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, 1996

|_|      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                      18,409,520
    (Class of common stock)          (Shares outstanding at September 30, 1996)



<PAGE>


<TABLE>


FORTE SOFTWARE, INC.
1996 REPORT ON FORM 10-Q

Table of Contents
<CAPTION>

PART I           FINANCIAL INFORMATION

Item 1.          Financial Statements                                                                     Page

<S>              <C>                                                                                        <C>    
                 Condensed Consolidated Balance Sheets                                                      3
                 At March 31, 1996 and September 30, 1996

                 Condensed Consolidated Statements of Operations                                            4
                 For the Three and Six  Months Ended September 30, 1995 and 1996

                 Condensed Consolidated Statements of Cash Flows                                            5
                 For the Six Months Ended September 30, 1995 and 1996

                 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                                                                         21
Item 2.          Changes in Securities                                                                     21
Item 3.          Defaults on Senior Securities                                                             21
Item 4.          Submission of Matters to a vote of Security Holders                                       21
Item 5.          Other Information                                                                         22
Item 6.          Exhibits and Reports on Form 8-K                                                          22

Signatures                                                                                                 23

</TABLE>


<PAGE>
<TABLE>


PART 1.
ITEM 1.           FINANCIAL STATEMENTS

                                                        FORTE SOFTWARE, INC.
                                                CONDENSED CONSOLIDATED BALANCE SHEETS
                                                           (in thousands)
<CAPTION>

                                                                                                      March 31,        September 30,
                                                                                                        1996                 1996
                                                                                                      --------             --------
                                                                                                                         (unaudited)
<S>                                                                                                   <C>                  <C>     
ASSETS
Current assets:
    Cash and cash equivalents                                                                         $ 35,081             $ 25,439
    Short-term investments                                                                               6,236               14,274
    Accounts receivable, net of allowances of $636 ($531 at March
      31, 1996)                                                                                         11,059               13,147
    Prepaid expenses and other current assets                                                              839                1,130
                                                                                                      --------             --------
Total current assets                                                                                    53,215               53,990

Equipment and leasehold improvements, net                                                                3,903                5,103
Other assets                                                                                               173                  250
                                                                                                      --------             --------
Total assets                                                                                          $ 57,291             $ 59,343
                                                                                                      ========             ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                                                  $  1,066             $  1,106
    Accrued expenses and other liabilities                                                               5,410                6,394
    Deferred revenue                                                                                     5,941                6,265
    Current portion of capital lease obligations and notes payable                                       1,084                1,001
                                                                                                      --------             --------
Total current liabilities                                                                               13,501               14,766

Capital lease obligations and notes payable, due after one year                                          1,714                1,276
Deferred revenue                                                                                         2,032                1,502
Commitments
Stockholders' equity:
    Common Stock                                                                                           183                  184
    Additional paid-in capital                                                                          62,618               62,701
    Accumulated deficit                                                                                (22,735)             (20,997)
    Foreign currency translation adjustments
                                                                                                           (22)                 (66)
    Unrealized loss on short-term investments                                                             --
                                                                                                                                (23)
                                                                                                      --------             --------
Total stockholders' equity                                                                              40,044               41,799
                                                                                                      --------             --------
Total liabilities and stockholders' equity                                                            $ 57,291             $ 59,343
                                                                                                      ========             ========
<FN>

See accompanying notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
                                                                               3

<PAGE>
<TABLE>



                                                        FORTE SOFTWARE, INC.
                                           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (in thousands, except share and per share amounts; unaudited)
<CAPTION>

                                                                        Three months ended                    Six months ended 
                                                                           September 30,                         September 30,
                                                                     1995               1996               1995              1996
                                                                   --------           --------           --------           --------
<S>                                                                <C>                <C>                <C>                <C>     
Revenues:
    License fees                                                   $  3,623           $  9,833           $  6,694           $ 17,856
    Maintenance and service                                           2,174              4,381              3,483              8,038
                                                                   --------           --------           --------           --------

