<PAGE>
 
    ======================================================================

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549


                             --------------------
    
                                  FORM 10-Q/A

                              AMENDMENT NO. 1 TO
               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934      

                 For the quarterly period ended March 31, 1996

                        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, Massachusetts 02134
                   (Address of principal executive offices) 
      Registrant's telephone number, including area code: (617) 562-0900

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 the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practicable date. 
    
     The Registrant had 7,562,749 shares of Common Stock, $.01 par value,
                       outstanding as of August 6, 1996.     

    ======================================================================
<PAGE>
 
                         OPEN ENVIRONMENT CORPORATION
                         
                         QUARTERLY REPORT ON FORM 10-Q/A
                      FOR THE PERIOD ENDED MARCH 31, 1996
                                     Index
                                        
                                                
                                        
                                                                           Page
                                                                           ----
                                                                    
PART I - Financial Information                                      

ITEM 1.  Condensed Consolidated Financial Statements                
                                                                         
         Condensed Consolidated Balance Sheets as of                
           March 31, 1996 and December 31, 1995 (restated)                 1
                                                                        
         Condensed Consolidated Statements of Operations for        
           the three months ended March 31, 1996 and 1995                  2
           (restated)                                                    
    
         Condensed Consolidated Statements of Cash Flows for           
           the three months ended March 31, 1996 and 1995                  3
           (restated)                                                    

         Notes to Condensed Consolidated Financial Statements (restated)   4
                                                                        
ITEM 2.  Management's Discussion and Analysis of Financial              
           Condition and Results of Operations, as Amended                 6
                                                              
                                                                  
PART II - Other Information                                             
                                                                           9
Item 6.  Exhibits and Reports in Form 8-K     

Signatures                                                                10

                                                                   
<PAGE>
 
                         PART I. FINANCIAL INFORMATION

ITEM 1.  Condensed Consolidated Financial Statements

<TABLE>     
<CAPTION>
 
            OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
                Condensed Consolidated Balance Sheets
  
                                           March 31,    December 31,
                                              1996          1995
                                          ------------- ---------------
                                            (Restated)                   
<S>                                       <C>           <C>
 
ASSETS
Current assets:
 Cash and cash equivalents                $ 8,483,071    $ 7,012,333
 Marketable securities                      8,888,905     10,678,125
 Accounts receivable, net                   4,026,779      7,609,007
 Due from related parties                     149,414      2,362,752
 Due from joint ventures                      899,425      1,428,090
 Prepaid expenses and other 
  current assets                            3,000,491      1,676,530
        
                                         -------------- -------------
   Total current assets                    25,448,085     30,766,837
 
Property and equipment, net                 3,141,562      3,214,341
Capitalized software costs, net               642,934        800,206
Investment in and advances to joint           
 ventures                                     720,630        858,123
Deferred income taxes                                        547,184
Other assets                                  450,041        459,982
                                         -------------- -------------
                                          $30,403,252    $36,646,673
                                         ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Notes payable                            $ 1,051,073    $ 1,545,684
 Accounts payable and accrued                                        
  expenses                                  3,975,642      4,143,880 
 Advance billings and customer   
  deposits                                    553,910        629,734 
 Deferred maintenance revenue                 859,580      1,054,135
 Income taxes payable                                        350,000
 Current portion of capital lease                                    
  obligations                                 140,081        178,904 
                                         -------------- -------------
   Total current liabilities                6,580,286      7,902,337
 
Obligations under capital leases, less          
 current portion                                7,616         27,185
 
Stockholders' equity
 Preferred stock            
 Common stock                                  80,686         80,505
 Additional paid-in capital                30,759,103     30,694,500
 Retained earnings (deficit)               (3,524,439)     1,442,146
 Treasury stock                            (3,500,000)    (3,500,000)
                                         -------------- -------------
  Total stockholders' equity               23,815,350     28,717,151
                                         -------------- -------------
                                          $30,403,252    $36,646,673
                                         ============== =============

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


                                       1
<PAGE>
 
            OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
           Condensed Consolidated Statements of Operations
                                        

<TABLE>     
<CAPTION> 
                                          Three Months Ended March 31,
                                               1996          1995
                                          -------------- -------------
                                             (Restated)    (Restated)
<S>                                        <C>             <C>
Revenues:
 License fees                                $1,522,404    $4,636,531
 Maintenance and service fees                 1,398,933     1,320,491
 Education and training                         297,405       514,662
                                          -------------- -------------
  Total revenues                              3,218,742     6,471,684
                                          -------------- -------------
 
