UNITED STATES

                       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 December 31, 1996
                               ------------------
                                       OR

[      ]      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 0-132-58
                      ---------

                              BOOLE & BABBAGE, INC.
                 ----------------------------------------------
             (Exact name of Registrant as specified in its charter)

                  Delaware                                   94- 1651571
                 ---------                                  ------------
         (State or other jurisdiction of                    (I.R.S. Employer
         Incorporation or organization)                     Identification No.)

                3131 Zanker Road, San Jose, California 95134-1933
                -------------------------------------------------
                    (Address of principal executive offices)

Registrant's Telephone number, including area code:  408-526-3000
                                                     ------------
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___

17,120,968 shares of common stock of the Registrant were outstanding at February
10, 1997.



<PAGE>


                                                        BOOLE & BABBAGE, INC.

                                                                INDEX

<TABLE>

<CAPTION>

Part I        FINANCIAL INFORMATION                                                         Page No.
<S>              <C>                                                                         <C>

  Item 1.        FINANCIAL STATEMENTS
                 Consolidated Balance Sheets
                      December 31, 1996 and September 30, 1996                                 1

                 Consolidated Statements of Income
                      Three Months Ended December 31, 1996 and 1995                            2

                 Consolidated Statements of Cash Flows
                      Three Months Ended December 31, 1996 and 1995                            3

                 Notes to Consolidated Financial Statements                                  4-5


  Item 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS
                 OF FINANCIAL CONDITION AND  RESULTS
                 OF OPERATIONS
                      Three Months Ended December 31, 1996 and 1995                         6-11


Part II       OTHER INFORMATION

  Item 6.        EXHIBITS AND REPORTS ON FORM 8-K                                             12


Signatures                                                                                    13

</TABLE>


<PAGE>

<TABLE>
                                                        Boole & Babbage, Inc.
                                                     Consolidated Balance Sheets
                                                (Amounts in thousands except shares)
                                                    (December 31, 1996 unaudited)
                                                                                                      December 31,     September 30,
Assets                                                                                                    1996               1996
                                                                                                        ---------         ---------
<S>                                                                                                         <C>               <C>  
Current assets:
    Cash and cash equivalents                                                                           $  28,667         $  35,305
    Short-term investments                                                                                 27,999            24,750
    Accounts receivable, net                                                                               25,441            23,281
    Installment and other receivables, net                                                                 48,848            44,105
    Deferred tax asset                                                                                      4,848             5,649
    Prepaid expenses and other current assets                                                               5,791             3,183
                                                                                                        ---------         ---------
             Total current assets                                                                         141,594           136,273

Purchased and internally developed software, net                                                           11,478            11,614
Equipment, furniture and leasehold improvements, net                                                        8,687             8,695
Long-term installment and other receivables                                                                47,542            39,141
Long-term deferred tax asset                                                                                6,572             6,537
Costs in excess of net assets of purchased businesses, net                                                    654               660
Other assets                                                                                                5,702             4,144
                                                                                                        ---------         ---------
             Total assets                                                                               $ 222,229         $ 207,064
                                                                                                        =========         =========


Liabilities and Stockholders' Equity
Current liabilities:
     Accounts payable                                                                                   $   6,622         $   6,642
     Accrued payroll expense                                                                                7,995             7,890
     Other accrued liabilities                                                                             20,572            20,089
     Short-term borrowings                                                                                    781               990
     Notes payable due within one year                                                                        294               293
     Capital lease obligations due within one year                                                            811               961
     Deferred maintenance revenue                                                                          47,416            47,225
                                                                                                        ---------         ---------
             Total current liabilities                                                                     84,491            84,090

Notes payable due after one year                                                                              354               369
Capital lease obligations due after one year                                                                1,949             2,120
Deferred maintenance revenue due after one year                                                            32,203            27,460

Stockholders' equity:
     Preferred stock, 2,000,000 shares authorized, $.001 par value, none issued                              --                 --
     Common stock, $.001 par value, authorized--30,000,000 shares; issued--
         18,221,548 (17,973,270 at September 30, 1996)                                                         18                18
     Additional paid-in capital                                                                            39,392            37,630
     Retained earnings                                                                                     66,750            60,712
     Unrealized gain on marketable securities                                                               1,708               370
     Foreign currency translation adjustment                                                                2,369               699
     Less treasury stock, 1,160,037 shares (1,143,788 at September 30, 1996), at                           (7,005)           (6,404)
     cost
                                                                                                        ---------         ---------
             Total stockholders' equity                                                                   103,232            93,025
                                                                                                        ---------         ---------
             Total liabilities and stockholders' equity                                                 $ 222,229         $ 207,064
                                                                                                        =========         =========
</TABLE>

See accompanying notes.

