UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 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, 1997

                                       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                     (IRS 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 
                                      ---   ---
18,661,559  shares of common  stock of the  Registrant  were  outstanding  as of
January 30, 1998.



<PAGE>



                              BOOLE & BABBAGE, INC.

                                      INDEX



Part I        FINANCIAL INFORMATION                                     Page No.

       Item 1.    FINANCIAL STATEMENTS
                  Consolidated Balance Sheets
                       December 31, 1997 and September 30, 1997             1

                  Consolidated Statements of Income
                       Three Months Ended December 31, 1997 and 1996        2

                  Consolidated Statements of Cash Flows
                       Three Months Ended December 31, 1997 and 1996        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, 1997 and 1996        6-11


Part II       OTHER INFORMATION


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


Signatures                                                                  13


<PAGE>
<TABLE>
                                            Boole & Babbage, Inc.
                                         Consolidated Balance Sheets
                                    (Amounts in thousands except shares)
                                        (December 31, 1997 unaudited)
<CAPTION>

                                                                                December 31,      September 30,
Assets                                                                             1997               1997
                                                                                -----------        -----------
<S>                                                                               <C>                <C>
Current assets:
    Cash and cash equivalents                                                     $ 32,881           $ 33,923
    Short-term investments                                                          24,100             23,050
    Accounts receivable, net                                                        29,204             26,412
    Installment and other receivables, net                                          67,117             65,469
    Deferred tax asset                                                               6,103              6,154
    Prepaid expenses and other current assets                                        4,780              4,513
                                                                                -----------        -----------
           Total current assets                                                    164,185            159,521

Purchased and internally developed software, net                                    12,056             12,152
Equipment, furniture and leasehold improvements, net                                10,085              9,968
Long-term installment and other receivables                                         55,825             52,290
Long-term deferred tax asset                                                        10,557             10,571
Costs in excess of net assets of purchased businesses, net                             627                634
Other assets                                                                        18,575             15,008
                                                                                -----------        -----------
           Total assets                                                           $271,910           $260,144
                                                                                ===========        ===========


Liabilities and Stockholders' Equity
Current liabilities:
     Accounts payable                                                               $7,345             $8,895
     Accrued payroll expense                                                         8,729              9,840
     Other accrued liabilities                                                      29,894             27,080
     Short-term borrowings                                                             516              1,016
     Notes payable due within one year                                                 321                319
     Capital lease obligations due within one year                                     813                933
     Deferred maintenance revenue                                                   54,302             53,432
                                                                                -----------        -----------
           Total current liabilities                                               101,920            101,515

Notes payable due after one year                                                        34                 50
Capital lease obligations due after one year                                         1,942              1,795
Deferred maintenance revenue due after one year                                     40,440             38,282

Stockholders' equity:
     Preferred stock, 2,000,000 shares authorized, $.001 par value, none issued         --                 --
     Common stock, $.001 par value, authorized--45,000,000 shares; issued--
         20,033,958 (19,979,810 at September 30, 1997)                                  20                 20
     Additional paid-in capital                                                     93,771             91,970
     Retained earnings                                                              41,168             32,800
     Unrealized gain on marketable securities                                        7,199              5,691
     Foreign currency translation adjustment                                        (4,503)            (3,503)
     Less treasury stock, 1,283,787 shares (1,228,788 at
           September 30, 1997), at cost                                            (10,081)            (8,476)
                                                                                -----------        -----------
           Total stockholders' equity                                              127,574            118,502
                                                                                -----------        -----------
           Total liabilities and stockholders' equity                             $271,910           $260,144
                                                                                ===========        ===========
<FN>
See accompanying notes.
</FN>
</TABLE>


                                                        1
<PAGE>
<TABLE>
                                           Boole & Babbage, Inc.
                                     Consolidated Statements of Income
                             (Amounts in thousands, except earnings per share)
                                                (Unaudited)
<CAPTION>
                                                                      Three Months Ended
                                                                         December 31,
                                                               -------------------------------
                                                                   1997                1996
                                                               -----------         -----------
<S>                                                               <C>                 <C>
Revenue:
      Product licensing                                           $30,209             $27,278
      Maintenance fees and other                                   22,724              22,483
                                                               -----------         -----------
           Total revenue                                           52,933              49,761
                                                               -----------         -----------