Cost of revenues:
 Cost of software, maintenance and           
  services                                    1,702,691       965,205
 Cost of education and training                 412,682       402,131
                                          -------------- -------------
  Total cost of revenues                      2,115,373     1,367,336
                                          -------------- -------------
 
Gross profit                                  1,103,369     5,104,348
 
Operating expenses:
 Selling and marketing                        3,987,624     2,625,153
 General and administrative                     902,466       751,543
 Research and development                     1,377,098       956,032
                                          -------------- -------------
  Total operating expenses                    6,267,188     4,332,728
                                          -------------- -------------
 
Operating income (loss)                      (5,163,819)      771,620
Equity in loss of joint venture                              (312,384)
Other income (expense)                          197,234         7,453
                                          -------------- -------------
Income (loss) before income taxes            (4,966,585)      466,689
Provision for income taxes                                    117,426
                                          -------------- -------------
 
Net income (loss)                           ($4,966,585)   $  349,263
                                          ============== =============
 
Net income (loss) per share                      ($0.66)        $0.05
                                          ============== =============
 
Weighted average shares outstanding           7,478,430     6,734,840
                                          ============== =============
 
</TABLE>      

The accompanying notes are an integral part of these financial statements.


                                       2
<PAGE>
 
<TABLE>    
<CAPTION>
 
            OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
           Condensed Consolidated Statements of Cash Flows
 
                                           Three Months Ended March 31,
                                                1996           1995
                                           -------------- --------------
                                              (Restated)   (Restated)
<S>                                         <C>            <C>
Operating activities
Net income (loss)                           ($4,966,585)   $   349,263 
Adjustments to net income (loss):                                       
 Depreciation                                   423,553        275,929 
 Amortization of capitalized software           158,486         66,490 
 Allowance for doubtful accounts                542,651         65,842 
 Equity in loss of joint venture                               312,384 
 Deferred income taxes                          833,791       (175,777)
 Changes in operating assets and                                       
  liabilities:                         
   Accounts receivable                        3,064,875     (2,129,656)
   Due from related party                     2,213,338                
   Prepaid expenses and other current        
    assets                                   (1,577,219)      (357,474)        
   Due from joint venture                       528,665         15,104 
   Other assets                                  12,869         20,723 
   Accounts payable and accrued expenses       (221,005)       310,839 
   Advance billings and customer deposits       (88,305)        47,341 
   Deferred maintenance revenue                (194,555)        31,529 
   Income taxes payable                        (348,827)        27,746 
   Due to related party                         (25,409)        (2,348)
                                           -------------- --------------
Net cash provided by (used in)                  
 operating activities                           356,323     (1,142,065) 
                                                
Investing activities                            
Purchase of marketable securities           (13,107,516)
Proceeds from maturities of
 marketable securities                       14,899,388
Investment in and advances to joint                                    
 ventures                                       136,700        (63,302) 
Purchase of property and equipment             (337,060)      (794,531)
Additions to capitalized software                              (87,414)
                                           -------------- --------------
Net cash provided by (used in)                
 investing activities                         1,591,512       (945,247)
 
Financing activities
Net proceeds (repayments) of notes             
 payable to bank                               (354,530)       828,928
Repayment of capital lease obligations         (198,473)       (58,162)
Exercise of stock options                        64,785         66,900
                                           -------------- --------------
Net cash provided by (used in)                 
 financing activities                          (488,218)       837,666
                                           -------------- --------------
 
Effect of exchange rates on cash                 11,121        (17,634)
 
Net increase (decrease) in cash and           
 equivalents                                  1,470,738     (1,267,280)
Cash and equivalents at beginning of          
 period                                       7,012,333      1,693,118 
                                           -------------- --------------
 
Cash and equivalents at end of period      $  8,483,071   $    425,838
                                           ============== ==============
</TABLE>     
 
The accompanying notes are an integral part of these financial statements.


                                       3
<PAGE>
 
                 OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
                                  

1.  Basis of Presentation
    
The unaudited condensed consolidated financial statements presented have been
prepared by Open Environment Corporation and subsidiaries (the "Company")
without audit and, in the opinion of management, reflect all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the financial results for the interim periods shown. The results
of operations for the interim periods shown in this report are not necessarily
indicative of results for any future interim period or for the entire fiscal
year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, although the Company believes that the disclosures
included are adequate to make the information presented not misleading. The
unaudited condensed consolidated financial statements and the notes included
herein should be read in conjunction with the financial statements and notes for
the fiscal year ended December 31, 1995 included in the Company's Annual Report
on Form 10-K as filed with the Securities and Exchange Commission on April 1,
1996 as amended on Form 10-K/A as filed with the Securities and Exchange 
Commission on October 11, 1996.     
    