                                                                  1

<PAGE>


                              Boole & Babbage, Inc.
                        Consolidated Statements of Income
               (Amounts in thousands, except net income per share)
                                   (Unaudited)

                                                           Three Months Ended
                                                               December 31,
                                                           ---------------------
                                                            1996          1995
                                                           -------       -------
Revenue:
      Product licensing                                    $28,169       $21,474
      Maintenance fees and other                            19,940        18,645
                                                           -------       -------
           Total revenue                                    48,109        40,119
                                                           -------       -------

Costs and expenses:
      Cost of product licensing                              4,742         3,974
      Cost of maintenance fees and other                     3,715         3,434
      Product development                                    5,596         4,374
      Sales and marketing                                   22,889        19,682
      General and administrative                             4,333         3,851
                                                           -------       -------
           Total costs and expenses                         41,275        35,315
                                                           -------       -------

Operating income                                             6,834         4,804

Interest and other income, net                               1,813         1,306
                                                           -------       -------
Income before provision for income taxes                     8,647         6,110

Provision for income taxes                                   2,600         1,825
                                                           -------       -------

Net income                                                 $ 6,047       $ 4,285
                                                           =======       =======

Net income per share (a)                                   $  0.33       $  0.24
                                                           =======       =======

Shares used in per share calculations (a)                   18,560        17,925
                                                           =======       =======



(a) Per share  data and number of shares  reflect a 3-for-2  stock  split  which
became effective on December 10, 1996.

                                       2

<PAGE>

<TABLE>

                                                        Boole & Babbage, Inc.
                                                Consolidated Statements of Cash Flows
                                                 (Amounts in thousands) (Unaudited)
<CAPTION>
                                                                                                             Three Months Ended
                                                                                                                 December 31,
                                                                                                           ------------------------
                                                                                                             1996            1995
                                                                                                           --------        --------
<S>                                                                                                          <C>               <C>  
Cash flows from operating activities:
  Net income                                                                                               $  6,047        $  4,285
  Adjustments to reconcile net income to net cash
      provided (used) by operating activities:
      Depreciation, amortization and write-off of capitalized software                                        2,039           2,359
      Stock issued under compensatory stock plans                                                                24              36
      Changes in operating assets and liabilities excluding the effect of acquisitions:
         Accounts receivable and installment and other receivables                                          (12,429)         (7,965)
         Prepaid expenses and other assets                                                                   (1,765)           (610)
         Accounts payable and accrued expenses                                                                  (94)           (638)
         Deferred maintenance revenue                                                                         3,284           2,269
                                                                                                           --------        --------

Net cash provided by (used for) operating activities                                                         (2,894)           (264)
                                                                                                           --------        --------

Cash flows from investing activities:
     Purchases of equipment, furniture and leasehold improvements                                              (791)           (928)
     Payments for capitalized software                                                                         (938)         (1,082)
     Net (purchases) sales of short-term investments                                                         (3,249)          2,100
     Investment in equity securities                                                                            (26)           (648)
                                                                                                           --------        --------

Net cash used for investing activities                                                                       (5,004)           (558)
                                                                                                           --------        --------

Cash flows from financing activities:
      Proceeds from issuance of common stock                                                                  1,729             874
      Treasury stock purchases                                                                                 (601)             --
      Payments on notes payable                                                                                 (21)           (253)
      Payments on line of credit                                                                               (209)           (150)
      Payments on capital leases                                                                               (321)           (559)
                                                                                                           --------        --------

Net cash used for financing activities                                                                          577             (88)
                                                                                                           --------        --------

Effect of exchange rate changes on cash                                                                         683             (72)
                                                                                                           --------        --------

Net increase (decrease) in cash and cash equivalents                                                         (6,638)           (982)

Cash and cash equivalents at beginning of year                                                               35,305          22,340
                                                                                                           --------        --------

Cash and cash equivalents at end of year                                                                   $ 28,667        $ 21,358
                                                                                                           ========        ========

Supplemental disclosures of cash flow information:
      Cash paid during the year for:
          Interest                                                                                         $    343        $    142
          Income taxes, net                                                                                $  1,707        $    631


Supplemental disclosures of noncash investing and financing activities:
            A capital  lease  obligation  of $265,000  was  incurred  in the quarter  ended  December  31, 1995 for the  purchase of
            equipment.

