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    June 30, 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                              (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___

18,643,475  shares of common stock of the Registrant were outstanding as of July
24, 1997.



<PAGE>


                              BOOLE & BABBAGE, INC.

                                      INDEX


Part I   FINANCIAL INFORMATION                                          Page No.

   Item 1.   FINANCIAL STATEMENTS
             Consolidated Balance Sheets
                  June 30, 1997 and September 30, 1996                     1

             Consolidated Statements of Operations
                  Three and Nine Months Ended June 30, 1997 and 1996       2

             Consolidated Statements of Cash Flows
                  Nine Months Ended June 30, 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 and Nine months Ended June 30, 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)
                                                      (June 30, 1997 unaudited)
<CAPTION>
                                                                                                       June 30,        September 30,
Assets                                                                                                   1997               1996
                                                                                                       ---------          ---------
<S>                                                                                                    <C>                <C>      
Current assets:                                         
    Cash and cash equivalents                                                                          $  33,548          $  37,260
    Short-term investments                                                                                22,843             24,750
    Accounts receivable, net                                                                              23,028             27,955
    Installment and other receivables, net                                                                58,656             46,221
    Deferred tax asset                                                                                     5,489              5,649
    Prepaid expenses and other current assets                                                              5,390              4,383
                                                                                                       ---------          ---------
        Total current assets                                                                             148,954            146,218

Purchased and internally developed software, net                                                          11,852             11,614
Equipment, furniture and leasehold improvements, net                                                      10,323             12,763
Long-term installment and other receivables                                                               45,689             39,141
Long-term deferred tax asset                                                                               9,433              9,472
Costs in excess of net assets of purchased businesses, net                                                   641                660
Other assets                                                                                               9,061              4,672
                                                                                                       ---------          ---------
        Total assets                                                                                   $ 235,953          $ 224,540
                                                                                                       =========          =========


Liabilities and Stockholders' Equity
Current liabilities:
     Accounts payable                                                                                  $   6,781          $   7,605
     Accrued payroll expense                                                                               9,647              7,890
     Other accrued liabilities                                                                            23,597             25,090
     Short-term borrowings                                                                                   894              3,150
     Notes payable due within one year                                                                       318                469
     Capital lease obligations due within one year                                                         1,064              1,813
     Deferred maintenance revenue                                                                         51,430             51,241
                                                                                                       ---------          ---------
        Total current liabilities                                                                         93,731             97,258

Notes payable due after one year                                                                              66                444
Capital lease obligations due after one year                                                               2,003              2,825
Deferred maintenance revenue due after one year                                                           33,973             28,949

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--
         19,813,576 (19,110,385 at September 30, 1996)                                                        20                 19
     Additional paid-in capital                                                                           86,241             81,047
     Retained earnings                                                                                    25,535             19,328
     Unrealized gain on marketable securities                                                              3,956                370
     Foreign currency translation adjustment                                                              (2,567)               704
     Less treasury stock, 1,173,788 shares (1,143,788 at
           September 30, 1996), at cost                                                                   (7,005)            (6,404)
                                                                                                       ---------          ---------
        Total stockholders' equity                                                                       106,180             95,064
                                                                                                       ---------          ---------
        Total liabilities and stockholders' equity                                                     $ 235,953          $ 224,540
                                                                                                       =========          =========

<FN>
See accompanying notes 
</FN>
</TABLE>

                                                                 1

<PAGE>

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

<CAPTION>
                                                                         Three Months Ended                    Nine Months Ended
                                                                               June 30,                            June 30,
                                                                      --------------------------          --------------------------
                                                                        1997              1996              1997              1996
                                                                      --------          --------          --------          --------
<S>                                                                   <C>               <C>               <C>               <C>     
Revenue:
      Product licensing                                               $ 26,784          $ 24,169          $ 79,119          $ 70,276
      Maintenance fees and other                                        21,972            21,426            65,849            62,021
                                                                      --------          --------          --------          --------
           Total revenue                                                48,756            45,595           144,968           132,297
                                                                      --------          --------          --------          --------

Costs and expenses:
      Cost of product licensing                                          3,676             3,863            10,966            11,698
      Cost of maintenance fees and other                                 4,495             5,968            14,711            14,315
      Product development                                                6,310             5,482            18,573            15,843
      Sales and marketing                                               23,277            22,403            70,535            67,292
      General and administrative                                         4,344             4,615            14,017            13,727
      Acquisition and nonrecurring costs                                  --                --              11,309               -- 
                                                                      --------          --------          --------          --------
           Total costs and expenses                                     42,102            42,331           140,111           122,875
                                                                      --------          --------          --------          --------

