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, 1998 
                               ---------------------

                                       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
                                             -----

27,778,229  shares of common  stock of the  Registrant  were  outstanding  as of
January 31, 1999.



<PAGE>



                              BOOLE & BABBAGE, INC.

                                      INDEX



Part I        FINANCIAL INFORMATION                                     Page No.

       Item 1.  FINANCIAL STATEMENTS
                Consolidated Balance Sheets
                     December 31, 1998 and September 30, 1998               1

                Consolidated Statements of Income
                     Three Months Ended December 31, 1998 and 1997          2

                Consolidated Statements of Cash Flows
                     Three Months Ended December 31, 1998 and 1997          3

                Notes to Consolidated Financial Statements                4-6


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

                     Three Months Ended December 31, 1998 and 1997       7-13


Part II       OTHER INFORMATION

         Item 6.  EXHIBITS AND REPORTS ON FORM 8-K                          14


Signatures                                                                  15


<PAGE>

<TABLE>
                                                        Boole & Babbage, Inc.
                                                     Consolidated Balance Sheets
                                                (Amounts in thousands except shares)
                                                    (December 31, 1998 unaudited)
<CAPTION>

                                                                                                     December 31,      September 30,
Assets                                                                                                   1998                1998
                                                                                                       ---------          ---------
<S>                                                                                                    <C>                <C>      
Current assets:
    Cash and cash equivalents                                                                          $  51,166          $  46,354
    Short-term investments                                                                                43,848             46,152
    Accounts receivable, net                                                                              24,921             23,213
    Installment and other receivables, net                                                                72,305             64,600
    Deferred tax asset                                                                                     8,405              8,359
    Prepaid expenses and other current assets                                                              7,401              7,136
                                                                                                       ---------          ---------
            Total current assets                                                                         208,046            195,814

Purchased and internally developed software, net                                                          13,088             12,898
Equipment, furniture and leasehold improvements, net                                                      10,831             11,225
Long-term installment and other receivables                                                               66,636             59,089
Long-term deferred tax asset                                                                              14,428             14,390
Costs in excess of net assets of purchased businesses, net                                                   601                607
Other assets                                                                                              26,319             15,903
                                                                                                       ---------          ---------
            Total assets                                                                               $ 339,949          $ 309,926
                                                                                                       =========          =========


Liabilities and Stockholders' Equity
Current liabilities:
     Accounts payable                                                                                  $   9,388          $  10,136
     Accrued payroll expense                                                                               9,902             11,625
     Other accrued liabilities                                                                            35,221             32,051
     Notes payable due within one year                                                                        34                 50
     Capital lease obligations due within one year                                                           713                791
     Deferred maintenance revenue                                                                         61,495             57,532
                                                                                                       ---------          ---------
            Total current liabilities                                                                    116,753            112,185

Capital lease obligations due after one year                                                               1,433              1,592
Deferred maintenance revenue due after one year                                                           62,660             55,596

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--
         31,034,468 (30,733,364 at September 30, 1998)                                                        31                 31
     Additional paid-in capital                                                                          105,130            102,264
     Retained earnings                                                                                    79,739             69,454
     Unrealized gain on marketable securities                                                             16,657              6,424
     Foreign currency translation adjustment                                                              (1,571)            (2,226)
     Less treasury stock, 3,305,930 shares (3,065,930 at
           September 30, 1998), at cost                                                                  (40,883)           (35,394)
                                                                                                       ---------          ---------
            Total stockholders' equity                                                                   159,103            140,553
                                                                                                       ---------          ---------
            Total liabilities and stockholders' equity                                                 $ 339,949          $ 309,926
                                                                                                       =========          =========
<FN>
See accompanying notes.
</FN>
</TABLE>
                                                          1

