,343  $   483,924
  Jarrah Technologies                  (68,199)      303,706      339,104
                                  ----------------------------------------
                                   $   434,082   $   350,049  $   823,028
                                  ========================================
 
 Net income (loss) per share:
  Open Environment Corporation     $       .06   $       .01  $       .08
  Jarrah Technologies                     (.01)          .04          .05
                                  ----------------------------------------
                                   $       .05   $       .05  $       .13
                                  ========================================
</TABLE>     

    
The Company recorded acquisition and integration costs of approximately $679,000
in 1995 for expenses related to the acquisition and integration of Jarrah
Technologies.  Charges included professional fees and charges for regulatory and
filing matters ($265,000), travel costs ($222,000), marketing and collaterals 
($139,000), lease termination costs and miscellaneous other costs ($53,000).  
Substantially all of these charges were incurred prior to September 30, 1995, 
and as of December 31, 1995, $60,000 of these charges, related to certain legal 
fees, were unpaid and were classified as accrued expenses.       

    
In 1995, the Company also recorded special charges of $1,372,000 related to the
purchases of certain technologies. The costs of these purchases were expensed as
purchased research and development costs, as the related technologies were not
at the point of technological feasibility at the date of purchase and had no
alternative future uses. The Company paid $686,000 of this amount in 1995, and
$686,000 is recorded in accrued expenses at December 31, 1995.    

3.  Property and Equipment

Major classifications of property and equipment at December 31 are summarized
below:

<TABLE>
<CAPTION>
                                            1995        1994
                                        ------------------------
    <S>                                  <C>         <C>       
    Furniture, fixtures and equipment    $1,115,691  $  623,746
    Computer equipment                    3,488,216   1,857,662
    Purchased computer software             796,216     368,710
    Leasehold improvements                  307,855     174,554
                                        ------------------------
                                          5,707,978   3,024,672
    Accumulated depreciation              2,493,637     975,280
                                        ------------------------
    Property and equipment, net          $3,214,341  $2,049,392
                                        ======================== 
</TABLE>

                                      18
<PAGE>
 
4.  Investment in and Advances to Joint Ventures

On January 17, 1994, the Company entered into a joint venture with a Japanese
corporation to develop, distribute, promote and market the Company's software
products and provide related education services in Japan.  Under the terms of
the agreement, the Company purchased 50% of the outstanding voting common stock
and two shares of the non-voting preferred stock.

Concurrent with this agreement, the Company executed a license agreement with
the joint venture whereby the Company granted an exclusive license to establish,
develop, distribute and promote the market for the Company's software products
and educational services and maintenance in Japan.  In return for this license,
the Company receives royalties from the sale of these products and services as
follows:

<TABLE>
 
    <S>                     <C>
    Software products       40%
    Educational services    25%
    Maintenance services    60% 
</TABLE>

Royalty income aggregating $520,584 and $801,024 was recognized in connection
with this agreement during the years ended December 31, 1995 and 1994.

On September 30, 1995, the Company sold 30.5% of the outstanding voting common
stock of the joint venture to its joint venture partner for $488,000, which
approximated the Company's cost basis in the joint venture.  As a result, the
Company currently owns 19.5% of the voting common stock of the joint venture.
The Company accounted for the joint venture using the equity method from the
inception of the joint venture until September 30, 1995, resulting in the
Company recording its equity in the loss of the joint venture of $267,037 in
1995 and $111,434 in 1994.  Effective October 1, 1995, the Company accounts for
its remaining investment in the joint venture using the cost method.  At
December 31, 1995, investment in and advances to joint ventures consisted of
investment in and advances to the Japanese joint venture of $630,000, and
investments in other joint ventures of $228,000.