Operating income                                                         6,654             3,264             4,857             9,422

Interest and other income, net                                           2,758             1,411             6,574             3,999
                                                                      --------          --------          --------          --------
Income before provision for income taxes                                 9,412             4,675            11,431            13,421

Provision for income taxes                                               2,820             1,585             5,225             4,940
                                                                      --------          --------          --------          --------

Net income                                                            $  6,592          $  3,090          $  6,206          $  8,481
                                                                      ========          ========          ========          ========

Net income per share                                                  $   0.33          $   0.16          $   0.31          $   0.44
                                                                      ========          ========          ========          ========

Shares used in per share calculations                                   20,095            19,317            19,940            19,130
                                                                      ========          ========          ========          ========

<FN>
See accompanying notes.                                                                 
</FN>
</TABLE>

                                                                 2

<PAGE>

<TABLE>
                                                       Boole & Babbage, Inc.
                                               Consolidated Statements of Cash Flows
                                                 (Amounts in thousands) (Unaudited)

<CAPTION>
                                                                                                          Nine Months Ended June 30,
                                                                                                           ------------------------
                                                                                                             1997            1996 
                                                                                                           --------        --------
<S>                                                                                                        <C>             <C>     
Cash flows from operating activities:                                                   
  Net income                                                                                               $  6,206        $  8,481
  Adjustments to reconcile net income to net cash
      provided by operating activities:
      Depreciation, amortization and write-off of capitalized software                                        7,221           7,755
      Gain on sale of equity securities                                                                        --              (291)
      Loss on disposal of assets                                                                                479            --   
      Stock issued under compensatory stock plans                                                                54             312
      Changes in operating assets and liabilities excluding the effect of acquisitions:
         Accounts receivable and installment and other receivables                                          (19,847)        (24,613)
         Prepaid expenses and other assets                                                                   (1,967)           (731)
         Accounts payable and accrued expenses                                                                1,188           2,226
         Deferred maintenance revenue                                                                         7,598          13,394
                                                                                                           --------        --------

Net cash provided by operating activities                                                                       932           6,533
                                                                                                           --------        --------

Cash flows from investing activities:
     Purchases of equipment, furniture and leasehold improvements                                            (2,736)         (3,149)
     Payments for capitalized software                                                                       (3,664)         (2,957)
     Net (purchases) sales of short-term investments                                                          1,904          (1,606)
     Investment in equity securities                                                                           (361)           (855)
     Proceeds from sale of equity securities                                                                   --               717
                                                                                                           --------        --------
Net cash used for investing activities                                                                       (4,857)         (7,850)
                                                                                                           --------        --------

Cash flows from financing activities:
      Proceeds from sale of lease contracts receivable                                                        2,154            --   
      Proceeds from issuance of common stock                                                                  5,141           3,663
      Treasury stock purchases                                                                                 (601)         (1,169)
      Borrowing under line of credit, net                                                                    (2,256)          1,632
      Payments on notes payable                                                                                (273)           (645)
      Payments on capital leases                                                                             (1,672)         (1,576)
                                                                                                           --------        --------

Net cash provided by financing activities                                                                     2,493           1,905
                                                                                                           --------        --------

Effect of exchange rate changes on cash                                                                      (2,280)           (390)
                                                                                                           --------        --------

Net decrease in cash and cash equivalents                                                                    (3,712)            198

Cash and cash equivalents at beginning of period                                                             37,260          25,956
                                                                                                           --------        --------

Cash and cash equivalents at end of period                                                                 $ 33,548        $ 26,154
                                                                                                           ========        ========

Supplemental disclosures of cash flow information:
      Cash paid during the year for:
          Interest                                                                                         $  1,304        $    665
          Income taxes, net                                                                                $  3,457        $  3,730

<FN>
Supplemental disclosures of noncash investing and financing activities:                                                         
        A capital lease obligation of $265,000 was incurred in 1996 for the purchase of equipment.
                                                                
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, 1996.  These
     consolidated  financial statements should be read in conjunction with those
     notes.

     The consolidated  financial information at June 30, 1997 and for the three-
     and nine-month  periods  ended June 30, 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.   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.

