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

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549

                              ____________________
    
                                  FORM 10-Q/A
                                AMENDMENT NO. 1     

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

               For the quarterly period ended September 30, 1995

                         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) (Zip Code)
      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 7,445,466 shares of Common Stock, $.01 par value, 
                      outstanding as of November 9, 1995.

===============================================================================
<PAGE>
 
                          OPEN ENVIRONMENT CORPORATION

                        QUARTERLY REPORT ON FORM 10-Q/A
                    FOR THE PERIOD ENDED SEPTEMBER 30, 1995
                                     Index

<TABLE>     
<CAPTION> 
                                                               Page
                                                               ----
<S>                                                            <C> 
PART I - Financial Information

ITEM 1.  Condensed Consolidated Financial Statements

        Condensed Consolidated Balance Sheets as of
          September 30, 1995 and December 31, 1994              
          (restated)                                            1

        Condensed Consolidated Statements of Income 
          for the three months ended September 30, 1995 
          and 1994 and the nine months ended 
          September 30, 1995 and 1994 (restated)                2

        Condensed Consolidated Statements of Cash Flows 
          for the nine months ended September 30, 1995 
          and 1994 (restated)                                   3

        Notes to Condensed Consolidated Financial
          Statements (restated)                                 4 

ITEM 2.  Management's Discussion and Analysis of Financial
          Condition and Results of Operations, as Amended       7

PART II - Other Information                                    10

ITEM 6.  Exhibits and Reports on Form 8-K 

Signatures                                                     11
</TABLE>      
<PAGE>
 
                        PART I.  FINANCIAL INFORMATION

ITEM 1.  Condensed Consolidated Financial Statements
                 
             OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
                 Condensed Consolidated Balance Sheets     

<TABLE>    
<CAPTION>
                                                                                        September 30,       December 31,
                                                                                            1995               1994
                                                                                        -------------       ------------  
                                                                                                             (Restated)
<S>                                                                                     <C>                 <C>
ASSETS                                                                     
Current assets:                                                            
  Cash and cash equivalents                                                               $ 5,740,021        $ 1,693,118
  Marketable securities                                                                    13,725,774             94,589
  Accounts receivable, net                                                                 11,151,849          3,869,596
  Prepaid expenses and other current assets                                                   913,460            606,511
                                                                                        -------------       ------------  
    Total current assets                                                                   31,531,104          6,263,814
                                                                           
Property and equipment, net                                                                 3,306,439          2,049,392
Capitalized software costs, net                                                               655,370            427,879
Investment in and advances to joint ventures                                                1,327,590            387,862
Deferred income taxes                                                                          64,842            137,362
Other assets                                                                                  615,031            209,349
                                                                                        -------------       ------------
                                                                                          $37,500,376        $ 9,475,658
                                                                                        =============       ============ 
                                        
LIABILITIES                             
Current liabilities:                    
  Notes payable                                                                           $ 1,845,726     
  Accounts payable and accrued expenses                                                     4,148,794        $ 2,828,470
  Advance billings and customer deposits                                                      501,219            640,833
  Deferred maintenance revenue                                                                914,267            780,345
  Income taxes payable                                                                        651,669            269,260
  Current portion of capital lease obligations                                                198,310            245,489
                                                                                        -------------       ------------
    Total current liabilities                                                               8,259,985          4,764,397
                                        
Deferred income taxes                                                                                            172,270
Obligations under capital leases, less current portion                                         75,347            206,089
Series A Convertible Preferred Stock                                                                           5,854,332
                                                                                                         
Common stockholders' equity (deficiency)                                                                 
  Common stock                                                                                 80,270             51,754
  Additional paid-in capital                                                               30,111,920            777,126
  Retained earnings                                                                         2,472,854          1,149,690
  Treasury stock                                                                           (3,500,000)        (3,500,000)
                                                                                        -------------       ------------
    Total common stockholders' equity (deficiency)                                         29,165,044         (1,521,430)
                                                                                        -------------       ------------
                                                                                          $37,500,376        $ 9,475,658
                                                                                        =============       ============
</TABLE>     