  Total revenues                                                      5,797             14,214             10,177             25,894

Operating expenses:
    Cost of license fees                                                110                128                205                266
    Cost of maintenance
       and  service                                                   1,236              2,542              2,182              4,920
    Sales and marketing                                               3,117              6,601              6,097             12,366
    Product development and
       engineering                                                    1,980              2,565              3,668              4,849
    General and administrative                                          823              1,248              1,454              2,527
                                                                   --------           --------           --------           --------

  Total operating expenses                                            7,266             13,084             13,606             24,928

Income (loss) from operations                                        (1,469)             1,130             (3,429)               966

Interest income, net                                                     60                520                164              1,009
                                                                   --------           --------           --------           --------

Income (loss) before income taxes                                    (1,409)             1,650             (3,265)             1,975
Provision for income taxes                                                6                205                 23                237
                                                                   --------           --------           --------           --------

Net income (loss)                                                  $ (1,415)          $  1,445           $ (3,288)          $  1,738
                                                                   ========           ========           ========           ========

Pro forma net income (loss) per share
                                                                   $  (0.08)          $   0.07           $  (0.19)          $   0.08
                                                                   ========           ========           ========           ========

Shares used in computing pro forma net
income (loss) per share                                              17,794             21,078             17,725             21,107
                                                                   ========           ========           ========           ========

<FN>
See accompanying notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
                                                                               4
<PAGE>

<TABLE>


                                                        FORTE SOFTWARE, INC.
                                           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (in thousands; unaudited)
<CAPTION>

                                                                                                     Six Months Ended September 30,
                                                                                                     ------------------------------
                                                                                                         1995                1996
                                                                                                       --------            --------
<S>                                                                                                    <C>                 <C>     
Operating activities
Net income (loss)                                                                                      $ (3,288)           $  1,738
Adjustments to reconcile net loss to net cash used in operating
  activities:
  Depreciation and amortization                                                                             523               1,120
  Changes in operating assets and liabilities:
    Accounts receivable                                                                                  (3,152)             (2,088)
    Prepaid expenses and other assets                                                                        21                (412)
    Accounts payable                                                                                         55                  40
    Accrued expenses and other liabilities                                                                  216                 984
    Deferred revenue                                                                                      2,441                (206)
                                                                                                       --------            --------
Net cash provided by (used in) operating activities                                                      (3,184)              1,176
                                                                                                       --------            --------

Investing activities
Purchases of equipment and leasehold improvements                                                          (651)             (2,230)
Purchase of short-term investments                                                                         --               (11,027)
Maturities of short-term investments                                                                      2,915               2,966
                                                                                                       --------            --------
Net cash provided by (used in) investing activities                                                       2,264             (10,291)
                                                                                                       --------            --------

Financing activities
Payment on notes payable                                                                                    (37)               --
Reduction in capital lease obligations                                                                     (304)               (611)
Proceeds from issuance of common stock                                                                       83                  84
                                                                                                       --------            --------
Net cash used in financing activities                                                                      (258)               (527)
                                                                                                       --------            --------
Decrease in cash and cash equivalents                                                                    (1,178)             (9,642)
Cash and cash equivalents at beginning of period                                                          9,860              35,081
                                                                                                       --------            --------
Cash and cash equivalents at end of period                                                             $  8,682            $ 25,439
                                                                                                       ========            ========

Supplemental disclosures:
  Interest paid                                                                                        $    110            $    153
                                                                                                       ========            ========
  Income taxes paid                                                                                    $     24            $     93
                                                                                                       ========            ========

Supplemental disclosures of noncash investing and financing activities:
  Capital lease obligations incurred                                                                   $  1,400            $     90
                                                                                                       ========            ========
<FN>
See accompanying notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
                                                                               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 adjustments,
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,  1996.  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, 1996 are not necessarily indicative of the results to
be  expected  for any  subsequent  quarter or for the entire  fiscal year ending
March 31,  1997.  The March 31,  1996  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

         Except as noted below,  net income  (loss) per share is computed  using
the weighted average number of shares of common stock  outstanding.  Pursuant to
the Securities and Exchange  Commission Staff Accounting  Bulletins,  common and
common  equivalent  shares  issued by the  Company at prices  below the  initial
public  offering  price during the  twelve-month  period prior to the  Company's
initial  public  offering have been included in the  calculation as if they were
outstanding  for all  periods  presented  through  December  31, 1995 (using the
treasury stock method).