                                 3 mos. ended Jun. 30,     9 mos. ended Jun. 30,
(Amounts in thousands, except    ---------------------     ---------------------
net income per share)              1997        1996            1997       1996
                                  -------    -------          -------    -------
Primary:                                                    
Common shares outstanding          18,600     17,808           18,340     17,596
 Employee stock option plans        1,495      1,509            1,600      1,534
                                  -------    -------          -------    -------
                                   20,095     19,317           19,940     19,130
                                  =======    =======          =======    =======
                                                            
Net income                        $ 6,592    $ 3,090          $ 6,206    $ 8,481
                                  =======    =======          =======    =======
Net income per share              $   .33    $   .16          $   .31    $   .44
                                  =======    =======          =======    =======
                                                      
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

<PAGE>


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


4.   Acquisition
     On January 16, 1997, Boole & Babbage ("Boole") acquired, subject to certain
     conditions,   all  of  the  outstanding   capital  stock  of  MAXM  Systems
     Corporation  ("MAXM"),  a privately held company, 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 Company  incurred a
     charge in the quarter ending March 31,1997 (which is included in the income
     statement line  "Acquisition  and  nonrecurring  costs") in connection with
     activities to complete this acquisition and eliminate redundant  facilities
     and personnel.  The  transaction was accounted for using the pooling method
     and the Company's  consolidated  financial statements for all prior periods
     have been restated.

     The unaudited pro forma results of operations of the combined companies for
     the years  ended  September  30, 1995 and 1996 and the three  months  ended
     December 31, 1996 are as follows:

Three Mo. Ended Dec. 31, 1996                   Boole         MAXM      Combined
                                             --------     --------      --------
     Net revenues                            $ 47,696     $  2,065      $ 49,761
     Net income (loss)                          6,047       (4,129)        1,918
     Net income (loss) per share                 0.33        (0.23)         0.10

Year Ended Sept. 30, 1996                       Boole         MAXM      Combined
                                             --------     --------      --------
     Net revenues                            $165,077     $ 15,525      $180,602
     Net income (loss)                         18,040       (6,583)       11,457
     Net income (loss) per share                 0.99        (0.39)         0.60

Year Ended Sept. 30, 1995                       Boole         MAXM      Combined
                                             --------     --------      --------
     Net revenues                            $152,244     $ 18,906      $171,150
     Net income (loss)                         13,948         (826)       13,122
     Net income (loss) per share                 0.81        (0.10)         0.71

5.   Earnings Per Share
     In  February  1997,  the  Financial   Accounting  Standards  Board  adopted
     Statement No. 128,  Earnings Per Share,  which is required to be adopted on
     December 31, 1997. At that time, the Company will be required to change the
     method  currently  used to compute  earnings  per share and to restate  all
     prior periods.  Under the new requirements for calculating primary earnings
     per share,  the dilutive  effect of stock  options  will be  excluded.  The
     impact is expected to result in an increase in primary  earnings per share.
     The impact of Statement 128 on the  calculation  of fully diluted  earnings
     per share is not expected to be material.

                                       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,
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 3 and 9 months ended June 30, 1997
and 1996  increased  over the same  period in the  prior  year by 6.9% and 9.6%,
respectively.  Without  the effect of the MAXM  acquisition  and  currency  rate
changes, total revenue increased 21.6% and 22.7%, respectively.

                                 % of Revenue             % of Revenue
                                 ------------              ------------
                              3 Mo. Ended June 30,      9 Mo. Ended June 30,
                              --------------------      --------------------
                               1997     1996   Y/Y chg   1997     1996   Y/Y chg
                              ------------------------  ------------------------
Product licensing              54.9%    53.0%   10.8%    54.6%    53.1%   12.6%
Maintenance fees and other     45.1%    47.0%    2.5%    45.4%    46.9%    6.2%
                              -----    -----     ---    -----    -----     --- 
    Total                     100.0%   100.0%    6.9%   100.0%   100.0%    9.6%
                              =====    =====     ===    =====    =====     === 


Product Licensing:

The  Company  licenses  its  products  to  customers  for use on their  computer
systems.  Product  licensing  accounted for 54.9% and 54.6% of total revenue for
the 3 and 9 months  ended June 30,  1997,  respectively,  compared  to 53.0% and
53.1% in 1996,  and  increased  by 10.8% and 12.6% for the 3 and 9 months  ended
June 30, 1997,  respectively,  compared to 1996.  Without the effect of the MAXM
acquisition  and currency rate changes,  product  licensing  increased 28.0% and
29.5% for the 3 and 9 months ended June 30, 1997, respectively.  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:

Client/Server products increased 9.7% for the quarter and decreased 6.4% for the
9 month  periods and  accounted  for 31.6% and 24.1% of  licensing.  Without the
effect of MAXM and currency  rate  changes,  client/server  licensing  increased
56.5%  and  37.2%  for  the 3 and 9  month  period,  respectively.  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 11.4% and 20.4% (19.0% and 27.4% without the effect
of  currency  rate  changes)  for  the 3 and  9  months  ended  June  30,  1997,
respectively,  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.