Costs and expenses:
      Cost of product licensing                                     4,211               3,978
      Cost of maintenance fees and other                            5,135               6,016
      Product development                                           6,456               6,387
      Sales and marketing                                          24,391              25,126
      General and administrative                                    4,500               5,325
                                                               -----------         -----------
           Total costs and expenses                                44,693              46,832
                                                               -----------         -----------

Operating income                                                    8,240               2,929

Interest and other income, net                                      3,383               1,588
                                                               -----------         -----------
Income before provision for income taxes                           11,623               4,517

Provision for income taxes                                          3,255               2,600
                                                               -----------         -----------

Net income                                                         $8,368              $1,917
                                                               ===========         ===========

Basic earnings per share                                       $     0.45          $     0.11
                                                               ===========         ===========

Diluted earnings per share                                     $     0.41          $     0.10
                                                               ===========         ===========

Common shares outstanding                                          18,735              18,135
                                                               ===========         ===========

Common shares assuming dilution                                    20,450              19,700
                                                               ===========         ===========
<FN>
See accompanying notes.
</FN>
</TABLE>


                                              2
<PAGE>
<TABLE>
                                              Boole & Babbage, Inc.
                                      Consolidated Statements of Cash Flows
                                       (Amounts in thousands) (Unaudited)
<CAPTION>
                                                                                      Three Months Ended
                                                                                         December 31,
                                                                                   ------------------------
                                                                                      1997           1996
                                                                                   ---------      ---------
<S>                                                                                <C>            <C>
Cash flows from operating activities:
  Net income                                                                       $  8,368       $  1,917
  Adjustments to reconcile net income (loss) to net cash
      provided (used) by operating activities:
      Depreciation, amortization and write-off of capitalized software                2,341          2,458
      Gain on sale of equity securities                                                (422)           -
      Stock issued under compensatory stock plans                                        46             24
      Changes in operating assets and liabilities excluding the effect 
         of acquisitions:
         Accounts receivable and installment and other receivables                  (12,666)        (9,203)
         Prepaid expenses and other assets                                             (240)        (1,422)
         Accounts payable and accrued expenses                                          749           (274)
         Deferred maintenance revenue                                                 4,156          3,022
                                                                                   ---------      ---------
                                                                                                  
Net cash provided by (used for) operating activities                                  2,332        (3,478)
                                                                                   ---------      ---------

Cash flows from investing activities:
     Purchases of equipment, furniture and leasehold improvements                    (1,088)          (869)
     Payments for capitalized software                                               (1,070)          (938)
     Net (purchases) sales of short-term investments                                 (1,050)        (3,249)
     Investment in equity securities                                                 (2,808)           (26)
     Proceeds from sale of equity securities                                            968            -
                                                                                   ---------      ---------

Net cash used for investing activities                                              (5,048)        (5,082)
                                                                                   ---------      ---------

Cash flows from financing activities:
      Proceeds from sale of lease contracts receivable                                2,868            795
      Proceeds from issuance of common stock                                          1,754          1,729
      Treasury stock purchases                                                       (1,605)          (601)
      Borrowing under line of credit, net                                              (500)          (209)
      Payments on notes payable                                                         (14)           (48)
      Payments on capital leases                                                       (286)          (513)
                                                                                   ---------      ---------

Net cash provided by financing activities                                             2,217          1,153
                                                                                   ---------      ---------

Effect of exchange rate changes on cash                                                (543)           616
                                                                                   ---------      ---------

Net decrease in cash and cash equivalents                                            (1,042)        (6,791)

Cash and cash equivalents at beginning of period                                     33,923         37,260
                                                                                   ---------      ---------

Cash and cash equivalents at end of period                                         $ 32,881       $ 30,469
                                                                                   =========      =========

Supplemental disclosures of cash flow information:
      Cash paid during the period for:
          Interest                                                                    $335           $447
          Income taxes, net                                                           $366         $1,709

Supplemental disclosures of noncash investing and financing activities:
           A capital lease obligation of $313,000 was incurred in 1997 for the purchase of equipment.
<FN>
See accompanying notes
</FN>
</TABLE>


                                                         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, 1997.  These
     consolidated  financial statements should be read in conjunction with those
     notes.