         Net income (loss) per share  information  calculated on the above noted
basis for the three month period ended  September  30, 1995 is $(0.25)  based on
5,764,063  weighted average shares  outstanding,  and $(0.58) based on 5,694,998
weighted average shares outstanding for the six month period ended September 30,
1995.

         Pro forma net income  (loss) per share has been  computed as  described
above and also gives effect,  even if antidilutive,  to common equivalent shares
from convertible  preferred stock that automatically  converted upon the closing
of the Company's initial public offering (using the as-if-converted method). All
of the convertible preferred stock outstanding as of the closing date, March 11,
1996,  was  automatically  converted  into an aggregate of 12,029,883  shares of
common stock.


                                                                               6

<PAGE>


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

Short-Term Investments

         As of September 30, 1996, all short-term investments were classified as
available-for-sale securities pursuant to the provisions of Financial Accounting
Standards  No.  115,  "Accounting  for  Certain  Investments  in Debt and Equity
Securities."  Available-for-sale  securities are stated at estimated fair value.
Differences  between  the  estimated  fair  value and cost are  included  in the
balance sheet as an unrealized loss on short-term investments.

The following is a summary of the Company's  investments and  reconciliation  of
the  Company's  investments  to the  balance  sheet at  September  30,  1996 (in
thousands).

                                          Estimated
                                            Fair
                                            Value
                                          ----------

Money market funds                        $    11
Commercial Paper                           15,827
Treasury Notes                              2,837
Corporate Notes and Bonds                  11,437
Municipal Bonds                             4,011
Auction rate preferred stock                4,004
Foreign Debt Securities                     1,612
Less Accrued Interest                       (374)
                                          -------
Total investments                         $39,365
                                          =======

                                          Estimated
                                            Fair
                                            Value
                                         ----------

Cash equivalents                         $ 25,091
Short-term investments                     14,274

Total investments                          39,365
                                         --------

Cash                                          348
                                         --------
Total cash, cash equivalents and
short-term investments                   $ 39,713
                                         ========

                                                                               7

<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
         CONDITION AND RESULTS OF OPERATIONS

         This  Quarterly  Report  on  Form  10-Q  may  contain   forward-looking
statements that involve risks and  uncertainties.  The Company's  actual results
may differ  materially  from the results  discussed in any such  forward-looking
statements.  Factors  that might cause such a  difference  include,  but are not
limited to, those discussed under the caption "Business Risks" contained herein.

<TABLE>

         The  following  table  sets forth  certain  consolidated  statement  of
operations  data as a  percentage  of total  revenues  for the three and the six
months ended September 30, 1995 and 1996.

<CAPTION>
                                                                            Three months ended                  Six months ended
                                                                              September 30,                       September 30, 
                                                                               (unaudited)                         (unaudited)
                                                                         1995              1996               1995            1996
                                                                        -----              -----             -----            -----
<S>                                                                     <C>                <C>               <C>              <C>  
Revenues:
  License                                                                62.5%              69.2%             65.8%            69.0%
  Maintenance and service                                                37.5               30.8              34.2             31.0
                                                                        -----              -----             -----            -----
    Total revenues                                                      100.0              100.0             100.0            100.0

Cost of revenues:
  License                                                                 1.9                0.9               2.0              1.0
  Maintenance and service                                                21.3               17.9              21.4             19.0
                                                                        -----              -----             -----            -----
    Total cost of revenues                                               23.2               18.8              23.4             20.0