</TABLE>

See accompanying notes

                                                                 3

<PAGE>


                              BOOLE & BABBAGE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.   Basis of Presentation

     The accompanying  consolidated financial statements include the accounts of
     all  subsidiaries  after the elimination of all  significant  inter-company
     items and transactions.

     A summary of the significant accounting policies of the Company is included
     in Note 1 of Notes to  Consolidated  Financial  Statements in the Company's
     annual  report on Form 10-K for the year ended  September  30, 1996.  These
     consolidated  financial statements should be read in conjunction with those
     notes.

     The  consolidated  financial  information  at December 31, 1996 and for the
     three-month  periods  ended  December 31, 1996 and 1995 is  unaudited.  The
     statements in this report  include all  adjustments  of a normal  recurring
     nature. In the opinion of management, these adjustments are necessary for a
     fair  statement  of the  interim  results for the  periods  presented.  The
     interim results are not necessarily  indicative of the results for the full
     year.

2.   Net Income Per Share

     Net income per common share is computed by adding to the  weighted  average
     number of  common  shares  outstanding  during  the  period  the  number of
     dilutive  common  shares  that  would  be  issuable  upon the  exercise  of
     outstanding  options using the treasury stock method of computation.  Fully
     diluted net income per share is not disclosed  because it is not materially
     different from primary net income per share.

       (Amounts in thousands, except                 3 mos. ended Dec. 31,
        net income per share)                        ---------------------
                                                       1996          1995
                                                     -------       -------
       Primary: (a)

      Common shares outstanding                       16,996        16,332
      Employee stock option plans                      1,564         1,593
                                                     -------       -------
                                                      18,560        17,925
                                                     =======       =======

      Net income                                     $ 6,047       $ 4,285
                                                     =======       =======

      Net income per share                           $   .33       $   .24
                                                     =======       =======

(a) Reflects a 3-for-2 stock split effective December 10, 1996.

                                       4


<PAGE>


                              BOOLE & BABBAGE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

3.   Contingencies

     The Company is involved in certain legal actions and claims  arising in the
     ordinary course of business.  Management  believes that such litigation and
     claims will be resolved  without  material  adverse effect on the Company's
     financial position or results of operations.

4.   Subsequent Events

     During December 1996, Boole & Babbage agreed to acquire, subject to certain
     conditions,   all  of  the  outstanding   capital  stock  of  MAXM  Systems
     Corporation  ("MAXM") in exchange for  1,137,115  shares,  10% of which are
     held in escrow with an  independent  third party escrow  agent,  of Boole &
     Babbage common stock. The transaction was completed on January 16, 1997 and
     the  Company  anticipates  that there will be a  significant  charge in the
     quarter  ending March 31, 1997 in  connection  with  activities to complete
     this  acquisition  and eliminate  redundant  facilities and  personnel.  An
     estimate of this charge cannot be made at this time. The  transaction  will
     be accounted for using the pooling  method and the  Company's  consolidated
     financial statements for all prior periods will be restated.



                                        5


<PAGE>



                              BOOLE & BABBAGE, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS: Three Months ended December 31, 1996

When used in this discussion,  the words "anticipate," "estimate," "project" and
similar expressions are intended to identify  forward-looking  statements.  Such
statements  are  subject to certain  risks and  uncertainties,  including  those
discussed  below and in the Company's Form 10-K for the year ended September 30,
1996, that could cause actual results to differ materially from those projected.
Readers are  cautioned  not to place undue  reliance  on these  forward  looking
statements,  which speak only as of the date hereof.  The Company  undertakes no
obligation   to  publicly   release  the  result  of  any   revisions  to  these
forward-looking  statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.


REVENUES:

The Company  derives  its  revenues  primarily  from the  licensing  of computer
software programs,  consulting and education services, and the sales of software
maintenance services. Total revenue for the three months ended December 31, 1996
increased over the same period in the prior year by 19.9%. Without the effect of
currency rate changes, total revenue increased 24.7%.
<TABLE>
<CAPTION>
                                                     % of Revenue
                                               ------------------------              Year-to-Year
                                               1997                1996                % Change
                                           ------------------------------------------------------------
<S>                                            <C>                  <C>                    <C> 
Product licensing                              58.6%                53.5%                 31.2%
Maintenance fees and other                     41.4%                46.5%                  6.9%
                                           ------------------------------------------------------------
    Total                                     100.0%               100.0%                 19.9%
                                           ============================================================
</TABLE>