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

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

 
<TABLE>     
<CAPTION>
                                                                Three Months Ended                    Nine Months Ended
                                                                   September 30,                         September 30,
                                                              1995             1994                 1995               1994     
                                                          ------------     ------------         -------------      ------------- 
                                                           (Restated)                            (Restated)
<S>                                                       <C>              <C>                  <C>                <C>         
                                                                                                                                 
Revenues                                                                                                                         
 Software                                                  $5,876,290       $3,542,378           $16,227,234        $ 7,019,100  
 Maintenance and service fees                               1,612,988        1,011,968             4,490,413          1,991,696   
 Education and training                                       507,587          744,111             1,562,059          3,626,065  
                                                          ------------     ------------         -------------      ------------- 
  Total revenues                                            7,996,865        5,298,457            22,279,706         12,636,861  
                                                          ------------     ------------         -------------      ------------- 
                                                                                                                                 
Cost of revenues                                                                                                                 
 Cost of software, maintenance and services                 1,427,741        1,113,580             3,777,411          2,935,294  
 Cost of education and training                               385,756          479,881             1,184,784          1,672,075  
                                                          ------------     ------------         -------------      ------------- 
  Total cost of revenues                                    1,813,497        1,593,461             4,962,195          4,607,369  
                                                          ------------     ------------         -------------      ------------- 
                                                                                                                                 
Gross profit                                                6,183,368        3,704,996            17,317,511          8,029,492  
                                                                                                                                 
Operating expenses                                                                                                               
 Selling and marketing                                      3,240,681        2,123,842             8,938,871          4,752,830  
 General and administrative                                   974,491          618,579             2,659,810          1,578,871  
 Research and development                                   1,103,552          567,792             3,111,550          1,333,495  
 Special one-time charge related to acquisition
  of Jarrah Technologies Pty. Ltd.                            678,655                                678,655          
                                                          ------------     ------------         -------------      ------------- 
  Total operating expenses                                  5,997,379        3,310,213            15,388,886          7,665,196  
                                                          ------------     ------------         -------------      ------------- 
                                                                                                                                 
Operating income                                              185,989          394,783             1,928,625            364,296  
Equity in loss of joint venture                                                (34,844)             (273,643)           (62,761) 
Other income (expense), net                                   249,989            4,683               447,398             86,579  
                                                          ------------     ------------         -------------      ------------- 
Income before income taxes                                    435,978          364,622             2,102,380            388,114  
Provision for income taxes                                    169,000           85,507               637,372            107,525  
                                                          ------------     ------------         -------------      ------------- 
                                                                                                                 
Net income                                                 $  266,978       $  279,115           $ 1,465,008        $   280,589  
                                                          ============     ============         =============      ============= 
                                                                                                                                 
Net income per share                                            $0.03            $0.04                 $0.18              $0.04  
                                                          ============     ============         =============      ============= 
                                                                                                                                 
Dividends                                                                                           $141,844                     
                                                                                                =============                     
                                                                                                                                 
Dividends per share                                                                                    $0.02                     
                                                                                                =============                     
                                                                                                                                 
Weighted average shares outstanding                         8,572,125        6,737,039             7,919,327          6,322,948  
                                                          ============     ============         =============      ============= 
</TABLE>     
 
The accompanying notes are an integral part of these financial statements.