<TABLE>
Markets:
<CAPTION>

                           % of Product Licensing                   % of Product Licensing
                           ----------------------                   ----------------------
                             3 Mo. Ended June 30,                    9 Mo. Ended June 30,
                           ----------------------                   ----------------------
                         1997       1996        Y/Y chg         1997        1996      Y/Y chg
                     ----------- ----------- ------------    ----------- ---------- -----------
<S>                    <C>         <C>        <C>              <C>         <C>       <C>  
Domestic               37.7%       38.0%      10.0%            35.8%       31.8%      26.8%
International          62.3%       62.0%      11.3%            64.2%       68.2%       6.0%
                     ----------- ----------- ------------    ----------- ---------- -----------
    Total            100.0%       100.0%      10.8%           100.0%      100.0%      12.6%
                     =========== =========== ============    =========== ========== ===========
</TABLE>

Domestic:
Field sales grew 6.2% and 26.3% (31.7% and 47.4% without the effect of MAXM) for
3 and 9 months,  respectively,  while telesales grew 46.4% and 30.1%. For growth
to continue in this  geographic  market,  the Company is  dependent on continued
increases from both the telesales group and the field sales force.

                                       7
<PAGE>


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


International:
The Company's product licensing from its international operations,  comprised of
foreign subsidiaries and marketing agents,  increased 11.3% and 6.0% for 3 and 9
months,  respectively,  due  primarily  to strong  growth  in Japan and  Europe.
Without the effect of MAXM and  currency  exchange  rates,  growth was 25.2% and
23.0% for the 3 and 9 month  periods,  respectively.  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 consulting and educational services, computer services, hardware sales (net
of costs) and royalties from IBM for the jointly developed CICS product

Maintenance fees and other grew 2.5% and 6.2% for the quarter and  year-to-date,
respectively.  Without the effect of currency rate changes, maintenance fees and
other grew  14.4% and 15.1%.  This  increase  is mainly the result of  increased
product  licensing in the previous  year  combined  with high renewal  rates but
reduced  by higher  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

<TABLE>

COSTS AND EXPENSES (excluding acquisition and nonrecurring costs):

<CAPTION>
                                                   % of Revenue                        % of Revenue
                                              ----------------------               ----------------------
                                               3 Mo. Ended June 30,                 9 Mo. Ended June 30,
                                              ----------------------               ----------------------
                                           1997       1996      Y/Y chg         1997      1996       Y/Y chg
                                        ---------- --------- ------------    ---------- --------- ------------
<S>                                       <C>        <C>       <C>             <C>        <C>       <C>   
Cost of product licensing                 7.5%        8.5%       (4.8%)         7.6%       8.8%       (6.3%)
Cost of maintenance fees and other        9.2%       13.1%      (24.7%)        10.1%      10.8%        2.8%
Product development                      12.9%       12.0%       15.1%         12.8%      12.0%       17.2%
Sales and marketing                      47.7%       49.1%        3.9%         48.7%      50.9%        4.8%
General and administrative                8.9%       10.1%       (5.9%)         9.7%      10.4%        2.1%
                                        ---------- --------- ------------    ---------- --------- ------------
    Total                                86.2%       92.8%       (0.5%)        88.9%      92.9%        4.8%
                                        ========== ========= ============    ========== ========= ============
</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.  Cost of  product  licensing  decreased  4.8% and 6.3% for the 3 and 9
months  ended  June 30,  1997,  respectively.  Without  the  impact  of MAXM and
currency exchange rates,  cost of product licensing  increased 8.5% and 4.5% for
the 3 and 9 month  periods,  respectively.  The  increase  relates  primarily to
higher  royalty  costs due to  increased  third party  sales.  In  general,  the
relationship  of cost of product  licensing to licensing  revenue will fluctuate
due primarily to changes in 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 operating the computer
services division. Cost of maintenance fees and other decreased by 24.7% for the
quarter and increased 2.8% for the nine months ended June 30, 1997.  Without the
impact of MAXM and currency  exchange rates,  the quarter had a decrease of 3.7%
while  year-to-date  increased 16.6%. 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 was in effect  from the  second
quarter  of fiscal  1995 to the  fourth  quarter  of fiscal  1996.  In the third
quarter this was offset by lower  educational and consulting costs in Europe. In
general,  fluctuations in the relationship of cost of maintenance fees and other
to revenue are caused primarily by changes in 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 15.1% for the quarter and 17.2% for the 9
month period in 1997. Without the effect of MAXM and currency rate changes,  the
increases were 23.3% and 23.9%, respectively.  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 16% of revenue  (excluding
third party) in both 1997 and 1996 and the amount of R&D  capitalized was 16% of
gross R&D costs in both years. 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 3.9% and 4.8% for the 3 and 9 month
0eriods, respectively. Without the effect of MAXM and currency rate changes, the
increases were 22.1% and 18.8%, respectively.  The increase in 1997 is primarily
attributable  to higher agent and employee  commissions  on increased  sales and
higher sales personnel costs in Europe and Japan due to increased headcount.