Product Licensing:

The  Company  licenses  its  products  to  customers  for use on their  computer
systems.  The Company also performs consulting and educational  services related
to those  products,  although  revenue from these services was not  significant.
Product  licensing  accounted for 58.6% or $28,169,000 of total revenue in 1997,
compared to 53.5% or $21,474,000 in 1996 and increased by 31.2% in 1997 compared
to 1996.  Without  the  effect  of  currency  rate  changes,  product  licensing
increased  36.6%.  As is common in the industry,  more than 50% of the Company's
license revenue is derived from  transactions  that close in the last month of a
quarter,  which can make quarterly  revenues  difficult to forecast.  And, since
operating  expenses are relatively fixed,  failure to achieve projected revenues
could materially and adversely affect the Company's operating results.  This, in
turn, could result in an immediate and adverse effect on the market price of the
Company's stock.


                                        6


<PAGE>



                              BOOLE & BABBAGE, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Products:

The  client/server  product  group grew by 29.9%  (36.2%  without  the effect of
currency rate changes)  comprising 18.6% of the total product licensing revenue.
The Company  anticipates that this group will continue to show high growth rates
for the  remainder of fiscal 1997.  However,  the Company  competes with certain
companies  who  have  greater  resources  along  with  products  already  in the
marketplace.  In addition,  the Company is dependent on the client/server market
developing  at  a  rapid  rate  despite   reports  by  industry   analysts  that
implementation  of  client/server  networks  may  be  more  expensive  and  time
consuming than users had anticipated, which could potentially slow the growth of
the market.  Due to these factors,  there can be no assurances that new products
will achieve  significant  market  acceptance  or  competitive  success and thus
contribute to revenue growth.  Mainframe products increased 31.5% over the first
quarter in 1996  primarily  as a result of strong  growth in North  America  and
non-European  international which had shown negative growth in 1996. The Company
does not expect  mainframe  growth to be as high in future  quarters.  Mainframe
products include Plex products, which enable customers to handle large groups of
computer  processors,  particularly the parallel processing machines by IBM. The
Company's  product  licensing  growth rates could be  materially  and  adversely
impacted if the parallel  processors do not gain significant  market  acceptance
and customer  spending  shifts away from  traditional  mainframes  to technology
platforms where the Company does not have significant product acceptance.

Markets:
<TABLE>
<CAPTION>
                                               % of Product Licensing
                                               ------------------------              Year-to-Year
                                               1997                1996                % Change
                                           ------------------------------------------------------------
<S>                                            <C>                <C>                     <C>  
Domestic                                       35.5%              31.4%                   48.5%
International                                  64.5%              68.6%                   23.3%
                                           ------------------------------------------------------------
                                              100.0%             100.0%                   31.2%
                                           ============================================================
</TABLE>

Domestic:
Field sales grew  56.6%,  but was  slightly  offset by a flat  performance  from
telesales,  resulting  in a increase  for total  domestic  product  licensing of
48.5%. For growth to return in this geographic  market, the Company is dependent
on increased  productivity from the telesales group and continued increases from
the field sales force.



                                        7


<PAGE>



                              BOOLE & BABBAGE, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


International:
In 1997 the  Company's  product  licensing  from its  international  operations,
comprised of foreign  subsidiaries  and marketing  agents,  increased  23.3% due
primarily to strong growth in Latin America. Without the effect of currency rate
changes,  international  product licensing revenue grew 31.1% in 1997. Since the
majority of new revenue is derived from  international  markets,  the  Company's
operations and financial results could be significantly  and adversely  affected
by international factors such as changes in currency exchange rates and specific
countries' political and economic circumstances.

Maintenance fees and other:

Maintenance  revenue is generated from services the Company  provides  including
technical support, product enhancements,  system updates and user documentation.
Maintenance  revenue also includes  maintenance  services for an initial  period
ranging from six months to one year which is included in the initial charge when
the  Company  licenses  its  software  products  under  a  long-term  agreement.
Thereafter on each  anniversary  date of the license,  the customer may elect to
renew its  maintenance  contract  with the Company.  Customers may also elect to
purchase  advance  maintenance at the time of product  licensing for maintenance
periods beyond the first year. Included in maintenance fees and other is revenue
from computer  services,  hardware  sales and royalties from IBM for the jointly
developed CICS product.