                                       2
<PAGE>
 
                 
              OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
             Condensed Consolidated Statements of Cash Flows     

 
<TABLE>    
<CAPTION>
                                                                                              Nine Months Ended September 30,
                                                                                                1995                 1994
                                                                                           --------------       --------------
                                                                                             (Restated)
<S>                                                                                          <C>                    <C>
Operating activities                                                                                      
Net income                                                                                   $1,465,008             $280,589
Adjustments to net income                                                                                 
  Depreciation                                                                                  991,197              402,486 
  Amortization of capitalized software                                                          212,162              129,933 
  Allowance for doubtful accounts                                                               221,848               17,464 
  Equity in loss of joint venture                                                               267,246               62,761 
  Deferred income taxes                                                                        (187,935)             (64,231) 
  Changes in operating assets and liabilities 
    Accounts receivable                                                                      (7,512,926)            (629,210)  
    Prepaid expenses and other current assets                                                  (215,877)            (328,656) 
    Other assets                                                                               (403,154)             (33,522)  
    Accounts payable and accrued expenses                                                     1,324,204            1,291,712 
    Advance billings and customer deposits                                                     (140,418)            (276,278)
    Deferred maintenance revenue                                                                138,201              259,387 
    Income taxes payable                                                                        403,148              (46,115)
    Due to related party                                                                         (2,347)             (76,335) 
                                                                                           --------------       --------------
Net cash provided by (used in) operating activities                                          (3,439,643)             989,985
                                                                                                          
Investing activities                                                                          
Purchase of marketable securities                                                           (35,896,244)             (51,815)
Proceeds from maturities of marketable securities                                            22,261,984     
Investment in and advances to joint ventures                                                 (1,206,474)            (434,692)
Purchase of property and equipment                                                           (2,254,530)            (861,237)
Additions to capitalized software                                                              (438,990)            (369,157)
                                                                                           --------------       --------------
Net cash used in investing activities                                                       (17,534,254)          (1,716,901)

Financing activities                                                                          
Net proceeds of notes payable to bank                                                         1,845,726               60,000
Repayment of capital lease obligations                                                         (177,921)             (81,224)
Net proceeds from issuance of common stock                                                   22,879,165              392,000
Repayment of stockholder notes                                                                                        77,482
Dividends paid                                                                                 (141,844)        
Exercise of stock options                                                                       629,813               81,967
                                                                                           --------------       --------------
Net cash provided by financing activities                                                    25,034,939              530,225
                                                                                           --------------       --------------
                                                                                                                        
Effect of exchange rates on cash                                                                (14,139)              32,656
                                                                                                                        
Net increase (decrease) in cash and equivalents                                               4,046,903             (164,035)
Cash and equivalents at beginning of period                                                   1,693,118              918,409
                                                                                           --------------       --------------
                                                                                                                
Cash and equivalents at end of period                                                        $5,740,021             $754,374
                                                                                           ==============       ==============
</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 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.       
    
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 period presented:      

<TABLE>     
<CAPTION> 
                                         As Reported              Restated
                                         -----------              --------
Nine months ended September 30, 1995
<S>                                      <C>                      <C> 
  Revenues                            $  21,668,346            $  22,279,706
  Cost of software, maintenance and
   services                               3,740,729                3,777,411
  Gross profit                           16,742,833               17,317,511
  Selling and marketing expenses          8,883,848                8,938,871
  Provision for income taxes                502,263                  657,373
  Net income                              1,080,463                1,465,008
  Net income per share                          .14                      .18
  Accounts receivable                    11,151,849               11,151,849
                                  
  Total assets                           37,500,376               37,500,376
  Accounts payable and            
   accrued expenses                       4,148,794                4,148,794
  Income taxes payable                      651,669                  651,669
  Stockholders' equity                $  29,165,044            $  29,165,044
</TABLE>     
       
    
2.  Acquisition of Jarrah Technologies Pty. Limited     

On August 31, 1995, the Company issued 408,000 shares of its common stock in
exchange for all outstanding shares of the capital stock of Jarrah Technologies
Pty. Limited ("Jarrah Technologies"), an Australian corporation.  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.  The Company recorded a special one-time charge of
approximately $679,000 in the period ended September 30, 1995 for expenses
related to the acquisition.  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.  Separate results of the combining entities for the three and nine
months ended September 30, 1994 are as follows:

                                       4
<PAGE>

<TABLE>
<CAPTION>
                                                                    Three months ended               Nine months ended
                                                                    September 30, 1994              September 30, 1994
                                                                -------------------------      --------------------------
<S>                                                               <C>                            <C>
         Total revenues:                                                                       
           Open Environment Corporation                                  $4,039,449                     $ 9,234,125
           Jarrah Technologies                                            1,259,008                       3,402,736
                                                                -------------------------      --------------------------
             Total                                                       $5,298,457                     $12,636,861
                                                                =========================      ==========================
                                                                                               
         Net income (loss):                                                                    
           Open Environment Corporation                                    $160,156                        ($38,889)
           Jarrah Technologies                                              118,959                         319,478
                                                                -------------------------      --------------------------
             Total                                                         $279,115                        $280,589
                                                                =========================      ==========================
                                                                                               
         Net income (loss) per share:                                                                           
           Open Environment Corporation                                     $0.02                            ($0.01)
           Jarrah Technologies                                               0.02                              0.05
                                                                -------------------------      --------------------------
             Total                                                          $0.04                             $0.04
                                                                =========================      ==========================
</TABLE>

    
4.  Consolidated Financial Statement Information      

Initial Public Offering

On April 13, 1995, the Company completed its initial public offering of common
stock whereby 3,162,500 shares were sold to the public in exchange for net
proceeds of approximately $44,000,000.  Of these amounts, the Company issued
1,700,000 shares in exchange for net proceeds of approximately $23,000,000.

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.  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 initial public offering into 999,998 shares of common stock.  Fully diluted
and primary earnings per share data are the same for each period presented.

Investment Securities

All of the Company's investment securities are classified as held-to-maturity.
Investment securities are deemed to be held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity.  Investment
securities at September 30, 1995 consisted of U.S. Treasury securities and
obligations of U.S. government agencies of $14,658,000, tax-exempt mutual and
money market funds of $866,000 and 90-day bank notes of $2,106,000.  Investment
securities at December 31, 1994 consisted of $1,000,000 of 30-day bank notes.
Investment securities with maturities of greater than 90 days at date of
purchase, which consisted of U.S. Treasury securities and obligations of U.S.
government agencies in the amount of $13,653,000 at September 30, 1995, are
classified as marketable securities.

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.
    
5.  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 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 will account for its remaining investment in the joint venture using
the cost method.  At September 30, 1995, investment in and advances to joint
ventures consisted of the amount due from the Japanese joint venture partner for
the sale proceeds of $488,000, investment in and advances 

                                       5
<PAGE>
 
to the Japanese joint venture of $747,000, and investments in other
miscellaneous joint ventures of $93,000.


6.  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 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.  Sales to CTG under this agreement during
the three months ended September 30, 1995 amounted to $550,000.

                                       6
<PAGE>
 
                  OPEN ENVIRONMENT CORPORATION AND SUBSIDIARY
    
Item 2.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations, as Amended      


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

On August 31, 1995, the Company issued 408,000 shares of its common stock in
exchange for all outstanding shares of the capital stock of Jarrah Technologies
Pty. Limited ("Jarrah Technologies"), an Australian corporation.  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 for all periods prior to the merger.
   
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 period presented:    

<TABLE>     
<CAPTION> 

                                         As Reported           Restated
                                         -----------           --------
Nine months ended September 30, 1995
<S>                                       <C>                  <C> 
  Revenues                             $  21,668,346        $  22,279,706
  Cost of software, maintenance
   and services                            3,740,729            3,777,411
  Gross profit                            16,742,833           17,317,511
  Selling and marketing expenses           8,883,848            8,938,871
  Provision for income taxes                 502,263              657,373
  Net income                               1,080,463            1,465,008
  Net income per share                           .14                  .18
  Accounts receivable                     11,151,849           11,151,849
  
  Total assets                            37,500,376           37,500,376
  Accounts payable and
   accrued expenses                        4,148,794            4,148,794
  Income taxes payable                       651,669              651,669
  Stockholders' equity                 $  29,165,044        $  29,165,044
</TABLE>      

Results of Operations
---------------------
    
Total revenues increased 51% to $7,997,000 in the three months ended September
30, 1995 from $5,298,000 in the three months ended September 30, 1994.  For the
nine months ended September 30, 1995, total revenues increased 76% to
$22,280,000 from $12,637,000 in the nine months ended September 30, 1994.      
    