Gross profit                                                             76.8               81.2              76.6             80.0

Operating expenses:
  Sales and marketing                                                    53.8               46.5              60.0             47.8
  Product development and
     engineering                                                         34.1               18.0              36.0             18.7
  General and administrative                                             14.2                8.8              14.3              9.8
                                                                        -----              -----             -----            -----
    Total operating expenses                                            102.1               73.3             110.3             76.3

Income (loss) from operations                                           (25.3)               7.9             (33.7)             3.7
Interest income, net                                                      1.0                3.7               1.6              3.9
                                                                        -----              -----             -----            -----
Income (loss) before income taxes                                       (24.3)              11.6             (32.1)             7.6

Provision for income taxes                                                0.1                1.4               0.2              0.9
Net income (loss)                                                       (24.4)%             10.2%            (32.3)%            6.7%
                                                                        =====              =====             =====            =====
</TABLE>

                                                                               8

<PAGE>


Results of Operations

 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 probable.  Fees for services are charged  separately from the
license of the Company's software products. Maintenance revenues consist of fees
for ongoing support and product updates and are recognized ratably over the term
of the contract,  which is typically  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  shipment.  Returns to date
have not been  material.  Actual  credit  losses may differ  from the  Company's
estimates and such differences could be material to the financial statements.

The Company's  total revenues  increased 145% to $14.2 million from $5.8 million
for the quarters ended  September 30, 1996 and 1995,  respectively.  For the six
months ended  September 30, 1996 total revenues  increased 154% to $25.9 million
compared to $10.2  million for the six months  ended  September  30,  1995.  The
Company's  license  revenues  increased  171% to $9.8  million,  or 69% of total
revenues,  from $3.6 million,  or 63% of total revenues,  for the quarters ended
September 30, 1996 and 1995,  respectively.  For the six months ended  September
30, 1996, license revenues increased 167% to $17.9 million from $6.7 million for
the same period in 1995. Total license revenues increased  primarily as a result
of an  increase  in the number of  licenses  sold  reflecting  increased  market
awareness as well as acceptance  of the Company's  products and expansion of the
Company's direct sales organization.

Maintenance and service revenues increased 102% to $4.4 million, or 31% of total
revenues,  from $2.2 million,  or 38% of total revenues,  for the quarters ended
September 30, 1996 and 1995, respectively.  Maintenance and service revenues for
the six months ended  September 30, 1996  increased by 131% to $8.0 million,  or
31% of total  revenues in 1996 from $3.5 million,  or 34% of total  revenues for
the same  period in 1995.  These  increases  in total  maintenance  and  service
revenues were primarily a result of the growing  installed base of the Company's
software  products  and the  associated  increase  in  demand  for  maintenance,
training and  consulting  services.  Service  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 in license revenue.

International  revenues  include all revenues other than from the United States.
International  revenues  consist  of  sales  from  the  Company's  direct  sales
organizations in Europe and Australia and export sales through  distributors and
resellers in Europe and other areas of the world, as well as international sales
made by the domestic direct sales organization. International revenues increased
355% to $5.0 million for the quarter  ended  September 30, 1996 compared to $1.1
million for the quarter  ended  September 30, 1995  representing  35% and 19% of
total  revenues,  respectively.  For the six months  ended  September  30,  1996
international  revenues increased 265% to $8.4 million from $2.3 million for the
same period in 1995. The increase in international  revenues  reflects a growing
direct sales  presence in Europe,  Australia  and Canada  through the  Company's
foreign  subsidiaries  and  branches.  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 

                                                                               9


<PAGE>

required  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 the Company's 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
royalties paid to third-party  vendors,  product  packaging,  documentation  and
production.  Cost of license revenues was $110,000 and $128,000 for the quarters
ended  September  30,  1995 and 1996,  respectively,  representing  3% and 1% of
license revenues,  respectively.  Cost of license revenues was $205,000 or 3% of
total  license fee revenue and  $266,000 or 1% of total  license fee revenue for
the six month  periods  ended  September  30, 1995 and 1996,  respectively.  The
Company  has  experienced  economies  of scale  related to cost of licenses as a
result of revenue growth.