Maintenance  fees and other grew 6.9% in 1997  accounting for 41.4% and 46.5% of
total  revenues in 1997 and 1996,  respectively.  Without the effect of currency
rate changes, maintenance fees and other grew 11.1%. This increase is mainly the
result of increased  product  licensing in the previous  year combined with high
renewal  rates  but  reduced  by  larger  discounts   granted  on  multiple-year
maintenance packages purchased by customers.

The Company  anticipates that maintenance  revenues in fiscal 1997 will continue
to increase due to the higher license  revenue growth in 1996,  although it will
be negatively  impacted by reduced revenue associated with site  consolidations,
non-CPU specific pricing and multiple-year  maintenance  package  discounts.  In
addition, to produce maintenance revenue increases, the Company must continue to
generate  new product  licensing  revenues  and continue to provide high quality
maintenance support and upgrades.


                                        8


<PAGE>



                              BOOLE & BABBAGE, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


COSTS AND EXPENSES:
<TABLE>
<CAPTION>

                                                  % of Revenue
                                               ------------------------               Year-to-Year
                                               1997                1996                % Change
                                           ------------------------------------------------------------
<S>                                           <C>                <C>                     <C>  
Cost of product licensing                      9.9%               9.9%                   19.3%
Cost of maintenance fees and other             7.7%               8.6%                    8.2%
Product development                           11.6%              10.9%                   27.9%
Sales and marketing                           47.6%              49.1%                   16.3%
General and administrative                     9.0%               9.6%                   12.5%
                                           ============================================================
    Total                                     85.8%              88.1%                   16.9%
                                           ============================================================
</TABLE>

Cost of product licensing:

Cost of product  licensing  consists  primarily of royalties paid to independent
software authors,  amortization of purchased and internally  developed  software
and the cost of  outside  consultants  to  provide  educational  and  consulting
services.  Cost of product  licensing  increased 19.3% and  represented  9.9% of
revenues for both 1997 and 1996.  Without the impact of currency exchange rates,
the  increase  was 26.0%.  The  increase in 1997 is  primarily  attributable  to
outside  consultant  costs  related to higher  service  revenue  in  Europe.  In
general,  the  relationship  of cost of revenue to revenue  will  fluctuate  due
primarily to changes in revenue mix, maintenance support, royalty agreements and
amortization of capitalized software.

Cost of maintenance fees and other:

Cost of  maintenance  fees  and  other  consists  primarily  of cost of  product
maintenance   support,   royalties   paid  to  independent   software   authors,
amortization  of  purchased  and  internally  developed  software,  the  cost of
hardware  associated with sales of  client/server  products and costs related to
operating the computer  services  division.  Cost of maintenance  fees and other
increased by 8.2% and  represented  7.7% and 8.6% of revenues for 1997 and 1996,
respectively.  Without the impact of currency  exchange rates,  the increase was
12.3%.  In 1997, the increase was primarily due to higher third party  royalties
in Europe as a result of the  expiration  of a reduced  rate from a  third-party
vendor which ran from the second quarter of fiscal 1995 to the fourth quarter of
fiscal 1996. In general, fluctuations in the relationship of cost of maintenance
fees and other to revenue are caused primarily by changes in maintenance revenue
mix,  maintenance support,  royalty agreements,  and amortization of capitalized
software.

                                        9


<PAGE>



                              BOOLE & BABBAGE, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Product development:

Product  development  costs increased by 27.9% in 1997 and represented 11.6% and
10.9% of  revenues  for 1997 and  1996,  respectively.  Without  the  effect  of
currency rate changes, the increase was 29.1%. The increase in 1997 is primarily
attributable  to higher  R&D  personnel  costs due to  increased  headcount.  In
addition,  reimbursement  of expenses by IBM  relating to the jointly  developed
CICS  product  was  terminated  as a result of the new  royalty  contract in the
fourth  quarter of fiscal  1996.  R&D  expenditures  were 15% and 16% of revenue
(excluding  third party) in 1997 and 1996,  respectively,  and the amount of R&D
capitalized  was 16% and 15% of gross R&D costs in 1997 and 1996,  respectively.
The Company  capitalizes  certain development costs in accordance with Statement
of Financial  Accounting  Standard No. 86 ("FAS 86").  To the extent the Company
capitalizes its product  development costs, the effect is to defer such costs to
future periods and match them to the revenue generated by the products.  Product
development and support expenses may fluctuate  annually  depending in part upon
the number and status of internal software development projects.