Unaudited financial information related to the Japanese joint venture at and for
the period ended December 31, 1994 is as follows:

<TABLE>
 
    <S>                                       <C>        
    Current assets                            $1,623,000 
    Property and equipment and other assets      272,000 
    Current liabilities                        1,724,000 
    Long-term liabilities                              0 
    Net sales                                  2,256,000 
    Gross profit                                 761,000 
    Net loss                                    (223,000) 
</TABLE>

5.  Financing Agreement

The Company has a $3,000,000 credit agreement with its bank, comprised of a
$2,000,000 revolving credit facility for operating purposes and a $1,000,000
facility for capital expenditures.  On January 1, 1996, amounts outstanding
against the $1,000,000 capital expenditures portion were converted to a two-year
term note, payable in equal quarterly installments of $125,000 plus interest.
Interest on the demand line of credit accrues at prime, and interest on the
capital expenditures line accrues at prime plus one-quarter percent.  Amounts
drawn on the demand line of credit are limited to a percentage of qualified
accounts receivable as defined in the agreement.  All borrowings under the
agreement are secured by the assets of the Company.  At December 31, 1995,
$510,000 was outstanding under the demand line of credit, and $1,000,000 was
outstanding under the capital expenditures line.

                                      19
<PAGE>
 
Among other provisions, the agreement also imposes certain financial covenants
requiring the Company to maintain certain levels of working capital and minimum
leverage ratios.  At December 31, 1995, the Company was in violation of its
financial covenant relating to maximum capital expenditures.  The Company has
obtained a waiver of this violation.

6. Stockholders' Equity

Reverse Stock Split

On February 10, 1995, the Company declared a 7-for-10 reverse stock split of
Common Stock.  Average shares outstanding and all stock option and per share
amounts included in the accompanying consolidated financial statements and notes
are based on the decreased numbers of shares giving retroactive effect to the
reverse stock split.

Preferred Stock

In November 1994, the Company issued 1,428,571 shares of Series A Convertible
Preferred Stock for $6,000,000, less offering expenses of $145,668.  Of the
proceeds from this issuance, $3,500,000 was used to repurchase 583,333 shares of
Common Stock from a major shareholder.  The preferred shares were converted into
999,998 shares of Common Stock upon the completion of the Company's initial
public offering on April 21, 1995.

On February 10, 1995, the Board of Directors authorized an aggregate of
1,000,000 shares of Preferred Stock, $.01 par value per share, in one or more
series, each of such series to have such rights and preferences, including
voting rights, divided rights, conversion rights, redemption privileges and
liquidation preferences, as shall be determined by the Board of Directors.  At
December 31, 1995, none of these shares have been issued.

1993 Stock Plan

Under the Company's Amended and Restated 1993 Stock Plan, options for 1,589,000
shares of Common Stock are available for grant to employees, officers, directors
or consultants.  The option price and exercise period is determined by the Board
of Directors on the date of grant.  The option price is deemed by the Board of
Directors to be not less than fair market value at the date of grant.  All
options are exercisable in installments over a two- to five-year period
commencing one year from the date of grant.  Option activity was as follows:

<TABLE>
<CAPTION>
                                                          Range of              
                                         Shares         Option Prices 
                                     ----------------------------------  
    <S>                                  <C>            <C>        
    Outstanding at December 31, 1993      611,625          $.05-5.00    
    Granted                               607,740         $5.00-6.00    
    Exercised                              (4,929)         $.05-5.00    
    Canceled                             (164,786)         $.05-5.00    
                                      --------------                
    Outstanding at December 31, 1994    1,049,650          $.05-6.00    
    Granted                               482,314        $6.00-20.00    
    Exercised                            (167,462)         $.05-6.00    
    Canceled                             (112,973)        $.05-20.00    
                                      --------------                
    Outstanding at December 31, 1995    1,251,529         $.05-20.00    
                                      ==============                 
    Exercisable at December 31, 1995      258,506
    Available for future grants           165,081 
</TABLE>

                                      20
<PAGE>
 
1994 Executive Stock Plan

The Company's 1994 Amended and Restated Executive Stock Plan provides for
651,000 shares of Common Stock to be available for grant to senior executive
employees of the Company.  The option price and exercise period is determined by
the Board of Directors on the date of grant.  The option price is deemed by the
Board of Directors to be not less than fair market value at the date of grant.
Option activity was as follows:

<TABLE>
<CAPTION>
                                                          Range of              
                                         Shares         Option Prices 
                                     ----------------------------------  
    <S>                                  <C>            <C>        
 
    Outstanding at December 31, 1993
    Granted                              651,000          $4.00-5.00
    Exercised                            (20,005)              $4.00
                                     --------------           
    Outstanding at December 31, 1994     630,995          $4.00-5.00
    Granted
    Exercised
                                     --------------           
    Outstanding at December 31, 1995     630,995          $4.00-5.00
                                     ============== 
    Exercisable at December 31, 1995     457,745
    Available for future grants                0
</TABLE> 
         
Directors Plans
 
The Company's 1994 Directors Plan provides for 28,000 shares of Common Stock to
 be available for grant to Directors of the Company, and the 1995 Directors
 Plan provides for 70,000 shares of Common Stock to be available for grant to
 senior executive employees of the Company.  The option price and exercise
 period is determined by the Board of Directors on the date of grant.  The
 option price is deemed by the Board of Directors to be not less than fair
 market value at the date of grant.  Option activity was as follows:
 
<TABLE>
<CAPTION>
                                                          Range of              
                                         Shares         Option Prices 
                                     ----------------------------------  
    <S>                                  <C>            <C>        
    Outstanding at December 31, 1993
    Granted                               28,000             $4.00
    Exercised
                                     --------------    
    Outstanding at December 31, 1994      28,000             $4.00
    Granted
    Exercised
                                     --------------
    Outstanding at December 31, 1995      28,000             $4.00
           
                                     ===============
    Exercisable at December 31, 1995       7,000
    Available for future grants           70,000
</TABLE>

1995 Employee Stock Purchase Plan

On February 10, 1995, the Board of Directors adopted the 1995 Employee Stock
Purchase Plan (the Stock Purchase Plan), which authorizes the issuance of up to
70,000 shares of Common Stock to participants in amounts based on the
participant's compensation and the fair market value of the Company's stock.
Employees with at least six months of service are eligible to participate in the
stock purchase plan.  In 1995, 7,594 shares were purchased by participants in
the Stock Purchase Plan, and 62,406 shares were available for issuance under the
Stock Purchase Plan at December 31, 1995.

                                      21
<PAGE>
 
7.   Income Taxes

The provision for income tax expense (benefit) consists of the following:

<TABLE>    
<CAPTION>
                                              Year Ended December 31,
                                           1995       1994         1993
                                        ----------------------------------
                                        (Restated) (Restated) 
    <S>                                   <C>         <C>          <C>
    Current 
     Federal                              $661,460    $(127,910)   $182,157
     State                                 186,800       35,500      85,901
     Foreign                               102,363      227,233     174,576
                                        ----------------------------------
                                           950,623      134,823     442,634
                                        ----------------------------------
    Deferred
     Federal                              (417,000)       2,900       8,100
     State                                (128,800)         800       2,600
     Foreign                              (244,992)     (14,357)    (21,551)
                                        ----------------------------------
                                          (790,792)     (10,657)    (10,851)
                                        ----------------------------------
    Income tax expense                    $159,831     $124,166    $431,783
                                        ==================================
</TABLE>      

Significant components of deferred income tax assets and liabilities are
as follows:
 
<TABLE> 
<CAPTION> 
                                                    December 31,        
                                                1995          1994     
                                            ---------------------------    
     <S>                                       <C>            <C> 
     Deferred tax assets:                                              
     Accounts receivable reserve                $231,000      $40,600      
     Equity in loss of joint venture             155,100       44,900      
     Depreciation                                 96,900       49,300      
     Purchased research and development          365,100                   
     Foreign NOL carryforwards                   265,100       35,900      
     Other                                        97,200       23,200
                                            ---------------------------      
    Total deferred tax assets                  1,210,400      193,900      
                                            ---------------------------    
     Deferred tax liabilities:                                             
     Capitalized software                        315,800      172,300      
     Capitalized leases                           34,900
     Other                                        47,400                   
                                            ---------------------------        
    Total deferred tax liabilities               398,100      172,300
                                            ---------------------------      
    Net deferred tax assets                   $  812,300      $21,600      
                                            ===========================    
</TABLE> 