<PAGE>


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


                                                             Three Months Ended
                                                               December 31,
                                                           ---------------------
                                                            1998          1997
                                                           -------       -------
Revenue:
      Product licensing                                    $35,339       $30,209
      Maintenance fees and other                            25,381        22,724
                                                           -------       -------
           Total revenue                                    60,720        52,933
                                                           -------       -------

Costs and expenses:
      Cost of product licensing                              3,938         4,211
      Cost of maintenance fees and other                     6,569         5,135
      Product development                                    6,454         6,456
      Sales and marketing                                   27,102        24,391
      General and administrative                             5,639         4,500
                                                           -------       -------
           Total costs and expenses                         49,702        44,693
                                                           -------       -------

Operating income                                            11,018         8,240

Interest and other income, net                               3,267         3,383
                                                           -------       -------
Income before provision for income taxes                    14,285        11,623

Provision for income taxes                                   4,000         3,255
                                                           -------       -------

Net income                                                 $10,285       $ 8,368
                                                           =======       =======


Basic earnings per share                                   $  0.37       $  0.30
                                                           =======       =======

Diluted earnings per share                                 $  0.34       $  0.27
                                                           =======       =======


Common shares outstanding                                   27,700        28,105
                                                           =======       =======

Common shares assuming dilution                             30,415        30,675
                                                           =======       =======


See accompanying notes.

                                        2

<PAGE>

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

                                                                                                             Three Months Ended
                                                                                                                 December 31,
                                                                                                           ------------------------
                                                                                                            1998             1997
                                                                                                           --------        --------
<S>                                                                                                        <C>             <C>     
Cash flows from operating activities:
  Net income                                                                                               $ 10,285        $  8,368
  Adjustments to reconcile net income to net cash
      provided (used) by operating activities:
      Depreciation and amortization of capitalized software                                                   2,449           2,341
      Gain on sale of equity securities                                                                        (884)           (422)
      Stock issued under compensatory stock plans                                                                40              46
      Changes in operating assets and liabilities excluding the effect of acquisitions:
         Accounts receivable and installment and other receivables                                          (25,141)        (12,666)
         Prepaid expenses and other assets                                                                     (255)           (240)
         Accounts payable and accrued expenses                                                                  117             749
         Deferred maintenance revenue                                                                         9,833           4,156
                                                                                                           --------        --------

Net cash provided (used) for operating activities                                                            (3,556)          2,332
                                                                                                           --------        --------

Cash flows from investing activities:
     Purchases of equipment, furniture and leasehold improvements                                              (889)         (1,088)
     Payments for capitalized software                                                                       (1,225)         (1,070)
     Net (purchases) sales of short-term investments                                                          2,304          (1,050)
     Investment in equity securities                                                                           --            (2,808)
     Proceeds from sale of equity securities                                                                    949             968
                                                                                                           --------        --------

Net cash provided (used) by investing activities                                                              1,139          (5,048)
                                                                                                           --------        --------

Cash flows from financing activities:
      Proceeds from sale of lease contracts receivable                                                        9,329           2,868
      Proceeds from issuance of common stock                                                                  2,826           1,754
      Treasury stock purchases                                                                               (5,489)         (1,605)
      Payments under line of credit, net                                                                       --              (500)
      Payments on notes payable                                                                                 (16)            (14)
      Payments on capital leases                                                                               (237)           (286)
                                                                                                           --------        --------

Net cash provided by financing activities                                                                     6,413           2,217
                                                                                                           --------        --------

Effect of exchange rate changes on cash                                                                         816            (543)
                                                                                                           --------        --------

Net increase (decrease) in cash and cash equivalents                                                          4,812          (1,042)

Cash and cash equivalents at beginning of period                                                             46,354          33,923
                                                                                                           --------        --------

Cash and cash equivalents at end of period                                                                 $ 51,166        $ 32,881
                                                                                                           ========        ========

Supplemental  disclosures of cash flow information:
  Cash paid during the period for:
          Interest                                                                                         $    814        $    335
          Income taxes, net                                                                                $  2,091        $    366


<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, 1998. These consolidated  financial statements should be read
     in conjunction with those notes.