 Cost of  Maintenance  and Service  Revenues.  Cost of  maintenance  and service
revenues consists primarily of  personnel-related  and facilities costs incurred
in providing  customer  support,  training and consulting  services,  as well as
third-party costs incurred in providing training and consulting  services.  Cost
of  maintenance  and service  revenues was $1.2 million and $2.5 million for the
quarters ended September 30, 1995 and 1996,  respectively,  representing 57% and
58% of maintenance and service revenues,  respectively.  Cost of maintenance for
the six months  ended  September  30,  1995 and 1996 was $2.2  million  and $4.9
million respectively,  representing 63% and 61% of maintenance respectively. The
cost of services as a percentage  of service  revenues may vary between  periods
depending on 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  and  promotional   expenses  and
advertising.  Sales and marketing  expenses  increased from $3.1 million for the
quarter ended September 30, 1995 to $6.6 million for the quarter ended September
30, 1996, and increased from $6.1 million for the six months ended September 30,
1995 to $12.4  million  for the six  months  ended  September  30,  1996.  These
increases  reflect the hiring of additional sales and marketing  personnel,  and
their  related  costs,  as well as  increased  costs  associated  with  expanded
promotional activities.  Sales and marketing expenses represented 54% and 46% of
total revenues for the quarters ended September 30, 1995 and 1996, respectively,
and represented 60% and 48% of total revenues for the six months ended September
30, 1995 and 1996,  respectively.  The decrease in sales and marketing  expenses
for fiscal 1997 as a percentage  of total  revenue was primarily due to the more
rapid growth in revenues.  The Company expects that sales and marketing expenses
will  continue  to increase in dollar  amount as the Company  continues  to hire
additional sales and marketing personnel and increase promotional  activities in
the future.

                                                                              10
<PAGE>



 Product Development. Product development 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 $2.0 million for the quarter  ended  September  30, 1995 to $2.6
million for the quarter ended September 30, 1996. Product  development  expenses
increased  from $3.7 million to $4.8 million for the six months ended  September
30, 1995 and 1996, respectively.  These increases were primarily attributable to
additional hiring of product development personnel. Product development expenses
represented  34% and 18% of total revenues for the quarters ended  September 30,
1995 and 1996,  respectively,  and  represented  36% and 19% for the six  months
ended  September  30,  1995 and 1996,  respectively.  The  decrease  in  product
development  expenses  for fiscal  1997 as a  percentage  of total  revenue  was
primarily due to the more rapid growth in revenues. 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
$823,000  for the  quarter  ended  September  30,  1995 to $1.2  million for the
quarter ended September 30, 1996. General and administrative  expenses increased
from $1.5  million for the six months ended  September  30, 1995 to $2.5 million
for the six months ended September 30, 1996.  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  14% and 9% of total revenues for the quarters  ended  September 30,
1995 and 1996,  respectively,  and represented 14% and 10% of total revenues for
the six months ended September 30, 1995 and 1996, respectively. The decreases in
general and  administrative  expenses for fiscal 1997 as a  percentage  of total
revenue was  primarily  due to the more rapid  growth in  revenues.  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  and as a result of the
increased expense associated with being a public company.

 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 long-term debt and capitalized leases. Interest income, net,
increased from $60,000 for the quarter ended  September 30, 1995 to $520,000 for
the quarter ended  September 30, 1996.  Interest  income,  net,  increased  from
$164,000 for the six months ended September 30, 1995 to $1.0 million for the six
months ended  September  30, 1996.  These  increases  are  primarily a result of
interest  income from the Company  investing  proceeds of the Company's  initial
public offering completed on March 11, 1996.