     The  consolidated  financial  information  at December 31, 1997 and for the
     three- month  periods ended  December 31, 1997 and 1996 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.   Earnings Per Share
     In 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
     Financial  Accounting  Standards  No.  128,  "Earnings  Per  Share",  which
     replaced the  previously  reported  primary and fully diluted  earnings per
     share with basic and diluted  earnings per share.  Unlike primary  earnings
     per share,  basic  earnings  per share  excludes  any  dilutive  effects of
     options,  warrants, and convertible securities.  Diluted earnings per share
     is very  similar to the  previously  reported  fully  diluted  earnings per
     share.  All earnings per share amounts for all periods have been  presented
     to conform to the Statement 128 requirements.

       (Amounts in thousands, except           3 mos. ended Dec. 31,
        earnings per share)                    ---------------------
                                                   1997         1996
                                                   ----         ----
      Diluted:
      Common shares outstanding                  18,735       18,135
      Employee stock option plans                 1,715        1,565
                                                 ------       ------
                                                 20,450       19,700
                                                 ======       ======
      Net income                                 $8,368       $1,917
                                                 ======       ======
      Diluted earnings per share                   $.41         $.10
                                                 ======       ======

Diluted  earnings 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.


                                       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.   Recent Accounting Pronouncements
     The  company  intends  to adopt  SFAS  No.  130,  "Reporting  Comprehensive
     Income," and SFAS No. 131 "Disclosures  about Segments of an Enterprise and
     Related   Information,"   in  fiscal  1999.  Both  standards  will  require
     additional disclosure, but will not have a material effect on the Company's
     financial  position  or  results  of  operations.  SFAS  No.  130  contains
     requirements for the reporting and display of comprehensive income and will
     first be reflected in the Company's first quarter of 1999 interim financial
     statements.  Components  of  comprehensive  income for the Company  include
     items  such as net income  and  changes in the value of  available-for-sale
     securities.   SFAS  No.  131  changes  the  way  companies  report  segment
     information and requires  segments to be determined based on how management
     measures performance and makes decisions about allocating  resources.  SFAS
     No. 131 will first be reflected in the Company's 1999 Annual Report.


                                       5
<PAGE>


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

RESULTS OF OPERATIONS:

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,
1997, 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.

Statement of Position (SOP) 97-2,  "Software Revenue  Recognition" was issued in
October 1997 and addresses software revenue recognition matters primarily from a
conceptual level and does not include specific implementation  guidance. The SOP
supersedes  SOP 91-1 and is effective for  transactions  entered into for fiscal
years  beginning  after  December 15, 1997 and will therefore be adopted for the
Company's fiscal year 1999,  beginning October 1, 1998. Based on its reading and
interpretation  of SOP 97-2, the Company  believes it is currently in compliance
with the final standard.  However,  detailed implementation  guidelines for this
standard have not yet been issued.  Once issued,  such  detailed  implementation
guidance could lead to  unanticipated  changes in the Company's  current revenue
accounting  practices,  and such  changes  could be  material  to the  Company's
revenues and earnings.

As  detailed  on its web site  (boole.com),  many Boole & Babbage  products  are
already Year 2000 compliant. Most of the remaining products will be compliant by
the end of fiscal 1998 and the Company  will  ensure that all  products  will be
fully Year 2000 compliant before December 31, 1999.

For it's internal systems,  the Company has implemented  conversion  projects to
properly process transactions  relating to the year 2000 and beyond. The Company
plans to have  programming and other changes to critical  systems such as Oracle
Accounting Financial Applications completed by early 1999 in order to allow time
for  testing.  However,  there can be no  assurance  that the  systems  of other
companies on which the Company's  systems rely will be year 2000 capable or that
any failure to ensure year 2000 year  capability  by another  company  would not
have an adverse effect on the Company's systems. The Company does not expect the
cost of these  projects  to have a material  effect on the  Company's  financial
position or results of operations.