     The  consolidated  financial  information  at December 31, 1998 and for the
     three-month  periods  ended  December 31, 1998 and 1997 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

<TABLE>
     Basic  earnings  per  share  excludes  any  dilutive  effects  of  options,
     warrants, and convertible securities.  Diluted earnings per common share is
     computed by adding the weighted average number of common shares outstanding
     during the period to the number of  dilutive  common  shares  that would be
     issuable upon the exercise of outstanding  options using the treasury stock
     methold of computation
<CAPTION>
                                                                                Three Months Ended
     Amounts in thousands, except earnings per share                               December 31,
                                                                                 -----------------
                                                                                  1998      1997
                                                                                 -------   -------
<S>                                                                               <C>       <C>   
     Total Basic Shares
     Weighted average number of common shares outstanding during the period       27,700    28,105
                                                                                 =======   =======

     Net Income                                                                  $10,285   $ 8,368
                                                                                 =======   =======
     Net income per share                                                        $  0.37   $  0.30
                                                                                 =======   =======

     Diluted Shares
     Weighted average number of common shares outstanding during the period       27,700    28,105
     Incremental common shares attributable to exercise of outstanding options
     (assuming proceeds would be used to purchase treasury stock)                  2,715     2,570
                                                                                 -------   -------
     Total Diluted Shares                                                         30,415    30,675
                                                                                 =======   =======

     Net income                                                                  $10,285   $ 8,368
                                                                                 =======   =======
     Net income per share                                                        $  0.34   $  0.27
                                                                                 =======   =======
</TABLE>

                                       4

<PAGE>


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


3.   Comprehensive Income

     Effective  October 1, 1998,  the Company  adopted SFAS No. 130,  "Reporting
     Comprehensive  Income".  Under  SFAS  No.  130,  all  items  that  meet the
     definition  of  comprehensive  income will be  separately  reported for the
     period in which they are  recognized.  SFAS 130  establishes  standards for
     reporting  and  presenting  comprehensive  income  and  its  components  in
     consolidated  financial statements.  Comprehensive income is defined as net
     income plus the change in equity of a business  enterprise  during a period
     from transactions and other events and circumstances from nonowner sources.
     For the  three-month  period ended  December 31, 1998 and 1997, the Company
     had other comprehensive income as follows:


                                                            Three Months Ended
     Amounts in thousands                                       December 31,
                                                                ------------
                                                             1998         1997
                                                             ----         ----

     Net income                                            $10,285       $8,368
     Unrealized gain on marketable securities               10,233        1,508
     Foreign currency translation adjustment                   655       (1,000)
                                                           -------       -------
     Total comprehensive income                            $21,173       $8,876
                                                           =======       =======


4.   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.

     On November 2, 1998 the Company and BMC Software,  ("BMC"), entered into an
     Agreement and Plan of Reorganization.  The merger contemplated therein will
     be accomplished by the issuance of 0.675 shares of BMC stock for each share
     of the Company's common stock. This transaction is expected to close in the
     second  quarter in fiscal 1999 and to be accounted for using the pooling of
     interests  method.  The merger is subject to a number of customary  closing
     conditions,  including  antitrust approval and approval by the stockholders
     of the Company. See the Company's Current report on Form 8-K dated November
     10, 1998 and BMC's Form S-4 dated  November 13, 1998 for a  description  of
     the merger.

     Litigation

     Platinum Technology,  Inc., ("Platinum"),  filed a Complaint and Motion for
     Preliminary  Injunction  on Nov.  13,  1998  in the  Circuit  Court  of the
     Eighteenth  Judicial Circuit  Chancery  Division,  Dupage County,  Wheaton,
     Illinois.  The  complaint  alleged  that  the  Company  is in  breach  of a
     standstill and exclusive  agreement  with Platinum,  and that BMC Software,
     Inc.  tortiously  interfered with such alleged agreement when it negotiated
     and executed the merger agreement announced on Nov. 2, 1998.