 Provision for Income Taxes.  The effective tax rate for the second  quarter and
the six  months  ended  September  30,  1996  increased  to 12% from 10% for the
quarter ended June 30, 1996.  The provision in the second  quarter  reflected an
increase  over the first  quarter  due to a change in estimate by the Company of
its expected effective tax rate for the year. The provision for income taxes was
due to state and  federal  alternative  minimum  taxes and  foreign  withholding
taxes.   The  Company   expects  its  fiscal  1997  effective  tax  rate  to  be
approximately  12%. This rate differs from 

                                                                              11

<PAGE>

the federal  statutory  rate  primarily due to the  utilization of net operating
loss carryovers and tax credits. This rate could change based on a change in the
estimated  geographic  mix of the  Company's  earnings,  the amount of permanent
reinvestment  offshore of a portion of the Company's  fiscal 1997  earnings,  or
changes in the U.S. 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.

         The Company  generated cash of $1.2 million from  operating  activities
for the six months ended  September 30, 1996 compared to cash used in operations
of $3.2 million for the six months ended  September 30, 1995. For the six months
ended  September 30, 1996,  the increase in cash flow from  operations  resulted
primarily  from net income for the period,  an increase in accrued  expenses and
other liabilities,  offset by an increase in accounts receivable, and a decrease
in prepaid  expenses and other  assets.  For the six months ended  September 30,
1995, the net cash used in operating  activities was primarily due to net losses
for the period,  an increase  in accounts  receivable  and a decrease in accrued
expenses and other  liabilities,  offset by an increase in deferred  revenue and
depreciation and amortization.

         The  Company's  investing  activities  consisted  of the  purchases  of
interest-bearing  securities,  as well as purchases  of property and  equipment.
Capital  expenditures  were $2.3 million for the six months ended  September 30,
1996  compared  to  $651,000  for  the  same  period  in  fiscal  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,  1996  the  Company  did not  have  any  material  commitments  for  capital
expenditures.

         At September  30,  1996,  the Company had $39.7  million in cash,  cash
equivalents and short term investments and $39.2 million in working capital. The
Company has an equipment lease line, which at September 30, 1996, provided up to
$5.8 million of leasing capacity at 12% interest and is repayable over 42 months
through  the year 2000.  Approximately  $1.5  million  was  available  under the
equipment lease line as of September 30, 1996.

         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 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.

                                                                              12
<PAGE>



                                 BUSINESS RISKS

         This  Quarterly  Report  on  Form  10-Q  may  contain   forward-looking
statements that involve risks and  uncertainties.  The Company's  actual results
may differ  materially  from the results  discussed in any such  forward-looking
statements.  Factors  that might cause such a  difference  include,  but are not
limited to, those discussed below.

         Limited Operating History; History of Operating Losses. The Company was
founded in February 1991 and first shipped product in August 1994.  Although the
Company's  revenues  have  increased  in each of the last nine  quarters and the
Company had net income in each of the quarters  ended  December 31, 1995 through
September  30,  1996,  the  Company  incurred  net losses in each  quarter  from
inception  through the quarter ended  September 30, 1995, and had an accumulated
deficit of $21.0 million as of September 30, 1996. A substantial  portion of the
accumulated  deficit is due to the  significant  commitment  of resources to the
Company's product  development and sales  organizations.  The Company expects to
continue  to devote  substantial  resources  in these areas and as a result will
need to  recognize  significant  quarterly  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.

         Potential  Fluctuations  in Quarterly  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. 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  client/server
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 

                                                                              13
<PAGE>

and  shipped in that  quarter.  Due to all of the  foregoing,  revenues  for any
future  quarter are not  predictable  with any  significant  degree of accuracy.
Accordingly,  the Company  believes  that  period-to-period  comparisons  of its
operating  results are not necessarily  meaningful and 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  relatively  higher
revenues in the Company's  quarter ended March 31 and  relatively  lower or flat
revenues  in its  quarter  ended  June 30, as a result of  efforts by its direct
sales force to meet fiscal year-end sales quotas. As a result, the Company could
incur a decline in net income for the quarter  ended June 30,  1997  compared to
the  prior  quarter.  The  Company  also  anticipates  that  it  may  experience
relatively  weaker  demand  in the  quarter  ended  September  30 as a result of
reduced sales activity in Europe during the summer months.