Restatement of Financial Statements      
    
In December 1995, the Company entered into an agreement (the "Reseller
Agreement") with a reseller (the "Reseller") whereby the Reseller agreed to
purchase products from the Company. In the first quarter of 1996, the Company
sold and shipped to the Reseller an aggregate of $2,500,000 worth of products.
The Reseller Agreement provided the Reseller with certain product return and
exchange rights, and, therefore, the Company established a reserve in the first
quarter of 1996 of $1,440,000 to provide for potential returns from the
Reseller. Based on the actual product return and exchange rate experienced under
the Reseller Agreement, the Company increased the reserve by $400,000 in the
second quarter of 1996. This product return and exchange rate was higher than
originally anticipated by the Company. After a review by the staff of the
Securities and Exchange Commission of the Company's reports filed pursuant to
the Securities Exchange Act of 1934 (the "Reports"), the Company determined that
due to the high return and exchange rate, that the Company did not have a
sufficient basis under generally accepted accounting principles to estimate the
amount of returns and exchanges and therefore should have recognized revenue as
the Reseller actually sold product to its customers. This amended Report
reflects the restatement of the Company's financial statements to recognize
revenues under the Reseller Agreement as the Reseller sells product to its
customers.    

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


<TABLE>     
<CAPTION> 
                                               As
                                            Reported            Restated
                                            --------            --------
Three months ended March 31, 1996
<S>                                         <C>                 <C> 
 Revenues                                   4,278,742           3,218,742   
 Cost of software, maintenance and services 1,843,691           1,702,691   
 Gross profit                               2,022,369           1,103,369   
 Net loss                                  (4,047,585)         (4,966,585)  
 Net loss per share                              (.54)               (.66)  
 Accounts receivable                        5,086,779           4,026,779   
 Total assets                              31,463,252          30,403,252   
 Accounts payable and accrued expenses      4,116,642           3,975,642   
 Stockholders' equity                      24,734,350          23,815,350   
</TABLE>    

2.  Consolidated Financial Statement Information

Net Income (Loss) Per Share

Net income (loss) per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during each fiscal
period. Included in these amounts are dilutive common stock options and
1,428,571 shares of Series A Convertible Preferred Stock which automatically
converted upon the closing of the Company's initial public offering into 999,998
shares of common stock on April 13, 1995. Fully diluted and primary earnings per
share data are the same for each period presented.

Investment Securities

All of the Company's investments are classified as held-to-maturity at March 31,
1996 and December 31, 1995. Investment securities are deemed to be held-to-
maturity when the Company has the positive intent and ability to hold the
securities to maturity. The fair market value of these investments at March
31, 1996 and December 31, 1995 approximates amortized cost basis. The following
is a summary of these investments:

<TABLE>
<CAPTION>
 
                                              March 31,       December 31,      
                                                1996              1995 
                                          -----------------------------------
<S>                                       <C>             <C>
U.S. Treasury securities and
 obligations of U.S. government agencies     $10,845,599        $12,135,987
Tax-exempt mutual and money market funds       2,767,702          1,513,183
90-day bank notes                              2,165,846          2,136,747
                                          -----------------------------------
                                             $15,779,147        $15,785,917
                                          ===================================
</TABLE>

Foreign Currency Translation

Assets and liabilities of foreign operations are translated at year end exchange
rates, and statement of operations accounts are translated at average exchange
rates.  Gains and losses from translation are not material for the periods
presented.  Foreign currency transaction gains and losses are included in the
statements of operations and are not material for the periods presented.

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

On January 17, 1994, the Company entered into a joint venture agreement 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 owned 50% of the outstanding voting common
stock and two shares of the non-voting preferred stock. Concurrent with this
agreement, the Company granted the joint venture an exclusive license to
establish, develop, distribute and market the Company's software products and
educational services in Japan. In return for this license, the Company receives
royalties from the sale of these products and services as follows: software
products (40%); educational services (25%); and maintenance services (60%).

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.  Effective October 1,
1995, the Company accounts for its remaining investment in the joint venture
using the cost method.