REVENUES:

The Company  derives  its  revenues  primarily  from the  licensing  of computer
software  programs,  the  sales  of  software  maintenance  services,  and  from
consulting and education  services.  The following  table shows percent of total
revenue and year-to-year  percentage  changes as reported and without the effect
of currency rate changes for the three months ended  December 31, 1997 and 1996,
respectively.

                                                         As           Without
                                  % of Revenue        Reported       Currency
                            -----------------------  -----------    -----------
                               1997        1996       Y/Y chg.       Y/Y chg.
                            ----------- -----------  -----------    -----------
Product licensing             57.1%       54.8%        10.7%          19.6%
Maintenance fees and other    42.9%       45.2%         1.1%           8.4%
                            ----------- -----------  -----------    -----------
    Total                    100.0%      100.0%         6.4%          14.5%
                            ----------- -----------  -----------    -----------


                                       6
<PAGE>


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


Product Licensing:                        As       Without
                                       Reported    Currency
                                       --------    --------
                                       Y/Y chg.    Y/Y chg.
                                       --------    --------
Product Group:
Client/Server                           72.0%       86.9%
Mainframe                               (3.1%)       4.4%
                                      ---------    --------
                                        10.7%       19.6%
                                      =========    ========
Sales Channel:
Domestic                                13.2%       13.2%
International                            9.2%       23.5%
                                      ---------    --------
                                        10.7%       19.6%
                                      =========    ========

The  Company  licenses  its  products  to  customers  for use on their  computer
systems.  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.  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.

Products:

The Company  anticipates that the Client/Server group will continue to show high
growth  rates for fiscal  1998.  However,  the  Company  competes  with  certain
companies who have greater financial and operational resources along with larger
customer bases.  This could allow those companies to bundle  competing  products
with  more  established  non-competing  products  in order  to gain a  marketing
advantage.  In  addition,  the  Company is  dependent  on the success of its new
Explorer  family  of  Windows  NT and  Web-based  products  relating  to its new
Desired-State  Management  initiative.  This initiative represents a significant
expansion of the SpaceView,  COMMAND/POST and Command MQ product lines. There is
also a potential  diversion of customers' business attention and project funding
to Year 2000 projects. Due to these factors, there can be no assurances that new
or  even  existing  products  will  achieve  significant  market  acceptance  or
competitive success and thus contribute to revenue growth.

Mainframe products include Plex products, which enable customers to handle large
groups of computer processors,  particularly the parallel processing machines by
IBM. In the mainframe  market,  industry  analysts have  projected  that systems
management  spending  will only grow at 5% per year through the year 2000.  They
also  project  that while the  majority  of large data  centers  have  adopted a
sysplex  strategy,  mid-size data centers will not broadly adopt these  parallel
processors until 1998 or later.  Thus, despite a somewhat flat mainframe market,
the Company's  product  licensing  growth has benefited by data centers adopting
this new technology.  This has also helped to increase the number of competitive
replacements   which  in  the  first  quarter  of  fiscal  1998   accounted  for
approximately 15% of licensing  revenue and occur primarily  through  multi-year
licensing  agreements which comprised  approximately  55% of licensing  revenue.
Thus,  future  growth rates could be materially  and  adversely  impacted if the
parallel processors do not gain significant market acceptance among the mid-size
data centers,  if the rate of successful  competitive  replacements slows, or if
customer  spending  shifts  away  from  traditional   mainframes  to  technology
platforms where the Company does not have significant product acceptance.


                                       7
<PAGE>


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


Sales Channels

Domestic:

Domestic licensing  comprised 38.4% and 37.5% of total product licensing for the
first quarter of fiscal 1998 and 1997,  respectively.  For growth to continue in
the  domestic  market,  the  company  is  dependent  on  continued  productivity
increases as well as the ability to generate larger size transactions, primarily
through multi-year contracts and competitive replacements.