                                       5

<PAGE>

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


     On January 25, 1999, the Circuit Court of the Eighteenth  Judicial  Circuit
     Chancery Division,  Dupage County, Wheaton, Illinois granted a motion filed
     under seal by Platinum  for leave to amend its  Complaint.  Platinum is now
     seeking  damages  after  withdrawing  its original  Motion For  Preliminary
     Injunction,  canceling  the  hearing  on that  Motion,  dropping  its claim
     against BMC Software, Inc., and abandoning its efforts to enjoin the merger
     with BMC Software.  No trial date has been set, but the Court did set April
     14th,  1999 as the date for a  hearing  on  Platinum's  motion  to  dismiss
     Boole's counterclaim against Platinum.

     Boole  continues to believe that the claims by Platinum are  misleading and
     without merit and intends to vigorously  defend itself against such claims.
     Boole also  continues  to believe  that the BMC merger  agreement is in the
     best interests of its stockholders.


5.   Recent Accounting Pronouncements

     Statement of Position (SOP) 97-2,  "Software Revenue Recognition" and (SOP)
     98-4  "Deferral of the  Effective  Date of a Provision  of (SOP)  97-2"were
     issued in October 1997 and March 1998,  respectively,  and address software
     revenue  recognition.  SOP  97-2 and SOP  98-4  supersede  SOP 91-1 and are
     effective for  transactions  entered into for fiscal years  beginning after
     December 15, 1997 and have therefore been adopted for the Company's  fiscal
     year 1999, beginning October 1, 1998.

     In March  1998,  the AICPA  issued SOP 98-1,  "Accounting  for the Costs of
     Computer  Software  Developed or Obtained for Internal  Use." This standard
     requires  that  certain  costs  related to the  development  or purchase of
     internal-use  software be  capitalized  and  amortized  over the  estimated
     useful life of the  software.  This SOP also requires that costs related to
     the preliminary project stage and the post-implementation/operations  stage
     of an internal-use  computer  software  development  project be expensed as
     incurred.  SOP 98-1 is effective for financial statements issued for fiscal
     years beginning after December 31, 1998,  which, in the case of the Company
     is October 1, 1999.  SOP 98-1 is not expected to have a material  impact on
     the Company's Consolidated Financial Statements.

     SFAS No. 131,  "Disclosures  about  Segments of an  Enterprise  and Related
     Information"  was issued in June 1997.  SFAS No. 131 requires that a public
     business enterprise report financial and descriptive  information about its
     reportable operating segments. Generally, financial information is required
     to be  reported  on  the  basis  used  internally  for  evaluating  segment
     performance and resource  allocation.  SFAS No. 131 is effective for fiscal
     years  beginning after December 31, 1997, and disclosure is not required in
     interim financial statements in the initial year of adoption.  Accordingly,
     the Company  will  reflect  SFAS No. 131  information  in its  Consolidated
     Financial  Statements for the September 30, 1999,  fiscal year. The Company
     is currently assessing the SFAS No. 131 requirements.

     The  company  intends to adopt SFAS No.  133,  "Accounting  for  Derivative
     Instruments  and for Hedging  Activities,"  in fiscal  2000.  The  standard
     supports the basic premise that all  derivatives  would be recorded at fair
     value in the balance sheet and derivatives  meeting certain  criteria could
     be  specifically  designated  as hedges.  Adoption  of the  standard is not
     expected to have a material effect on the Company's  financial  position or
     results of operations.


                                       6

<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,
1998, 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.