At March 31, 1996, investment in and advances to joint ventures consisted of
investment in and advances to the Japanese joint venture of $499,000, and
investments in other joint ventures of $222,000.  Due from joint ventures
represents trade accounts receivable due from the Company's joint ventures.


4.  Related Party Transactions

The Company entered into a reseller agreement with Cambridge Technology Group,
Inc. ("CTG"). CTG is principally owned by the Company's Chairman of the Board
and a major stockholder. 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 aggregate list price value of software products
sold by CTG under the reseller agreement. The Company made no sales to CTG under
this agreement during the three months ended March 31, 1996. Sales to CTG under
this agreement during the three months ended March 31, 1995 amounted to
$350,000.

In June 1995, the Company entered into a reseller agreement with OneWave
Inc.(formerly Business@Web and Object Power Inc.), a Company principally owned
by the Company's Chairman of the Board and a major stockholder. Under this
agreement, OneWave Inc. 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 OneWave Inc. under
this agreement during the three months ended March 31, 1996 amounted to $11,000.



                                       5
<PAGE>
 
                 OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES

Item 2.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations, as Amended


Introduction
------------

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.

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 continued growth 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.

For a discussion of uncertainties associated with the Company's business, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the fiscal year ended December 31, 1995 included in the Company's
Annual Report on Form 10-K as amended on Form 10-K/A as filed with the 
Securities and Exchange Commission on October 11, 1996.
    
Restatement of Financial Statements     
    
In December 1995, the Company entered into an agreement (the "Reseller
Agreement") with a reseller (the "Reseller") whereby the Reseller agreed to
purchase products from the Company. In the first quarter of 1996, the Company
sold and shipped to the Reseller an aggregate of $2,500,000 worth of products.
The Reseller Agreement provided the Reseller with certain product return and
exchange rights, and, therefore, the Company established a reserve in the first
quarter of 1996 of $1,440,000 to provide for potential returns from the
Reseller. Based on the actual product return and exchange rate experienced under
the Reseller Agreement, the Company increased the reserve by $400,000 in the
second quarter of 1996. This product return and exchange rate was higher than
originally anticipated by the Company. After a review by the staff of the
Securities and Exchange Commission of the Company's reports filed pursuant to
the Securities Exchange Act of 1934 (the "Reports"), the Company determined that
due to the high return and exchange rate, that the Company did not have a
sufficient basis under generally accepted accounting principles to estimate the
amount of returns and exchanges and therefore should have recognized revenue as
the Reseller actually sold product to its customers. This amended Report
reflects the restatement of the Company's financial statements to recognize
revenues under the Reseller Agreement as the Reseller sells product to its
customers.    
 
The following summarizes the effect of the restatement on the condensed 
consolidated financial statements of the Company for the period presented.
 

<TABLE>     
<CAPTION> 
                                                    As                         
                                                  Reported           Restated 
                                                  --------           --------  
Three months ended March 31, 1996                 
    <S>                                           <C>                <C> 
    Revenues                                      4,278,742          3,218,742
    Cost of software, maintenance and services    1,843,691          1,702,691
    Gross profit                                  2,022,369          1,103,369
    Net loss                                     (4,047,585)        (4,966,585)
    Net loss per share                                 (.54)              (.66) 
    Accounts receivable                           5,086,779          4,026,779
    Total assets                                 31,463,252         30,403,252
    Accounts payable and Accrued expenses         4,116,642          3,975,642
    Stockholders' equity                         24,734,350         23,815,350
</TABLE>      

Results of Operations
---------------------
    
Total revenues decreased 50% to $3,219,000 in the three months ended March 31,
1996 from $6,472,000 in the three months ended March 31, 1995. The revenue
decreases were largely attributable to a decline in software license fees, which
decreased to $1,522,000 in the three months ended March 31, 1996 from $4,637,000
in the three months ended March 31, 1995. Software revenues accounted for 47% of
total revenues for the three months ended March 31, 1996 as compared to 72% for
the three months ended March 31, 1995.     
    