         Product  Concentration;  Dependence  on  Emerging  Market for  High-End
Client/Server 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  products or other  products.
Although  the  Company  has  recently  experienced  growth in sales of Forte and
related  products,  there  can be no  assurance  that the  market  for  high-end
client/server  applications will continue to grow. If the high-end client/server
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.

                                                                              14
<PAGE>



         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  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.

         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 client/server  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. 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.

         Limited Deployment; Dependence on System Integrators. 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  high-end
client/server  applications  using Forte. If any of the Company's  customers are
not able to successfully develop and deploy high-end client/server  applications
with  Forte,  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 or for any other reason are not satisfied  with Forte,  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  to  develop,  deploy and  manage  high-end
client/server  applications.  If the  Company  is unable to  adequately  train a
sufficient number of system integrators or if, for any reason, a large number of
such  integrators  adopt a product or technology other than Forte, the Company's
business,  operating  results and financial  condition  would be materially  and
adversely affected.

                                                                              15
<PAGE>



         Competition.  The market for high-end software used in the development,
deployment and management of client/server applications is intensely competitive
and characterized by rapidly changing  technology,  evolving industry standards,
frequent new product  introductions and rapidly changing customer  requirements.
High-end client/server applications that can be developed and deployed using the
Company's Forte environment can also be implemented using a combination of first
generation  application  development tools and more powerful server  programming
techniques  such  as  stored  procedures  in  relational  databases,  C  or  C++
programming,  and  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  as  to  the
advantages  of the  Company's  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  experienced  and  expects to  continue to  experience
increased  competition  from current and future  competitors,  many of whom have
significantly greater financial,  technical,  marketing and other resources than
the Company.  The Company's current direct  competitors  include,  among others,
Dynasty  Technologies,  Inc., Seer Technologies,  Inc. and NAT Systems, Inc. The
Company  expects to  compete  increasingly  with  Oracle  Corporation,  Informix
Corporation,  Powersoft (a subsidiary of Sybase, Inc.),  Microsoft  Corporation,
IBM  Corporation  and others.  The Company's  competitors may be able to respond
more  quickly  to  new  or  emerging   technologies   and  changes  in  customer
requirements or devote greater resources to the development,  promotion and sale
of their products than the Company. 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  client/server  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 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.

         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 


                                                                              16

<PAGE>

industry standards can render existing products obsolete and not marketable. For
example,  the  Company's  customers  have  adopted a wide  variety of  hardware,
software,  database and  networking  platforms,  and as a result,  to gain broad
market  acceptance,  the Company has had to support its products on many of such
platforms.  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, database and networking platforms and by developing
and  introducing  enhancements  to Forte and new products on a timely basis that
keep pace with such  technological  developments and emerging industry standards
and customer  requirements.  There can be no assurance  that the Company will be
successful in developing  and  marketing  enhancements  to Forte that respond to
technological change, evolving industry standards or 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 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 the Company's products, which
could  have a  material  adverse  effect on the  Company's  business,  operating
results and financial condition.

         Risk of Software Defects.  Software  products as internally  complex as
those offered by the Company  frequently  contain errors or defects,  especially
when first introduced or when new versions or enhancements are released. Despite
extensive  product testing by the Company,  the Company has discovered  software
errors in versions of Forte 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 or enhancements 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 its products to customers for
the   development,   deployment   and   management  of  high-end   client/server
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 its products by the
Company may entail the risk of such claims,  which are likely to be  substantial
in  light  of the use of such  products  in  business-critical  applications.  A
successful  product  liability  claim  brought  against the Company could have a
material  adverse  effect upon the  Company's  business,  operating  results and
financial condition.