A reconciliation of the federal statutory rate to the effective income tax rate
follows:
 
<TABLE>    
<CAPTION> 
                                              Year Ended December 31,
                                               1995       1994       1993
                                           ----------------------------------
                                           (Restated)  (Restated)
    <S>                                       <C>         <C>         <C>     
    Federal statutory rate                      34.0%      34.0%      34.0%
    State taxes, net of federal benefit          9.4        0.6        4.4
    Effect of research and development                                      
     credits                                  ( 29.6)     (13.3)      (7.8) 
    Effect of foreign rate differences          (1.0)       1.0        2.0
    Non-deductible expenses                     14.1        3.8        1.8
                                           ----------------------------------
    Effective tax rate                          26.9%      26.1%      34.4%
                                           ==================================
</TABLE>     

                                      22
<PAGE>
 
At December 31, 1995, the Company had foreign net operating loss carryforwards
of $705,000 for income tax purposes.  These carryforwards have no expiration
date.

8.   Commitments

In January 1994, the Company entered into a five-year lease for office space
under an operating lease agreement scheduled to expire in February 1999.  The
lease includes a five-year renewal option.  Leasehold improvements made by the
landlord for the Company as a condition of occupancy are secured by a $70,000
irrevocable letter of credit issued by the Company's bank.

During 1994 the Company entered into certain equipment leases which were
capitalized in accordance with generally accepted accounting principles.  The
Company also leases certain equipment under noncancelable operating leases.

Future minimum lease payments are as follows at December 31, 1995:

<TABLE>
<CAPTION>
                                          Capital         Operating        
                                          Leases           Leases 
                                       -------------------------------   
        <S>                              <C>             <C>
        1996                             $194,848        $  735,843
        1997                               29,608           691,273
        1998                                                649,624
        1999                                                358,686
        2000                                                211,327
                                       -------------------------------
        Total minimum lease payments      224,456        $2,646,753
                                                        ==============    
        Less amounts representing                 
         interest                          18,367 
                                       ----------------
        Present value of remaining                       
         minimum lease payments           206,089 
        Less amounts due within one 
         year                             178,904
                                       ----------------
        Amounts due after one year        $27,185
                                       ================
</TABLE>

Rent expense relating to operating leases amounted to $926,578, $425,454 and
$177,688 in 1995, 1994 and 1993, respectively.

Assets under capital lease are capitalized using interest rates appropriate at
the inception of each lease.  A summary of assets under capital lease are as
follows:

<TABLE>
<CAPTION>
 
                                                December 31,   
                                              1995      1994   
                                           ----------------------
    <S>                                      <C>       <C>     
    Furniture, fixtures and equipment        $358,105  $358,105
    Computer equipment                        206,249   206,249
                                           ----------------------
                                              564,354   564,354
    Accumulated amortization                  271,562   131,193
                                           ----------------------
    Net book value of assets under capital                      
     leases                                  $292,792  $433,161 
                                           ======================
</TABLE>

Amortization of assets under capital lease amounted to $140,369 in 1995 and
$131,193 in 1994 and is included in depreciation expense.

                                      23
<PAGE>
 
9.   Employee Benefits

401(k) Retirement Plan

The Company has a 401(k) retirement plan covering all employees who are at least
21 years of age and have completed at least one year of service with the
Company. Company contributions under the plan are discretionary. No
contributions were made by the Company during 1995, 1994 or 1993.

