<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                       
                            ----------------------

                                  FORM 10-Q

(Mark One)

/X/     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities 
        Exchange Act of 1934.

            For the quarterly period ended September 30, 1997
                                           ------------------

/ /     Transition Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934.

                 For the transition period from _____ to_____
                                       
                        Commission file number: 0-27838

                                ---------------

                              FORTE SOFTWARE, INC.
                              --------------------
           (Exact name of registrant as specified in its charter)

             Delaware                                    94-3131872
             --------                                    ----------
  (State or other jurisdiction of                     (I.R.S. Employer
  incorporation or organization)                     Identification No.)
                                       
                               1800 Harrison Street
                             Oakland, California 94612
                                  (510) 869-3400
               (Address, including zip code, of Registrant's principal
             executive offices and telephone number, including area code)

                                ---------------
                                       
Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.

                                         Yes X   No
                                            ---    ---

Indicate the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practicable date.

Common Stock, $0.01 par value                      19,349,939   
   (Class of common stock)           (Shares outstanding at September 30, 1997)

1

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FORTE SOFTWARE, INC.
FORM 10-Q QUARTERLY REPORT

Table of Contents

PART I   FINANCIAL INFORMATION

Item 1.  Financial Statements                                            Page

         Condensed Consolidated Balance Sheets                              3
         At March 31, 1997 and September 30, 1997

         Condensed Consolidated Statements of Operations                    4
         For the Three and Six  Months Ended September 30, 1996 and 1997

         Condensed Consolidated Statements of Cash Flows                    5
         For the Six Months Ended September 30, 1996 and 1997

         Notes to Condensed Consolidated Financial Statements               6

Item 2.  Management's Discussion and Analysis of Financial                  8
         Condition and Results of Operations


Part II  OTHER INFORMATION

Item 1.  Legal Proceedings                                                 22
Item 2.  Changes in Securities                                             22
Item 3.  Defaults on Senior Securities                                     22
Item 4.  Submission of Matters to a Vote of Security Holders               22
Item 5.  Other Information                                                 23
Item 6.  Exhibits, Financial Statement Schedules and Reports on Form 8-K   23

Signatures                                                                 24

2

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PART 1.  
ITEM 1.   FINANCIAL STATEMENTS

                              FORTE SOFTWARE, INC.
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


                                                     March 31,  September 30,
                                                       1997         1997
                                                  -------------  -------------
                                                                 (unaudited)
ASSETS
Current assets:
    Cash and cash equivalents                        $  35,103     $  24,349 
    Short-term investments                              13,154        15,294 
    Accounts receivable, net of allowances 
     of $969 ($941 at March 31, 1997)                   17,750        17,151 
    Prepaid expenses and other current assets            1,003         2,125 
                                                  -------------  -------------
Total current assets                                    67,010        58,919 

Equipment and leasehold improvements, net                6,489         7,238 
Other assets                                               250           300 
                                                  -------------  -------------
Total assets                                         $  73,749     $  66,457 
                                                  -------------  -------------
                                                  -------------  -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                  $  3,003      $  2,503 
    Accrued expenses and other liabilities              10,190         8,890 
    Deferred revenue                                     9,247         8,324 
    Current portion of capital lease obligations           915           863 
                                                  -------------  -------------
Total current liabilities                               23,355        20,580 
                                                  -------------  -------------

Capital lease obligations  due after one year              849           408 
Deferred revenue                                           871           331 
Commitments
Stockholders' equity:
    Common stock                                           188           193 
    Additional paid-in capital                          64,169        65,740 
    Accumulated deficit                                (15,486)      (20,715)
    Foreign currency translation adjustments              (197)          (80)
                                                  -------------  -------------
Total stockholders' equity                              48,674        45,138 
                                                  -------------  -------------
Total liabilities and stockholders' equity           $  73,749     $  66,457 
                                                  -------------  -------------
                                                  -------------  -------------

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

3

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                                 FORTE SOFTWARE, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)

<TABLE>
<CAPTION>

                                               Three months ended                Six months ended 
                                                 September 30,                    September 30,
                                                1996           1997            1996           1997
                                                ----           ----            ----           ----
<S>                                          <C>            <C>             <C>            <C>
Revenues:
    License fees                              $  9,833       $  9,919       $  17,856      $  17,884
    Maintenance and services                     4,381          7,569           8,038         14,278
                                              ----------     ---------      ----------     ----------
  Total revenues                                14,214         17,488          25,894         32,162 
                                              ----------     ---------      ----------     ----------
Operating expenses:
 Cost of license fees                              128            171             266            240
 Cost of maintenance and
   services                                      2,542          4,509           4,920          8,638
 Sales and marketing                             6,601         10,752          12,366         20,009 
 Product development and
   engineering                                   2,565          3,667           4,849          6,713 
 General and administrative                      1,248          1,907           2,527          3,454 
                                              ----------     ---------      ----------     ----------
  Total operating expenses                      13,084         21,006          24,928         39,054 
                                              ----------     ---------      ----------     ----------
Income (loss) from operations                    1,130         (3,518)            966         (6,892)
Interest income, net                               520            515           1,009          1,068 
                                              ----------     ---------      ----------     ----------
Income (loss) before income taxes                1,650         (3,003)          1,975         (5,824) 
Provision (benefit) for income taxes               205            (20)            237           (595)
                                              ----------     ---------      ----------     ----------
Net income (loss)                             $  1,445      $  (2,983)       $  1,738      $  (5,229) 
                                              ----------     ---------      ----------     ----------
                                              ----------     ---------      ----------     ----------
Net income (loss) per share                    $  0.07       $  (0.15)        $  0.08       $  (0.27)
                                              ----------     ---------      ----------     ----------
                                              ----------     ---------      ----------     ----------
Shares used in computing net
  income (loss) per share                       21,078         19,296          21,107         19,200
                                              ----------     ---------      ----------     ----------
                                              ----------     ---------      ----------     ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

4
<PAGE>
                                           
                                 FORTE SOFTWARE, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (IN THOUSANDS; UNAUDITED)

<TABLE>
<CAPTION>
                                                      Six  Months Ended September
                                                                   30,
                                                      ----------------------------
                                                             1996         1997
                                                      --------------  -------------
<S>                                                   <C>             <C>
OPERATING ACTIVITIES
Net income (loss)                                        $  1,738    $  (5,229)
Adjustments to reconcile net income (loss) to 
net cash provided by (used in) operating activities:
  Depreciation and amortization                             1,120        1,879 
  Changes in operating assets and liabilities:
    Accounts receivable                                    (2,088)         659 
    Prepaid expenses and other assets                        (412)      (1,172) 
    Accounts payable                                           40         (441) 
    Accrued expenses and other liabilities                    984       (1,300) 
    Deferred revenue                                         (206)      (1,463) 
                                                      --------------  -------------
Net cash provided by (used in) operating activities         1,176       (7,067)
                                                      --------------  -------------
INVESTING ACTIVITIES
Purchases of equipment and leasehold improvements          (2,230)      (2,628) 
Purchase of short-term investments                        (11,027)      (5,492) 
Maturities of short-term investments                        2,966        3,350 
                                                      --------------  -------------
Net cash used in investing activities                     (10,291)      (4,770) 
                                                      --------------  -------------