Such revenue decreases can be attributed to a number of factors. The Company's
continued reliance on major transactions each quarter to reach revenue targets
give rise to an associated risk of revenue shortfall if such transactions are
delayed or fail to close. The Company closed no large orders of over $250,000 in
the first quarter of 1996 compared to closing four large orders of over $250,000
each in the first quarter of 1995. Additionally, the sales cycle of the
Company's products has increased from 6 to 9 months to approximately 9 to 12
months due to an inconsistent marketing message, making it even more difficult
for the Company to forecast revenues for any given period until such period has
ended. Based on its analysis of operations for the period ending March 31, 1996,
it is now the Company's business judgement that the manner in which it marketed
products has been too broad and, in particular, that the Company has marketed
its products into too many market segments and to companies at too many stages
of distributed client/server application development and deployment. This
included expansion of the Company's marketing efforts to include desktop and
first generation users in addition to users more experienced with management of
computer operations in a client/server environment. We believe that this has
contributed to the lengthtening in OEC's sales cycle in the following manners: a
changing product positioning detracted from the clear understanding of our
existing customer base and some qualified leads, thus extending the decision
process; such a strategy resulted in certain leads entering the sales pipeline
when, based on the development of additional data, such leads later did not
appear likely to meet the criteria for qualified lead and, therefore, generate
appropriate sales; these factors also caused certain operational challenges
within the Company's sales and marketing organization, including the re-
education of sales personnel, development of new sales and seminar presentations
and marketing collateral, and changes in the Company's product development
plans. Further, revenues from reselling certain software products by the
Company's Australian subsidiary have decreased as that operation transitions
from such resale activities to the sale of the Company's Entera product line.
The Australian subsidiary had sales of $618,000 in the first quarter of 1996
compared to $1,000,000 in the first quarter of 1995, the decrease largely
related to the decline in the resale of Gupta software products.    
   
The Company believes that it must refocus its sales and marketing strategy in
order to address these shortfalls in revenue, reduce sales cycles and diminish
its dependence on a limited number of large transactions. Management believes
that the Company's marketing strategy has been too broad, and that it needs to
more clearly define the Company's products and its message. To that end, it
plans to target a specific segment of the client/server market: organizations
having an installed base of first generation client/server tools who need to
build and manage highly-scalable, client/server applications within the
enterprise or the Internet. The Company plans to, among other things, develop
more focused marketing programs and collaterals, and to hire additional sales
and sales support personnel with experience in selling to enterprise
organizations.     

Also contributing to the decrease in total revenues was a decrease in 

                                       6
<PAGE>
 
education revenues to $297,000 in the three months ended March 31, 1996 from
$515,000 in the three months ended March 31, 1995. 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.

These decreases were partially offset by an increase in maintenance and service
fees, which increased to $1,399,000 in the three months ended March 31, 1996
from $1,320,000 in the three months ended March 31, 1995.  This increase
reflects the continued demand for project related services as well as the
increase in maintenance revenues from the broadened installed base.
    
Revenues from Open Environment Australia Pty. Ltd. and other international
customers accounted for $1,336,000 (42%) of total net revenues for the three
months ended March 31, 1996, as compared to $2,969,000 (46%) for the three
months ended March 31, 1995. This decrease is attributable to the decrease in
revenues from Open Environment Australia as noted above as well as the lack of
major international transactions in the first quarter of 1996 and the timing of
orders from international resellers. The Company believes that international
sales will continue to represent a significant portion of the Company's net
revenue. 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.      

    
The Company is in the early stages of addressing the shortfalls in revenue, and 
while management believes that it is taking the appropriate actions to address 
these shortfalls, there can be no assurance that such actions will result in a 
discontinuation of the adverse results reported in the three months ended March 
31, 1996.      

    
Cost of revenues increased to $2,115,000 for the three months ended March 31,
1996 from $1,367,000 for the three months ended March 31, 1995, and gross
profits decreased to 34% for the three months ended March 31, 1996 from 79% for
the three months ended March 31, 1995. The increase in cost of revenues was due
to increased headcount in the services organization and an increase in
sublicense fees paid to third parties to $131,000 in the three months ended
March 31, 1996 from zero in the three months ended March 31, 1995. The Company's
cost structure is predominantly fixed in the short term because it largely
represents personnel and the infrastructure necessary to support them. A
shortfall in revenues has a direct and immediate impact on the Company's gross
profits and operating profitability due to the Company's inability to react to a
revenue shortfall from a cost perspective in the near term. Fixed costs that are
classified as cost of revenues include personnel costs in the education,
services and maintenance departments as well as amortization of capitalized
software.     
    
Selling and marketing expenses increased to $3,988,000 in the three months ended
March 31, 1996 from $2,625,000 in the three months ended March 31, 1995.  These
increases are 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.      