10.   Related Party Transactions

On January 1, 1993 (the date operations commenced), the Company entered into a
license agreement with CTG.  CTG is principally owned by the Company's Chairman
of the Board and a stockholder.  Under the terms of the license agreement, the
Company entered into a five-year agreement to license certain intellectual
property from CTG in exchange for a fee of generally 5% of net software revenues
and 1% of education revenues.  The terms of the license agreement were revised
effective August 1, 1994 from 5% to 1% fee on software revenues.  On November
23, 1994, the Company entered into an Assignment Agreement with CTG under which
CTG assigned all right, title and interest in the intellectual property defined
under the license agreement to the Company in exchange for the appointment of
CTG as an authorized reseller of certain of the Company's products pursuant to a
Reseller Agreement.  Effective with this agreement, the license agreement was
terminated.  Royalty expenses paid or accrued to CTG under the license agreement
amounted to $149,633 in 1994 and $183,410 in 1993.

Under the terms of the Reseller Agreement, as amended, CTG was appointed as a
non-exclusive reseller of the Company's products in the U.S. and Canada
effective February 1, 1995.  Prior to February 1, 1995, CTG did not distribute
the Company's products.  Pursuant to this agreement, CTG receives a 50% discount
from list prices of the Company's software and a 30% discount from list prices
on the Company's educational programs.  The Company is permitted to cancel the
agreement at any time upon payment to CTG of a termination fee equal to
$2,500,000 less 20% of the aggregate list price value of software products sold
by CTG under the Reseller Agreement.  Aggregate revenues from CTG under this
agreement in 1995 amounted to $1,653,426.

Until March 1994, the Company shared office and training facilities with CTG.
Among the activities for which the Company paid or accrued amounts to CTG
include: monthly operating, telecommunications and rental expenses for office
space used as the Company's corporate headquarters ($43,903 in 1994 and $446,467
in 1993), educational lecturing and rental services ($24,596 in 1994 and
$293,350 in 1993), monthly reimbursements for amounts paid to vendors for
expenses incurred by the Company ($37,942 in 1994 and $284,981 in 1993), and
reimbursement for new computer equipment shipped directly to the Company
($138,517 in 1993).  The Company also sold its rights under a product
development agreement with a software vendor to CTG for $60,000 (included in
other income) during 1994.  Amounts paid to CTG were based on actual amounts
incurred by CTG on behalf of the Company.  Management of the Company believes
that these charges represent fair market value.

In 1995, the Company entered into a reseller agreement with Object Power Inc., a
Company principally owned by the Company's Chairman of the Board and a
stockholder.  Under this agreement, Object Power receives a 50% discount from
list prices of the Company's software and a 25% discount from list prices on the
Company's educational programs and services.  Aggregate revenues from Object
Power under this agreement in 1995 amounted to $905,965.

    
In 1995, the Company purchased the source code to a certain technology from
Object Power for $500,000. At the date of purchase, the technology had not yet
reached the point of technological feasibility and had no alternative future
use, and as a result the purchase price was fully expensed. The Company is
continuing the development of the technology.     

                                      24
<PAGE>
 
In addition, in 1995 the Company licensed the source code to certain components
of its middleware technology to Object Power for an up-front fee of $2,200,000.
Use of the components of this technology is restricted to the development and
marketing of products that will interoperate with the Company's product line.

The amount due from related parties at December 31, 1995 represents amounts
related to the transactions described above with Object Power.

11.   Supplemental Information

The Company made income tax payments of $326,443, $165,062 and $91,920 in 1995,
1994 and 1993, respectively.  The Company made interest payments (which also
represented interest expense for the periods) of $158,931, $50,136 and $8,853 in
1995, 1994 and 1993, respectively.

Capital lease obligations incurred are considered noncash items and,
accordingly, are not reflected in the consolidated statements of cash flow.
Capital lease obligations incurred totaled $564,354 during the year ended
December 31, 1994.

Other assets at December 31, 1995 include $237,000 of notes receivable from
officers of the Company, with interest rates ranging from 6-7/8% to 8%.