FINANCING ACTIVITIES
Reduction in capital lease obligations                       (611)        (493) 
Proceeds from issuance of common stock                         84        1,576 
                                                      --------------  -------------
Net cash (used in) provided by financing activities          (527)       1,083
                                                      --------------  -------------
Decrease in cash and cash equivalents                      (9,642)     (10,754) 
Cash and cash equivalents at beginning of period           35,081       35,103 
                                                      --------------  -------------
Cash and cash equivalents at end of period              $  25,439    $  24,349 
                                                      --------------  -------------
                                                      --------------  -------------
Supplemental disclosures:
  Interest paid                                            $  153       $  115
                                                      --------------  -------------
                                                      --------------  -------------
  Income taxes paid                                         $  93       $  381
                                                      --------------  -------------
                                                      --------------  -------------

Supplemental disclosures of noncash investing 
and financing Activities:
  Capital lease obligations incurred                        $  90       $  -  
                                                      --------------  -------------
                                                      --------------  -------------
</TABLE>

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

5
<PAGE>

                                           
                                           
                                 FORTE SOFTWARE, INC.
                 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                     (UNAUDITED)
     

BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements included herein 
reflect all adjustments, consisting only of normal recurring accruals, which 
in the opinion of management are necessary to fairly present the Company's 
consolidated financial position, results of operations, and cash flows for 
the periods presented. These financial statements should be read in 
conjunction with the Company's audited consolidated financial statements as 
included in the Annual Report on Form 10-K for the year ended March 31, 1997. 
Certain information and footnote disclosures normally included in audited 
financial statements prepared in accordance with generally accepted 
accounting principles have been condensed or omitted pursuant to the 
Securities and Exchange Commission rules and regulations.  The consolidated 
results of operations for the period ended September 30, 1997 are not 
necessarily indicative of the results to be expected for any subsequent 
quarter or for the entire fiscal year ending March 31, 1998.  The March 31, 
1997 balance sheet was derived from audited financial statements, but does 
not include all disclosures required by generally accepted accounting 
principles.

NET INCOME (LOSS) PER SHARE

Net income per share is computed using the weighted average number of 
outstanding shares of common stock and the common stock equivalents from 
outstanding stock options (when dilutive using the treasury stock method). In 
February 1997, the Financial Accounting Standards Board issued Statement No. 
128, "Earnings per Share," which the Company will be required to adopt on 
March 31, 1998. At that time the Company will be required to change the 
method currently used to compute earnings per share and to restate all prior 
periods. Under the new requirements for calculating primary earnings per 
share, the dilutive effect of the stock options will be excluded. This change 
is expected to have no impact on primary earnings per share for the second 
quarter and for the six months ended September 30, 1997 and will result in an 
increase of $0.01 per share for the second quarter and the six months ended 
September 30, 1996, respectively.  The impact of Statement 128 on the 
calculation of fully diluted earnings per share for those quarters is not 
expected to be material.

6

<PAGE>


                                 FORTE SOFTWARE, INC.
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
                                     (UNAUDITED)


SHORT-TERM INVESTMENTS

As of September 30, 1997, all short-term investments were classified as 
available-for-sale securities pursuant to the provisions of Financial 
Accounting Standards Board Statement No. 115, "Accounting for Certain 
Investments in Debt and Equity Securities." Available-for-sale securities are 
stated at estimated fair market value.  Differences between the estimated 
fair market value and cost were not material. 

The following is a summary of the Company's investments and reconciliation of 
the Company's investments to the balance sheet at September 30, 1997 (in 
thousands).

                                              Estimated 
                                                 Fair
                                                Value
                                             -----------
                                    
Commercial Paper                              $  17,074
Medium Term Notes                                 5,330
Corporate Notes                                   6,138
Foreign Debt Securities                           3,823
Auction rate preferred stock                      1,204
                                             -----------

Total investments                             $  33,569
                                             -----------
                                             -----------

                                              Estimated
                                                Fair
                                                Value
                                             -----------
Cash equivalents                              $  18,275
Short-term investments                           15,294
                                             -----------
Total investments                             $  33,569
                                             -----------
                                             -----------
Cash                                              6,074
                                             -----------
Total cash, cash equivalents and 
short-term investments                          $39,643
                                             -----------
                                             -----------

7

<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS  WHICH 
REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND 
FINANCIAL PERFORMANCE. IN THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVES," 
"EXPECTS," "INTENDS," "FUTURE," "ESTIMATES," AND OTHER SIMILAR EXPRESSIONS 
IDENTIFY FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE 
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED IN 
"BUSINESS RISKS" BELOW AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," THAT COULD CAUSE ACTUAL 
RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED.

     The following table sets forth certain unaudited condensed consolidated 
statement of operations data as a percentage of total revenues for the three 
and the six month periods ended September 30, 1996 and 1997.

<TABLE>
<CAPTION>
                                       Three months ended        Six months ended
                                          September 30,            September 30,   
                                        1996         1997        1996        1997
                                       ------      -------     -------     ------- 
<S>                                    <C>         <C>         <C>         <C>
Revenues:                              
  License                               69.2%        56.7%       69.0%       55.6%
  Maintenance and services              30.8         43.3        31.0        44.4
                                      --------     --------    --------    --------
    Total revenues                     100.0        100.0       100.0       100.0
                                      --------     --------    --------    --------
                                      --------     --------    --------    --------

Cost of revenues:
  License                                0.9          1.0         1.0         0.7
  Maintenance and services              17.9         25.8        19.0        26.9
                                      --------     --------    --------    --------
    Total cost of revenues              18.8         26.8        20.0        27.6

Gross profit                            81.2         73.2        80.0        72.4

Operating expenses:
  Sales and marketing                   46.5         61.5        47.8        62.2
  Product development and   
    engineering                         18.0         21.0        18.7        20.9
  General and administrative             8.8         10.9         9.8        10.7
                                      --------     --------    --------    --------
    Total operating expenses            73.3         93.4        76.3        93.8

Income (loss) from operations            7.9        (20.2)        3.7       (21.4)
                                      --------     --------    --------    --------
Interest income, net                     3.7          2.9         3.9         3.3
                                      --------     --------    --------    --------
Income (loss) before income taxes       11.6        (17.3)        7.6       (18.1)