    
Bad debt expense increased significantly to $543,000 in the three months ended
March 31, 1996 from $66,000 in the three months ended March 31, 1995, primarily
as a result of the provision of approximately $475,000 as a direct result of the
deteriorated aging of two international accounts, one of which is a reseller in
Saudi Arabia and the other is an end-user in India. The Company has been
pursuing collection of these balances, but has been unsuccessful in obtaining
cooperation from the customers and although the Company is still pursuing
collection of the balances, management provided for these amounts given their
age and uncertainty.      

General and administrative expenses increased to $902,000 in the three months
ended March 31, 1996 from $752,000 in the three months ended March 31, 1995.
The increase is largely the result of the addition of infrastructure to support
the Company's domestic and international expansion.  However, general and
administrative expenses decreased by 4% from $940,000 in the three months ended
December 31, 1995 as the Company has focused on slowing growth in areas that are
not revenue-related.
    
Research and development expenses increased to $1,377,000 in the three months
ended March 31, 1996 from $956,000 in the three months ended March 31, 1995.
These increases reflect significant personnel increases in the research and
development department.  No software development costs were capitalized under
FAS 86 for the three months ended March 31, 1996, while amortization of
previously capitalized software amounted to $158,000, as compared to
capitalization of $87,000 and amortization expense of $66,000 for the three
months ended March 31, 1995.  The decrease in software development costs
capitalized in the three months ended March 31, 1996 was due to the fact that
minimal activities were devoted to projects at the point of technological
feasibility as defined by FAS 86.  The Company expects to continue to increase
its research and development expenses to keep pace with the technological needs
of the marketplace.      

                                       7

<PAGE>
 
During the third quarter of 1995, the Company sold a portion of its interest in
its Japanese joint venture to its joint venture partner.  The transaction
results 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 no longer recognizes any share of the venture's operating income or loss.
    
Other income increased to $197,000 in the three months ended March 31, 1996 from
$7,000 in the three months ended March 31, 1995.  This increase reflects the
income generated from the remaining investment of the net proceeds of the
initial public offering of the Company's common stock in April 1995.      

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

As of March 31, 1996, the Company's cash and cash equivalents increased to
$8,483,000 from $7,012,000 at December 31, 1995, and the Company also held
marketable securities amounting to $8,889,000 at March 31, 1996, a decrease from
$10,678,000 at December 31, 1995. The net decrease in cash and cash equivalents
and marketable securities was primarily the result of repayment of lines of
credit and lease obligations offset by cash generated from operations in spite
of the loss generated during the quarter ended March 31, 1996. The positive cash
flow from operations was generated by the collection of a significant portion of
the Company's December 31, 1995 accounts receivable balances. 

The Company has a credit facility consisting of 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 percent.  As of March 31, 1996, aggregate borrowings
under the line of credit amounted to $875,000, which primarily represents the
remaining balance on the revolving equipment line that converted to a two-year
term note.  This balance is classified as currently payable due to the fact that
the Company is in violation of a financial covenant related to quarterly cash
flows.

In the event that the Company continues to experience significant losses and is 
unable to consummate a strategic transaction or sale of its business, management
of the Company anticipates that it would require additional sources of working 
capital by the beginning of 1997.  In the absence of a strategic transaction 
or sale of its business, the Company would therefore be required to make 
significant reductions in its rate of expenditures during 1996 in order to defer
the requirement to obtain additional working capital, and would, in the absence
of being able to reduce expenditures appropriately on a timely basis, face the 
need to obtain additional working capital either through private financing or 
alternatively sell the Company.  There is no assurance that if the Company seeks
additional financing in the future, such financing will be available upon 
acceptable terms, if at all.

                                       8
<PAGE>
     
                          PART II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K.
------------------------------------------

  A.  Exhibits

       Exhibit 11.1 - Statement regarding computation of Net Income (Loss) Per
       Share. (restated)     

    
  B.  Reports on Form 8-k

       None.     


                                       9
<PAGE>
 
                                   SIGNATURES
    
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.      

    
                               OPEN ENVIRONMENT CORPORATION      


    
Date:  October 10, 1996        By: /s/ Philip R. Copeland
                                  --------------------------------------------
                                  Philip R. Copeland, Acting Chief 
                                  Executive Officer
                                  (Principal Executive Officer)      


                               By: /s/ James J. Driscoll
                                  --------------------------------------------
                                  James J. Driscoll, Vice President of Finance
                                  (Principal Financial Officer and Principal
                                  Accounting Officer)




                                      10