Year 2000

The  Company  is  currently  taking  steps to  address  Year 2000  issues in the
following three areas: (1) internal systems  (including  information  technology
such as financial and order entry systems and non-information technology systems
such as phones and  facilities);  (2) products sold by the Company;  and (3) the
readiness of third parties with whom the Company has business  relationships.  A
Year 2000 readiness plan has been implemented for world-wide operations relating
to all of these areas consisting of three phases. Phase One (inventory) consists
of  identifying  all of the  systems,  products  and  relationships  that may be
impacted by Year 2000. Phase Two (assessment)  involves  determining the current
state of Year 2000 readiness for those areas  identified in the inventory  phase
and prioritizing  areas that need to be fixed. Phase Three (action) will consist
of fixing the areas in order of that priority.  The Company currently expects to
be in  compliance  for all of the  targeted  areas by the end of the 1999 fiscal
year (September 1999).

For Boole & Babbage products, the Company is in the action phase of our plan. As
detailed  on its web  site  (boole.com),  most  of the  Company's  most  current
versions  of its  products  have  been  designed  and  tested  to be  Year  2000
compliant. Some of the Company's customers are running product versions that are
not year 2000  compliant.  The Company has been  encouraging  such  customers to
migrate to  current  product  versions.  It is  possible  that the  Company  may
experience increased expenses in addressing migration issues for such customers.
In addition,  there can be no assurances that the Company's  current products do
not  contain  undetected  errors  or  defects  associated  with  year  2000 date
functions that may result in material  costs to the Company.  Some analysts have
stated  that a  significant  amount of  litigation  will  arise out of year 2000
compliance  issues,  and the  Company is aware of a growing  number of  lawsuits
against other  software  vendors.  Because of the  unprecedented  nature of such
litigation,  it is  uncertain  whether  or to what  extent  the  Company  may be
affected by it.  Approximately  14% of the  Company's  total revenue is from the
products of one third-party vendor, New Dimension Software. As detailed on their
Web site (ndsoft.com), most products are Year 2000 compliant or will be by March
31, 1999.  Other third party vendors,  comprising less than 3% of total revenue,
have  provided  us  written  assurances  that all  their  products  will be made
compliant by the end of 1999.


                                       7

<PAGE>

The Company is currently in the assessment and action phase of the plan for both
the internal systems and third party relationships. With respect to its internal
systems,  the  Company is taking  steps to prepare its systems for the Year 2000
date change.  The Company  substantially  completed  these efforts at the end of
calendar 1998,  with extensive  testing to continue  through 1999.  Although the
Company  does not believe that it will incur any  material  costs or  experience
material  disruptions  in its business  associated  with  preparing its internal
systems for the year 2000,  there can be no assurances that the Company will not
experience serious  unanticipated  negative  consequences  and/or material costs
caused by undetected  errors or defects in the  technology  used in its internal
systems,  which are composed of third party software,  third party hardware that
contains embedded software and the Company's own software products.  The Company
uses only large, high credit quality financial  institutions,  all of which have
made representations that they are already Year 2000 compliant. The Company does
not make  significant  purchases  from any one  vendor  and  therefore  does not
believe  that any vendor  non-compliance  related to Year 2000 would  materially
disrupt operations.

While Year 2000 costs  incurred  to date have not been  material,  we will incur
additional  costs as we  complete  the  project  phases.  Based  on  preliminary
assessments  resulting from the early phases of our plan in each of the targeted
areas, we are currently unable to determine whether  additional costs to achieve
Year 2000 readiness will be material.  Additional costs incurred may include but
are not limited to: the cost of producing and  distributing  free  solutions for
products  that  are not  Year  2000  ready;  the  impact  of lost  sales  due to
distribution  of free Year 2000  ready  solutions  for  affected  products;  the
administrative costs of completing the Year 2000 project; the cost of correcting
our internal systems; and the cost of implementing necessary contingency plans.

The above discussion  regarding costs, risks and estimated  completion dates for
the Year 2000 is based on our best estimates given information that is currently
available,  and is subject to  change.  As we  continue  to  progress  with this
initiative,  we may discover  that actual  results will differ  materially  from
these estimates.