Provision (benefit) for income taxes    (1.4)         0.1        (0.9)        1.9
                                      --------     --------    --------    --------
Net income (loss)                       10.2%       (17.2)%       6.7 %     (16.2)%
                                      --------     --------    --------    --------
                                      --------     --------    --------    --------
</TABLE>

8

<PAGE>


RESULTS OF OPERATIONS

REVENUES.  The Company's total revenues consist of license fees for its Forte
application environment and related products as well as associated 
maintenance and service revenues. The Company licenses software under 
non-cancelable license agreements and provides services including 
maintenance, training and consulting. License revenues are recognized when a 
non-cancelable license agreement has been signed, the product has been 
shipped, the fees are fixed and determinable and collectibility is reasonably 
assured. Fees for services are charged separately from the license of the 
Company's software products. Maintenance revenues consist of fees for ongoing 
support and product updates and are recognized ratably over the term of the 
contract, which is typically twelve months. Revenues from training are 
recognized upon completion of the related training class. Consulting revenues 
are recognized as the services are performed. Allowances for credit risks and 
for estimated future returns are provided for upon product shipment. Returns 
to date have not been material. Actual credit losses and returns may differ 
from the Company's estimates and such differences could be material to the 
financial statements.

The Company's license agreements typically require the payment of a 
nonrefundable, one-time license fee for a license of perpetual term. 
Customers make separate payments for annual maintenance and other services. 
Customers can terminate the license at any time but do not have a right to a 
refund of the fees for licenses or for services that have been performed. The 
Company can terminate the license agreement only upon a material breach by 
the other party, provided that the breach is not cured within a specified 
cure period.

The Company's total revenues increased 23% from $14.2 million to $17.5 
million for the quarters ended September 30, 1996 and 1997, respectively. 
License revenues were $17.9 million for each of the six month periods ended 
September 30, 1996 and 1997. While the Company's sales force headcount grew 
significantly for the first six months of fiscal 1998, the Company 
experienced lower productivity per sales representative due to longer sales 
cycles and other factors as compared to the first six months of fiscal 1997.

Maintenance and services revenues increased 73% from $4.4 million, or 31% of 
total revenues, to $7.6 million, or 43% of total revenues, for the quarters 
ended September 30, 1996 and 1997, respectively. Maintenance and services 
revenue for the six months ended September 30, 1997, increased by 78% from 
$8.0 million in 1996 to $14.3 million for the same period in 1997. These 
increases in total maintenance and service revenues were primarily a result 
of the growing installed base in the Company's software products and the 
associated increase in demand for maintenance, training and consulting 
services. Services revenues as a percentage of total revenues may vary 
between periods due to changes in demand for the Company's services and 
changes in the rate of growth of license revenue.

International revenues include all revenues other than from the United 
States. International revenues include sales from the Company's direct sales 
organizations in Europe and Australia and export sales through distributors 
and resellers in Asia, Europe and other areas of the world, as well 

9

<PAGE>

as international sales made by the domestic direct sales organization in 
Canada. International revenues increased 56% from $5.0 million for the 
quarter ended September 30, 1996 to $7.8 million for the quarter ended 
September 30, 1997 representing 35% and 45% of total revenues, respectively.  
International revenues increased 67% from $8.4 million for the six months 
ended September 30, 1996 to $14.0 million for the same period in 1997. The 
increase in international revenues reflects a growing direct sales presence 
in Europe through the Company's foreign subsidiaries. The Company expects 
that international license and related maintenance and service revenues will 
continue to account for a significant portion of its total revenues in the 
future. The Company believes that in order to increase sales opportunities 
and profitability it will be required to continue expanding its international 
operations. The Company has committed and continues to commit significant 
management time and financial resources to developing direct and indirect 
international sales and support channels. There can be no assurance, however, 
that the Company will be able to maintain or increase international market 
demand for Forte and related products. To the extent that the Company is 
unable to do so in a timely manner, the Company's international sales will be 
limited, and the Company's business, operating results and financial 
condition would be materially adversely affected.

COST OF REVENUES

COST OF LICENSE REVENUES.  Cost of license revenues consists primarily of 
production and documentation, royalties paid to third-party vendors and 
product packaging. Cost of license revenues was $128,000 and $171,000 for the 
quarters ended September 30, 1996 and 1997, respectively, representing 1% of 
license revenues in each of the periods. Cost of license revenues for the six 
months ended September 30, 1996 and 1997 was $266,000 and $240,000, 
respectively, representing 1% of total license fee revenue for each of the 
periods. Cost of license revenues may vary as a percentage of license revenue 
due to changes in the Company's royalty obligations to third party technology 
providers and the number of new products and product releases in a given 
period.

COST OF MAINTENANCE AND SERVICES REVENUES.  Cost of maintenance and services 
revenues consist primarily of personnel-related and facilities costs incurred 
in providing customer support, training and consulting services, as well as 
costs incurred in providing training and consulting services through third 
party contractors. Cost of maintenance and services revenues was $2.5 million 
and $4.5 million for the quarters ended September 30, 1996 and 1997, 
respectively, representing 58% and 60% of maintenance and services revenues, 
respectively. Cost of maintenance for the six months ended September 30, 1996 
and 1997 was $4.9 million and $8.6 million respectively, representing 61% and 
60% of maintenance and services revenues, respectively. The cost of services 
as a percentage of services revenues may vary between periods due to the mix 
of services provided by the Company and the extent to which external 
contractors are used to provide those services.

OPERATING EXPENSES

SALES AND MARKETING.  Sales and marketing expenses consist primarily of 
salaries, commissions and bonuses earned by sales and marketing personnel, 
field office expenses, travel and entertainment, promotional and lead 
generation expenses, and advertising. Sales and marketing expenses increased 
from $6.6 million for the quarter ended  September 30, 1996 to $10.8 million 
for the

<PAGE>

quarter ended  September 30, 1997, and increased from $12.4 million for the 
six months ended September 30, 1996 to $20.0 million for the six months ended 
September 30, 1997. These increases reflect the hiring of additional sales 
and marketing personnel, and their related costs, as well as increased costs 
associated with expanded promotional, training, and lead generation 
activities. Sales and marketing expenses represented 46% and 61% of total 
revenues for the quarters ended September 30, 1996 and 1997, respectively. 
Sales and marketing expenses represented 48% and 62% of total revenues for 
the six months ended September 30, 1996 and 1997, respectively. The increase 
in sales and marketing expenses as a percentage of total revenue was 
primarily due to the cost of hiring additional personnel in the direct sales 
force and increased promotional activities coupled with slower revenue growth 
in the first six months of fiscal 1998 compared to the first six months of 
fiscal 1997. The Company expects that sales and marketing expenses will 
continue to increase in dollar amount as the Company intends to continue 
investing in its sales and marketing organization and their related 
activities. 
 