International:

The Company's licensing from its international operations,  comprised of foreign
subsidiaries  and  marketing  agents,  increased  as a result of solid growth in
Europe,  Japan and South America despite unfavorable currency exchange rates. In
the Asia-Pacific area, the Company took a conservative  position and only booked
new revenues from its  subsidiaries  in Japan and  Australia to avoid  potential
impact from the current economic turmoil and uncertainties  regarding payment on
product  orders from the  distributors  in the other markets of this region.  In
addition to the risks described above,  since the majority of product  licensing
is derived from  international  markets,  the Company's  overall  operations and
financial  results  could  be  significantly  and  adversely  affected  by  such
international  factors  as  changes  in  currency  exchange  rates and  specific
regional or country 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 consulting and educational services,  computer services, hardware sales and
royalties  from IBM for a jointly  developed  CICS  product.  In July 1996,  the
Company  entered  into a long-term  licensing  agreement  requiring  IBM to make
royalty payments,  based upon their sales of the product,  of up to a maximum of
approximately $10 million for the period from the fourth quarter of 1996 through
the second quarter of fiscal 1999.  The Company has  recognized  $6.5 million of
revenue of which $5.4  million has been paid through  December  31, 1997.  Since
there are no minimum generated amounts,  actual royalties due to the Company may
be significantly below the maximum amount. This increase in maintenance fees and
other is mainly the result of increased  product  licensing in the previous year
combined with  relatively  high renewal rates and increased  royalties  from IBM
under the July 1996 agreement. The maintenance revenue growth rate is lower than
the licensing  growth rate  primarily as a result of fewer customer sites due to
the  consolidation  of customer data centers;  reduced  revenue  associated with
customers'  conversion to non-CPU  specific  pricing  systems such as MIPS-based
pricing;  and higher  discount  levels  offered by the Company on  multiple-year
maintenance packages.


                                       8
<PAGE>


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


The Company  anticipates that maintenance  revenues in fiscal 1998 will increase
due to the higher license revenue growth in 1997, although it will be negatively
impacted  by  reduced  revenue  associated  with  site  consolidations,  non-CPU
specific pricing and multiple-year  maintenance  package discounts.  The Company
must  continue to generate new product  licensing  revenues and also continue to
provide  high  quality   maintenance  support  and  upgrades  to  ensure  future
maintenance revenue increases.


COSTS AND EXPENSES :
<TABLE>
The following table shows percent of total revenue and  year-to-year  percentage
changes of costs and  expenses  as  reported  and without the effect of currency
rate  changes  for  the  three   months  ended   December  31,  1997  and  1996,
respectively.
<CAPTION>
                                                                  As          Without
                                      % of Revenue              Reported     Currency
                                      ------------              --------     ---------
                                         1997         1996      Y/Y chg.      Y/Y chg.
                                      ------------ ----------- ------------  ---------
<S>                                    <C>           <C>         <C>           <C>
Cost of product licensing                8.0%         8.0%         5.9%        15.2%
Cost of maintenance fees and other       9.7%        12.1%       (14.6%)       (7.7%)
Product development                     12.2%        12.8%         1.1%         2.8%
Sales and marketing                     46.1%        50.5%        (2.9%)        4.2%
General and administrative               8.5%        10.7%       (15.5%)       (9.6%)
                                      ------------ ----------- ------------  ---------
    Total                               84.5%        94.1%        (4.6%)        1.8%
                                      ------------ ----------- ------------  ---------
</TABLE>
Cost of product licensing:

Cost of product  licensing  consists  primarily of royalties paid to independent
software  authors  and  amortization  of  purchased  and  internally   developed
software.  The  increase  relates  primarily  to  higher  royalty  costs  due to
increased  third party sales. In general,  fluctuations  in the  relationship of
cost of product  licensing to licensing  revenue are caused primarily by changes
in licensing  revenue mix,  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 to provide
educational  and  consulting  services  and costs  related to  certain  computer
services.  In 1998,  the  decrease  was  primarily  due to less costs to provide
consulting   services  relating  to  a  consulting   contract  of  MAXM  Systems
Corporation,  ("MAXM").  MAXM was acquired in January 1997 and was accounted for
using  the  pooling  of  interests  method.  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:

The increase in product development in 1998 is primarily  attributable to higher
research and  development  ("R&D")  personnel  costs due to increased  headcount
offset by decreased  expenses  relating to supporting the IBM jointly  developed
CICS product.  R&D expenditures  were 17% of revenue  (excluding third party) in
1998 and 15% in 1997  while the amount of R&D  capitalized  was 14% of gross R&D
costs in both  years.  The  Company  capitalizes  certain  development  costs in
accordance with Statement of Financial Accounting Standard No. 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 expenses may fluctuate annually depending in part
upon the number and status of internal software development projects.