Euro Currency

The European  Union's  adoption of the Euro single  currency raises a variety of
issues  associated  with  the  Company's  European   operations.   Although  the
transition will be phased in over several years, the Euro became Europe's single
currency on January 1, 1999. The Company is assessing Euro issues related to its
product pricing, contracts, treasury operations and accounting systems. Although
the evaluation of these items is still in process, the Company believes that the
hardware  and  software   systems  it  uses  internally  will  accommodate  this
transition and any required policy or operating changes will not have a material
adverse effect on future results.

REVENUES:
<TABLE>
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 the 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 30, 1998 and
1997, respectively.
<CAPTION>
                                                     % of Revenue                           As           Without
                                                  3 mos. ended December 31,              Reported        Currency
                                             ---------------- -----------------     ----------------- --------------
                                                  1998              1997               Y/Y change       Y/Y change
                                             ---------------- -----------------     ----------------- --------------
<S>                                                   <C>               <C>                    <C>            <C>
Product licensing                                      58.2%             57.1%                 17.0%          15.5%
Maintenance fees and other                             41.8%             42.9%                 11.7%          10.0%
                                             ---------------- -----------------     ----------------- --------------
    Total                                             100.0%            100.0%                 14.7%          13.1%
                                             ---------------- -----------------     ----------------- --------------
</TABLE>


                                       8

<PAGE>

Growth Rates
Product Licensing:
                                   As                Without
                                Reported            Currency
                               Y/Y change           Y/Y change
                             ----------------    -----------------
Product Group:
Distributed                       57.1%               54.5%
Mainframe                          1.0%              ( 0.2%)
                             ----------------    -----------------
                                  17.0%               15.5%
                             ----------------    -----------------
Sales Channel:
Domestic                          19.2%               19.2%
International                     15.6%               13.2%
                             ----------------    -----------------
                                  17.0%               15.5%
                             ----------------    -----------------

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 Distributed group of products will continue to
show high growth  rates for fiscal  1999.  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 1999 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  quarter  accounted  for  approximately  8% of total
revenue  and occur  primarily  through  multi-year  licensing  agreements  which
comprised approximately 33% of total 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.


                                       9

<PAGE>

Markets

Domestic:

Domestic licensing  comprised 39.1% and 38.4% of total product licensing for the
three  months ended  December  31, 1998 and 1997.  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.  Currency  exchange  rates had minimal impact on the growth rate. In the
Asia-Pacific  area,  except for its  subsidiaries  in Japan and  Australia,  the
Company  continued its  conservative  position and only booked new revenues on a
cash basis from the  distributors  in the other  markets of this region to avoid
potential impact from the current economic turmoil and  uncertainties  regarding
payment on product orders.  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  $9.4
million of revenue of which $8.4  million  has been paid  through  December  31,
1998. Since there are no minimum generated amounts,  actual royalties due to the
Company may be below the maximum  amount.  The Company  records  royalty revenue
based upon reporting from IBM.

The  increase in  maintenance  fees and other is mainly the result of  increased
product  licensing in the previous  years  combined  with  relative high renewal
rates and higher  consulting  revenue.  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.

The Company  anticipates that  maintenance  revenue in 1999 will increase due to
the higher  license  revenue  growth in 1998,  although  it will  continue to be
negatively  impacted by reduced  revenue  associated  with site  consolidations,
non-CPU specific pricing and discounted multiple-year maintenance packages.

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.