PRODUCT DEVELOPMENT AND ENGINEERING.  Product development and Engineering 
expenses consist primarily of salaries and other personnel-related expenses 
and depreciation of development equipment. The Company believes that a 
significant level of investment for product development is required to remain 
competitive. Product development expenses increased from $2.6 million for the 
quarter ended September 30, 1996 to $3.7 million for the quarter ended 
September 30, 1997. Product development expenses increased from $4.8 million 
for the six months ended September 30, 1996 to $6.7 million for the six 
months ended September 30, 1997. These increases were primarily attributable 
to additional hiring of product development personnel. Product development 
expenses represented 18% and 21% of total revenues for the quarters ended 
September 30, 1996 and 1997, respectively. Product development expenses 
represented 19% and 21% of total revenues for the six months ended September 
30, 1996 and 1997, respectively. The increase in product development expenses 
as a percentage of total revenues was primarily due to increased hiring of 
product development personnel coupled with slower revenue growth in the first 
six months of fiscal 1998 compared to the first months of fiscal 1997. The 
Company anticipates that it will continue to devote substantial resources to 
product development and that product development expenses will increase in 
dollar amount in the future. Because all costs incurred in the research and 
development of software products and enhancements to existing software 
products have been expensed as incurred, cost of license revenues includes no 
amortization of capitalized software development costs.

GENERAL AND ADMINISTRATIVE.  General and administrative expenses increased 
from $1.2 million  for the quarter ended  September 30, 1996 to $1.9 million 
in for the quarter ended  September 30, 1997. General and administrative 
expenses increased from $2.5 million for the six months ended September 30, 
1996 to $3.5 million for the six months ended September 30, 1997. These 
increases were primarily due to increased staffing and associated expenses 
necessary to manage and support the Company's increased scale of operations. 
General and administrative expenses represented 9% and 11% of total revenues 
for the quarters ended September 30, 1996 and 1997, respectively. General and 
administrative expenses represented 10% and 11% for the six months ended 
September 30, 1996 and 1997, respectively. The increase in general and 
administration expenses as a percentage of total revenues was primarily due 
slower revenue growth in the first six months of fiscal 1998 compared to the 
first six months fiscal 1997, coupled with continuing improvements in the 
Company's administrative infrastructure. The Company believes that its 
general and administrative expenses will increase in dollar amount in the 
future as a result of the expansion of the Company's administrative staff to 
support its growing operations. 

11

<PAGE>

INTEREST INCOME, NET.  Interest income, net, represents interest earned by 
the Company on its cash and cash equivalents and short-term investments 
offset by interest expense on capitalized leases.  Interest income, net, 
decreased from $520,000 for the quarter ended September 30, 1996 to $515,000 
for the quarter ended September 30, 1997. Interest income, net, increased 
from $1.0 million for the six months ended September 30, 1996 to $1.1 million 
for the six months ended September 30, 1997.    

PROVISION (BENEFIT) FOR INCOME TAXES.  The effective tax rate for the six 
months ended September 30, 1997 was reduced to 10% from 20% in the quarter 
ended June 30, 1997. The tax benefit of $20,000 for the quarter ended 
September 30, 1997 was due to a change in estimate by the Company of its 
expected effective tax rate for the year. This rate differs from the federal 
statutory rate primarily due to the utilization of the net operating loss 
carryovers and tax credits. The rate could change based on the mix of the 
Company's geographic locations and the amount of permanent reinvestment 
offshore of a portion of the Company's earnings, or changes in the tax law. 

LIQUIDITY AND CAPITAL RESOURCES

The Company completed an initial public offering of common stock on March 11, 
1996 with net proceeds of $34.3 million.  The common stock is trading on the 
NASDAQ National Market under the symbol FRTE.

At September 30, 1997, the Company had $39.6 million in cash, cash 
equivalents and short term investments and $38.3 million in working capital, 
which is the Company's primary source of liquidity.

The Company used cash of $7.1 million in operating activities for the six 
months ended September 30, 1997 compared to cash provided by operating 
activities of $1.2 million for the six months ended September 30, 1996. For 
the six months ended September 30, 1997, the decrease in cash flow from 
operations resulted primarily from the net loss for the six month period and 
decreases in accounts payable, accrued expenses and other liabilities and 
deferred revenue, partially offset by a decrease in accounts receivable. 

The Company's investing activities consisted of the purchases of 
interest-bearing securities representing a shift from cash equivalents to 
short term investments, as well as purchases of property and equipment.  
Capital expenditures were $2.6 million for the six months ended September 30, 
1997 compared to $2.2 million for the same period in 1996. Capital 
expenditures consisted of purchases of computer equipment and office 
furniture to support its growing employee base.  The Company expects that its 
capital expenditures will increase as the Company's employee base grows. At 
September 30, 1997 the Company did not have any material commitments for 
capital expenditures.

The Company believes that its existing cash, cash equivalents, short-term 
investments will be adequate to meet its cash needs for at least the next 12 
months. Thereafter, the Company may 

12

<PAGE>

require additional funds to support its working capital requirements or for 
other purposes and may seek to raise such additional funds through public or 
private equity financings or from other sources. There can be no assurance 
that additional financing will be available at all or that if available, such 
financing will be obtainable on terms favorable to the Company and would not 
be dilutive.
     
BUSINESS RISKS 
     IN EVALUATING THE COMPANY'S BUSINESS, READERS SHOULD CAREFULLY CONSIDER 
THE BUSINESS RISKS DISCUSSED IN THIS SECTION IN ADDITION TO THE OTHER 
INFORMATION PRESENTED IN THIS QUARTERLY REPORT ON FORM 10-Q.  THIS REPORT ON 
FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH REFLECT THE COMPANY'S 
CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. IN 
THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVES," "EXPECTS," "INTENDS," 
"FUTURE," "ESTIMATES," AND OTHER SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING 
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND 
UNCERTAINTIES, INCLUDING THOSE DISCUSSED BELOW, THAT COULD CAUSE ACTUAL 
RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED.
     
     POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; UNCERTAINTY OF 
FUTURE OPERATING RESULTS; SEASONALITY.  The Company's quarterly operating 
results have varied significantly in the past and are likely to vary 
significantly in the future, depending on factors such as the size and timing 
of significant orders and their fulfillment, demand for the Company's 
products, changes in pricing policies by the Company or its competitors, the 
number, timing and significance of product enhancements and new product 
announcements by the Company and its competitors, the ability of the Company 
to develop, introduce and market new and enhanced versions of the Company's 
products on a timely basis, changes in the level of operating expenses, 
changes in the Company's sales incentive plans, budgeting cycles of its 
customers, customer order deferrals in anticipation of enhancements or new 
products offered by the Company or its competitors, the cancellation of 
licenses during the warranty period or nonrenewal of maintenance agreements, 
product life cycles, software bugs and other product quality problems, 
personnel changes, changes in the Company's strategy, the level of 
international expansion, seasonal trends and general domestic and 
international economic and political conditions, among others. A significant 
portion of the Company's revenues have been, and the Company believes will 
continue to be, derived from a limited number of orders placed by large 
organizations, and the timing of such orders and their fulfillment has caused 
and could continue to cause material fluctuations in the Company's operating 
results, particularly on a quarterly basis. In addition, the Company intends 
to continue to expand its domestic and international direct sales force. 
Competition for sales personnel is intense, and there can be no assurance 
that the Company can retain its existing sales personnel or that it can 
attract, assimilate and retain additional highly qualified sales personnel in 
the future. The timing of such expansion and the rate at which new sales 
people become productive could also cause material fluctuations in the 
Company's quarterly operating results. Due to the foregoing factors, 
quarterly revenues and operating results are difficult to forecast. Revenues 
are also difficult to forecast because the market for distributed enterprise 
application development software is rapidly evolving, and the Company's sales 
cycle, from initial evaluation to purchase and the provision of support 
services, is lengthy and varies substantially from customer to customer. 
Product orders are typically shipped shortly after receipt, and consequently, 
order backlog at the beginning of any quarter has in the past represented 
only a small portion of that quarter's revenues. As a result, license 
revenues in any quarter are substantially dependent on orders booked and 
shipped in that quarter. Due to all of the foregoing, revenues for any future 
quarter are not predictable with any 

13

<PAGE>

significant degree of accuracy. Accordingly, the Company believes that 
period-to-period comparisons of its operating results are not necessarily 
meaningful and should not be relied upon as indications of future 
performance. Although the Company has recently experienced revenue growth, 
such growth should not be considered indicative of future revenue growth, if 
any, or of future operating results. Failure by the Company, for any reason, 
to increase revenues would have a material adverse effect on the Company's 
business, operating results and financial condition.

     To achieve its quarterly revenue objectives, the Company is dependent 
upon obtaining orders in any given quarter for shipment in that quarter. 
Furthermore, the Company has often recognized a substantial portion of its 
revenues in the last month, or even weeks or days, of a quarter. The 
Company's expense levels are based, in significant part, on the Company's 
expectations as to future revenues and are therefore relatively fixed in the 
short term. If revenue levels fall below expectations, net income is likely 
to be disproportionately adversely affected because a proportionately smaller 
amount of the Company's expenses varies with its revenues. There can be no 
assurance that the Company will be able to achieve or maintain profitability 
on a quarterly or annual basis in the future. Due to all the foregoing 
factors, it is likely that in some future quarter the Company's operating 
results will be below the expectations of public market analysts and 
investors. In such event, the price of the Company's Common Stock would 
likely be materially adversely affected. 

     The operating results of many software companies reflect seasonal 
trends, and the Company expects to be affected by such trends in the future. 
The Company believes that it is likely that it will experience lower revenues 
in its quarters ending June 30 as a result of efforts by its direct sales 
force to meet the March 31 fiscal year-end sales quotas. Since international 
operations constitute a significant percentage of the Company's total 
revenues, the Company anticipates that it may also experience relatively 
weaker demand in the quarters ending September 30 as a result of reduced 
sales activity in Europe during the summer months. 

     LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES.  The Company was 
founded in February 1991 and first shipped product in August 1994.  For the 
quarters ended June 30, 1997 and September 30, 1997, the Company incurred net 
losses. At September 30, 1997 the Company had an accumulated deficit of $20.7 
million. A substantial portion of the accumulated deficit is due to the 
significant commitment of resources to the Company's product development, 
sales and marketing organizations. The Company expects to continue to devote 
substantial resources in these areas and as a result will need to recognize 
significant revenues to achieve and maintain profitability. There can be no 
assurance that any of the Company's business strategies will be successful or 
the Company will be profitable in any future quarter or period.
     
     DEPENDENCE ON KEY PERSONNEL.  The Company's success depends to a 
significant degree upon the continuing contributions of its key management, 
sales, marketing, customer support and product development personnel. The 
loss of key management or technical personnel could materially and adversely 
affect the Company. The Company believes that its future success will depend 
in large part upon its ability to attract and retain highly-skilled 
managerial, sales, customer support and product development personnel. In 
addition, the Company intends to continue to expand its domestic and 
international direct sales force. Competition for sales personnel is intense, 
and there can be no assurance that the Company can retain its existing sales 
personnel or that it can 

14

<PAGE>

attract, assimilate and retain additional highly qualified sales personnel in 
the future. The timing of such expansion and the rate at which new sales 
people become productive could also cause material fluctuations in the 
Company's quarterly operating results. The Company has at times experienced 
and continues to experience difficulty in recruiting and retaining qualified 
personnel. Competition for qualified software development, sales and other 
personnel is intense, and there can be no assurance that the Company will be 
successful in attracting and retaining such personnel. Competitors and others 
have in the past and may in the future attempt to recruit the Company's 
employees. Failure to attract and retain key personnel could have a material 
adverse effect on the Company's business, operating results and financial 
condition.

     PRODUCT CONCENTRATION; DEPENDENCE ON EMERGING MARKET FOR DISTRIBUTED 
APPLICATIONS.  All of the Company's revenues have been attributable to sales 
of Forte and related products and services. The Company currently expects 
Forte and related products and services to account for all or substantially 
all of the Company's future revenues. As a result, factors adversely 
affecting the pricing of or demand for Forte and related products, such as 
competition or technological change, could have a material adverse effect on 
the Company's business, operating results and financial condition. The 
Company's future financial performance will depend, in significant part, on 
the successful development, introduction and customer acceptance of new and 
enhanced versions of Forte and related products. There can be no assurance 
that the Company will continue to be successful in marketing the Forte
product, related products or other products. Although the Company has 
recently experienced growth in sales of Forte, there can be no assurance that 
the market for distributed applications will continue to grow. If the 
distributed applications market fails to grow, or grows more slowly than the 
Company currently anticipates, the Company's business, operating results and 
financial condition would be materially and adversely affected. 

     RISKS ASSOCIATED WITH EXPANDING DISTRIBUTION.  To date, the Company has 
sold its products through its direct sales force, distributors and value 
added resellers. The Company's ability to achieve significant revenue growth 
in the future will depend in large part on its success in recruiting and 
training sufficient direct sales personnel and establishing and maintaining 
relationships with distributors, resellers and system integrators. Although 
the Company is currently investing, and plans to continue to invest 
significant resources to expand its direct sales force and to develop 
distribution relationships with third-party distributors and resellers, the 
Company has at times experienced and continues to experience difficulty in 
recruiting and retaining qualified sales personnel and in establishing 
necessary third-party relationships. There can be no assurance that the 
Company will be able to successfully expand its direct sales force or other 
distribution channels or that any such expansion will result in an increase 
in revenues. Any failure by the Company to expand its direct sales force or 
other distribution channels would materially adversely affect the Company's 
business, operating results and financial condition.