The revenue increases were largely attributable to software license fees, which
increased to $5,876,000 in the three months ended September 30, 1995 from
$3,542,000 in the three months ended September 30, 1994, and to $16,227,000 in
the nine months ended September 30, 1995 from $7,019,000 in the nine months
ended September 30, 1994.  Software revenues accounted for 73% of total revenues
for the nine months ended September 30, 1995 as compared to 56% for the nine
months ended September 30, 1994.  Also contributing to the increase in total
revenues were increases in maintenance and service fees, which increased to
$1,613,000 in the three months ended September 30, 1995 from $1,012,000 in the
three months ended September 30, 1994, and to $4,490,000 in the nine months
ended September 30, 1995 from $1,992,000 in the nine months ended September 30,
1994.  These increases reflect growing market awareness and acceptance of the
Company's software products as well as a broadening of the Company's installed
base.      

These increases were partially offset by a decrease in education revenues to
$508,000 in the three months ended September 30, 1995 from $744,000 in the three
months ended September 30, 1994, and to $1,562,000 in the nine months ended
September 30, 1995 from $3,626,000 in the nine months ended September 30, 1994.
These decreases are 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.

Revenues from Jarrah Technologies and other international customers accounted
for $3,544,000 (44%) of total net revenues for the three months ended September
30, 1995, as compared to $1,358,000 (26%) for the three months ended September
30, 1994, and $9,904.000 (46%) for the nine months ended September 30, 1995 as
compared to $5,011,000 (40%) for the nine months ended September 30, 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 net revenue.  However, the percentage of revenue derived from
international sales will likely fluctuate based on the timing of orders from
international customers and resellers and the addition of new international
customers and resellers.

Cost of revenues increased to $1,813,000 for the three months ended September
30, 1995 from $1,593,000 for the three months ended September 30, 1994, and
gross margins improved to 77% for the three months ended September 30, 1995 from
70% for the three months ended September 30, 1994.  Gross margins 

                                       7
<PAGE>

     
improved on a year-to-date basis to 78% for the nine months ended September 30,
1995 as compared to 64% for the nine months ended September 30, 1994. These
improvements reflect the product shift from the lower-margin education business
(24% gross margin in the nine months ended September 30, 1995) to the higher-
margin software and services business (82% gross margin in the nine months ended
September 30, 1995).      
    
Selling and marketing expenses increased to $3,241,000 in the three months ended
September 30, 1995 from $2,124,000 in the three months ended September 30, 1994,
and to $8,939,000 in the nine months ended September 30, 1995 from $4,753,000 in
the nine months ended September 30, 1994.  Selling and marketing expenses
represent 40% of total revenues for the nine months ended September 30, 1995 as
compared to 38% for the nine months ended September 30, 1994.  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.      

General and administrative expenses increased to $974,000 in the three months
ended September 30, 1995 from $619,000 in the three months ended September 30,
1994 and to $2,660,000 in the nine months ended September 30, 1995 from
$1,579,000 in the nine months ended September 30, 1994.  The increase is largely
the result of the addition of infrastructure to support international expansion.
However, general and administrative expenses remained consistent as a percentage
of revenues at 12% in the three and nine months ended September 30, 1995 as
compared to 12% in the three months ended September 30, 1994 and 13% in the nine
months ended September 30, 1994.