Sales and marketing:

Sales  and  marketing  expenses  increased  by 16.3%  and  represented  47.6% of
revenues in 1997 compared to 49.1% in 1996.  Without the effect of currency rate
changes, the increase was 20.8%. The increase in 1997 is primarily  attributable
to higher  commissions on increased  sales,  higher sales personnel costs in all
channels due to increased headcount, and higher product marketing costs.

General and Administrative:

General and administrative expenses increased 12.5% in 1997 and represented 9.0%
and 9.6% of  revenues  for 1997 and 1996,  respectively.  Without  the effect of
currency  rate  changes,  the  increase  was 16.5%.  The  increase is  primarily
attributable to increased costs relating to European facility costs, performance
based accruals and higher personnel costs.

Interest and other income, net:

Interest and other income  consists  principally  of interest  income,  interest
expense, currency gain or loss and gain or loss on disposal of assets. The 38.8%
increase in 1997 over 1996 is primarily  the result of more  interest  income as
gross lease contracts receivable was 35.6% higher than one year ago.


                                       10

<PAGE>



                              BOOLE & BABBAGE, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Income Taxes:

The effective tax rate was 30.0% for 1997 and 1996. The Company's  effective tax
rate  differs  from the  federal  statuary  rate due  primarily  to  permanently
invested  earnings of foreign  subsidiaries  being taxed at rates lower than the
federal  statutory  rate.  Management  believes  future  taxable  income will be
sufficient  to  realize  the  tax  benefit  of the net  deferred  tax  asset  of
$11,420,000.

Subsequent Event:

During  December  1996,  Boole & Babbage  agreed to acquire,  subject to certain
conditions,  all of the  outstanding  capital stock of MAXM Systems  Corporation
("MAXM") in exchange for 1,137,115  shares,  10% of which are held in escrow, of
Boole & Babbage common stock.  The transaction was completed on January 16, 1997
and the  Company  anticipates  that  there will be a  significant  charge in the
quarter  ending March 31, 1997 in  connection  with  activities to complete this
acquisition  and eliminate  redundant  facilities and personnel.  An estimate of
this charge cannot be made at this time. The  transaction  will be accounted for
using the pooling method and the Company's consolidated financial statements for
all prior periods will be restated.


LIQUIDITY AND CAPITAL RESOURCES:

The significant  sources of cash during 1997 include  proceeds from the exercise
of employee stock options of $901,000 and stock  purchases  through the Employee
Stock  Purchase  Plan of  $828,000.  The  significant  uses of cash  during 1997
include the net purchase of short-term  investments  of  $3,249,000;  $2,894,000
used by operating  activities;  $938,000 for  internally  developed  capitalized
software;   $791,000  for  purchases  of  furniture,   equipment  and  leasehold
improvements; $601,000 for the purchase of treasury stock; $321,000 for payments
on capital leases; $209,000 for net payments under a line of credit; $26,000 for
investment  in long-term  equity  securities;  and $21,000 for payments on notes
payable.  Management  believes  cash flows from  operations  and  existing  cash
resources  will be  adequate to meet its working  capital  requirements  for the
foreseeable future.



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<PAGE>


BOOLE & BABBAGE, INC.

                           PART II. OTHER INFORMATION

ITEM 6.  Exhibits and Reports on Form 8-K

             (a) Exhibits

                        The following exhibit is filed herewith.

                        Exhibit
                        Number              Description of Document
                        -------             -----------------------

                           27               Financial Data Schedule

             (b) Reports on Form 8-K.

                        During the three  months ended  December  31, 1996,  the
                        Company  filed  a  Current  Report  on  Form  8-K  dated
                        December 10, 1996 under Item 5, Other  Events,  relating
                        to the agreement to acquire MAXM Systems Corporation.




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<PAGE>


                        BOOLE & BABBAGE, INC. SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                                BOOLE & BABBAGE, INC.
                                                --------------------------


February 11, 1997                               \Paul E. Newton\
-----------------                               --------------------------
                                                Paul E. Newton
                                                President and Director
                                               (Principal Executive Officer)



February 11, 1997                               \Arthur F. Knapp, Jr.\
-----------------                               --------------------------
                                                Arthur F. Knapp, Jr.
                                                Senior Vice President
                                                Chief Financial Officer
                                                (Principal Financial Officer)



February 11, 1997                               \Carla J. Dorow\
-----------------                               --------------------------
                                                Carla J. Dorow
                                                Controller
                                                (Principal Accounting Officer)

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