     COMPETITION. The market for distributed software used in the 
development, deployment and management of distributed applications is 
intensely competitive and characterized by rapidly changing technology, 
evolving industry standards, frequent new product introductions and rapidly 
changing customer requirements. Distributed applications that can be 
developed and deployed using the Company's Forte environment can also be 
implemented by integrating a combination of application development tools and 
more powerful server programming techniques such as stored procedures in 
relational databases and C or C++ programming, along 

15

<PAGE>

with networking and database middleware to connect the various components. As 
such, the Company effectively experiences its primary  competition from 
potential customers' decisions to pursue this type of approach as opposed to 
utilizing an application environment such as Forte.  As a result, the Company 
must continuously educate existing and prospective customers on the 
advantages of the Company's products over the approach of integrating a 
combination of products.  There can be no assurance that these customers or 
potential customers will perceive sufficient value in the Company's products 
to justify purchasing them.

The Company has also experienced and expects to continue to experience 
increased competition from a number of vendors that market software products 
specifically targeted for building distributed applications.  Actual and 
potential competitors include: providers of application development software, 
such as Compuware/Uniface, Dynasty Technologies, Inc., IBM, Microsoft 
Corporation, NAT Systems, Inc., Oracle Corporation, Seer Technologies, Inc., 
Sterling Software, Inc., and the Powersoft unit of Sybase, Inc.;  web-based 
development tools targeting production enterprise Internet applications; 
middleware companies advocating a middleware-centric approach to building 
enterprise applications; developers of packaged applications and application 
components, templates and frameworks; and integration software vendors.

Many of these competing vendors have or will have significantly greater 
financial, technical, marketing and other resources than the Company, and may 
be able to respond more quickly to new or emerging technologies.  Also, many 
current and potential competitors have greater name recognition and more 
extensive customer bases that could be leveraged, thereby gaining market 
share to the Company's detriment. The Company expects to face additional 
competition as other established and emerging companies enter the distributed 
application development market and new products and technologies are 
introduced. Increased competition could result in price reductions, fewer 
customer orders, reduced gross margins and loss of market share, any of which 
could materially adversely affect the Company's business, operating results 
and financial condition. In addition, current and potential competitors may 
make strategic acquisitions or establish cooperative relationships among 
themselves or with third parties, thereby increasing the ability of their 
products to address the needs of the Company's prospective customers. 
Accordingly, it is possible that new competitors or alliances among current 
and new competitors may emerge and rapidly gain significant market share. 
Such competition could materially adversely affect the Company's ability to 
sell additional licenses and maintenance and support renewals on terms 
favorable to the Company. Further, competitive pressures could require the 
Company to reduce the price of Forte licenses and related products and 
services, which could materially adversely affect the Company's business, 
operating results and financial condition. There can be no assurance that the 
Company will be able to compete successfully against current and future 
competitors, and the failure to do so would have a material adverse effect 
upon the Company's business, operating results and financial condition.

The principal competitive factors affecting the market for Forte are ease of
application development, deployment and management functionality and features,
product architecture, product performance, reliability and scaleability, product
quality, price and customer support. The 

16

<PAGE>

Company believes it presently competes favorably with respect to each of 
these factors. However, the Company's market is still evolving and there can 
be no assurance that the Company will be able to compete successfully against 
current and future competitors and the failure to do so successfully will 
have a material adverse effect upon the Company's business, operating results 
and financial condition.

     LENGTHY SALES CYCLE.  The Company's products are typically used to 
develop applications that are critical to a customer's business and the 
purchase of the Company's products is often part of a customer's larger 
business process reengineering initiative or implementation of  distributed 
computing. As a result, the license and implementation of the Company's 
software products generally involves a significant commitment of management 
attention and resources by prospective customers. Accordingly, the Company's 
sales process is often subject to delays associated with a long approval 
process that typically accompanies significant initiatives or capital 
expenditures. In addition, there are a large number of alternative methods or 
technologies to develop applications which can require significant time for 
potential customers to evaluate. For these and other reasons, the sales cycle 
associated with the license of the Company's products is often lengthy and 
subject to a number of significant delays over which the Company has little 
or no control. There can be no assurance that the Company will not experience 
these and additional delays in the future. Therefore, the Company believes 
that its quarterly operating results are likely to vary significantly in the 
future.
     
     RISK ASSOCIATED WITH NEW VERSIONS AND NEW PRODUCTS; RAPID TECHNOLOGICAL 
CHANGE.  The software market in which the Company competes is characterized 
by rapid technological change, frequent introductions of new products, 
changes in customer demands and evolving industry standards. The introduction 
of products embodying new technologies and the emergence of new industry 
standards can render existing products obsolete and unmarketable. For 
example, the Company's customers have adopted a wide variety of hardware, 
software, database, networking and Internet-based platforms, and as a result, 
to gain broad market acceptance, the Company has had to support Forte on many 
of such platforms. The Company's customers use the Company's proprietary 
development language to develop applications using the Company's products, 
and customers may desire to utilize other widely-used programming languages 
to develop Internet-based and other distributed applications. The Company's 
future success will depend upon its ability to address the increasingly 
sophisticated needs of its customers by supporting existing and emerging 
hardware, software, programming language, database, networking and 
Internet-based platforms and by developing and introducing enhancements to 
Forte, related products and new products on a timely basis that keep pace 
with such technological developments and emerging industry standards and 
changing customer requirements. There can be no assurance that the Company 
will be successful in developing and marketing enhancements to Forte and 
related products that respond to technological change, evolving industry 
standards or changing customer requirements, that the Company will not 
experience difficulties that could delay or prevent the successful 
development, introduction and sale of such enhancements or that such 
enhancements will adequately meet the requirements of the marketplace and 
achieve any significant degree of market acceptance. The Company has in the 
past experienced delays in the release dates of enhancements to Forte. If 
release dates of any future Forte enhancements or new products are delayed or 
if when released they fail to achieve market acceptance, the Company's 
business, operating results and financial condition would be materially 
adversely affected. In addition, the 

17

<PAGE>

introduction or announcement of new product offerings or enhancements by the 
Company or the Company's competitors may cause customers to defer or forgo 
purchases of current versions of Forte and related products, which could have 
a material adverse effect on the Company's business, operating results and 
financial condition.