Research and development expenses increased to $1,104,000 in the three months
ended September 30, 1995 from $568,000 in the three months ended September 30,
1994, and to $3,112,000 in the nine months ended September 30, 1995 from
$1,333,000 in the nine months ended September 30, 1994.  These increases reflect
significant personnel increases in the research and development department.
Software development costs capitalized under FAS 86 for the three months ended
September 30, 1995 amounted to $349,000, while amortization of previously
capitalized software amounted to $132,000, as compared to capitalizations of
$26,000 and amortization expense of $70,000 for the three months ended September
30, 1994.  Software development costs capitalized for the nine months ended
September 30, 1995 amounted to $439,000, while amortization of previously
capitalized software amounted to $212,000, as compared to capitalizations of
$369,000 and amortization expense of $130,000 for the nine months ended
September 30, 1994.  The increase in software development costs capitalized
under FAS 86 for the three months ended September 30, 1995 is due to the
development of the Company's Entera Version 3.0 product, which reached the point
of technological feasibility in that quarter.  The Company expects to continue
to increase its research and development expenses to keep pace with the
technological needs of the marketplace.

In connection with the acquisition of Jarrah, the Company recorded non-recurring
and special charges of $679,000 ($441,000 net of tax) in the three month period
ended September 30, 1995.  Charges included direct transaction costs and the
estimated costs to be incurred in the integration of Jarrah Technologies into
the Company.

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 at
the Company's original cost basis.  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 will no longer
recognize any share of the venture's operating income or loss.

Other income increased to $250,000 in the three months ended September 30, 1995
and $447,000 for the nine months ended September 30, 1995 from $5,000 in the
three months ended September 30, 1994 and $87,000 for the nine months ended
September 30, 1994.  These increases reflect the investment of the net proceeds
from the initial public offering of the Company's common stock in April 1995.

                                       8
<PAGE>
 
The Company's effective tax rate increased to approximately 32% for the nine
months ended September 30, 1995 from 28% for the nine months ended September 30,
1994 due to the diminishing impact of available R&D credits.

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

As of September 30, 1995, the Company's cash and cash equivalents increased to
$5,740,000 from $1,693,000 at December 31, 1994, and the Company also held
marketable securities amounting to $13,726,000 at September 30, 1995.  The
increase in cash and cash equivalents and marketable securities was primarily
the result of the initial public offering of the Company's common stock in April
1995.

Prior to the initial public offering, the Company had financed operations
through operating cash flow, a bank line of credit, and through a private equity
placement.  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 in 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 February 1995, the Company renegotiated its bank line of credit (which was
executed in March 1995) 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 December 31, 1995 under the revolving equipment line convert 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 September 30, 1995, aggregate borrowings under the line
of credit amounted to $1,845,000, which were principally used to finance a
portion of the $2,254,000 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 facility and cash flow from
operations will be adequate to meet its planned capital requirements for the
remainder of 1995, 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 were paid out of Jarrah prior to it becoming a subsidiary
of the Company.  The Company does not expect to declare or pay dividends to
stockholders in the foreseeable future.

                                       9
<PAGE>
 
                          PART II.  OTHER INFORMATION
        
        
        
        
        
        
        
        
        
        


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

  A. Exhibits

       Exhibit 10.1 - Stock Purchase Agreement dated as of August 30, 1995, by
and among Open Environment Corporation, Jarrah Technologies Pty. Limited and
Philip Copeland, Elizabeth Copeland and Richard Wallace (incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange
Commission on September 15, 1995).
    
       Exhibit 11.1 - Statement regarding computation of Net Income Per Share 
(restated).     


  B. Reports on Form 8-K

       The Company filed a Current Report on Form 8-K dated September 15, 1995
with respect to the acquisition of Jarrah Technologies Pty. Limited, which was
Form 8-K was subsequently amended by a Form 8-K/A filed on November 10, 1995.

                                       10
<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)

                                      11