Accrued expenses at December 31, 1994 includes $320,353 of accrued commissions.

12.   Significant Customers

Approximately 11% and 15% of the Company's revenue in the years ended December
31, 1995 and 1993, respectively, were from one customer.  For the year ended
December 31, 1994, no individual customer accounted for greater than 10% of the
Company's total revenue.

13.   Industry Segment and Geographic Information

The Company operates in one industry segment representing the design,
development, education/training, sales and servicing of software in the open
client/server market.  Net sales, operating income, and assets by major
geographic area are summarized below.  Inter-area transfers were not material
for the periods presented.

<TABLE>    
<CAPTION>
                                             1995          1994         1993
                                        ----------------------------------------
                                          (Restated)    (Restated) 
  <S>                                    <C>           <C>          <C>
  Revenues from unaffiliated customers:
   United States (including direct 
    export sales)                        $25,340,434   $13,438,803   $9,833,999
   Australia                               4,540,738     4,682,101    3,329,308
                                        ----------------------------------------
                                         $29,881,172   $18,120,904  $13,163,307
                                        ========================================
 
  Income (loss) from operations:
   United States                            $492,743      $106,831     $653,374
   Australia                                (333,133)      395,374      490,296
                                        ----------------------------------------
                                            $159,610   $   502,205  $ 1,143,670
                                        ========================================

  Identifiable assets:
   United States                         $35,017,499   $ 7,936,505  $ 3,341,924
   Australia                               1,629,174     1,539,153      902,337
                                         ---------------------------------------
                                         $36,646,673   $ 9,475,658  $ 4,244,261
                                        ========================================
</TABLE>     

                                      25
<PAGE>
 
Export sales from the United States to unaffiliated customers were as follows:

<TABLE>
<CAPTION>
                              1995        1994       1993  
                         ------------------------------------
    <S>                    <C>         <C>         <C>     
    Korea                  $1,984,157                      
    Australia               1,299,739    $386,384          
    Netherlands             1,051,255     184,800          
    China                     702,063                      
    Japan                     666,634     417,829  $205,254
    England                   544,669     181,230    42,825
    Saudi Arabia              428,000                      
    India                     239,200                      
    Canada                     25,225     335,400   133,602
    Ireland                               703,200          
    Other international       469,838     500,204   235,361
                         ------------------------------------
                           $7,410,780  $2,709,047  $617,042
                         ====================================
</TABLE>

14. Quarterly Results of Operations (Unaudited)

<TABLE>    
<CAPTION>

                                   Year ended December 31, 1995:           
    Three months ended   March 31      June 30    September 30  December 31 
                       -------------------------------------------------------
                        (Restated)   (Restated)
    <S>                  <C>          <C>          <C>           <C>            
    Net sales            $6,471,684   $7,811,158   $7,996,864    $7,601,466    
    Gross profit          5,104,348    6,029,796    6,183,367     5,634,846    
    Purchased research                                                          
     and development                                              1,372,116    
    Acquisition and                                                     
     integration costs                                678,655            
    Income (loss) from       
     operations             771,620      971,017      185,988    (1,769,015)   
    Net income (loss)       349,262      848,769      266,976    (1,030,926)   
    Net income (loss) 
     per common share          $.05         $.10         $.03         $(.14)   
 
<CAPTION>
                                   Year ended December 31, 1994:           
    Three months ended   March 31      June 30    September 30  December 31 
                       -------------------------------------------------------
                                                                 (Restated)
    <S>                  <C>          <C>          <C>           <C>            
    Net sales            $3,394,743   $3,943,660   $5,298,457    $5,484,044    
    Gross profit          2,103,069    2,221,436    3,704,996     3,769,924    
    Income (loss) from            
     operations               5,741      (36,219)     394,783       137,900     
    Net income (loss)       (69,778)      71,261      279,115        69,451    
    Net income (loss)                                                          
     per common share         ($.01)        $.01         $.04          $.01    
</TABLE>     