         Risks Associated with International  Operations.  Revenues from foreign
subsidiaries  and export sales  accounted for 19% and 35% of the Company's total
revenue for the quarters ended

                                                                              17

<PAGE>

September  30, 1995 and 1996,  respectively,  and 23% and 32% for the six months
ended  September  30, 1995 and 1996,  respectively.  The Company  currently  has
international  sales offices located in the United Kingdom,  France,  Australia,
Germany,  Canada and Switzerland,  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 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 its 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 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 filed a United States trademark  registration  application for Forte
in April 1996. Despite the Company's efforts to protect its proprietary  rights,
unauthorized parties may

                                                                              18
<PAGE>

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"),   Sequent  Computer
Systems,  Inc.  ("Sequent")  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  and  Sequent  each 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, and Sequent's option
is exercisable if the Company is acquired by certain  Sequent  competitors.  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 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

                                                                              19

<PAGE>

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.

         Need  to  Manage  a  Changing   Business.   The  Company  has  recently
experienced  a period of  significant  revenue  growth and an  expansion  in the
number of its  employees,  the scope of its operating and financial  systems and
geographic area of its operations. This growth has resulted in new and increased
responsibilities for management personnel and has placed significant strain upon
the Company's  management,  operating and financial  systems and  resources.  To
accommodate  recent growth,  compete  effectively  and manage  potential  future
growth, the Company must continue to implement and improve information  systems,
procedures and controls and expand,  train,  motivate and manage its work force.
These  demands  will  require the  addition  of new  management  personnel.  The
Company's  future success will depend to a significant  extent on the ability of
its  current  and  future  management  personnel  to operate  effectively,  both
independently  and as a group.  There  can be no  assurance  that the  Company's
personnel,  systems,  procedures  and  controls  will be adequate to support the
Company's future operations.  Any failure to implement and improve the Company's
operational,  financial and management systems or to expand,  train, motivate or
manage employees could have a material adverse effect on the Company's business,
operating results and financial condition.

         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  adversely  affect the Company.
None of the Company's  employees is subject to an employment  agreement with the
Company.  The Company believes that its future success will depend in large part
upon its  ability  to  attract  and  retain  highly-skilled  managerial,  sales,
customer  support and product  development  personnel.  The Company has at times
experienced  and  continues to experience  difficulty  in  recruiting  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.


                                                                              20

<PAGE>



PART II

ITEM 1.           LEGAL PROCEEDINGS

         The Company is not a party to any litigation.  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 14, 1996.

<TABLE>

The Company's stockholders voted on the following matters:

(a)  Election of five  directors.  All  directors  proposed by  management  were
elected for a period of one year.

<CAPTION>

                                                                                                                Number
                                                     Number of                                                    of
                                Number of Votes        Votes       Number of Votes                            Broker Non
      Name of Nominee                 For             Against          Withheld       Number of Abstentions     Votes
     ----------------                 ---             -------          --------      ----------------------     -----
<S>                              <C>                    <C>             <C>                   <C>                 <C>
     Martin J. Sprinzen          13,562,206             -               35,480                -                   -
         Promod Haque            13,557,706             -               39,980                -                   -
      Thomas A. Jermoluk         13,562,206             -               35,480                -                   -
       David N. Strohm           13,557,706             -               39,980                -                   -
   William H. Younger, Jr.       13,557,706             -               39,980                -                   -
                                                                                                   
</TABLE>


(b) 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, 1997. 12,589,336 votes were cast in favor of
the appointment,  2,300 votes cast against, zero were withheld, there were 6,050
abstentions, and zero broker non votes.

                                                                              21

<PAGE>



ITEM 5.  OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K


         (a) 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, 1996.


<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 14th day of November, 1996.

                               FORTE SOFTWARE, INC.

                               By:        /s/ RODGER E. WEISMANN



                               Rodger E. Weismann

                               Vice President, Finance and  Administration,
                               Chief Financial Officer and Secretary