Sales and marketing:

The  increase  in sales  and  marketing  (without  currency  effect)  in 1998 is
primarily a result of higher  commissions  on increased  product  licensing  and
higher product marketing and international  sales operating costs. The effect of
these  increases was mitigated by eliminating  duplicate  facility and personnel
costs as a result of the MAXM acquisition


General and administrative:

General  and  administrative   expenses  decreased  in  1998  primarily  because
redundant   corporate   facility  and  personnel  costs  related  to  MAXM  were
eliminated.


Interest and other income, net:

Interest and other income  consists  principally of interest  income and expense
and gains and losses from sale of  investments,  currency or disposal of assets.
An  increase of 113% over 1997 is mainly due to higher  interest  income on more
lease contracts receivable,  currency gains in Europe in the current year versus
a loss in the prior year, and gains on sales of equity investments.


Income Taxes:

Income taxes have been provided based upon the estimated  effective tax rate for
the year of 28%. In 1997,  the  effective  tax rate was 30% exclusive of the tax
effect of operating losses of MAXM in the first quarter for which no tax benefit
is recognized

The 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 and tax credits for  increased  research  and
development.  Management  believes  future  taxable income will be sufficient to
realize the tax benefit of the net  deferred  tax asset of  approximately  $16.7
million.


                                       10
<PAGE>


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

LIQUIDITY AND CAPITAL RESOURCES:

At December 31, 1997,  the  Company's  cash,  cash  equivalents  and  short-term
investments were $56,981,000.  The Company continues to use installment  payment
plans  to  gain a  competitive  advantage  during  the  sales  process  and  had
outstanding  installment  receivables of  $129,930,000 at December 31, 1997. The
Company  periodically  sells  portions of  installments  receivables  subject to
limited recourse provisions. During 1998, the Company sold $2,868,000.

The  Company  continues  to finance  its growth  through  funds  generated  from
operations.  For the  quarter  ended  December  31,  1997 net cash  provided  by
operating  activities was $2,332,000.  Net cash used in investing  activities in
1998  was   $5,048,000,   primarily  for  internally   developed  and  purchased
capitalized  software,  acquisition  of  computers  and related  equipment,  the
purchase of equity securities,  and the net purchases of short-term investments.
Cash provided by investing  activities was due to the sale of equity securities.
Net cash provided by financing activities in 1998 was $2,217,000, primarily from
the sale of lease contracts  receivable,  the exercise of employee stock options
and stock  purchases  through the Employee Stock  Purchase  Plan.  Cash used for
financing  activities  relates to the Company's stock repurchase  program and to
debt payment.

The  Company  continues  to evaluate  business  acquisition  opportunities  that
complement  its  strategic  plans and believes  existing cash balances and funds
generated from operations will be sufficient to meet its liquidity  requirements
for the foreseeable future.


                                       11
<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 - None.


                                       12
<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, 1998                           \Paul E. Newton\
-----------------                           --------------------------    
                                            Paul E. Newton                
                                            President and Director        
                                            (Principal Executive Officer) 
                                            



February 11, 1998                           \Arthur F. Knapp, Jr.\
-----------------                           --------------------------    
                                            Arthur F. Knapp, Jr.          
                                            Senior Vice President         
                                            Chief Financial Officer       
                                            (Principal Financial Officer) 
                                            



February 11, 1998                           \Carla J. Dorow\
-----------------                           --------------------------     
                                            Carla J. Dorow                 
                                            Controller                     
                                            (Principal Accounting Officer)