 
The acquisition of Jarrah Technologies on August 31, 1995 was accounted for as a
pooling of interests, and, accordingly, the previously reported quarterly
financial results have been restated to include the accounts and operations of
Jarrah Technologies.  Quarterly results of operations as listed above differ
from those previously reported due to the inclusion of the following amounts
related to Jarrah Technologies:

<TABLE>
<CAPTION>
                                   Year ended December 31, 1995:           
    Three months ended   March 31      June 30    September 30  December 31 
                       -------------------------------------------------------
    <S>                  <C>          <C>          <C>            <C>           
    Net sales            $1,000,201   $1,396,594   $1,074,059     1,069,884     
    Gross profit            469,229      619,928      452,003       595,632     
    Purchased research                                                          
     and development                                                575,000     
    Acquisition and                                                             
     integration costs                                 54,655                   
    Income (loss) from           
     operations              13,369       55,719      (46,495)     (440,720)   
    Net income (loss)        73,369      111,706      (45,302)     (207,973)    
    Net income (loss) per                                                       
     common share              $.01         $.01        $(.01)        $(.02) 
 
<CAPTION>
                                   Year ended December 31, 1994:           
    Three months ended     March 31      June 30    September 30  December 31 
                       -------------------------------------------------------
    <S>                    <C>        <C>          <C>          <C>           
    Net sales              $939,614   $1,204,114   $1,259,008    $1,279,367    
    Gross profit            415,247      454,173      564,009       444,341    
    Income (loss) from        
     operations             148,417       71,771      196,230       (31,180)   
    Net income (loss)       137,745       62,783      118,959       (15,780)   
    Net income per common                                                       
     share                     $.02         $.01         $.02          $.00    
</TABLE>

                                      
                                      26
<PAGE>
 
                                    PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following information is included in Item 8.

1.  Financial Statements:
    -------------------- 

    Report of Ernst & Young LLP, Independent Auditors

    Report of William Buck, Chartered Accountants

    Consolidated Balance Sheets at December 31, 1995 and 1994
    
    Consolidated Statements of Income for the years ended
      December 31, 1995, 1994 and 1993 (restated)     
    
    Consolidated Statements of Stockholders' Equity (Deficiency)
      for the years ended December 31, 1995, 1994 and 1993 (restated)     
    
    Consolidated Statements of Cash Flows for the years ended
      December 31, 1995, 1994 and 1993 (restated)     

    Notes to Consolidated Financial Statements (restated)

2.  Financial Statement Schedules:
    ----------------------------- 

    Schedule II-Valuation and Qualifying Accounts

    All other schedules have been omitted because they are not applicable, not
    required, or the information required is included in the financial
    statements or notes thereto.

3.  Exhibits:
    -------- 

    The exhibits are listed in the accompanying Exhibit Index immediately 
    following the Financial Statement Schedules.

(b) Reports on Form 8-K

    None.

                                      27
<PAGE>
 
                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                       OPEN ENVIRONMENT CORPORATION
                                   
                                         
                                     By:     /s/ Philip R. Copeland
                                             -----------------------------
                                     Name:   Philip R. Copeland
                                     Title:  Acting Chief Executive 
                                             Officer
                                   
                                     Date:   October 10, 1996
                                             -----------------------------
                                   
                                     By:     /s/ James J. Driscoll
                                             -----------------------------
                                     Name:   James J. Driscoll
                                     Title:  Vice President, Finance and
                                             Administration, Chief Financial
                                             Officer, Secretary and 
                                             Treasurer (Principal
                                             Financial Officer and Principal
                                             Accounting Officer)     
                                         
                                     Date:   October 10, 1996                   
                                             -------------------------------
         