General and Administrative:

General  and  administrative  expenses  decreased  by 5.9% for the  quarter  and
increased  2.1% for the 9 month period.  Without the effect of MAXM and currency
rate changes,  there was a 10.9%  increase for the quarter and a 13.9%  increase
for the nine month period.  The increase is primarily  attributable to increased
costs  relating to higher  personnel and  consulting  costs,  European  facility
costs, and performance based accruals.

Acquisition and Nonrecurring Costs:

During the second quarter of 1997, the Company had  approximately  $11.3 million
of  nonrecurring  costs which  included  $1 million of  purchased  research  and
development costs and $10.3 million of acquisition costs related to the purchase
of MAXM Systems  Corporation  on January 16, 1997 (see Note 4). The  acquisition
costs  consisted  primarily  of $4.0  million of  termination  costs  related to
reseller  agreements,  $2.8  million of employee  costs,  $1.6  million of costs
related to closing  redundant  facilities and $1.6 million of legal,  accounting
and broker fees.

                                       10


<PAGE>


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

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
year-to-date 64.4% increase over 1996 is mainly due to higher interest income as
installment  receivables increased and a $500,000 currency gain in 1997 versus a
loss of $600,000 in the prior year.

Income Taxes:

Income taxes have been provided based upon the estimated  effective tax rate for
the year. The effective tax rate for the nine months ended June 30, 1997 was 30%
exclusive  of the tax  effect of  expenses  related to the  acquisition  of MAXM
Systems  Corporation in the second  quarter and operating  losses of MAXM in the
first  quarter for which no tax  benefit is  recognized.  Acquisition  costs and
operating  losses of MAXM  increased tax expense  $1,800,000 for the nine months
ended June 30, 1997.

The   effective   tax  rate  before  the   valuation   allowance  for  MAXM  and
non-deductible  acquisition  costs  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 approximately $15 million.

LIQUIDITY AND CAPITAL RESOURCES:

The significant  sources of cash during 1997 include  proceeds from the exercise
of employee stock options of $3,419,000;  proceeds from sale of lease  contracts
receivable of $2,154,000;  stock  purchases  through the Employee Stock Purchase
Plan of  $1,722,000;  net sales of  short-term  investments  of  $1,904,000  and
$932,000 provided by operating  activities.  The significant uses of cash during
1997  include  $3,664,000  for  internally   developed   capitalized   software;
$2,736,000 for purchases of furniture, equipment and leasehold improvements; net
payments  under a line of credit of  $2,256,000;  payments on capital leases and
notes  payable of  $1,945,000;  $601,000 for the purchase of treasury  stock and
$361,000 for investment in long-term equity securities. Management believes cash
flows from  operations  and existing cash resources will be adequate to meet its
working capital 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.

                        During  the  three  months  ended  March 31,  1997,  the
                        Company filed a Current Report on Form 8-K dated January
                        16, 1997 under Item 2,  Acquisition  or  Disposition  of
                        Assets,  relating  to the  acquisition  of MAXM  Systems
                        Corporation.  During  the three  months  ended  June 30,
                        1997,  the  Company  filed  Form  8-K/A  under  Item  7,
                        Financial    Statements   and   Pro   Forma    Financial
                        Information,  which  amended Form 8-K dated  January 16,
                        1997.

                                       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.



August 8, 1997                                \Paul E. Newton\
--------------                                --------------------------
                                              Paul E. Newton
                                              President and Director
                                              (Principal Executive Officer)



August 8, 1997                                \Arthur F. Knapp, Jr.\
--------------                                --------------------------
                                              Arthur F. Knapp, Jr.
                                              Senior Vice President
                                              Chief Financial Officer
                                              (Principal Financial Officer)



August 8, 1997                                \Carla J. Dorow\
--------------                                --------------------------
                                              Carla J. Dorow
                                              Controller
                                              (Principal Accounting Officer)