                                       10

<PAGE>

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,  1998  and  1997,
respectively.
<CAPTION>

                                                      % of Revenue                       As             Without
                                                 3 mos. ended December 31,             Reported         Currency
                                             ---------------- -----------------    ----------------- ----------------
                                                  1998              1997              Y/Y change       Y/Y change
                                             ---------------- -----------------    ----------------- ----------------
<S>                                                    <C>               <C>                  <C>              <C>   
Cost of product licensing                               6.5%              8.0%                (6.5%)           (8.7%)
Cost of maintenance fees and other                     10.8%              9.7%                27.9%            25.6%
Product development                                    10.6%             12.2%                 0.0%             0.2%
Sales and marketing                                    44.6%             46.1%                11.1%             9.3%
General and administrative                              9.3%              8.5%                25.3%            23.6%
                                             ---------------- -----------------    ----------------- ----------------
    Total                                              81.8%             84.5%                11.2%             9.6%
                                             ---------------- -----------------    ----------------- ----------------
</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 decrease relates  primarily to a royalty accrual for a terminated
vendor in  Europe  in the first  quarter  of the  previous  year  which has been
partially offset in the current quarter by 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.  The increase is primarily  due to increased  support costs and higher
costs to provide  consulting and educational  services,  and to a lesser extent,
higher royalty costs,  higher data center costs and increased cost of sales.  In
general,  fluctuations in the relationship of cost of maintenance fees and other
to  revenue  are  caused  primarily  by  changes  in  maintenance  revenue  mix,
educational and consulting revenue, maintenance support, royalty agreements, and
amortization of capitalized software

Product development:

Product  development costs were flat in 1999, as the reduction in costs from the
shut down of the Oslo facilities was offset by increased  personnel costs in the
United States. 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.
R&D  expenditures  were 15% of  revenue  (excluding  third  party) for the three
months in 1999 and 17% in 1998 while the amount of R&D  capitalized  was 17% and
14% of gross  R&D  costs in 1999 and  1998,  respectively.  Product  development
expenses may fluctuate  annually depending in part upon the number and status of
internal software development projects.


                                       11

<PAGE>

Sales and marketing:

The increase in sales and  marketing  for the three months is primarily a result
of higher  commissions on increased  product  licensing in Europe and the United
States,  which was  partially  offset by a  decrease  in agent  commissions.  In
addition,  personnel costs increased in Europe and the United States as a result
of higher head count.

General and administrative:

General and  administrative  expenses  increased due to higher  personnel costs,
consulting costs, professional fees and perfomanced based accruals.

Interest and other income, net:

Interest and other income consists principally of interest income or expense and
gains and losses from sales of  investments,  currency  hedging and  disposal of
assets.  The decrease of 3% is due to intra-Europe  currency  exchange losses in
1999 versus a gain in 1998,  partially offset by higher gains on sales of equity
investments.

Income Taxes:

Income taxes have been provided  based upon the estimated  effective tax rate of
28% for 1999 and 1998. 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 $22.8 million.


Quantitative and Qualitative Disclosure about Market Risk:

Interest Rate Risk:

The  Company's  exposure to market risk for  changes in  interest  rates  relate
primarily to the Company's  short-term  investment  portfolio and long-term debt
obligations.  The Company does not use derivative  financial  instruments in its
investment  portfolio.  The  Company  places its  investments  with high  credit
quality issuers and, by policy,  limits the amount of credit exposure to any one
issuer.  The  Company is averse to  principal  loss and  ensures  the safety and
preservation  of its invested funds by limiting  default risk,  market risk, and
reinvestment  risk. The Company  mitigates default risk by investing in only the
highest credit quality securities and by constantly positioning its portfolio to
respond  appropriately  to a  significant  reduction  in a credit  rating of any
investment  issuer  or  guarantor.   The  portfolio   includes  only  marketable
securities  with  active   secondary  or  resale  markets  to  ensure  portfolio
liquidity.  All short-term investments mature in fiscal 1999. The Company has no
cash flow exposure due to rate changes for its capital lease obligations.