     LIMITED DEPLOYMENT; DEPENDENCE ON SYSTEM INTEGRATORS AND VALUE ADDED 
RESELLERS.  The Company first shipped Forte in August 1994. To date, only a 
limited number of the Company's customers have completed the development and 
deployment of distributed applications using Forte and related products. If 
any of the Company's customers are not able to successfully develop and 
deploy distributed applications with Forte and related products, the 
Company's reputation could be damaged, which could have a material adverse 
effect on the Company's business, operating results and financial condition. 
In addition, the Company expects that a significant percentage of its future 
revenues will be derived from sales to existing customers. If existing 
customers have difficulty deploying applications built with Forte and related 
products or for any other reason are not satisfied with Forte products, the 
Company's business, operating results and financial condition would be 
materially adversely affected. The Company's customers and potential 
customers often rely on third-party system integrators and value added 
resellers to develop and deploy distributed applications. If the Company is 
unable to adequately train a sufficient number of system integrators and 
value added resellers or if, for any reason, a large number of such 
integrators and value added resellers adopt a product or technology other 
than Forte, the Company's business, operating results and financial condition 
would be materially and adversely affected.

     RISK OF SOFTWARE DEFECTS.  Software products as internally complex as 
Forte and related products frequently contain errors or defects, especially 
when first introduced or when new versions or enhancements are released. The 
Company introduced Release 2.0 of Forte in November 1995, Release 3.0 of 
Forte in August in 1997 and the initial release of Forte Conductor in 
September 1997. Despite extensive product testing by the Company, the Company 
has discovered software errors in its releases after their introduction. 
Although the Company has not experienced material adverse effects resulting 
from any such defects or errors to date, there can be no assurance that, 
despite testing by the Company and by current and potential customers, 
defects and errors will not be found in current versions, new versions, new 
product or enhancements to existing products after commencement of commercial 
shipments, resulting in loss of revenues or delay in market acceptance, which 
could have a material adverse effect upon the Company's business, operating 
results and financial condition.

      PRODUCT LIABILITY.  The Company markets Forte to customers for the 
development, deployment and management of distributed applications. The 
Company's license agreements with its customers typically contain provisions 
designed to limit the Company's exposure to potential product liability 
claims. It is possible, however, that the limitation of liability provisions 
contained in the Company's license agreements may not be effective as a 
result of existing or future federal, state or local laws or ordinances or 
unfavorable judicial decisions. Although the Company has not experienced any 
product liability claims to date, the sale and support of Forte by the 
Company may entail the risk of such claims, which are likely to be 
substantial in light of the use of Forte in business-critical applications. A 
successful product liability claim brought against the Company could have a 
material adverse effect upon the Company's business, operating results and 
financial 

18

<PAGE>

condition. 

     RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.  Revenues from foreign 
subsidiaries and export sales accounted for 35% and 45% of the Company's 
total revenues for the quarters ended September 30, 1996 and 1997, 
respectively, and 32% and 44% for the six months ended September 30, 1996 and 
1997, respectively. The Company currently has international sales offices 
located in Australia, Belgium, Canada, France, Germany, Switzerland, and the 
United Kingdom which have generated substantially all direct international 
revenues recognized by the Company to date. The Company believes that in 
order to increase sales opportunities and profitability it will be required 
to continue to expand its international operations. The Company has committed 
and continues to commit significant management time and financial resources 
to developing direct and indirect international sales and support channels. 
There can be no assurance, however, that the Company will be able to maintain 
or increase international market demand for Forte and related products. To 
the extent that the Company is unable to do so in a timely manner, the 
Company's international sales will be limited, and the Company's business, 
operating results and financial condition would be materially and adversely 
affected. 

     
International operations are subject to inherent risks, including the impact 
of possible recessionary environments in economies outside the United States, 
costs of localizing products for foreign markets, longer receivables 
collection periods and greater difficulty in accounts receivable collection, 
unexpected changes in regulatory requirements, difficulties and costs of 
staffing and managing foreign operations, reduced protection for intellectual 
property rights in some countries, potentially adverse tax consequences and 
political and economic instability. There can be no assurance that the 
Company or its distributors or resellers will be able to sustain or increase 
international revenues from licenses or from maintenance and service, or that 
the foregoing factors will not have a material adverse effect on the 
Company's future international revenues and, consequently, on the Company's 
business, operating results and financial condition. The Company's direct 
international revenues are generally denominated in local currencies. The 
Company does not currently engage in hedging activities. Revenues generated 
by the Company's distributors and resellers are generally paid to the Company 
in United States dollars. Although exposure to currency fluctuations to date 
has been insignificant, there can be no assurance that fluctuations in 
currency exchange rates in the future will not have a material adverse impact 
on revenues from international sales and thus the Company's business, 
operating results and financial condition.

     PROPRIETARY RIGHTS, RISKS OF INFRINGEMENT AND SOURCE CODE RELEASE.  The 
Company relies primarily on a combination of patent, copyright and trademark 
laws, trade secrets, confidentiality procedures and contractual provisions to 
protect its proprietary rights. The Company also believes that factors such 
as the technological and creative skills of its personnel, new product 
developments, frequent product enhancements, name recognition and reliable 
product maintenance are essential to establishing and maintaining a 
technology leadership position. The Company seeks to protect its software, 
documentation and other written materials under trade secret and copyright 
laws, which afford only limited protection. The Company currently has one 
issued United States patent that expires in 2012 and corresponding patent 
applications pending in Canada, Australia, Japan and several member countries 
within the European Patent Organization. There can be no 

19

<PAGE>

assurance that the Company's patent will not be invalidated, circumvented or 
challenged, that the rights granted thereunder will provide competitive 
advantages to the Company or that any of the Company's pending or future 
patent applications, whether or not being currently challenged by applicable 
governmental patent examiners, will be issued with the scope of the claims 
sought by the Company, if at all. Furthermore, there can be no assurance that 
others will not develop technologies that are similar or superior to the 
Company's technology or design around the patents owned by the Company. The 
Company has obtained registration of the FORTE trademark in one country and 
has trademark registration applications pending in numerous additional 
countries. Despite the Company's efforts to protect its proprietary rights, 
unauthorized parties may attempt to copy aspects of the Company's products or 
to obtain and use information that the Company regards as proprietary. 
Policing unauthorized use of the Company's products is difficult, and while 
the Company is unable to determine the extent to which piracy of its software 
products exists, software piracy can be expected to be a persistent problem. 
In addition, the laws of some foreign countries do not protect the Company's 
proprietary rights as fully as do the laws of the United States. There can be 
no assurance that the Company's means of protecting its proprietary rights in 
the United States or abroad will be adequate or that competition will not 
independently develop similar technology. The Company has entered into source 
code escrow agreements with a limited number of its customers and resellers 
requiring release of source code in certain circumstances. Such agreements 
generally provide that such parties will have a limited, non-exclusive right 
to use such code in the event that there is a bankruptcy proceeding by or 
against the Company, if the Company ceases to do business or if the Company 
fails to meet its support obligations. In addition, Digital Equipment 
Corporation ("Digital") and Mitsubishi Corporation ("Mitsubishi") each 
currently possesses copies of Forte source code for certain limited purposes, 
subject to the terms of separate written agreements each company has entered 
into with the Company. Digital has an option to purchase a non-exclusive, 
fully-paid license of the Forte source code. Digital's option becomes 
exercisable if the Company is acquired and the acquiror fails to agree to 
assume the Company's contractual obligations to Digital. The provision of 
source code may increase the likelihood of misappropriation by third parties. 