                                      28
<PAGE>
 
                         OPEN ENVIRONMENT CORPORATION

                 SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------------- 
          COL. A                       COL. B                   COL. C                     COL. D         COL. E
--------------------------------------------------------------------------------------------------------------------------
                                                               Additions
                                                   ---------------------------------      
                                                                       Charged to       
                                      Balance at       Charged to        Other               
                                     Beginning of       Costs and       Accounts-       Deductions-     Balance at End   
        Description                     Period           Expenses        Describe       Describe (1)      of Period
--------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>              <C>             <C>                <C>              <C>
Year ended December 31, 1995: 
  Deducted from asset accounts: 
   Allowance for doubtful                                                                                           
    accounts                         $100,871          $526,198                            $(53,213)       $573,856 
                                  ----------------------------------------------------------------------------------------
                                     $100,871          $526,198                            $(53,213)       $573,856
                                  ========================================================================================
 
Year ended December 31, 1994:
 Deducted from asset accounts:
  Allowance for doubtful                                                                                            
   accounts                           $74,500          $152,000                           $(125,629)       $100,871 
                                  ----------------------------------------------------------------------------------------
                                      $74,500          $152,000                           $(125,629)       $100,871
                                  ========================================================================================
 
Year ended December 31, 1993:
 Deducted from asset accounts:
  Allowance for doubtful                                                                                            
   accounts                           $19,700           $62,800                             $(8,000)        $74,500 
                                  ----------------------------------------------------------------------------------------
                                      $19,700           $62,800                             $(8,000)        $74,500
                                  ========================================================================================
</TABLE>

(1)  Uncollectible accounts written off, net of recoveries.


<PAGE>
 
                                 EXHIBIT INDEX
 
Exhibit No.  Description
-----------  -----------                             
 
3.1*         Amended and Restated Certificate of Incorporation
3.2*         Amended and Restated By-laws of the Registrant
4.1*         Specimen Stock Certificate
10.1*        Amended and Restated 1993 Employee Stock Option Plan
10.2*        1995 Employee Stock Purchase Plan
10.3*        1995 Director Stock Option Plan
10.4*        Registration Rights Agreement dated as of November 23, 1994 
             between the Registrant and certain of its stockholders
10.5*        Stockholders Agreement dated November 23, 1994 between the 
             Registrant and certain of its stockholders
10.6*        Management Rights Agreement dated November 16, 1994 between the
             Registrant and Hancock Venture Partners IV--Direct Fund L.P.
10.7*        Lease dated as of January 18, 1994 between the Registrant and The
             Abbey Barrett Limited Partnership
10.8*        Loan and Security Agreement between the Registrant and State 
             Street Bank and Trust Company
10.9*        Master Promissory Note of the Registrant payable to the order of
             State Street Bank and Trust Company
10.10*       Equipment Note of the Registrant payable to the order of State 
             Street Bank and Trust Company
10.11*       Employment Agreement dated March 22, 1994 between the Registrant 
             and Nathan P. Morton
10.12*       Assignment Agreement dated as of November 23, 1994 between the
             Registrant and Cambridge Technology Group, Inc.
10.13*       Reseller Agreement dated November 23, 1994 between the Registrant
             and Cambridge Technology Group, Inc.
10.14*       Asset Purchase Agreement dated January 1, 1993 between the 
             Registrant and Cambridge Technology Group, Inc.
10.15*       License Agreement dated January 1, 1993 between the Registrant and
             Cambridge Technology Group, Inc., as amended August 1, 1994
10.16*       Amendment to Reseller Agreement dated April 6, 1995 between the 
             Registrant and Cambridge Technology Group, Inc.
10.17**      Jarrah Technologies Stock Purchase Agreement
11.1         Statement Regarding Computation of Net Income Per Share
21.1         Subsidiaries of the Registrant as of December 31, 1995
23.1         Consent of Ernst & Young LLP, Independent Auditors
    
23.2         Consent of William Buck, Chartered Accountants     
         
*  Incorporated herein by reference from the Company's Registration Statement on
   Form S-1 (File No. 33-89854) as declared effective by the Securities and
   Exchange Commission (the "Commission") on April 13, 1995.

** Incorporated by reference from the Company's Form 8-K as filed with the
   Commission on August 31, 1995.