Foreign Exchange Risk:

The Company has a hedging strategy to attempt to minimize the short-term  impact
of  foreign  currency   fluctuations  on  its  net  asset  position  in  foreign
currencies.  The gains and losses on these  contracts  are netted with gains and
losses on the  revaluation  of the net asset position and are included in income
in the period in which the exchange rates change.  The foreign  currency forward
contracts  have a term of ninety days or less and settle  immediately  after the
end of the fiscal year.  The contracts are  marked-to-market  and the fair value
upon settlement  approximates  the carrying value. It is the Company's policy to
hedge approximately 75% to 100% of the net asset position.


                                       12

<PAGE>

Beginning the first quarter of fiscal 1998, the Company implemented a program of
purchasing  foreign currency option contracts as an economic hedge for a portion
of the net revenue of the Company's  foreign  subsidiaries.  The premium cost of
the  options is  expensed  in the period in which they are  purchased.  Realized
option  gains are  recorded  as income in the  period in which the  options  are
exercised. Fair values are based upon quoted prices in an active market.


Liquidity and capital resources:

At December 31, 1998,  the  Company's  cash,  cash  equivalents  and  short-term
investments were $95,014,000.  The Company continues to use installment  payment
plans to gain a  competitive  advantage  during the sales  process and had gross
outstanding  installment  receivables of  $138,941,000 at December 31, 1998. The
Company  periodically  sells  portions of  installments  receivables  subject to
limited recourse provisions.  During the first three months of 1999, the Company
sold $9,329,000 of installment receivables.

For the  three  months  ended  December  31,  1998  net cash  used by  operating
activities was $3,556,000. Net cash provided by investing activities in 1999 was
$1,139,000,  primarily from the sale of equity securities and net sales of short
term  investments,  offset by cash used for  internally  developed and purchased
capitalized  software and  acquisition of computers and related  equipment.  Net
cash provided by financing activities in 1999 was $6,413,000, primarily from the
sale of lease contracts  receivable,  the exercise of employee stock options and
stock purchases through the Employee Stock Purchase Plan offset by cash used for
the Company's stock repurchase program and debt payment.

In July 1997, a share  repurchase plan was adopted which  authorized the Company
to acquire  750,000  shares of its common stock.  The Company's  previous  stock
repurchase plan was rescinded in accordance with pooling of interest  accounting
in connection with the MAXM acquisition. In August 1998, an additional 1,000,000
shares were approved for repurchase.  Total shares  repurchased  under this plan
prior  to  fiscal  1999  were  1,350,500  with an  aggregate  purchase  price of
$28,991,000.  In fiscal 1999,  240,000 shares were repurchased with an aggregate
purchase  price of  $5,489,000.  The Board of  Directors  rescinded  the plan on
October 30, 1998 in accordance with pooling of interest accounting in connection
with BMC's acquisition of the Company.

The Company evaluates  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.


                                       13

<PAGE>



BOOLE & BABBAGE, INC.

                                    PART II. OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K

        (a) Exhibits

                   The following exhibit is filed herewith.

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

                     27                Financial Data Schedule

        (b) Reports on Form 8-K

            During the three  months ended December 31, 1998, the Company filed:


         1. Current  Report on Form 8-K dated  November  10,  1998 under Item 5,
            Other Events,  relating to the  Agreement and Plan of  Reorganiation
            with BMC Software.

         2. Current  Report on Form 8-K dated  November  18,  1998 under Item 5,
            Other Events,  relating to a complaint  filed against the Company by
            Platinum Technology, Inc.


                                       14

<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, 1999                               \Paul E. Newton\
                                                --------------------------
                                                Paul E. Newton
                                                President and Director
                                                (Principal Executive Officer)



February 11, 1999                               \Arthur F. Knapp, Jr.\
                                                --------------------------
                                                Arthur F. Knapp, Jr.
                                                Senior Vice President
                                                Chief Financial Officer
                                                (Principal Financial Officer)



February 11, 1999                               \Carla J. Dorow\
                                                --------------------------
                                                Carla J. Dorow
                                                Controller
                                                (Principal Accounting Officer)