     The Company is not aware that it is infringing any proprietary rights of 
third parties. There can be no assurance, however, that third parties will 
not claim infringement by the Company of their intellectual property rights. 
The Company expects that software product developers will increasingly be 
subject to infringement claims as the number of products and competitors in 
the Company's industry segment grows and the functionality of products in 
different industry segments overlaps. Any such claims, with or without merit, 
could be time consuming to defend, result in costly litigation, divert 
management's attention and resources, cause product shipment delays or 
require the Company to enter into royalty or licensing agreements. Such 
royalty or licensing agreements, if required, may not be available on terms 
acceptable to the Company, if at all. In the event of a successful claim of 
product infringement against the Company and failure or inability of the 
Company to license the infringed or similar technology, the Company's 
business, operating results and financial condition would be materially 
adversely affected. 

     The Company relies upon certain software that it licenses from third 
parties, including software that is integrated with the Company's internally 
developed software and used in Forte to perform key functions. There can be 
no assurance that these third-party software licenses will continue to be 
available to the Company on commercially reasonable terms. The loss of, or 

20

<PAGE>

inability to maintain, any such software licenses could result in shipment 
delays or reductions until equivalent software could be developed, 
identified, licensed and integrated which would materially adversely affect 
the Company's business, operating results and financial condition.

     VOLATILITY OF STOCK PRICE.  The Company's Common Stock has experienced 
significant price volatility and such volatility may occur in the future. 
Factors, such as announcements of the introduction of new products by the 
Company or its competitors and quarter-to-quarter variations in the Company's 
operating results, as well as market conditions in the technology and 
emerging growth company sectors, may have a significant impact on the market 
price of the Company's Common Stock. Further, the stock market has 
experienced extreme volatility that has particularly affected the market 
prices of equity securities of many high technology companies and that often 
has been unrelated or disproportionate to the operating performance of such 
companies. These market fluctuations may adversely affect the price of the 
Common Stock.

     EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF RIGHTS 
PLAN, CERTIFICATE OF INCORPORATION, DELAWARE LAW AND CERTAIN AGREEMENTS.  The 
Company's Board of Directors has the authority to issue up to 5,000,000 
shares of Preferred Stock and to determine the price, rights, preferences, 
privileges and restrictions, including voting and conversion rights of such 
shares, without any further vote or action by the Company's stockholders.  
The rights of the holders of Common Stock will be subject to, and may be 
adversely affected by, the rights of the holders of any Preferred Stock that 
may be issued in the future.  The issuance of Preferred Stock could have the 
effect of making it more difficult for a third party to acquire a majority of 
the outstanding voting stock of the Company.  The Company has no current 
plans to issue shares of Preferred Stock.  Further, the Company has adopted a 
stockholder rights plan that, in conjunction with certain provisions of the 
Company's Certificate of Incorporation and of Delaware law, could delay or 
make more difficult a merger, tender offer, or proxy contest involving the 
Company.

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<PAGE>

PART II

ITEM 1.   LEGAL PROCEEDINGS

     The Company is not aware of any pending or threatened litigation that 
could have a material adverse effect upon the Company's business, operating 
results or financial condition.

ITEM 2.   CHANGES IN SECURITIES
     None
ITEM 3.   DEFAULTS ON SENIOR SECURITIES
     None

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its annual meeting of Stockholders on August 12, 1997.

The Company's stockholders voted on the following matters: 
(a)Election of four directors. All directors proposed by management were 
elected for a period of one year.

<TABLE>
<CAPTION>

     Name of                             Number of         #of Votes          #of Votes    Number of        Broker
     Nominee                            Votes For           Against           Withheld    Abstentions      Non Votes
<S>                                     <C>                 <C>               <C>          <C>             <C>
Martin J. Sprinzen                      15,551,526                 -            195,333            -              -
William H. Younger, Jr.                 15,556,739                 -            190,120            -              -
Thomas A. Jermoluk                      15,562,489                 -            184,370            -              -
Christos M. Cotsakos                    15,562,589                 -            184,270            -              -
</TABLE>

(b) The stockholders approved the Company's 1997 Stock Option Plan. 9,224,191 
votes were cast in favor of the Plan, 889,952 votes were cast against the 
Plan, there were 51,960 abstentions and there were 5,580,756 broker non-votes.

(c) Amend the Company's Employee Stock Purchase Plan to increase the number 
of shares of Common Stock for issuance thereunder by 300,000 shares. The 
stockholders approved the Employee Stock Purchase Plan Amendment. 9,647,089 
votes were cast in favor of the Amendment, 462,834 votes were cast against 
the Amendment, there were 56,180 abstentions and there were 5,580,756 broker 
non-votes.

(d) Ratification of independent public auditors. The stockholders ratified 
the appointment of Ernst & Young, LLP as the Company's independent public 
auditors for the fiscal year ended March 31, 1998. 15,626,313 votes were cast 
in favor of the appointment, 60,874 votes cast against, zero were with held, 
there were 59,672 abstentions, and zero broker non-votes.

22

<PAGE>

ITEM 5.   OTHER INFORMATION

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
     
          (a) Exhibit  10.13  Stock Option Grant to Thomas A. Jermoluk

              Exhibit  10.14  Stock Option Grant to Christos M. Cotsakos

              Exhibit  11.1   Statement Regarding Computation of Earnings 
                              Per Share

              Exhibit  27     Financial Data Schedule

         (b)  No reports on Form 8-K have been filed during the quarter ended 
              September 30, 1997.

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<PAGE>

                               SIGNATURES

    
     Pursuant to the requirements of the Securities Act of 1934, as amended, 
the Registrant has duly caused this Report on Form 10-Q to be signed on its 
behalf by the undersigned, thereunto duly authorized, in the City of Oakland, 
State of California, on this the 14th day of November, 1997.

                                       FORTE SOFTWARE, INC.

                                       By:   /s/ RODGER E. WEISMANN  

     

                                       Rodger E. Weismann

                                       SENIOR VICE PRESIDENT, FINANCE AND 
                                       ADMINISTRATION, CHIEF FINANCIAL
                                       OFFICER AND SECRETARY 

24